Inward Investment in Wales

House of Commons Welsh Affairs Committee

Eighth Report of Session 2010–12

Volume III

Additional written evidence

Ordered by the House of Commons to be published 31 January 2012

Published on 21 February 2012 by authority of the House of Commons London: The Stationery Office Limited

The Welsh Affairs Committee

The Welsh Affairs Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Office of the Secretary of State for Wales (including relations with the National Assembly for Wales).

Current membership David T.C. Davies MP (Conservative, Monmouth) (Chair) Stuart Andrew MP (Conservative, Pudsey) Guto Bebb MP (Conservative, Aberconwy) Geraint Davies MP (Labour, Swansea West) Jonathan Edwards MP (Plaid Cymru, Carmarthen East and Dinefwr) Nia Griffith MP (Labour, Llanelli) Mrs Siân C. James MP (Labour, Swansea East) Susan Elan Jones MP (Labour, Clwyd South) Karen Lumley MP (Conservative, Redditch) Jessica Morden MP (Labour, Newport East) Mr Robin Walker MP (Conservative, Worcester) Mr Mark Williams MP (Liberal Democrat, Ceredigion)

The following Members were members of the Committee during the Parliament:

Alun Cairns MP (Conservative, Vale of Glamorgan) Glyn Davies MP (Conservative, Montgomeryshire) Owen Smith MP (Labour, Pontypridd)

Powers The Committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the internet via www.parliament.uk

Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the internet at www.parliament.uk/welshcom

The Reports of the Committee, the formal minutes relating to that report, oral evidence taken and some or all written evidence are available in printed volumes.

Additional written evidence may be published on the internet only.

Committee staff The current staff of the Committee is Adrian Jenner (Clerk), Anwen Rees (Inquiry Manager), Jenny Nelson (Senior Committee Assistant), Dabinder Rai (Committee Assistant), Edward Bolton (Committee Support Assistant) and Jessica Bridges- Palmer (Media Officer).

Contacts All correspondence should be addressed to the Clerk of the Welsh Affairs Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 3264; and the Committee’s email address is [email protected]

List of additional written evidence

(published in Volume III on the Committee’s website www.parliament.uk/welshcom)

1 RWE npowerand RWE npower renewables Ev w1 2 Professor Robert Huggins and Professor David Brooksbank, University of Wales Institute, Cardiff Ev w3 3 Pingar LP Ev w8 4 General Dynamic UK Ev w9 5 Welsh Assembly Government Ev w11 6 German Industry UK Ev w15 7 South East Wales Economic Forum Ev w16 8 Professor David Blackaby, Dr Stephen Drinkwater, Professor Philip Murphy, and Dr Catherine Robinson, School of Business and Economics, Swansea University Ev w16 9 King Sturge Ev w26 10 Freight Transport Association Ev w32 11 Scottish Development International on behalf of joint venture partners: Scottish Government, Scottish Enterprise and Highlands and Islands Enterprise Ev w34 12 Associated British Ports Ev w47 13 Tata Steel Europe Ev w50 14 E.ON Ev w57 15 Renewable UK Cymru Ev w58 16 Professor Garel Rhys CBE, Cardiff University Business School Ev w61 17 Brazilian Embassy, London Ev w62 18 Nuon Renewables Ev w63

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Written evidence

Written evidence submitted by RWE npower and RWE npower renewables 1. Summary — This submission is from RWE npower and RWE npower renewables, part of the RWE group, a German owned energy business, and one of the largest inward investors in Wales. — RWE npower and RWE npower renewables comprise our UK based generation and retail businesses. — We have a diverse portfolio of electricity generation sources, we sell gas, electricity and a range of energy related services. — To obtain investment capital from our parent company we need to demonstrate and deliver project returns that represent the best use of a limited resource. — This requires a predictable regulatory regime and projects that are delivered to plan. — Energy policy is not a devolved responsibility but the Welsh Assembly Government have a key role in facilitating delivery with responsibility for planning, economic development and the environment. — The additional complexity that devolution may sometimes bring must not be allowed to create barriers to investment.

2. Investment,Current andUnderDevelopment 2.1 RWE is a German integrated energy business, generating electricity and supplying gas, electricity and related services to customers across the UK through RWE npower and renewable energy through RWE npower renewables. We are one of the largest inward investors in Wales where our current portfolio comprises a large coal-fired power station, two combined heat and power plants and numerous renewable energy schemes including both onshore and offshore wind and hydro generation. 2.2 We are also investing in: — an option to build a new nuclear power station at Wylfa (circa £8 billion) through Horizon Nuclear Power, a joint venture between RWE and E.ON UK; — development of the Atlantic Array offshore wind farm (circa £4.5 billion); — construction of Gwynt y Mor offshore wind farm (circa £2 billion); — developing a new high efficiency gas fired power station at Pembroke (circa £1 billion); and — development of a demonstration array of tidal stream turbines off the Anglesey coast. 2.3 In total, our current Welsh capacity represents around a third of the electricity consumed in Wales and, equally importantly, our investments create local employment opportunities and community benefits. We currently have over 350 employees based in Wales and our policy is to recruit and train people from the local community where feasible. 2.4 We have a long history of investing in the development and operation of generation in Wales. Aberthaw power station was designed to burn local coal and contributes over £50 million to the Welsh economy each year. It is also the site for our new 3 MW pilot carbon capture plant which will be operational in 2011. 2.5 Our investment in a new nuclear power station on Anglesey through the Horizon joint venture will require a highly skilled workforce of up to 5,000 during the peak construction phase. It will bring investment and mean opportunities for jobs in Wales and we aim to retain and provide training for the local workforce. At Wylfa we want to: help create long-term education and training opportunities and develop a skilled Anglesey workforce; help establish a world-class supply chain; make improvements to the road infrastructure where required; work with and help develop the Isle of Anglesey County Council’s Energy Island programme; build a new visitor and education centre; and, ensure the demand for goods, services and employees benefits the local economy. 2.6 We are currently constructing a highly efficient 2,000MW gas-fired power station in Pembroke which, once operational, will be the largest combined cycle gas turbine (CCGT) power station in Europe. At the peak of construction, around 1,500 people will be employed at the site. The long-term operation of the power station has created approximately 80 long-term jobs and we have made every effort to recruit people from South Wales. The power station is a significant investment, costing around £1 billion to construct and it is estimated its operation will bring a long-term benefit to the local economy of around £10 million each year. 2.7 Our renewable energy business, npower renewables, has over 300 MW of operational wind and hydro capacity, a further 576 MW under construction and over 2000 MW under development, mainly offshore wind. We have 17 community benefit packages investing nearly £0.5 million each year with a further £1.8 million planned for new schemes. Around 90 staff (a third of total) are employed at five offices. cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:06] Job: 008852 Unit: PG01

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2.8 In Wales, RWE npower has already spent over £20 million supporting programmes for fuel poor households. This means that for every household that we supply in Wales with electricity or gas, we have spent at least £250. This includes energy efﬁciency measures, social tariffs, debt relief and the Warm Wales and Health through Warmth schemes.

