Economy of Wales

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Economy of Wales
The Hayes South in Cardiff.JPG
Cardiff: Wales's capital city
Currency Pound sterling (GBP)
Statistics
GDP Increase£47.3 billion (2012)[1]
GDP growth
Increase1.9% (2012)[2]
Unemployment Decrease6.7%[3]
Main industries
Agriculture, Aerospace, Construction, Electronics, Emergency Services, Food & Drink, Forestry, Manufacturing, Oil & Gas, Renewable Energy, Services, Textile, Tourism, Transport
External
Exports Increase £14.8 billion [4]
Export goods
Aerospace Systems, Business & Financial Services, Cereals, Chemical Products, Diary Products, Electricity, Electronics, Iron & Steel, Machinery, Oil & Gas, Pharmaceuticals, Plastics, Renewable Energy, Road Vehicles, Textiles, Timber, Water
Main export partners
Excluding the rest of the  UK
 United States
 Ireland
 UAE
 Germany
 Netherlands
 France
 Belgium
 Canada
 Qatar
 China

All values, unless otherwise stated, are in US dollars.
British £1 coin (reverse), depicting the red dragon (Welsh: Draig Goch)

The economy of Wales is closely linked with the rest of the United Kingdom and the wider European Economic Area. In 2012, according to ONS provisional data, headline gross value added (GVA) in Wales was £47.3 billion, making the Welsh economy the tenth largest of the UK's twelve regions (counting Wales, Scotland and Northern Ireland alongside the nine English Government Office Regions) ahead of only Northern Ireland and the North East of England.[5] The modern Welsh economy is dominated by the service sector. In 2000, services contributed 66% to GVA, the manufacturing sector contributed 32%, while agriculture, forestry and fishing together contributed 1.5%.[6]

As in the rest of the United Kingdom, the currency used in Wales is the pound sterling, represented by the symbol £. The Bank of England is the central bank, responsible for issuing currency, and retains responsibility for monetary policy and is the central bank of the UK. The Royal Mint, which issues the coinage circulated over the whole of the UK, has been based at a single site in Llantrisant, south Wales since 1980, having progressively transferred operations from their Tower Hill, London site from 1968.[7]

Economic output per head has been lower in Wales than in most other parts of the UK (and most other parts of Western Europe) for a very long time - in 2002 it stood at 90% of the EU25 average and around 80% of the UK average. However, care is needed in interpreting these data, since regional GDP/GVA per head data in the UK does not take account of regional differences in the cost of living, which in Wales is estimated to be 93-94% of the UK average. Thus the gap in living standards between Wales and more prosperous parts of the UK is not as pronounced.[8]

Economic history[edit]

Quarrymen working at the Dinorwic Quarry in about 1910.

Until the mid 18th century, economic development in Wales was restricted by its peripheral location, predominantly upland topography, poor communications and sparse population.[9] Commerce was most advanced in the small coastal ports that had regular commerce with Bristol or Liverpool; the other major sources of external trading contact were the drovers, who drove cattle from Mid Wales along Drovers roads for sale and slaughter in the English Midlands and London's Smithfield Market from the 14th century onwards. The drovers were instrumental in establishing the first banks in Wales, such as Banc Y Ddafad Ddu ("Black Sheep Bank") in Aberystwyth.[9]

Industrial development from the mid 18th century was stimulated by the potential of Wales' rich mineral deposits, the arrival of English entrepreneurs and financiers and advances in technology. The development of iron smelting by coke made the South Wales Valleys a natural industrial location during the Industrial Revolution and, from the mid 18th century, increased demand for metals and coal was generated first by war and later by the advent of steamships and railways.[9]

The northern rim of the South Wales Coalfield, focused on Merthyr, became Britain's foremost iron-producing district in the second half of the 18th century, while the south-western part of the coalfield, around Swansea, emerged as an important centre of non-ferrous metal smelting and tinplate production. Metallurgical industries required ever increasing quantities of coal, which was initially largely mined for this purpose. However, coal mining for sale developed in earnest from the mid 19th century and this was to become the signature industry of the region, transforming the economic and social landscape of the South Wales Valleys.[9]

