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CARDIFF, 13th June 2014 – JLL’s Chris Sutton reflects on devolution in Wales this week with the 15 year anniversary of the National Assembly for Wales.
The challenge is to make Wales a more attractive investment proposition, says the JLL Lead Director and CBI Wales Chair.We look to our politicians to create a stable business environment to allow business to invest to deliver jobs and prosperity and it is on this basis that we can consider the performance of Welsh Government.
However, it is worthwhile reflecting on the winds of change that have blown through the global economy in this period.Fifteen years ago, the Far Eastern financial crisis had just claimed the inward investment projects of Halla, Acer and a large part of the Lucky Goldstar complex in Newport.
If these projects represented the high tide mark of foreign direct investment, then the emergence of China and other low cost economies steadily eroded our industrial base in the early 2000s. This was well before the financial crises of Northern Rock and Lehman Brothers, in 2007 and 2008 respectively, which preceded the worst recession for a generation. What the past 15 years has shown is that it is difficult to insulate the Welsh economy from the dynamics of the global economy. However, whilst we have seen a definite shift in some areas of mainstream manufacturing, there are also areas of growth in a number of value added industries.
Airbus is a truly global leader in advanced manufacturing and, a decade ago, strengthened its presence in Wales with the construction of its A380 wings factory at Broughton, a facility of close to one million sq ft.
The development of the Dragon LNG Terminal in Pembrokeshire and the expansion of Mabey Bridge Wind Turbines in Chepstow highlight the continued investment potential of both the traditional and renewable energy sectors.
Meanwhile, traditional heavy industry remains a core strand of the Welsh economy and Tata Steel has made a significant investment in a new blast furnace in Port Talbot.
There has also been diversification, with an increased service sector together with growth in the digital economy, not least with two out of three of the UKs leading comparison websites headquartered in Wales.
For much of the past 15 years, Wales has had to fight against the tide of ‘off shoring’ in the manufacturing sector. However, my impression is that, in the past three years, this has levelled off and, with recent large projects including Pinewood Studios Wales in East Cardiff and the expansion of Tenneco Walker in Merthyr Tydfil, there is evidence of a return of corporate investment to Wales.
We must build upon this with a refreshed offer to FDI Projects and it is likely that we will find such re-shored projects to be more sustainable and here for the long term.That is not to allow the Welsh Government off the hook entirely. The relative performance of Wales against other parts of the UK in terms of productivity has been weak, particularly for those parts of Wales outside Cardiff and South East Wales. Indeed, there are some similarities with the dominance of London and the South East in a UK context.
The big winner of devolution in Wales has, arguably, been Cardiff which has taken the opportunity to grow into a confident and vibrant Capital City. The expansion of public services in Cardiff Bay has had a direct impact, whilst there has also been growth in both the creative industries and financial & professional services sectors. In the built environment, the Millennium Stadium and £650m extension to St David’s Shopping Centre, are the landmark projects in a much expanded city centre. The electrification of the GWR mainline and the potential of the Metro links into the Valleys now provides an opportunity to spread prosperity across the wider City Region. Cardiff is now more institutionally acceptable to UK and overseas investors and developers. Indeed, the 200,000 sq ft new Admiral headquarters in Cardiff city centre was forwarded funded at £58m, representing 5.85% net initial yield, to Union Investments, notable for bringing one of the major German ‘open ended’ funds to Wales for the first time.The focus upon cities as drivers of economic growth is a global trend and the challenge is to spread their prosperity through better infrastructure and stronger governance, in our case within the city regions of Cardiff and Swansea.But devolution is much more than the creation of a building and electing people to it.
The last 15 years has required a monumental shift in Wales. No longer are the tools to change our economy- or the operators of those tools- at a distant capital some 200 miles away.Getting used to that power and using it well has taken time. Wales, with a democratic culture instinctively different from Westminster, has no rule book to look to. As a result, over the years our successful use of these levers of democracy have been mixed, but I definitely see a positive trajectory as the craft of devolved government grows.
Now, in two short years the people of Wales may well be considering devolving income tax powers to a Welsh Assembly already equipped with tax and borrowing powers of its own. This will require yet another growth spurt as Wales is challenged to set its own taxes and raise its own revenue.
So what is our challenge now? Our challenge is to work together to make Wales a more attractive investment proposition. Devolution rightly means affording the power to be different – but different should mean better.
If we can make Wales just 10% more attractive, as a business environment, than our neighbour England, then we can attract mobile investment. It is not necessarily about being 10% cheaper. Rather, it is about creating a competitive advantage through a renewed skills strategy, planning reform, investment in infrastructure and varying devolved taxes to incentivise investment rather than prescribe cost on development.In this way, we can readily outweigh any perceived or actual risk premium associated with devolution and secure a more attractive business environment for the long term.
Lead Director, Cardiff
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