Give Private Sector a Greater
Role
PRESS RELEASE
From the Institute of Welsh Affairs
For publication after 0010 Tuesday November 28th 2006
Radical changes in the way the Welsh economy functions are recommended
in Time to Deliver, a report on policy options for the Welsh Assembly’s
Third Term to be published today (Monday November 27th) by the Institute
of Welsh Affairs. Such moves will be essential, it argues, if Wales
is to overcome its well-rehearsed weaknesses in productivity and prosperity,
and close the gap with the rest of the UK.
The changes should include closer co-operation with the private sector
to raise capital for increasing investment, greater emphasis on public
private partnerships to generate more investment in infrastructure
and measures to ensure the full mobilisation of the natural talent
that exists in Wales.
The report, by a panel of academic, industry and financial experts,
will be discussed at a special conference to be held in Cardiff on
Monday November 27th. It says companies must be encouraged to make
profits and re-invest these in Wales, and it suggests the Assembly
Government should focus its powers and resources on supporting companies
that do this, moving away in the process from putting the main emphasis
on safeguarding jobs.
The panel also wants to see companies in Wales make much greater use
of investment finance from the private equity sector and thereby reduce
their dependence on debt finance. “In addition to lower debt
servicing costs, private equity companies inject higher managerial
and strategic skills into small and medium sized enterprises (SMEs)
to ensure that a healthy return is made on capital invested,”
it says. The outcome of this process is to give companies the best
chance to become more efficiently managed, expand and survive in a
competitive environment.
“We need to attract professional private equity firms from the
UK financial sector to invest in Welsh growth companies. In particular,
Welsh business needs access to the discipline of venture capital funds,
while the more mature medium-sized companies may require access to
specialist debt products,” the panel’s report argues.
Ways of achieving this would be the tasking of Finance Wales or International
Business Wales to match fledgling companies to specialist funding
houses and road shows of Welsh companies in main financial centres.
The report urges further development of the currently relatively weak
financial services sector in Wales where it believes there could be
significant employment opportunities. It urges the Assembly Government
to establish a small-scale financial centre in Wales to attract boutique
hedge fund/asset managers, and to market Cardiff as a lifestyle location
to hedge funds and asset managers.
Steps should be taken, too, the panel believes, to increase the take
up of Private Finance Initiative (PFI) and Public Private Partnerships
(PPP) schemes in Wales, which currently lags far behind the other
three UK nations in using this mechanism for injecting funds into
infrastructure and other projects. It acknowledges that PFI/PPP schemes
have been unpopular in Wales but argues that many of the reasons for
the initial disillusion no longer apply. It also argues that a tailor-made
Welsh approach to PPP/PFI could be developed which could overcome
previous objections.
“An important policy option would be for the Assembly Government
to target the UK national average for PFI – currently 10 per
cent of expenditure. The aim would be to encourage investment in areas
that would add specific value to Welsh infrastructure and where there
is an immediate investment need,” Brian Morgan of Cardiff Business
School, one of the authors of the report says. Examples given are
housing stock transfer, where a PPP scheme could be used to facilitate
the transfer of existing local authority housing to new social landlords
and their subsequent upgrading.
The panel also comes out in favour of a Severn barrage, despite the
reservations among environmentalists about a project of this size
and scope. “A barrage would result in a massive bounded area
of water that could be used to catalyse the development of a new metropolis
on the west coast of Europe.”
Investment in improved north-south links within Wales is also urged
to galvanise and integrate the Welsh economy around development options
linked to city-regions. Options outlined include widening the A470
for two or three mile stretches at key sections, plus the construction
of bypasses at main congestion points. “Infrastructure improvements
to reduce the north-south divide in Wales are long overdue,”
the report states.
Concern is expressed at the continued Welsh under-performance in skills,
when compared with Britain as a whole. “Improving the educational
level of individuals entering the workforce is probably the most important
challenge facing Wales and it may require precedence over other claims
to the public purse. If the third term focused on only three things
– education, education, education, and really put some resource
into it, then its long-term success would be assured, “ the
authors conclude.
As well as specific initiatives to raise average qualification levels,
such as incentives for undertaking job-related training and retraining
for those out of work, efforts must also be made to retain and attract
talented individuals to work in Wales, and these should include measures
such as the Irish and Scottish have introduced to attract back their
diaspora.
The panel concludes by acknowledging some success in the first two
terms of the Assembly in increasing the employment rate in Wales but
it says the experience so far has highlighted just how difficult is
the challenge to raise GDP per head relative to the UK average.
“The analysis identifies the productivity lag as a key component
in this. Future policy should address this by focusing on providing
an economic climate within Wales where high growth, high productivity
business can find both the skills and financial resources needed to
expand, coupled with the infrastructure to support their growth.”
The report, the work of eight Policy Groups made up of 103 experts,
will be discussed at a special conference to be held in Cardiff on
Monday November 27th. For further details on how to obtain copies
of Time to Deliver (price £30 plus £2 p&p), please
call 029 2066 6606 or e-mail wales@iwa.org.uk
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