Although a much smaller industry than coal, the slate industry in Wales became the world's largest supplier in the 19th century and had an enduring impact on the landscape of North Wales.[10] At its height in the 1890s, there were dozens of quarries employing around 15,000 men, although they suffered from the boom and bust nature of the construction industry.[10] As most of the workforce were drawn from rural, Welsh-speaking communities, slate quarrying was described by one historian as "the most Welsh of Welsh industries".[10]

Despite explosive growth in the early 1900s, by the 1920s it was apparent that Wales was facing economic difficulties, largely because of its reliance on older heavy industry rather the newer, growing light industry sectors that were becoming established in the more prosperous parts of England.[11] Even during a boom period at the start of the 20th century, Wales had a narrow economic base dependent on the labour intensive exploitation of natural resources. The Welsh export economy collapsed during the inter-war recession, a victim of increasing protectionism and the rise of new competitors overseas. As global terms of trade changed, unemployment in the South Wales Valleys soared to unprecedented levels during the early 1930s (up to 59% in Merthyr and 76% in Pontypridd), despite the exodus of 400,000 people from the region between 1921 and 1939.[12]

In the post-war era, the steel and tinplate industries consolidated on a smaller number of larger sites, such as the new works at Port Talbot and Llanwern.[13] The National Coal Board, created in 1947, tried to modernise the Welsh coal industry but the number of pits in South Wales shrank from 115 in 1953, producing almost 21 million tons, to 34 in 1981, producing 7.7 million tons.[13] Pembrokeshire and Swansea Bay became centres of the petrochemical industry and new light industry was attracted to locations throughout Wales.[13] Wales attracted an above average share of the foreign direct investment (FDI) into the UK from the 1970s onwards but many of the new plants established by foreign firms were essentially "branch factory" operations offering low-wage, low-skill employment opportunities.[14][15] In 1971 Sir Julian Hodge founded the Commercial Bank of Wales (later renamed Bank of Wales) but the company was later taken over by HBOS and the brand dropped in 2002.

In the post-war decades there was a shift towards service sector employment, which accounted for 60% of jobs by the 1980s, many of them held by women.[13] The concentration of official agencies in Cardiff increased the amount of bureaucratic public sector employment: Government regional policy brought various national bodies to Wales: the Royal Mint moved to Llantrisant, Companies House to Cardiff and the Driver and Vehicle Licensing Centre to Swansea.[13] From the 1970s on, the steel industry contracted, with works at Ebbw Vale, Shotton and East Moors in Cardiff closing and layoffs elsewhere. The early 1980s recession had a bigger impact in Wales than in other parts of the UK: between 1979 and 1982, Wales lost 130,000 jobs[13] and the employment rate fell to 62%.[16] Recovery started later in Wales, and structural changes left a legacy of high unemployment amongst older men, especially in the Valleys.[16]

Today, Wales remains a lagging region within the wider United Kingdom economy. Over the long term, output and productivity growth in Wales has been broadly in line with the UK and the developed world as a whole, although there are some unexplained gaps in particular service industries. What has marked Wales out is a low activity rate compared to other parts of the UK.[17]

Gross Value Added (GVA)[18]
Year £ million £ per head Index of £ per head (UK=100)
1989 19,445 6,810 85
1990 20,990 7,335 84
1991 21,724 7,561 83
1992 22,659 7,874 83
1993 23,697 8,218 83
1994 25,049 8,675 83
1995 26,388 9,135 84
1996 27,518 9,517 82
1997 28,672 9,904 80
1998 29,787 10,273 79
1999 30,736 10,596 77
2000 31,898 10,973 77
2001 33,525 11,520 77
2002 35,252 12,074 77
2003 37,262 12,712 76
2004 39,340 13,352 76
2005 40,711 13,784 76
2006 42,697 14,396 75
2007 44,263 14,853 74
2008 45,610 15,237 74

Agriculture & forestry[edit]

In 2003, agriculture contributed £418 million to Welsh GVA, or 1.1% (including subsidies).[19] 1.6m hectares (around 77% of Wales' total land area) is used for agricultural production and an estimated 57,500 people are directly employed in the sector.[19] Farming is dominated by beef, sheep and the dairy sector, with the arable sector accounting for 10% of agricultural output.[19] Average farm size is 30-40 hectares, small by UK standards, and dominated by family-run enterprises.[19]