3. The Role of theWelshAssemblyGovernment (WAG) and theRegulatoryRegime

3.1 A coherent UK Energy policy remains the responsibility of Westminster and WAG has a key role in the implementation of such policy in Wales. Essentially it is that policy framework that will establish the incentive to invest in the UK energy infrastructure. Where those investment opportunities to invest are located in Wales then WAG will have a key role in facilitating delivery and with its responsibility for planning, economic development and the environment there is signiﬁcant scope for inﬂuence.

3.2 It is inevitable that devolution complicates the process of investing in Wales, with an increase in the number of government departments, regulatory bodies and NGOs involved. This additional complexity should not, however, be a barrier provided that there is sufﬁcient co-operation throughout the process. Whilst we would agree that all bodies need to preserve a level of independence and transparency this should not detract from the ability to co-operate and avoid unnecessary workload, bureaucracy and delays.

3.3 We feel it is important to recognise that investment decisions in large companies like RWE have to balance investment resources against other factors such as the predictability and complexity of planning and regulatory frameworks. To succeed in attracting RWE investment, Wales effectively has to compete in a European (if not global) market. In particular, given the current economic circumstances our UK businesses have to convince our parent company, RWE AG, that projects in Wales will provide a better return than alternative projects across Europe and that they can be delivered and provide the expected returns.

3.4 The key condition for us is a stable and predictable regulatory regime that provides us with the confidence to make the case to invest in Wales. We need to be able to deliver projects on time and to budget with no surprises or unnecessary delays that erode the confidence of our parent company. Experience gained in any country will influence the level of country risk that investors build into future investment appraisal calculations.

3.5 We need to be able to work with national, regional and local government and the regulatory agencies in a constructive and transparent way to develop plans and deliver them.

3.6 Whilst we accept that major infrastructure projects must be properly assessed to ensure no unintended consequences we have experienced additional work load and project delays due to poorly managed interfaces between environmental agencies and we will closely follow proposals for the merger of Environment Agency (EA) Wales, CCW and Forestry Commission Wales. This infers a greater separation of EA Wales from the EA in England and we would be concerned if this led to greater complexity through the adoption of different approaches across the UK.

3.7 As an example of the complexity, time and cost of developing infrastructure projects the following headlines summarise what was required for the Gwynt y Mor offshore wind farm. — Site Award 2004. — Submitted Section 36 Application November 2005. — Section 36 Consent Awarded December 2008. — Section 36 Consent—Awarded by DECC. — Coast Protection Act Consent—Awarded by DEFRA. — FEPA Licence—National Assesmbly for Wales. — Cables and Substation Consents under TCPA—Conwy CBC and Denbighshire CC. — Other key consultees were: — Countryside Council for Wales. — Maritime Coastguard Agency. — BHP Billiton Gas Platform. — Fishing Interests. — Dredging interests. — Civil Aviation Authority/ NATs. — The consenting budget was around £12 million including Meteorological mast installation and a team of six to eight developers were working on this by the end of the project. November 2010 cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:06] Job: 008852 Unit: PG01

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Written evidence submitted by Professor Robert Huggins and Professor David Brooksbank, University of Wales Institute, Cardiff Summary If policymakers are to take knowledge-based FDI seriously, they must work towards establishing a management strategy for knowledge attraction. The key features of such a strategy being: — An understanding of the role for the strategic integration of locational development models between national, regional and/or local players. — An understanding of the role for strategic integration between the business community and knowledge actors, including universities and other public and private sector research establishments. — An understanding of the importance of knowledge economy activities to the overall size and performance of national and regional economies. — Once the above factors are analysed and understood, it is then possible to proceed towards the establishment of an integrated marketing strategy.

Introduction 1. Overall, Wales continues to perform relatively well in terms of FDI attraction, ranking 4th across all UK regions between 2006 and 2007 based on the number of jobs created or safeguarded by FDI (Table 1). The number of projects (67) safeguarding these jobs is relatively small, indicating that investments concern projects that are quite large in terms of the numbers of jobs created or safeguarded. Table 1 FDI ACTIVITY BY UK REGION, 2006–07 (INCLUDING MERGERS AND ACQUISITIONS) Number of jobs Number of FDI created and Rank Region projects safeguarded

1 London 388 7,118 2 Northern Ireland 31 4,220 3 North West 138 3,492 4 Wales 67 3,379 5 South East 235 3,241 6 Scotland 89 3,185 7 East Midlands 84 2,630 8 West Midlands 104 2,510 9 South West 57 2,279 10 North East 64 1,828 11 Yorkshire and the Humber 65 1,801 12 East 119 793 Source: UK Trade and Investment, taken from Evans, P. et al. (2008) Empirical Investigation of Foreign Direct Investment in Wales, A Report to the Welsh Assembly Government Economic Research Unit. 2. In terms of employment, the manufacture of transport equipment is the most signiﬁcant form of FDI in Wales, followed by the manufacture of electrical and optical equipment and the manufacture of basic metals and fabricated metal products (Table 2). In total, ﬁnancial and business services account for 11% of FDI employment, with a further 11% employed in other foreign-owned service businesses. Overall, manufacturing and production activities remain the dominant employers within foreign-owned businesses. Table 2 FOREIGN DIRECT INVESTMENT IN WALES BY SECTOR, 2008 Sector Sites Employees

Production Mining and quarrying of energy producing materials 3 649 Mining and quarrying, except of energy producing materials 2 675 Manufacture of food products, beverages and tobacco 27 5,592 Manufacture of textiles and textile products 2 45 Manufacture of wood and wood products 4 893 Manufacture of pulp, paper and paper products; publishing and printing 26 4,275 Manufacture of coke, reﬁned petroleum products and nuclear fuel 4 385 Manufacture of chemicals, chemical products and man made ﬁbres 31 5,100 Manufacture of rubber and plastic products 41 5,014 Manufacture of other non metallic mineral products 13 1,711 Manufacture of basic metals and fabricated metal products 49 10,793 cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:06] Job: 008852 Unit: PG01

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Sector Sites Employees

Manufacture of machinery and equipment n.e.c. 19 2,551 Manufacture of electrical and optical equipment 49 10,799 Manufacture of transport equipment 48 18,885 Manufacturing n.e.c. 10 1,212 Electricity, gas and water supply 6 374 Production Total 334 68,953

Construction Construction 3 139 Construction Total 3 139

Financial and Financial intermediation 14 2,744 Business Real estate, renting and business activities Services 83 6,977 Financial and Business Services Total 97 9,721

Distribution, Wholesale and retail trade; repair of motor vehicles, motorcycles and 58 4,244 Hotels, personal and household goods Restaurants, Hotels and Restaurants 2 390 and Transport Transport, storage and communication 19 5,359 Industries Distribution, Hotels, Restaurants, and Transport Industries Total 79 9,993

TOTAL 513 88,806 Source: Evans, P. et al. (2008) Empirical Investigation of Foreign Direct Investment in Wales, A Report to the Welsh Assembly Government Economic Research Unit. 3. As shown by Table 3, the United States is by far the most signiﬁcant investor in Wales, employing more than 31,000 people, followed by Japan and Germany. In the table, Airbus has been included as a pan-European investor accounting for approximately 7,000 workers. Outside of Japan, it is worth noting that a further 5,000 jobs are dependent upon investment from others parts of Asia and the Middle East. Table 3 TOP INVESTING NATIONS IN WALES, 2008 Rank Nation Employment Number of sites %

