THE PERFORMANCE OF THE WELSH ECONOMY


In December 2016, the annual Gross Value-Added (GVA) statistics were released for the UK regions.  An indicator of economic growth, GVA is a measure of the increase in the value of the economy due to the production of goods and services. It is measured at current basic prices that includes the effect of inflation but excludes taxes (such as VAT) on products.

Not surprisingly perhaps, the headline highlighted yet again by both the press and politicians was that Wales had the lowest GVA/head figures of any of the UK regions in 2015 at £18,002. In contrast, London was nearly two and a half times higher at £43,629.

However, very few economic commentators seem to have noticed that since the recession of 2008, Wales has shown the third best growth in GVA/head after London and the South East of England, the two most prosperous parts of the UK. In fact, the Welsh economy measured in terms of GVA/head had grown by 12.9 per cent between 2008 and 2015 as compared to 11.9 per cent for the UK as a whole. Northern Ireland had the lowest increase in economic activity of any UK region at only 3.3 per cent, which suggests that, at current rates of growth, it should be overtaken by Wales in the UK prosperity league table by 2018. 


But how has the economy grown across Wales over the last eight years? Certainly, it has not been geographically even with Flintshire and Wrexham (23.6 per cent), Central South Valleys (21.0 per cent) and Powys (19.4 per cent) experiencing the biggest expansion in GVA/head since 2008.

In contrast, the lowest growth since the recession has been experienced by the most prosperous parts of Wales, namely Cardiff and the Vale of Glamorgan (4.6 per cent) and Newport and Monmouthshire (4.7 per cent) which seems to burst the popular myth that growth in Wales is focused around the capital city and surrounding areas. In fact, as these areas account for 29 per cent of the Welsh economy, it doesn’t take a genius to work out that any uplift in their performance, even to the current Welsh average, could have a significant effect on economic prosperity in the future.


In terms of the key sectors in the economy, manufacturing remains a critical industry and has shown a remarkable renaissance. Whilst it had declined to 14.5 per cent of the Welsh economy in 2008 - the lowest level recorded in modern times - it has since grown to account for 16 per cent of the economy of Wales in 2015.


In fact, during the period 2008-2015, it has expanded by 27.4 per cent, accounting for a quarter of all Welsh economic growth over this period.


In terms of a comparison with UK manufacturing, Wales has the third best performance after both the East and West Midlands with growth being double for the overall UK sector.

And with continuing investments by companies such as TVR and Aston Martin into Wales and (hopefully) stability around the Tata steel plant in Port Talbot, it should continue to develop further over the next few years.

Whilst financial and insurance activities are perceived as a major potential contributor to future prosperity by the Welsh Government, it is somewhat disappointing that the sector has only grown by 1 per cent since 2008 and makes up only 4 per cent of the Welsh economy.  Even in Cardiff where an enterprise zone was established to attract more firms to the city, growth has only been 10 per cent since 2008, lower than that for the overall Welsh economy.


The Welsh tourism sector - which is largely made up of accommodation and food service activities - has grown by 24.4 per cent and whilst this is a faster expansion than the Welsh economy as a whole, it is considerably less than the growth for the UK in this sector (36.3 per cent) and is less than half of the best performing region namely the South West of England (53.3 per cent).


In terms of the public sector contribution to the Welsh economy, there remains the impression that there is an over-dependence on areas such as health, education and public administration. However, the GVA statistics show that the contribution of the public sector in Wales since 2008 has grown by only 14.7 per cent as compared to 16.3 per cent for the UK as a whole. Indeed, London has seen the largest public sector growth of 26.8 per cent.


Therefore, whilst the latest GVA statistics for Wales still show us at the bottom of the prosperity league table, there is cause for optimism for the future especially in terms of the growth of manufacturing during the last few years. This should give all of us involved in the Welsh business community some cause for optimism for 2017 and that our economy will continue to perform well in the face of some considerable challenges ahead.