Forest and woodland makes up 14% of the land area of Wales and there are 4,000 jobs and in forest-based industries.[19]

The Welsh fishing industry is the smallest in the UK, with about 1,000 full-time and 400 part-time fishermen.[19] The minor role that the Welsh industry holds is largely due to its geographical isolation, weak distribution networks and the demise of the Wales distant-water fleet from the 1960s onwards.[19]

Manufacturing[edit]

Port Talbot Steelworks, one of the last remaining heavy industrial plants in south Wales

Wales has a diverse manufacturing sector.[6] Heavy industry, once a mainstay of the Welsh economy, has largely been in decline over the past century but is still very apparent. Metal ore refining is a long established industry in Wales. As of 2007, Corus had manufacturing facilities at Port Talbot, Llanwern, Newport, Trostre, Shotton, Ammanford, Pontardulais, Tafarnaubach and Caerphilly, although only the Port Talbot Steelworks remains as a major integrated steelmaking plant.[20] Nearly all the tinplate and much of the aluminium produced in the UK are made in Welsh plants.[6]

Milford Haven has two oil refineries: around a fifth of United Kingdom capacity.[6]

Wales is an important producer of automotive components: Ford has a major engine plant at Bridgend, and BorgWarner has a major components plant in Kenfig, South Wales.

Timet has a plant in Waunarlwydd, Swansea, which is one of the world's major suppliers of titanium for jet engine blades and medical applications.[21]

During the 1980s and 1990s, a major growth sector in manufacturing was the electronics industry with over 130 North American and 35 Japanese companies establishing operations in Wales.[6] However, this is a characteristic of a "branch factory" economy where routine production is located in one region while higher skill activities are located in another.[8]

Major trading partners[edit]

Excluding intra UK trade, the European Union and the United States constitute the largest markets for Wales's exports. As part of the United Kingdom and the European Union, Wales fully participates in the single market and free trade area which exists across all EU member states and regions. Recently, with the high rates of growth in many emerging economies of southeast Asia and the Middle East such as China, UAE and Singapore, there has been a drive towards marketing Welsh products and manufactured goods in these countries, with China and Qatar entering the top ten destinations for Welsh exports in 2013.[22]

Top 10 export destinations, 2013
Destination Value
 United States Increase£ 3.09 billion
 Ireland Increase£ 1.77 billion
 UAE Increase£ 1.17 billion
 Germany Increase£ 1.34 billion
 Netherlands Increase£ 0.94 billion
 France Increase£ 0.68 billion
 Belgium Increase£ 0.66 billion
 Canada Increase£0.47 billion
 Qatar Increase£0.35 billion
 China Increase£0.30 billion
Source: Welsh exports: Fourth quarter 2013

The total value of international exports from Wales in 2013 was estimated at £14.8billion. The top five exporting industries in 2013 were power generating machinery (£4.2billion), petroleum, petroleum products & related materials (£3.8billion), Iron & Steel (£1.3billion), electric machinery, (£0.7billion) and organic chemicals (£0.37billion).[4]

Services[edit]

In recent years, the service sector in Wales has seen above average growth; however in 2005 its share of GVA was small compared with most other regions of the UK.[6] Wales does not have a favourable occupational structure, and a relatively high proportion of jobs are in public administration, health and education.[23] Compared to more prosperous parts of the UK, Wales lacks high value added service sector employment in sectors such as finance, business services and research and development.[24] This is partly due to a weaker agglomeration effect, due to the small size of towns and cities in Wales compared to some other UK regions and small countries.[8][17]

With its mountainous landscape and numerous sandy beaches, Wales attracts significant tourism. In 2002, nearly 13 million trips of one night or more were made in Wales, generating expenditure of £1.8 billion. Of these trips, 11.9 million were made by UK residents and 0.9 million by overseas visitors.[6] Cardiff is the most popular destination for visitors to Wales, with 11.7 million visitors in 2006.[25]

Property[edit]

In November 2008, the average price of a house in Wales was £126,181, a fall of 11.7% since the previous year. The average house price in England and Wales as a whole was £161,883.[26] In August 2008, average house prices in Wales ranged from £109,000 in Blaenau Gwent to £238,000 in Monmouthshire.[27]