1 United States 31,223 174 35% 2 Japan 9,392 46 11% 3 Germany 7,148 66 8% [4] [Airbus (Europe)] [7,000] [1] [8%] 5 France 5,451 31 6% 6 Netherlands 5,127 20 6% 7 India 3,894 11 4% 8 Ireland 3,783 22 4% 9 Italy 3,270 18 4% 10 Sweden 2,630 21 3% Others 9,888 103 11% Total 88,806 513 Source: Evans, P. et al. (2008) Empirical Investigation of Foreign Direct Investment in Wales, A Report to the Welsh Assembly Government Economic Research Unit. 4. Extant research on FDI in Wales ﬁnds that by far the most important deciding factor in choosing Wales as an investment location is the availability of the government grants and subsidies that facilitate the initial location process. If this assistance were not available then the majority of FDI projects would not be attracted to Wales. The perception during the location decision-making process by potential FDI plants of the availability and quality of skilled labour in Wales is good compared with that of other potential regions. However, upon locating it appears that there is a signiﬁcant shortfall between this perception and the actual quality of skilled labour available. Although the large majority of FDI plants utilise aftercare training and skills-development initiatives facilitated by regional institutions and agencies the programmes in place in Wales are not always of the standard required by inward investors.

FDI and the Knowledge Economy 5. As the knowledge economy is prioritizing the nurturing of skills and talent, it is also changing how economies attract from overseas the types of investments creating high value-added. Global competition for such investment is increasing, requiring major shifts in policy and strategy. In particular, those economies that cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:06] Job: 008852 Unit: PG01

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have traditionally attracted high shares of such investment now need to think more innovatively about how they attract and embed knowledge-based FDI. In contrast to the traditional economy’s requirement for capital and land, the knowledge economy relies upon less tangible inputs such as education, networks and innovation infrastructure. The knowledge economy is radically altering the landscape of FDI and requires new thinking from those who wish to remain or become major players in the global knowledge investment and attraction race. 6. It is important to understand the different approaches required to attract and embed knowledge-based investment compared with more traditional sectors of activity. Traditional areas of inward investment, such as low value added manufacturing, have declined within most OECD nations, being replaced by knowledge-based activities such as financial services and pharmaceuticals. Also, the general size of initial FDI investments in developed economies has fallen in recent years, with a switch towards attracting smaller and growing knowledge-intensive businesses, as mainstream and large-scale manufacturing operations relocate to developing nations in Eastern Europe and Asia. The requirement for Wales is to formulate the correct investment conditions for both retaining homegrown companies and for encouraging foreign investors to choose Wales as a home for knowledge-intensive industries. 7. In the past, the traditional rules of FDI attraction involved the provision of an adequate infrastructure, a relatively low cost labor force and incentives—chiefly in the form of subsidised land and tax breaks. The primary objective of the host location was job creation. In essence, many of the traditional methods of attracting FDI are cost-based, and this has been particularly relevant and effective where investments have been made in large-scale manufacturing. Under the new environment, the primary goal and means of FDI attraction is based more on the creation of knowledge spillovers, such as the transfer of new skills, science and management techniques. Viewed by the host economy, such spillovers stimulate local competition and innovation. When knowledge is the key competitive component of investment attraction, land or plant-based policy incentives become less relevant, replaced by opportunities for networking and technology transfer. 8. For regions such as Wales, which lack a high density of home grown major corporations, FDI potentially plays a vital role in regional innovation and absorptive capacity processes, particularly its capability to create and exploit new knowledge through technological and managerial advances. The knowledge held by multinational corporations has a tendency to spillover to other firms clustered in the same region, resulting in increasing economic returns. This highlights the advantageous nature of embedding international firms within a region for innovation and development. In the past, businesses investing overseas have tended to keep the majority of high-technology and knowledge-intensive resources within their indigenous location. More recently there are trends emerging whereby a research presence within the host location is seen to provide additional knowledge transfer benefits, especially access to new sources of technological, organisational, and marketing expertise, as well as overseas innovation systems.

A Switch from Manufacturing to Services 9. In recent years, the focus of FDI in advanced host economies has rapidly switched from manufacturing to the service sector. This switch can be related to three key factors: (1) services are the largest productive sector in most economies; (2) many services are crucial inputs into products that compete in domestic and international markets; and (3) advances in information and communication technologies (ICTs) facilitate trade in services. As the knowledge economy prioritises the nurturing of skills and talent, it is also changing how regions attract from overseas the type of investment creating high value-added output. 10. In general, FDI policies have increasingly focused upon the importance of embedding ﬁrms within their host environment. For instance, many policymakers have taken considerable steps in encouraging workforce development activities to ensure that local suppliers match investor needs. Without such embeddedness, poor trading conditions may render certain investors highly liable to make an exit from the host region, with investment being repatriated to the country of origin in order to bolster local employment and income. 11. Overseas research facilities are more frequently forming a component of centrally-coordinated global programmes of basic or applied research, with the objective of reinforcing or revitalising the core technology of multinationals. Once attracted to a location, therefore, foreign-owned have the capacity to act as “anchor tenants” within the regions in which they are hosted, enhancing innovation systems and stimulating local R& D and innovation activity. In general, Wales has been less successful in attracting high value added service sector FDI projects, in comparison with economically leading nations. It has a lower density of high value service sector employment per se and does not possess service-based clusters that act as magnets for investors. Also, service sector FDI may be less reliant on the type of grant aid that is often attractive to the types of large-scale manufacturing investors that have been the FDI staple in Wales. 12. As the UK continues to de-industrialise and mass employment manufacturing investment continues to shift to China, Eastern Europe and elsewhere, the regional battle in the UK and other advanced nations to attract and embed FDI with knowledge-based capabilities is shifting towards high value services. As Table 4 indicates, London and South East England are the preferred locations for a large proportion of service (ie non- manufacturing) sector projects, which is understandable given issues relating to infrastructure, accessibility and regional markets. If this bias is to be overcome, policy in Wales must continue to move its focus from creating the conditions for manufacturing attraction to one that fully encompasses globally mobile service sector operations. cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:06] Job: 008852 Unit: PG01

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Table 4 SERVICES INVESTMENT BY FOREIGN-OWNED COMPANIES (ANNUAL AVERAGE 1998–2004) Services Investment by Services Investment by Foreign-Owned Companies Foreign-Owned Companies per Capita (Annual Average (Annual Average 1998–2004) 1998–2004) Rank Region (£ million) (£)

1 South East 1,856 225.30 2 London 1,302 173.31 3 North East 356 139.30 4 Eastern 728 129.85 5 West Midlands 448 83.48 6 South West 384 74.94 7 East Midlands 310 71.03 8 Scotland 354 69.18 9 North West 444 64.79 10 Yorkshire and The Humber 297 57.76 11 Wales 114 38.44 12 Northern Ireland 57 32.73 Source: Annual Business Inquiry, Office for National Statistics. 13. The arrival of FDI may signal an environment of increased competition, whereby local firms are “forced” to improve efficiencies and undertake innovations if they wish to enter the supply-chains and knowledge networks of the new investors. Indirect benefits in terms of innovation and productivity growth can, therefore, accrue as a result of increased FDI within a host economy. By attracting and embedding knowledge-based FDI, regions and nations can access these new benefit accruals, which help to create a sustainable and competitive economic environment.

