Geraint Talfan Davies welcomes two major announcements that will strengthen a new Welsh Government focus on strategic capital investmentMarch 15th, 2012
Welsh people can be forgiven for feeling confused by the conflicting signals on the economic development front. Yesterday saw another statistical spat between the political parties after the publication of the latest statistics on economic output showed Wales languishing, as it has for some years, towards the bottom of the UK league tables, and now falling below even some of the poorest in Europe.
These new statistics, with their familiar ring, come in the same week as two of the most significant announcements on economic development policy for some years: the announcement of a science policy that includes a £50 million fund to attract the best scientists to Wales, and another £100 million fund to kick start a drive to build critical mass in the life sciences field which has so much economic potential. These announcements were trailed at the end of last week by the biotech entrepreneur, Sir Christopher Evans, while addressing the IWA’s annual Welsh National Economy Conference in Cardiff, organised with the support of PwC.
Sir Christopher has enough personal self-confidence to make up for the national confidence deficit that politicians often bewail. But there is no denying the data that charts the success of his own career.
He has launched some 80 companies and created new value of more than £5 billion. He has also successfully floated 20 companies in six stock markets around the world. It is on the back of this track record that he was asked to chair the Welsh Government’s Life Sciences Sector Panel – one of several industrial sector panels created by the Business Minister, Edwina Hart, following the adoption of a new economic renewal programme back in 2010. This week’s announcements are the first evidence that this approach might be more productive than the welter of initiatives that have delivered so little in recent years.
What is welcome is not only its focus, but also its scale and the fact that Sir Christopher himself has made a personal commitment to its implementation. It sets a high bar for the other sector panels, although they must also be wondering whether there will be enough money left over to implement their own strategies.
At the IWA’s Conference there was no denying Sir Christopher’s upbeat mood. Despite a decline in biotech investment since 2008, he sees early signs of a turn round. In 2011 $116 billion worth of biotech companies were sold, with $58 billion of cash from the big pharmaceutical companies going to biotech investors. He does not see this stopping. On the contrary, he says that ‘big pharma’ and the medical technology and healthcare industries need new products. The science base is, in his words, awash with breakthrough technologies.
The panel’s new strategy, which clearly has the full endorsement of the Welsh Government, is designed to build on a small but still significant scientific, academic and commercial base in Wales – notably at Cardiff and Swansea Universities. He thought that neuro-science at Cardiff was one of the top centres in the world. The strategy is also designed to tackle Wales’s weaknesses in this area, described by Sir Christopher as a lack of collective ambition, few role models, no major firms, and a lack of venture funds, a formal investment fund, serious co-investors and a serious long term investment thrust. He also wants to see companies develop in Wales that will become acquirers of other companies rather than being acquired themselves.
If this initiative has half the success that Sir Christopher himself has had in his own ventures then Wales will have taken a big stride forward. It may also have another beneficial by-product by making the case for investment in higher education in Wales.
In the consultation that led to the economic renewal programme, Welsh business said it wanted the Welsh Government to prioritise improvements in our infrastructure. At the conference Jane Hutt, the Welsh Government’s Finance Minister, reported on progress in developing a Welsh Infrastructure Investment Plan. There are two dimensions to this issue: prioritising developments within a plan, and raising the money to implement the plan at a time when the Welsh Government’s capital budget is being cut by more than 40 per cent, as a result of the UK Government’s squeeze. Her full address can be read here.
The idea behind the plan is to identify and prioritise nationally significant infrastructure developments, to provide a ten-year indication of the direction of travel, and to identify innovative financing approaches. The last of these will hope to build on the recently announced Local Government Borrowing Initiative which, by utilising the borrowing capacities of local government, will pump £170 million into highway investment over the next few years.
She revealed that she is in discussion with the UK Treasury, not only on the vexed question of borrowing powers for the Welsh Government, but also to identify ‘shovel-ready’ projects that could benefit from any new commitment to counter-cyclical growth in the budget. These include investment in next generation broadband, Ysbyty Glan Clwyd, and further dualling of the A465 at a cost of £350 million over the next four years.
Part of her address that did not catch the headlines actually presages a hugely important development in the Welsh Government’s processes. This is the creation of a framework for prioritising schemes across the whole range of the Welsh Government’s work, “aligning funding solutions to identified national priorities”. It may surprise some that such a framework has not always been in place. But, as Gerald Holtham, chair of the Holtham Commission, said in another address to the conference, “necessity is a hard taskmaster”. This may be an unpredicted benefit of the public funding squeeze.
Gerald Holtham, who gave an economic overview at the conference, was concerned that recovery from the recession was taking a unique path, without the usual bounce that one might expect. Such bounce as is being experienced is below trend. However, he saw little chance now of a double dip recession unless one of two things were to happen: an attack on Iran which he thought would herald a period of stagflation, and a disorderly default within the Eurozone.
Holtham has been an enthusiastic proponent of innovative financing by the Welsh Government, but clearly sees Treasury rules as unnecessarily constricting. He couldn’t understand why the UK should be unique in not distinguishing between general government expenditure and the balance sheets of national agencies as is done in other European countries. He thought that this means that the UK’s debt level is exaggerated when compared with other countries, and is forcing the Welsh Government to devise stratagems for keeping capital expenditure off its own balance sheet.
For instance, the borrowing powers that were enjoyed by the old WDA have been transferred to the Welsh Government, but they cannot now be used since the UK Treasury will simply deduct an equivalent sum from the Welsh Government’s block grant.
A much awaited address came from the former chair of the Welsh Development Agency, Lord Rowe-Beddoe, who spoke on the theme of inward investment. Contrary to the views of the Cardiff Business Partnership and the Welsh Affairs Committee, he was against any notion of trying to recreate the WDA. But he was severely critical of the current situation where, in his words, there is a ‘lack of clarity’ about responsibility for inward investment since the abolition of International Business Wales. He wants that responsibility to be unified within one department, with a single mister being accountable, while also accessing good external advice through a standing advisory body. He added that the Welsh Government’s efforts in attracting inward investment should be coordinated with the UK Trade and Industry organization.
Materials from the conference can be accessed in the events sections of www.iwa.org.uk