THE PERFORMANCE OF THE WELSH ECONOMY


In December 2016, the annual Gross Value-Added (GVA) statistics were released for the UK regions.  An indicator of economic growth, GVA is a measure of the increase in the value of the economy due to the production of goods and services. It is measured at current basic prices that includes the effect of inflation but excludes taxes (such as VAT) on products.

Not surprisingly perhaps, the headline highlighted yet again by both the press and politicians was that Wales had the lowest GVA/head figures of any of the UK regions in 2015 at £18,002. In contrast, London was nearly two and a half times higher at £43,629.

However, very few economic commentators seem to have noticed that since the recession of 2008, Wales has shown the third best growth in GVA/head after London and the South East of England, the two most prosperous parts of the UK. In fact, the Welsh economy measured in terms of GVA/head had grown by 12.9 per cent between 2008 and 2015 as compared to 11.9 per cent for the UK as a whole. Northern Ireland had the lowest increase in economic activity of any UK region at only 3.3 per cent, which suggests that, at current rates of growth, it should be overtaken by Wales in the UK prosperity league table by 2018. 


But how has the economy grown across Wales over the last eight years? Certainly, it has not been geographically even with Flintshire and Wrexham (23.6 per cent), Central South Valleys (21.0 per cent) and Powys (19.4 per cent) experiencing the biggest expansion in GVA/head since 2008.

In contrast, the lowest growth since the recession has been experienced by the most prosperous parts of Wales, namely Cardiff and the Vale of Glamorgan (4.6 per cent) and Newport and Monmouthshire (4.7 per cent) which seems to burst the popular myth that growth in Wales is focused around the capital city and surrounding areas. In fact, as these areas account for 29 per cent of the Welsh economy, it doesn’t take a genius to work out that any uplift in their performance, even to the current Welsh average, could have a significant effect on economic prosperity in the future.


In terms of the key sectors in the economy, manufacturing remains a critical industry and has shown a remarkable renaissance. Whilst it had declined to 14.5 per cent of the Welsh economy in 2008 - the lowest level recorded in modern times - it has since grown to account for 16 per cent of the economy of Wales in 2015.


In fact, during the period 2008-2015, it has expanded by 27.4 per cent, accounting for a quarter of all Welsh economic growth over this period.


In terms of a comparison with UK manufacturing, Wales has the third best performance after both the East and West Midlands with growth being double for the overall UK sector.

And with continuing investments by companies such as TVR and Aston Martin into Wales and (hopefully) stability around the Tata steel plant in Port Talbot, it should continue to develop further over the next few years.

Whilst financial and insurance activities are perceived as a major potential contributor to future prosperity by the Welsh Government, it is somewhat disappointing that the sector has only grown by 1 per cent since 2008 and makes up only 4 per cent of the Welsh economy.  Even in Cardiff where an enterprise zone was established to attract more firms to the city, growth has only been 10 per cent since 2008, lower than that for the overall Welsh economy.


The Welsh tourism sector - which is largely made up of accommodation and food service activities - has grown by 24.4 per cent and whilst this is a faster expansion than the Welsh economy as a whole, it is considerably less than the growth for the UK in this sector (36.3 per cent) and is less than half of the best performing region namely the South West of England (53.3 per cent).


In terms of the public sector contribution to the Welsh economy, there remains the impression that there is an over-dependence on areas such as health, education and public administration. However, the GVA statistics show that the contribution of the public sector in Wales since 2008 has grown by only 14.7 per cent as compared to 16.3 per cent for the UK as a whole. Indeed, London has seen the largest public sector growth of 26.8 per cent.


Therefore, whilst the latest GVA statistics for Wales still show us at the bottom of the prosperity league table, there is cause for optimism for the future especially in terms of the growth of manufacturing during the last few years. This should give all of us involved in the Welsh business community some cause for optimism for 2017 and that our economy will continue to perform well in the face of some considerable challenges ahead.