New FDI Policies for Wales 14. In its traditional form, FDI policy followed a series of fairly well trodden and rehearsed rules, encompassing the provision of pragmatic attractions such as financial incentives, ample land availability, and a sound infrastructure with competitively priced labour. In more recent times, FDI policy has become increasingly sophisticated, focusing on embeddedness, aftercare and retention. Chiefly, this has come in the form of fostering local and global relationships and networks between indigenous businesses and inward investors. 15. The emergence of the knowledge economy means that the provision of grant incentives is no longer enough to secure inward investment. The emphasis is now shifting towards the requirements necessary for attracting knowledge entrepreneurs and workers. In the knowledge economy people do not follow jobs—jobs follow people. This alters the rules of FDI attraction. Within the traditional model the firm is the key unit of attraction, whereby securing its presence leads to an influx of job opportunities and, in turn, labour. The new model puts people at the centre of attraction, with those locations able to keep entrepreneurs and skilled labour reaping the benefits of the businesses they attract as well as the businesses they create and develop. Knowledge- based FDI attraction policies necessarily revolve around the movement and requirements of key knowledge entrepreneurs and workers. Knowledge workers spur knowledge networks, which subsequently leads to FDI attraction. 16. The attraction of knowledge workers is not solely concerned with “techies” but also of high-level—and often like-minded—professional and managerial workers. This broader band of knowledge workers require a strong mix of an appealing living and working environment—in cultural, physical and business terms—as well as a cluster of stimulating people, businesses and ideas across a broad cultural spectrum from art to high- technology endeavours. The successful places of the future will be those that build a creative economy attracting knowledge entrepreneurs and workers. 17. Knowledge workers are often inclined to prefer environments possessing cultural openness and diversity. There are a number of indices that track the link between knowledge-based regions and diversity, and find the existence of strong concentrations of social and cultural diversity in the most successful regions. This indicates that not only are culturally diversified communities and regions the most productive and attractive, but that FDI policies should be formulated to create and market a socio-economic and cultural environment that is culturally diversified, transparent and open. 18. FDI policies across the globe have increasingly focused upon the importance of embedding firms within their host environment. Many policymakers have taken considerable steps, and have encouraged training courses (often operated by the inward investors) to ensure that local suppliers match investor needs. They have also established bespoke vocational training qualifications specifically designed to equip the local labour force to work with the inward investors. Such advances have been positive and innovative within the surroundings cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:06] Job: 008852 Unit: PG01

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they have been set. However, a knowledge economy environment requires a deeper form of embedding, which helps knowledge entrepreneurs and workers access new opportunities for creative advancement. As well as linkages with suppliers, interaction with universities and other research establishments is a key feature of investor embeddedness in the knowledge economy. 19. Since an existing concentration of well-qualiﬁed workers is a crucial cog in the building of successful knowledge-based FDI policies, we consider that if the correct mix of skills are present, a knowledge-based company will gravitate towards a particular region, be it foreign or domestic, whether or not there are tax incentives on offer. By attracting knowledge workers, companies and investors will follow, allowing further start-up investment to be available, and further attraction activity and cluster development to occur. 20. We are not suggesting that the traditional cornerstones of FDI attraction policies are totally cast aside. Instead we are stressing that within the knowledge economy location decisions made by individuals are subject to creative lifestyle issues, which were not always given priority within the formulation of more traditional FDI attraction policies. A sound economic development policy of high R&D and education investment, together with thoughtful planning in terms of cultural attraction, access to open spaces and diversity of residential accommodation is playing a more substantial role in the attraction of FDI within the knowledge economy. 21. Knowledge-based FDI, as with all other types of FDI, hinges on the successful development and implementation of three core pillars: attraction; aftercare; and embedding. In addressing these components, Figure 1 is one perspective by which to view the long-term process of continuous attraction and retention of knowledge-based investment. The cornerstone of knowledge economy development lies with addressing the needs of knowledge workers, which includes supporting their ability to access knowledge and turn this knowledge into innovation, as well as the quality-of-place and environment in which they reside. Therefore, the quality of available education is another key to the long-term sustainability of this policy. Attracting knowledge based investment rests not upon excelling in one component but upon the ability to engage all facets.

Figure 1 ATTRACTING KNOWLEDGE-BASED INVESTMENT

Addressing the needs of knowledge workers workers

Knowledg-e networked Quality of Place environment

Stock of Quality of Knowledge Education Capital

22. The commitment and integration of knowledge-based FDI in host economies is related to the ability of investors to develop networks and become key nodes in the skills economy and supply-chains within the regions they are located. Traditional policy boundaries between FDI and indigenous development are becoming blurred. For instance, the retention and aftercare services offered by policymaker are often the same for both FDI and indigenous knowledge-based businesses, particularly if they are part of the same value-chain. This is a policy development occurring within the most knowledge progressive regions throughout the world. 23. Embedding knowledge-based investors is an area where policymakers must take a proactive approach. A systematic approach to aftercare and embedding is needed, together with a formal means of examining current and future investor requirements. Efforts must be made to understand the requirements of existing investors, ensuring that opportunities for further investment and expansion are not missed. Also, facilitating networks with local venture capitalists, universities and knowledge entrepreneurs and workers will ensure that investors are fully aware of the range of advantages an economy has to offer. A commonly held belief is that cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:06] Job: 008852 Unit: PG01

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the key strategic decisions of FDI are made in the home, rather than host nation. In reality, there is often quite a substantial degree of local initiative, especially relating to reinvestment decisions. There is considerable opportunity and potential for policymakers to support and nurture this process through careful and strategic embedding activities. 24. If policymakers in Wales are to take knowledge-based FDI seriously, they must work towards establishing a management strategy for knowledge attraction along the lines highlighted by Figure 2. The key features of such a strategy being: — An understanding of the role for the strategic integration of locational development models between national, regional and/or local players. — An understanding of the role for strategic integration between the business community and knowledge actors, including universities and other public and private sector research establishments. — An understanding of the importance of knowledge economy activities to the overall size and performance of national and regional economies. — Once the above factors are analysed and understood, it is then possible to proceed towards the establishment of an integrated marketing strategy.

Figure 2 KEY COMPONENTS OF A MANAGEMENT STRATEGY FOR ATTRACTING KNOWLEDGE-BASED INVESTMENT

Vertical Local Areas Location Wider Region/Nations Integration

Horizontal Knowledge Actors Location Business Community Integration

Locational Knowledge Market $ Capitalization Capitalization Capitalisation

Analyse

Understand

Market

November 2010

Written evidence submitted by Pingar LP — Pingar was appointed in 2008 under the UKTI’s Global Entrepreneur’s Programme. — Over the past 18 months we have invested from NZ over £250,000 into Kaimai Research, initially a modest operation in Swansea with a view to long term growth. — We originally investigated opening a European research operation in the East of England (East of England International) or Wales. — We chose Swansea NOT for Financial Incentive reasons primarily but on skills from Swansea University and in particular Professor Matt Jones who has significant world leading knowledge and experience working with Waikato University in New Zealand and the energy we felt when engaging with our IBW contacts. — IBW: Once the introduction was made at a NZTE meeting we were extremely impressed by the thoroughness and excellent support we received from IBW (non-financial). In particular Catrin Kemp and the team in London, Cardiff. The IBW New Zealand/Australia office and staff were actively engaged with NZTE and provided every assistance in promoting Pingar in NZ and UK. cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:06] Job: 008852 Unit: PG01

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— We moved to Technium 1 in Swansea and engaged two graduates with assistance of IT Wales at Swansea University and subsequently moved to Digital Technium. — We launched at MP sponsored event at the House of Commons in November 2009 we announced our intention to jointly form with the University of Wales (POWIS) and the University of Waikato (supported in NZ by FRST and Priority One, Bay of Plenty regional development authority) a two centre research and PhD student exchange programme and the development of a centre of research and development excellence known as “The Centre of Knowledge Engineering”. This is still on going. — We have now signed sponsorship contracts with Software Alliance Wales for four 4th year students and a Swansea graduate to undertake a PhD research under the KESS (WAG/EU) programme.