Infrastructure[edit]

Transport[edit]

Cardiff International Airport

In 2001, Wales had 1,708 km (1,061 mi) of trunk roads and motorways.[28] The M4 motorway, A449, A465, A48, A40, and A477 in the south, the A55 and A483 plus border links in the north, form part of the Trans-European Road Network.[28]

Most major English cities have direct rail connections to Wales, for instance via Bristol, Chester or Wolverhampton. The South Wales coast as far as Swansea is served by the South Wales Main Line which passes under the Severn Estuary through the Severn Tunnel; the West Wales Line connects it to the Pembrokeshire ferry ports. The main North-South railway line is the Welsh Marches Line between Newport and Shrewsbury enabling direct services between Holyhead and Cardiff. An urban rail network, serving 81 stations, is focused on the capital, Cardiff. Mid and North Wales (away from the coast) are served by a limited number of branch lines, some of which connect with revived narrow gauge railways.

Wales has ten main commercial ports.[29] Milford Haven is the fourth largest port in the UK in terms of tonnage and the busiest for oil products.[29] Newport is the busiest UK port for iron and steel and Port Talbot is the third busiest for ores.[29]

Cardiff International Airport is the only Welsh airport offering international scheduled flights. In 2007, Anglesey Airport became a public airport.

Telecommunications[edit]

On 28 November 2006, a trial of a new telecommunications network technology was rolled out in the village of Wick in the Vale of Glamorgan. The new network BT 21CN, offers broadband data transfer speeds of up to 24Mbit/s.

Energy & Utilities[edit]

The Dinorwig Power Station lower reservoir, a 1,800 MW pumped-storage hydroelectric scheme, in north Wales, and the largest hydroelectric power station in the UK

The average annual production of electricity in Wales is some 3,800 MW. Average annual electricity consumption is just over half of the annual production making Wales a net exporter of electricity.[30] Electricity generation encompasses a broad mix of technologies including Nuclear (e.g. Wylfa), Coal (e.g. Aberthaw), Gas (e.g. Baglan Bay), Wind (Cefn Croes) and hydro-electricity (Dinorwig).

The role of the public sector[edit]

Taxation and public spending[edit]

Fiscal and economic policy are reserved matters determined at Westminster. The think-tank Oxford Economics estimated that in 2006-07, tax revenues of £19.3bn were raised in Wales, compared to Government expenditure of £28.2bn - a fiscal gap of £9.1bn.[31] In 2001-02, public expenditure per head in Wales was higher than most of the English regions, but lower than in Scotland or Northern Ireland.[32]

Economic development[edit]

According to the Welsh Assembly Government's economic development strategy, the role of the public sector in the economy is to help create a stable and favourable business environment, promote skills and innovation (through for example apprenticeships and Design Wales), address market failures and invest in economic infrastructure including transport and information technology.[8] Aside from fiscal policy, energy policy, employment law, social security and various other aspects of market regulation are reserved to the UK Government.

Public sector employment[edit]

The public sector is also an important employer in Wales. In the year ending 30 June 2008, 386,000 people (28.8% of the Welsh workforce) were employed in the public sector, with the highest number (49,000) in Cardiff and the highest percentage of the local workforce (35.4%) in Swansea.[33]

Controversies in economic policy[edit]

The decline in Welsh GDP per person (relative to the UK average) over recent years has prompted policy debate. There have been suggestions – for example, by Plaid Cymru [34] – that Wales should attempt to emulate the Irish 'Celtic Tiger' model, particularly its low corporation tax rates, to stimulate investment and growth. However, economists such as Nicholas Crafts[24] and John Bradley[35] have argued that the low Irish corporation tax rate was only effective in the very specific demographic and historical circumstances of Ireland in the late 1980s and 1990s, and that such a policy in Wales' very different economic context would not only require political independence, but could be relatively ineffective and/or require difficult policy choices between higher personal taxes and lower public spending.

