MANUFACTURING AND THE WELSH ECONOMY

To the surprise of many, manufacturing continues to not only be an important sector within Wales, but is one of the few that is growing within a relatively flat recovery following the worse economic downturn since the 1920s.

Indeed, manufacturing still accounts for 18 per cent of the Welsh economy, as compared to 11 per cent of the UK economy.

More relevantly, the manufacturing sector has grown by 7 per cent between 2009 and 2010, mainly on the back of increased exporting activity. This is twice the growth rate for the rest of the Welsh economy over the same period.

The other good news is that this growth in output is being accompanied by a growth in jobs.

For example, the latest Labour Force Survey figures had shown that the number of manufacturing jobs in Wales had reached 153,000. This represented an increase of 14 per cent over two years as compared to a 2 per cent rise for the rest of the UK.

But it is not only in Wales where we have seen a revival in a sector that had been largely written off during the last decade by many economic commentators and following the 2008 global economic crisis, there has been a re-assessment by developed nations around the World as to the importance of manufacturing within their economies.

In the USA, there has been renewed interest in manufacturing because of its broader effects on the economy and innovation. For example, the President’s Council of Advisors on Science and Technology published a report on “Ensuring American Leadership in Advanced Manufacturing”. This emphasised the importance of developing a strong innovation policy to support advanced manufacturing.

This would develop tailored incentives and through improved education and training of the workforce to use and develop advanced technologies, support new technologies that would form the basis of new industries; and establish shared infrastructure facilities that could be accessed by small and medium sized firms for widespread benefit across industries.

In Europe, there has also been a growing appreciation of the importance of advanced manufacturing to both individual nations and the continent as whole.

For example, it is estimated that manufacturing accounts for 20 per cent of all direct jobs (and 40 per cent of indirect jobs) as well as the generator of two thirds of all R&D investment.

The European Commission has recognised this role through developing specific programmes, such as ‘Factories of the Future’, which is a partnership with the manufacturing sector that aims to strengthen the European industrial base, create sustainable industry and secure well paid manufacturing jobs in Europe.

Yet, despite this increased focus by policymakers on supporting manufacturing, there remain challenges considerable to not only the development of manufacturing in Wales but also its survival.

For example, whilst off shoring of lower value added activities to emerging economies is continuing, the same emerging economies are also moving up the value chain to compete directly in high value industries. This poses a direct threat to those companies that originally moved to Wales because of lower labour costs.

Despite this threat, there are, nevertheless, opportunities for Welsh manufacturers in utilising innovation to develop new markets based on new technologies, especially though integrating services into their business models. There is also enormous potential to further expand manufacturing within a range of industries in which the economy has specific strengths, including aerospace and automotive products, food and drink processing, optoelectronics, defence and medical technologies.

To do this successfully, not only will Wales have to continue with the attraction of foreign direct investment, but will have to focus specifically on growing the indigenous manufacturing sector which has been largely neglected during the last two decades.

The Welsh Government’s sector panel for Advanced Materials and Manufacturing has certainly helped to create a focus within the heart of policymaking for driving forward the case for the manufacturing industry.

But there is certainly more that could be done to support the sector, especially in linking directly with other policies in science and innovation currently being developed in Wales and, more importantly, with strategic priorities for the next round of European Structural funding.

In fact, I would like to see manufacturing not only identified as one of the key sectors for the Welsh economy within such a strategy, but that the financial resources are actually put into place to ensure that it remains so.

The recent revival of manufacturing in Wales is something that all of us should welcome not only in terms of the number of jobs, but for high quality employment, innovative products and processes, export potential and a route for many less academically qualified young people into excellent careers through apprenticeships.

The role for politicians and policymakers, both at the UK and Welsh Government levels, is to ensure that this revival is not a ‘flash in the pan’ but is one that will make sustainable long-term contribution to the Welsh economy.

2013 AND THE WELSH ECONOMY

As 2012 draws to a close, many in the local business community will be hoping that the next twelve months will see an upturn in the fortunes of the economy not only here in Wales, but globally.

Whilst it is difficult to predict what will happen, that doesn’t mean that many have not tried to examine the major trends that will be affecting the business world in 2013.

For example, the technology company Ericsson has predicted that cloud computing – where hardware and software is delivered over the internet rather than from your own computer - will continue to develop as one of the most dynamic emerging industries, particularly in the supply of consumer-focused services. 

Already, it is estimated that 50 per cent of tablet users and 40 per cent of mobile phone users are already subscribing to such services and the number of those using cloud computing is expected to double to 625 million users in 2013. This will ensure that it becomes an important part of the way we manage data across all our devices and should be an area where there should be a focus by the Welsh Government in supporting new high growth businesses to develop.

Another important growth sector within the computing world will be the continuing rise of big data. According to analysts, there will be countless opportunities for the creation of new businesses to crunch the massive amount of information being generated every day by companies which is simply too big to store and analyse in house. Wales already has a distinct advantage in this area through its £40million High Performance Computing project, although the challenge will be to ensure that this initiative is fully exploited not just as an academic tool but as a driver of this important new industry.

Whilst 2013 should see the development of new sectors in the economy, it should also experience the revival of an industry most of us thought was dead and buried. In the last few years, many have been predicting the death of manufacturing in the developed world. However, 2012 has seen a change in its fortunes that is likely to continue in the next year, especially in the USA. With increases in the price of labour in the developing world, higher shipping costs and a growing awareness by consumers of the importance of buying their economy’s own products, the American economy is likely to see more decisions, like the one Apple made last month, to repatriate its manufacturing operations from countries such as China.