Executive Summary 1. Pingar LP was formed in New Zealand in 2008 as a privately funded Limited Partnership and has developed significant IP in Search Summarisation and Content Monetisation. Private investment and financial assistance from the New Zealand government’s Foundation for Research, Science and Technology and NZTE enabled us to develop world leading research and development with the Universities of Waikato and AUT (Auckland). 2. Pingar was chosen as a NZ company of high growth potential and is a member of the New Zealand governments “Beachead” programme. With that comes matched financial assistance and leading mentoring programme in the UK, USA and Asia in order to grow the organisations position outside of New Zealand. 3. We are about to expand but due to the change in the UK immigration policy we are now unable to locate our original Swansea University graduate (Hong Kong national) who has developed our Chinese Search product we recently launched in Beijing with Microsoft and the New Zealand Government. Also if our application for a larger office facility at the Digital Technium is rejected the board is seriously reconsidering our future in growing our facility in Wales.

Recommendations 1. The concept of a single investment fund is innovative and should remain. “Time to decision” is a key factor for competitive advantage and our recommendation is that the New Zealand government/FRST research grant’s timely application process should be considered. 2. The Welsh Assembly government should review the New Zealand support and assistance for perceived “High Growth” companies and the Beachead programme for overseas growth assistance. 3. SIF grants should remain and ﬂexible with regard to speed of decisions but access to early stage and International growth Venture funds should be a priority. Finance Wales as a venture fund vehicle should be reviewed. New Zealand introduced the Limited Partner investment tax incentive programme and was well received by single investors. No capital gains tax was also a boost to investment. 4. University of Wales in particular should be supported in continuing to engage Internationally with leading global universities in developing joint PhD programmes and development of world leading “Centres of Research Excellence” in Wales, and the subsequent engagement with all Welsh Universities for mutual beneﬁt. 5. UK immigration policy for SME’s who are actively engaged in Wales by recruiting graduates from Welsh Universities should be reviewed in order to allow these skills to remain in Wales. The inability to retain the skills that they have learnt whilst graduating in the universities of Wales will be detrimental to long term skills retention and competitiveness. 6. The Technium concept of incubation is of the highest quality and an excellent support programme but the application process seems unwieldy and a barrier to many SME’s with no track record. November 2010

Written evidence submitted by General Dynamic UK Executive Summary — Investment in Wales by GDUK. — UK Government sets the overall framework for employment in the UK. Competition between international Governments to attract overseas investors is intense. — Welsh Assembly Government (WAG) has a major interest in persuading investors to select Wales over other parts of the UK, and the backing it is able to offer can be critical. — Lack of available funding constrains WAG’s ability to assist (and therefore attract) new investors. Recent budget cuts inevitably raise questions about future prospects. — Too soon to judge likely effectiveness of the recently introduced Economic Renewal Programme. cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:06] Job: 008852 Unit: PG01

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— However, GD UK’s very positive experiences of dealing with WAG over coming to, and investing in, Wales offer genuine grounds for optimism.

GD UK’s Investment in Wales 1. Based in the UK for almost half a century, General Dynamics UK employs around 1,600 people. 2. We have a long and strong history of working closely with the UK MoD, notably as a key supplier of avionics to the UK’s fixed wing and helicopter fleets (dating back to the 1960s), the leading systems integrator for the Army’s fleet of vehicles, the manufacturer of the next generation of the Army’s Armoured Fighting Vehicles and a leading provider of security and resilience technology and capabilities which enable battle- winning military command and control through information dominance. 3. The three main components of our business are Command, Control, Communications, Computers and Intelligence (C4I), Advanced Projects and Technologies (AP & T) and Mission and Security Systems (M & SS). 4. GD UK first moved to South Wales in 2001. Since then, our operation has evolved and grown rapidly. We now employ some 800 people at two sites in the Valleys, Oakdale and Newbridge. Both our C4I and AP & T Business Units are based in and led from Wales, as is our R&T capability, focussing on our unique EDGE facility, which specialises in transforming innovative ideas into products with practical, problem-solving applications. 5. We recognise that the focus of the Committee’s Inquiry is on overseas-based companies investing in Wales and that, while our parent company General Dynamics is a US company, GD UK’s Profit and Loss responsibilities are entirely in the UK, with the company having operated here since the early 1960s. 6. We nevertheless believe that we have useful (albeit selective, hence the relative brevity of this submission) insight to contribute to the Committee’s deliberations by dint of our experiences when investing in Wales over the last decade and our dealings with the WAG over that period, in particular given the recent changes to how it allocates funding to support industrial development.

HMG’s Role 7. It is, of course, for HMG to establish the overall framework for employment in the UK. Levels of taxation, ground rent, remuneration of staff, industrial capabilities, skill sets, logistics and access to markets—all of which are susceptible to inﬂuence by Whitehall—are important factors considered by industry when selecting a new location to establish a business.

Attracting Companies to Wales 8. Wales has the additional advantage of being able to use the extra political and ﬁnancial support available from the WAG to entice companies looking to establish themselves in the UK. Many of the capital and recurrent costs identiﬁed above are lower in Wales than in other parts of the UK, though to some degree this is offset by some infrastructure shortcomings.

Adjusting to the Comprehensive Spending Review 9. We are naturally aware that this picture has been complicated by the consequences of the recent Comprehensive Spending Review for the funding which Cardiff receives from London; the most obvious impact has been the introduction of the Economic Renewal Programme (ERP), which will undoubtedly result in profound changes in the mechanisms through which the WAG disburses funding for industrial support.

ERP and Sector Groups 10. Our understanding is that critical to the working of the new system will be the establishment of six Sector Groups, with the identification of a finite number of “anchor companies” within each. The WAG’s relationships with such anchor companies will be managed through so-called “Key Account Management” principles (with which we are thoroughly familiar, since this is a well-established approach within GD UK); and the need for the Assembly Government to recycle funding wherever possible is leading in turn to an increased focus on making grants repayable (effectively interest-free loans). 11. It is self-evidently too early to judge the effectiveness of new ERP framework. However, there are known and well-proven advantages to Key Account Management, which will produce benefits for both the WAG and anchor companies. More significantly still, we are strongly encouraged by the high level of engagement we have enjoyed at all levels of the WAG, from Ministers down. This comes at an important juncture for GD UK; after 10 highly successful years in Wales, the company is at its next major investment point.