In a report for the Institute of Welsh Affairs in 2003, Phil Cooke of Cardiff University argued that the Welsh Government had responded to the loss of productivity in manufacturing by substituting new jobs in the public sector, making Wales increasingly dependent on fiscal transfers from Whitehall. Cooke suggested that a relatively weak devolution settlement had prevented the Welsh Government from developing innovative economic policies, especially when compared to Scotland.[36] However, critics including former Welsh Secretary Ron Davies[37] and John Lovering, another Cardiff academic, claimed that Cooke's argument that a more powerful Assembly was a necessary precondition to more effective economic policies was a non sequitur.

Employment, unemployment and economic activity[edit]

According to the Welsh Government bulletin of economic statistics for November 2010,[38] the Labour Force Survey estimates for the 3 months to September 2010 show that:

  • The employment rate in Wales was 67.1%, unchanged from the same period a year earlier. The UK average was 70.8%.
  • The ILO unemployment rate in Wales was 8.1% of the economically active, down from 8.8% in the same period a year earlier. The UK average was 7.7%.
  • The economic activity rate in Wales was 73.3%, down from 73.7% in the same period a year earlier. The UK average was 76.8%.
  • The claimant count rate in October 2010 for Wales was 5.0% of the workforce, down 0.7% on October 2009. The UK average was 4.5%.

For statistical purposes, the Office for National Statistics divides Wales into 26 Travel to Work Areas, collections of wards for which "of the resident economically active population, at least 75% actually work in the area, and also, that of everyone working in the area, at least 75% actually live in the area". Some of these areas span the border with England.[39]

Small and medium-sized enterprises made up over 99% of the 190,000 businesses in Wales in 2006,[40] but accounted for less than 60% of employment.[41]

Alongside official national statistics a number of respected private sector surveys are used to understand how the economy is performing. These include the British Chambers of Commerce Quarterly Economic Survey [42] This survey has information on the performance of Welsh businesses since 1989.

Regional variations[edit]

In recent years, Cardiff, the northern and southern coastal belts and some rural parts of Wales have experienced the biggest increase in employment, while the South Wales Valleys and other industrial towns have suffered a decline. This pattern probably reflects a combination of

  • the increasing importance of quality of life factors in location decisions;
  • the greater role played by the largest conurbations as centres of service sector businesses and
  • the effects of skill-biased technical change on the demand for labour, disadvantaging "skills poor" declining industrial districts.[43]

Average earnings and employment vary considerably across Wales. They are both generally higher in east Wales, especially in urban areas, but lower in south west Wales and the Valleys, although earnings in Bridgend and Neath Port Talbot, which are still centres of skilled manufacturing employment, are relatively high. In north and north west Wales, earnings are low but the employment rates are above the Welsh average.[8]

A significant part of the earnings (and value added per job) variations within Wales are due to structural factors such as economic mass and occupational mix rather than like-for-like lower pay or productivity.[8] Cardiff, with 324,800 people, benefits from its capital status, a hinterland in south east Wales and good connections to London, the Greater Bristol area and the M4 corridor.[8] Cardiff is the primary location for service sector activities in Wales, with 26% of Welsh service sector output and 22% of Welsh service sector employment, compared to 19% of all employment in Wales.[44] North east Wales benefits from proximity to Cheshire, Greater Manchester and Merseyside and there is significant cross-border commuting. The Valleys and the western areas of Wales have less economic mass and are more distant from major economic centres. These are some of the poorest regions in Europe and qualify for Objective One funding.

Many parts of Wales suffered from a continuous decline in heavy industry over the 20th century, culminating in the virtual disappearance of coal-mining in the 1980s.[45] The demise of 'smokestack' industries left a legacy of high unemployment, and although unemployment has declined in recent years, unemployment in West Wales and the Valleys still tends to be higher than the Welsh average and economic inactivity (a form of hidden unemployment) continues to be a major problem in these areas. Merthyr Tydfil and Neath Port Talbot have some of the largest proportions of people in the UK not working due to long-term illness or disability, though some believe that in reality many people classified as "unable to work" through sickness are low-skilled workers encouraged to exit the labour market by the benefits system as well as declining demand for their skills.[8][46]

See also[edit]

References[edit]