 The question, of course, is whether European companies will follow this trend. Certainly, with manufacturing forming a key part of the Welsh economy, it is one that policymakers should be observing closely, especially as trendsetting companies such as Hiut Denim in Cardigan are using the slogan “Our town is making jeans again” to build brand awareness of the benefits of local high quality production.

Another major trend for the revival of manufacturing has been the tumbling costs of 3-D printers, which enable you to create solid, physical objects in your small business or, increasingly, in your home. Again, I would hope that Welsh businesses will not ignore this transformational technology as it is likely to be one which will have an effect on our daily lives in a wide range of industries and sectors.

During 2012, one of the key issues facing small businesses has been access to funding, especially from high street banks. As a result, there has been a growth in creative and alternative sources of funding, such as crowdfunding where capital is raised in small amounts from a large group of people using the internet and social media.

With the number of people starting their own businesses continuing to grow next year, I will expect that alternative sources of funding from such ventures will continue to grow and become and important part of the entrepreneurial ecosystem here in Wales.

One of the key industries identified as important by the Welsh Government is life sciences with £100million in funding earmarked for the sector. However, it is predicted that the main trend for next year will not be in the development of new drugs but in how digital technology can help deliver health solutions remotely.

According to industry observers, the digital health-technology market will be worth £4billion by 2015, with telehealth devices being produced that will enable doctors and nurses to monitor outpatient health in the patients’ homes remotely, thereby avoiding non-critical and costly re-admissions to hospitals. This is in addition to the 13,000 healthcare apps available to members of the public through Android and Apple devices. With the NHS in Wales accounting for two fifths of the entire government budget, investment into this emerging industry will not only create new opportunities for entrepreneurs in the sector, but could also help to reduce costs when public sector finances are stretched.

Therefore, whilst the economic situation still seems fragile to many, there are, nevertheless, opportunities for Welsh businesses during 2013. Let us hope that, with the coming of a new year Wales will be at the forefront of many of these opportunities and that our entrepreneurs will take full advantage of these trends to create wealth and jobs in our economy.

Blwyddyn Newydd Dda, Happy New Year!

A NEW DAWN FOR WELSH MANUFACTURING?

WESTERN MAIL ARTICLE DEC 23RD 2011

Over the last year, the manufacturing sector, ignored for so long by politicians, has now become a favoured industry again.

With the UK Government partially pinning its hopes on an export led recovery, policymakers are looking to refocus their efforts on manufacturers, especially those in high technology sectors. In fact, whilst manufacturing only accounts for 10 per cent of the UK economy, it generated some £205bn in exported goods in 2009, representing approximately 53 per cent of total UK export by value.

This refocusing on the manufacturing sector could be particularly good news for Wales, especially as the industry is mainly located outside the south east of England and any growth in the sector will have a disproportionate effect on the less prosperous parts of the UK, such as the Welsh economy.

As the First Minister said recently, “Manufacturing is vital to the economy in Wales and should be considered at least as important as financial services at a UK level.” This echoes an earlier call by the innovator Sir James Dyson, who noted in a report for the Conservative Party that it was critical for the UK economy to rebalance itself away from financial services and property But successive governments in both Westminster and Cardiff Bay have hardly covered themselves in glory when it comes to developing the manufacturing sector here in Wales. Let’s take, for example, the relative contribution of manufacturing to the UK economy since 1997.

An analysis of the latest GVA (Gross Value-Added) data on the sectors of the UK economy shows that manufacturing accounted for 25 per cent of the Welsh economy in 1997 but by 2009, this has plunged to only 15 per cent of the economy. To put this into context, the contribution of public sector services had increased from 22 per cent to 27 per cent over the same period. In absolute terms, the cash contribution of manufacturing to the Welsh economy had fallen from £7.1 billion in 1997 to £6.7 billion in 2009. This in itself, is not surprising, given that low level manufacturing operations have been switched from Wales to cheaper countries overseas, most notably in parts of Central and Eastern Europe. However, it does demonstrate the lack of any strategy to support the development of knowledge-intensive products in Wales and, more relevantly, the service provision around such products, all of which add far higher value to the economy.

In this context, it is also worth comparing the relative fall and rise of employment in manufacturing and the public sector since 2001. The data shows that the numbers employed in manufacturing has declined by 26 per cent (a fall of 55,000 jobs). In contrast, the numbers employed in the public sector has increased by 57,000 over the same period. Nevertheless, there remains real potential within the manufacturing sector in Wales that can be built upon, from global giants such as Airbus, Toyota, Sony and Tata to thousands of small companies producing specialist goods across the nation.

And the new advanced manufacturing and materials sector panel set up by the Welsh Government has made its intentions clear to develop an approach that embraces globalisation, encourages R and D in innovative products and processes, matching education provision to meet the demands of the 21st century manufacturing workplace, developing new finance packages for growth and building capacity by targeting investment in a sustainable business environment.

However, the Welsh Government cannot and should not do this in isolation. For example, much of the real value added support and expertise for innovation rests in national non-devolved bodies such as the Technology Strategy Board and NESTA whilst the vast majority of R and D funding for universities operating in fields relevant to manufacturing is still controlled centrally by the UK Research Councils. There is also billions of pounds worth of funding support for exporters available through UK Export Finance whilst UKTI, the UK Government’s trade arm, can help develop international links through its global reach in embassies and consulates throughout the World.

Given this, could 2012 herald a new dawn for manufacturing in Wales? There is no reason why this should not happen, especially if our businesses have the right management, the right products and the right skills in place and, more importantly, the appropriate support is provided by governments in Wales and Westminster.