GD UK’s Experiences 12. Our expectation is that the next phase of our co-operation with the WAG will focus on the availability of skilled staff, and in particular shortfalls in the number of suitably skilled/qualiﬁed/capable engineers emerging from academia. The Deputy First Minister has made clear that he wishes to establish world leading cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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R&D, R&T and manufacturing capabilities in Wales. We look forward to working with him to help bring this about.

13. It would be wrong not to conclude this submission by stating unequivocally that it would have been impossible for us to achieve all that we have since moving to South Wales without the extensive, consistent and staunch support which we have received from the WAG. November 2010

Written evidence submitted by the Welsh Assembly Government

Introduction

1. Wales, along with the rest of the world, is emerging from a recession which has demonstrated how the economies of individual nations are vulnerable to changes in global markets. The recession has changed the way markets, businesses and governments operate and has set the global economy on a new course.

2. All of this has called for a fresh approach to policy-making and its delivery in Wales. Over the last 12 months, the Welsh Assembly Government has developed and is now implementing with pace a new approach to economic development. Economic Renewal: a new direction sets out the role the government and wider public sector can play in encouraging success in the private and third sectors, and speciﬁcally where we can shape the conditions in which a dynamic economy functions.

3. Our vision for economic renewal is of a Welsh economy built upon the strengths and skills of its people and natural environment; recognised at home and abroad as conﬁdent, creative and ambitious; a great place to live and work.

4. The ﬁve priorities that will guide our policy and delivery are: — Investing in high quality and sustainable infrastructure—Wales needs modern, sustainable infrastructure to underpin economic growth and the wellbeing of our people. — Making Wales a more attractive place to do business—We need to develop the conditions which not only allow, but actively help, people and businesses to ﬂourish sustainably. — Broadening and deepening the skills base—The foundation of any economy is its working population and education and skills at all levels are vital for economic growth and prosperity in Wales. — Encouraging innovation—Research and development play an important role in stimulating innovation, and innovation is a key driver of economic growth and long-term wellbeing. — Targeting the business support we offer—We need to concentrate our resources where we can add the most value, through a sector-based approach, developing our role as an expert facilitator and enabler.

5. Government, both national and local, has a critical role in shaping the environment in which businesses operate, to encourage investment and reinvestment and create long term sustainable employment.

6. Through Economic Renewal: a new direction we will ensure that existing Wales based businesses, as well as future investors and local entrepreneurs, will beneﬁt from investment in infrastructure, research and development and improved conditions within which to operate.

CurrentLevel ofInwardInvestment in Wales and UKRegions

7. The nature of inward investment into Wales has changed over the last 15 years with a move away from predominantly large job intensive manufacturing investments secured in the 1980s and 1990s (including investments such as British Airways, Cable & Wireless, Calsonic, Ford, GE Aircraft Engine Services, L’Oreal, Panasonic, Robert Bosch, Toyota and TRW) to a mix of service and more capital intensive manufacturing investments (including Amazon, EADS, GE Healthcare, General Dynamics, ING Direct, Moneysupermarket.com, Siemens Healthcare, Sword, Virgin and Zurich Insurance).

8. In terms of the current levels of inward investment in the UK and Wales, it is of interest to consider both the new investments and current inward investment stock: — In terms of new investments, the most up to date UK Trade & Investment annual results recorded 3,341 forecast new jobs for Wales in 2009–10 representing 6% of the UK total and ranking Wales in fourth place behind the East of England, London and the North West. (For the UKTI inward investment performance for the last ﬁve years, please see Annex 1). cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

Ev w12 Welsh Affairs Committee: Evidence

— In terms of inward investment stock, according to the Ofﬁce for National Statistics Inter Departmental Business Register (IDBR), as of March 2010, there were 1,045 overseas owned companies in Wales employing approximately 140,000 people equating to 12.4% of employment in Wales. In terms of the UK regions, this compares to overseas owned employment of approximately 79,000 (10.6%) in Northern Ireland, 270,500 (11.7%) in Scotland, 256,500 (11.6%) in the South West and 250,000 (13.6%) in the East Midlands. (For a listing of employment in all regions, please see Annex 2).

Potential forFutureInwardInvestment 9. Wales’ potential in attracting high quality inward investment, particularly in each of the six priority sectors under Economic Renewal: a new direction, is highly promising. We are enhancing our wider offering to inward investors through, amongst other things, a focus on infrastructure, skills and procurement, measures that build on the solution orientated approach that we take with all companies regardless of their nationality. Of course, we also retain the ability to consider business finance for mobile projects. Unquestionably, Wales offers business opportunities and key investment solutions to internationally mobile companies planning to establish a base in Europe. Across each of the six priority sectors namely the Creative Industries, ICT, Financial & Professional Services, Life Sciences, Energy & Environmental and Advanced Materials & Manufacturing, Wales offers a compelling argument to companies wishing to establish and grow businesses. 10. For sectors such as ICT, which is continually at the forefront of the inward investment performance league tables in terms of number of projects, capital investment and jobs created, Wales offers a growing and competitive mix of opportunities in skills availability and technology spread. This includes, an expanding cluster of ICT and associated services companies along the M4 which deliver support to a spectrum of industries in the UK and globally, the roll out of fibre speed infrastructure along the A55 and a growing focus in cloud computing. 11. Wales has a strong proposition and a growing global network of business relationships in the emerging area of Automotive Low Carbon and Alternative Transport Technologies. The regional strengths include clear advantages demonstrated at University research level on battery development and alternative fuel systems (e.g. hydrogen and electric). Toyota and Ford, which have a significant business presence in Wales, have both recently announced the production of hybrid and low emissions engines at their Welsh plants. 12. The Aerospace sector has huge growth potential globally and Wales is very well placed to secure a significant proportion of this investment. Aeroplane manufacture and maintenance is rapidly evolving and the need for significant investment into R&D, new design and production techniques and new advanced maintenance procedures is forcing companies to move forward with urgency. With the time line from initial R&D through to certification and finally to commercialisation taking up to 15 years, the benefits for any region able to secure such investments is significant. 13. Wales has a strong and growing offering in a broad mix of Financial and Professional Services, from legal services, general insurance, cards and payments, financial administration and online financial applications including the area of price comparison websites. Despite the recent industry downturn, the potential for future FDI for Wales in the financial services arena is significant. The availability of key skills across Wales and the easy access to the City of London, which is Europe’s financial services capital, presents Wales with a range of second phase investment opportunities for companies expanding out of London. 14. The Life Sciences sector in Wales comprises a dynamic mix of smaller companies involved in medical technology, diagnostic and clinical trials, as well as a small cluster of larger international players involved in pharmaceutical and diagnostic activities. The global sector clearly presents attractive future investment opportunities for Wales. As part of our proposition, we have a number of strong business support platforms to attract businesses that are linked to academia including for example, Swansea University’s Institute for Life Sciences I and II, the Centre for Nanohealth at Swansea, three new inter-disciplinary research institutes at Cardiff University and the National Centre of Excellence in Biomechanics and Bioengineering at Cardiff University. 15. The Energy and Environmental marketplace offers major opportunities for Wales and other areas of the UK / Europe. As legislative drivers and new technologies deliver consumer and commercial step-changes, significant investment potential and key business growth will emerge. Whilst most aspects of the rapidly changing Energy and Environmental industry presents investment potential for the UK, there are a number of sub-sectors which offer greater sustainability and financial returns than others. Specific areas of Welsh technology interest include offshore energy, onshore wind energy, nuclear, energy efficiency / built environment and recycling and recovery.