THE PERFORMANCE OF THE WELSH ECONOMY


In December 2016, the annual Gross Value-Added (GVA) statistics were released for the UK regions.  An indicator of economic growth, GVA is a measure of the increase in the value of the economy due to the production of goods and services. It is measured at current basic prices that includes the effect of inflation but excludes taxes (such as VAT) on products.

Not surprisingly perhaps, the headline highlighted yet again by both the press and politicians was that Wales had the lowest GVA/head figures of any of the UK regions in 2015 at £18,002. In contrast, London was nearly two and a half times higher at £43,629.

However, very few economic commentators seem to have noticed that since the recession of 2008, Wales has shown the third best growth in GVA/head after London and the South East of England, the two most prosperous parts of the UK. In fact, the Welsh economy measured in terms of GVA/head had grown by 12.9 per cent between 2008 and 2015 as compared to 11.9 per cent for the UK as a whole. Northern Ireland had the lowest increase in economic activity of any UK region at only 3.3 per cent, which suggests that, at current rates of growth, it should be overtaken by Wales in the UK prosperity league table by 2018. 


But how has the economy grown across Wales over the last eight years? Certainly, it has not been geographically even with Flintshire and Wrexham (23.6 per cent), Central South Valleys (21.0 per cent) and Powys (19.4 per cent) experiencing the biggest expansion in GVA/head since 2008.

In contrast, the lowest growth since the recession has been experienced by the most prosperous parts of Wales, namely Cardiff and the Vale of Glamorgan (4.6 per cent) and Newport and Monmouthshire (4.7 per cent) which seems to burst the popular myth that growth in Wales is focused around the capital city and surrounding areas. In fact, as these areas account for 29 per cent of the Welsh economy, it doesn’t take a genius to work out that any uplift in their performance, even to the current Welsh average, could have a significant effect on economic prosperity in the future.


In terms of the key sectors in the economy, manufacturing remains a critical industry and has shown a remarkable renaissance. Whilst it had declined to 14.5 per cent of the Welsh economy in 2008 - the lowest level recorded in modern times - it has since grown to account for 16 per cent of the economy of Wales in 2015.


In fact, during the period 2008-2015, it has expanded by 27.4 per cent, accounting for a quarter of all Welsh economic growth over this period.


In terms of a comparison with UK manufacturing, Wales has the third best performance after both the East and West Midlands with growth being double for the overall UK sector.

And with continuing investments by companies such as TVR and Aston Martin into Wales and (hopefully) stability around the Tata steel plant in Port Talbot, it should continue to develop further over the next few years.

Whilst financial and insurance activities are perceived as a major potential contributor to future prosperity by the Welsh Government, it is somewhat disappointing that the sector has only grown by 1 per cent since 2008 and makes up only 4 per cent of the Welsh economy.  Even in Cardiff where an enterprise zone was established to attract more firms to the city, growth has only been 10 per cent since 2008, lower than that for the overall Welsh economy.


The Welsh tourism sector - which is largely made up of accommodation and food service activities - has grown by 24.4 per cent and whilst this is a faster expansion than the Welsh economy as a whole, it is considerably less than the growth for the UK in this sector (36.3 per cent) and is less than half of the best performing region namely the South West of England (53.3 per cent).


In terms of the public sector contribution to the Welsh economy, there remains the impression that there is an over-dependence on areas such as health, education and public administration. However, the GVA statistics show that the contribution of the public sector in Wales since 2008 has grown by only 14.7 per cent as compared to 16.3 per cent for the UK as a whole. Indeed, London has seen the largest public sector growth of 26.8 per cent.


Therefore, whilst the latest GVA statistics for Wales still show us at the bottom of the prosperity league table, there is cause for optimism for the future especially in terms of the growth of manufacturing during the last few years. This should give all of us involved in the Welsh business community some cause for optimism for 2017 and that our economy will continue to perform well in the face of some considerable challenges ahead.