  1. ^ Office for National Statistics. "Key Economy Statistics". Retrieved 12 April 2014. 
  2. ^ "Regional Gross Value Added (Income Approach), December 2013". Retrieved 12 April 2014. 
  3. ^ Welsh Government. "Key economic statistics – March 2014". Retrieved 12 April 2014. 
  4. ^ a b Welsh Government. "Welsh exports: Fourth quarter 2013". Retrieved 12 April 2014. 
  5. ^ Regional Gross Value Added (GVA), by UK country (component, UK regions)
  6. ^ a b c d e f g Eurostat: Wales - Economy
  7. ^ "Llantrisant". Royal Mint website. Royal Mint. 2008-09-24. Retrieved 2008-10-04. 
  8. ^ a b c d e f g h Wales A Vibrant Economy
  9. ^ a b c d Falkus, M. and Gillingham, J., eds (1987) Historical Atlas of Britain. London: Kingfisher.
  10. ^ a b c The Welsh Academy Encyclopedia of Wales. Cardiff: University of Wales Press 2008.
  11. ^ Elwyn Jones, G. The Role of Education in National Identity and Economic Development in Wales since 1800. Background paper.
  12. ^ Day, G. (2002) Making Sense of Wales. A Sociological Perspective. Cardiff: University of Wales Press.
  13. ^ a b c d e f Jenkins, P. (1992) A History of Modern Wales, 1536-1990. Harlow: Longman.
  14. ^ The Welsh Economy
  15. ^ Morgan, Kenneth O. (2002) Rebirth of a Nation: A History of Modern Wales. Oxford: Oxford University Press.
  16. ^ a b Department for Work and Pensions / Welsh Assembly Government (2007) Wales: Towards Full Employment.
  17. ^ a b Economic Futures for Wales
  18. ^ [1]
  19. ^ a b c d e f g Welsh Assembly Government (2007) Rural Development Plan for Wales, 2007 - 2013: The Strategic Approach
  20. ^ Main manufacturing locations of Corus
  21. ^ TIMET Corporate Structure
  22. ^ Scottish Council for Development and Industry. "Survey of Scottish Manufactured Exports 2004/05". Retrieved 17 October 2013. 
  23. ^ Beyond 20/20 WDS - Table View
  24. ^ a b Julian Hodge Institute of Applied Macroeconomics Annual Lecture 2005
  25. ^ "Steam report". Retrieved 2008-05-31. 
  26. ^ Land Registry House Price Index November 2008
  27. ^ Welsh Assembly Government: Review of Evidence to Inform the Development of the National Housing Strategy Final Report. Tribal Group, August 2008
  28. ^ a b National Assembly for Wales 2001, The Transport Framework for Wales
  29. ^ a b c One Wales: Connecting the Nation, The Wales Transport Strategy, Welsh Assembly Government, April 2008
  30. ^ The Battle for Cefn Croes
  31. ^ Bryan, J. "A couple of snapshots - Wales in 1988 and in 2008" in Welsh Economic Review, Volume 20 Winter 2008
  32. ^ The Barnett Formula and Fiscal Policy - What Lies Ahead. Presentation by Iain McLean for IPPR seminar, 28/03/07
  33. ^ Employment in public and private sectors (sector, gender, local authority) NS
  34. ^ Plaid to take tax fight to Treasury 24 January 2007
  35. ^ Committing to Growth, Allander Series
  36. ^ Weak Devolution Settlement Hinders Economic Development
  37. ^ BBC News | Wales | 'Weak' assembly harming Wales
  38. ^ Welsh Assembly Government | Key Economic Statistics - November 2010
  39. ^ United Kingdom: Travel to Work Areas, 2001
  40. ^ Business numbers by size band and local authority, 2006. Downloaded from Stats Wales August 2009.
  41. ^ Business employment aggregates by size band and local authority, 2006. Downloaded from Stats Wales August 2009.
  42. ^ British Chambers of Commerce Quarterly Economic Survey. BCC. 2014. Retrieved on 16 June 2014.
  43. ^ Welsh Assembly Government | Completed Research
  44. ^ DTZ Pieda Consulting, Factors Influencing the Location of Mobile Service Activities
  45. ^ [2]
  46. ^ Incapacity Benefit Reform:Tackling the Rise in Labour Market Inactivity

External links[edit]