RolePlayed by the Welsh Assembly Government, the UK Government andCo-operation 16. The attraction of inward investment to Wales is facilitated by the Department for the Economy and Transport (DE&T) overseas network, specialised inward investment sector and project teams, together with support from other specialist departments within the Welsh Assembly Government. cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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17. In order to keep abreast of the fast changing world of inward investment, as of early 2011, we will be moving to an improved multi-disciplinary sectoral approach. This new approach has been driven by the changes in the global economy, changes in the competitive landscape of investment promotion and a desire for better ways of working. Six new specialised sector teams, guided by Sector Panels and working with our representation overseas, will be responsible for securing new inward investment. We will also target aftercare to existing investors to encourage and support reinvestment, through appropriate attention to anchor companies and regionally signiﬁcant companies. This will deliver a more seamless service and greater continuity between securing new inward investment and bringing about expansions and reinvestment. 18. The Welsh Assembly Government works closely alongside UK Trade & Investment (UKTI) to maximise the opportunity for inward investment into the UK and Wales. At a strategic level, the Welsh Assembly Government is a core member of the UKTI International Business Development Forum (IBDF). 19. At an operational level, the Welsh Assembly Government works closely with UKTI’s UK based sector teams and also has well developed relationships across UKTI’s global ofﬁce network, particularly in Wales’ inward investment and trade markets. These relationships are vital if UKTI is to be an effective lead generator and overseas business facilitator for Wales.

SupportAvailable toOrganisationsInvolved inPromoting Wales 20. Wales promotes itself in a variety of ways to its inward investment target audience, both through the UK and on a global basis. We currently have nine overseas ofﬁces which proactively promote the sectoral and business strengths and opportunities of Wales as a destination for mobile investments. This is delivered through a tailored mix of marketing and promotional methods which best suit the geography, sector and target audience. Activities include direct contact with key target companies, awareness raising through in-market advertising and press promotion, attendance at sector events, lead generation, as well as proactive relationships with private sector intermediaries and government organisations such as UKTI. 21. We are currently reviewing our overseas presence to ensure alignment to our strategic direction and to maximise the beneﬁts they offer.

BusinessConditionsNecessary toAttractForeignInvestment 22. The inward investment landscape has altered significantly over the last decade with the emergence and success of new Central and Eastern European investment locations in the late 1990s, the unparalleled growth of China as an investment location since joining the World Trade Organisation (WTO) in 2001, the emergence of new Investment Promotion Agencies (IPAs) and the development of new policies by IPAs to attract sustainable foreign investment. 23. The investment landscape clearly reflects the changing business conditions and business environments in these and other economies. Top of mind business conditions which are generally thought to influence levels of inward investment include infrastructure, skills levels, levels of taxation and other financial incentives. 24. From a practical perspective, the conditions which will help maximise Wales’ opportunity for attracting new inward investment include global recognition and visibility as an investment location, a world class infrastructure, a proven track record in delivering successful projects, high-quality skills and labour availability, delivery and availability of land / property solutions and financial competitiveness. The Welsh Assembly Government’s approach to economic development, Economic Renewal: a new direction will ensure that existing Wales based businesses, as well as future investors and local entrepreneurs, will benefit from the roll out of a world class infrastructure essential in driving forward future skills and technologies, a business environment conducive to the development and implementation of new ideas and a strong track record in terms of commercialising high end research and development.

InSummary — The Welsh Assembly Government’s policy for economic development, Economic Renewal: a new direction will ensure that existing Wales based businesses, as well as future investors and local entrepreneurs, will beneﬁt from investment in infrastructure, research and development and improved conditions within which businesses operate. — As of March 2010, there were 1,045 overseas owned companies in Wales employing approximately 140,000 people, equating to 12.4% of employment in Wales. — In 2009–10, Wales secured 3,341 forecast new jobs from inward investors, representing 6% of the UK total and ranking Wales in fourth place. — Wales’ potential in attracting high quality inward investment, particularly in each of the six priority sectors under Economic Renewal: a new direction, is highly promising. — The attraction of inward investment to Wales is facilitated by the Department for the Economy and Transport (DE&T) overseas network, specialised inward investment sector and project teams, together with support from other specialist departments within the Welsh Assembly Government. cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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— The Welsh Assembly Government works closely alongside UK Trade & Investment (UKTI) to maximise the opportunity for inward investment into the UK and Wales. — There were approximately 344,000 people employed in the public sector in Wales in the ﬁrst quarter of 2010. December 2010

Annex 1 NEW INWARD INVESTMENT, UK AND WALES New Jobs UK Year UK Wales % ranking

2005–06 34,077 3,132 9.2 6 2006–07 36,526 3,379 9.3 4 2007–08 45,051 3,743 8.3 6 2008–09 35,111 2,185 6.2 7 2009–10 53,358 3,431 6.4 4 Note: 1) Analysis based on secured projects, as per UKT&I eligibility criteria

Annex 2 CURRENT UK INWARD INVESTMENT STOCK, BY REGION EMPLOYMENT BY OWNERSHIP AND UK REGION (MARCH 2010) Foreign Owned UK Owned Total % Regional Employment which is Foreign Region Employees % UK Employees % UK Employees Owned

East Midlands 249,565 6.7 1,579,275 6.9 1,828,840 13.6 East 301,305 8.1 2,077,059 9.0 2,378,364 12.7 London 736,772 19.9 3,376,404 14.7 4,113,176 17.9 North East 143,179 3.9 862,184 3.8 1,005,363 14.2 North West 375,866 10.1 2,533,589 11.0 2,909,455 12.9 Northern Ireland 79,037 2.1 663,854 2.9 742,891 10.6 Scotland 270,505 7.3 2,032,998 8.8 2,303,503 11.7 South East 583,471 15.7 3,060,180 13.3 3,643,651 16.0 South West 256,507 6.9 1,949,182 8.5 2,205,689 11.6 Wales 139,438 3.8 988,362 4.3 1,127,800 12.4 West Midlands 314,341 8.5 1,966,192 8.6 2,280,533 13.8 Yorkshire and the Humber 255,706 6.9 1,902,162 8.3 2,157,868 11.8 UK Total 3,705,692 100.0 22,991,441 100.0 26,697,133 13.9 Notes: 1. Analysis showing the Count of VAT and/or PAYE based Enterprises plus Count & Employees of VAT and/ or PAYE based Local Units in the UK by Foreign/UK ownership by Government Ofﬁce Region. 2. Data as at March 2010. 3. All ﬁgures are rounded to avoid disclosure. Where the Count is deemed to be disclosive the auxilliary variable ie Employees will be removed, where we remove one in a row or column we must remove another to avoid disclosure by deduction. cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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Written evidence submitted by German Industry UK

GERMAN INDUSTRY UK has been in discussions with the Secretary of State for Wales, Ms Cheryl Gillan MP; the Minister for Wales, Mr David Jones MP; the Deputy First Minister for Wales and Economics Minister, Mr Ieuan Wyn Jones AM; the Deputy Minister for Science, Innovation and Skills, Ms Lesley Grifﬁths AM, and other Welsh MPs and AMs, as well as senior ofﬁcials of the Welsh Assembly Government, for some time about the way forward for Wales as we see it.