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THE IMPORTANCE OF BUSINESS ANGELS TO THE WELSH ECONOMY

Research has shown that by far the most significant source of equity capital for high growth potential businesses are individual informal investors (or business angels).

These are individuals who provide support for the formal venture capital sector by seeking out new entrepreneurs and nurturing them up to be investment-ready, thereby raising the number of start-ups and increasing the deal flow for venture capital companies.

In this respect, business angels are widely recognized to play a key role in the first round of equity capital of ‘the funding escalator’ prior to entry by venture capital for a small proportion of companies.

Indeed, contrary to popular myths about entrepreneurial finance, the vast majority of successful high growth potential businesses taking equity finance do not receive venture capital funding even in the most developed capital markets such as the USA.

During the last few years, the UK has benefited from a number of policies that have provided incentives to overcome these issues at a national level, principally through the provision of substantial tax incentives through schemes such as the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS).

Simply put, the former provides tax relief to business investors of 30 per cent for an investment up to £1 million whilst the latter provides 50 per cent tax relief on investments up to £100,000.
Data on EIS and SEIS have become proxies for business angel activity across the UK. However, given their importance in supporting growing firms, the latest data from HMRC on EIS/SEIS activity makes grim reading for Welsh policymakers.

It shows that over the period 2012-15, there has only been a 9 per cent increase in the amount of EIS funding to businesses in Wales, as compared to a 76 per cent increase across the UK. Scotland - with only 50 per cent more firms than Wales – has attracted 250 per cent more EIS investments over this period.



Whilst Wales does slightly better on SEIS, Wales still only accounts for 1.1 per cent of all UK investments. Indeed, Wales is the second worst performing part of the UK relative to other regions in terms of both EIS and SEIS, just above Yorkshire and Humberside.



So what can be done to improve this situation and to encourage greater private funding into Welsh firms?

One of the key areas examined by a member of the Task and Finish Group for the Development Bank for Wales (DBW) was the stimulation of greater business angel activity.

A report by Nelson Gray - one of the leading thinkers on informal investment and a former European Business Angel of the Year - showed that those regions that have taken additional measures to invest in the development of the ‘supply-side’ of business angel finance are able to achieve far higher levels per head of population than those that do not.

As a result, the DBW Task and Finish Group concluded that there was a need to stimulate both the supply and demand for equity investing into high growth potential businesses within Wales.

As has happened in Scotland, this could be done by providing support to encourage more high net individuals to become angel investors. This would include training, master classes, mentoring and linkages to international best practice to improve the capability of potential Welsh business angels.
The quality of investment ready training to entrepreneurs seeking funding could also be improved so that they gain a better understanding of the needs of investors.

However, the most important development, as has happened in other countries, is the creation of a forum to bring together business angels to work together to improve their skills and to syndicate investment opportunities.

This would differ from the current model adopted by Finance Wales where it actually owns and manages xénos, the Welsh business angel network.  Instead, such a forum would focus on “capacity building” by increasing the number and quality of angel investor groups across Wales as opposed to directly facilitating individual investment as is currently done through xénos.

It would also provide education for both investors and companies on angel financing thus improving efficiency and success. This would result in a bigger deal flow by volume and value and supporting more companies for longer.

As was always the case with the recommendations from the DBW Task and Finish Group,
the main principle was to provide sufficient support to allow the private sector to operate efficiently and effectively in an area of recognised market failure.

Given this (and the fact that it has been over 18 months since the DBW Task and Finish group reported), the woeful performance of Wales with regard to business angel investment suggests that if the Welsh Government is serious about supporting high growth firms, then it needs to move urgently to support such a forum.

This approach has been enormously successful in Scotland which continues to considerably outperform Wales in terms of business angel activity into growing businesses. Certainly, the creation of a Welsh Angel Capital Association to act as an umbrella organisation to encourage the development of multiple angel groups and networks is long overdue.