The priorities in Wales are obviously in creating and protecting jobs, since private business has lost many jobs in recent years, and the public sector will lose many jobs in the near future.

GERMAN INDUSTRY UK believes that the way forward for Wales is in the areas of: — Environmental technology. — Renewable energy. — Healthcare.

Since additional German investment and therefore further employment opportunities are most likely in these areas.

Wales would also beneﬁt from: — a competitive manufacturing environment; — further improvements to skills training; and — increasing exports to Europe, in particular Germany.

Having read “Economic Renewal: a new direction” published by the Welsh Assembly Government in July, we can see that energy and environment, manufacturing, life sciences, and skills training are key areas for the Welsh Assembly Government in the future.

1. Wales needs more support of private business, in particular entrepreneurs and SME’s, where the Welsh economy is weak, and also further investment in skills and training. We believe the areas with growth potential are environmental technology, renewable energy and healthcare. It is in these areas where GERMAN INDUSTRY UK would like to introduce leading-edge German experience into Wales. Here we feel further inward investment is more likely to come from Germany in the future.

There are some 40 German owned companies in Wales at present. Several have moved their manufacturing out of Wales during the last few years, in particular to Eastern Europe. BOSCH alternator plant in Miskin is a classic example of this.

As far as German inward investment is concerned, Wales has therefore lost its competitive edge in many areas of industry, for a number of reasons, and therefore needs to focus on the three areas mentioned above, which are, in our view, the future. RWEs engagement in Wales is a prime example of this.

GERMAN INDUSTRY UK would like to help the Welsh Assembly Government in attracting German companies to Wales in these areas.

2. GERMAN INDUSTRY UK has been working for some time on a project to set up a German renewable energy park in Wales and is in discussions with RWE, E.ON, Siemens, REpower, ThyssenKrupp, Demag and other German companies about this project. All of these companies are supportive. Our benchmark is the renewable energy park in Bremerhaven in Northern Germany.

We would like to help establish Wales as the foremost country in the UK for renewable energy.

3. In a bid to bridge the skills gap in all areas, in particular, engineering, we have met Ms Lesley Griffiths AM recently and are in the process of setting up a working group in Wales with a view to introduce some aspects of German skills training, which has proved to be so successful for Germany. We have already done so with Mr John Hayes MP, the English Skills Minister, with the first meeting to take place in January 2011. Both Ms Griffiths and Mr Hayes are fully supportive of our ideas. We believe that a healthy skills base is vital in securing the future of the manufacturing base, in particular that of the SMEs and the entrepreneurs.

4. GERMAN INDUSTRY UK also strongly believes that new jobs could be created in Wales by supporting Welsh companies more, to expand or to start exporting to Germany, in particular, Europe’s largest economy with good growth rates. It is this area also, where we could help the Welsh Assembly Government. December 2010 cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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Written evidence submitted by South East Wales Economic Forum 1. Capital Wales is a partnership between the 10 south east Wales local authorities, the Welsh Assembly Government and the private sector. It replaced a number of separate local authority inward investment partnerships and promotes the region through the dual benefits of being a quality location for business combined with a high quality of life. It has a highly effective lead handling protocol that provides transparency and accountability and promotes the region in an equitable manner. 2. Historically Foreign Direct Investment (FDI) played a major part in determining the future direction of the Welsh economy. In those days we were seen as a low cost country with good links into Europe and an available work force. However, there is now more competition for FDI than ever before and the type of investment has changed. There is now more limited demand for the ‘big sheds’ that secured the ‘screwdriver’ operations of the past. Equally there is no point in chasing only the ‘high quality’ FDI which is also being chased by every other RDA, major city and foreign location. We need to reflect our commitment to securing FDI with an acceptable level of budget (people in work will need less support from the health service, will improve their own environment and will enhance their own skill levels), quality enquiry support and high quality after care from a partnership of all relevant staff in Wales. 3. Levels of support are now more targeted but could be improved by more open access to information, particularly in developing a single centre for property and site information. A more integrated approach between local authorities and Welsh Assembly Government regarding FDI and subsequent business support activity is required. 4. Following the Welsh Assembly Government’s announcement (Economic Renewal: A New Direction) in September 2010 of changes to the grant regime, there has been an information vacuum while the new regime is being developed. This causes difficulties for both internal (Welsh) and external customers. 5. There is some concern that funding for education, social services etc will largely be safeguarded, whilst job creation (either indigenous or inward investment) funding may decline as finances are stretched. It is important to take into account the health, education, skills and social benefits of people being in work. 6. There have been some successful relocations of central government offices to Wales (such as the Patent Office, Office for National Statistics). These are valuable both in terms of the employment they provide and their addition to the local research base, which in turn is attractive to potential investors. However, some jobs that have been relocated in the past are now being axed to reduce costs for example the Newport Passport Office proposed closure which is vital to Newport and the surrounding area’s economy. 7. Refocusing business support expenditure into technology (such as digital broadband rollout) is likely to be of particular benefit to more rural areas where the market sees little value in investing, but most businesses want to locate on the main routes into Wales where connectivity is already good. This suggests high level investment in high speed broadband in rural areas is unlikely to deliver strong business/employment growth benefits. 8. Transport infrastructure creates an initial impression to the FDI client and airport access, motorway quality etc can “make a difference”. Access to main sites is generally good but the presentation of older sites does not always give the best impression to 21st century investors. 9. South East Wales contains the country’s only Russell Group university—Cardiff. There is some research of excellent quality throughout the SE Wales region, but greater critical mass and a higher profile would be of enormous value in attracting knowledge-based potential investors. 10. There needs to be a review of all the elements that influence FDI: property, skills, taxation etc to ensure we offer what the client is looking for and not what we think they want. March 2011

Written evidence submitted by David Blackaby, Stephen Drinkwater, Philip Murphy and Catherine Robinson, School of Business and Economics, SERC, WELMERC, WISERD Introduction 1. Foreign direct investment is thought to bring with it a number of advantages. Firstly, by attracting foreign owned firms, regions increase capacity—in this sense they are additional to domestic firms. Secondly, they are thought to bring with them better products and processes; their production systems are more likely to be at the frontier of technology in order to be able to overcome the additional costs associated with entering foreign markets and mean they are more productive than domestic plants (raising the batting average). Thirdly, there are thought to be positive spillovers to domestic plants that are located near (either geographically or sectorally) to foreign plants. From the labour market perspective, foreign firms are thought to pay higher wages and tend to be located in sectors with high growth rates, export, capital and R&D intensities when compared to domestic firms. All of these factors suggest that FDI is beneficial to an economy, and indeed industrial policy has in the past been directed at attracting foreign investment into regions such as Wales as a means of increasing and safeguarding employment. cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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2. Reasons why FDI may not contribute as much to local economies as is theoretically suggested include the idea that they are technology seeking foreign firms; firms looking to learn from foreign markets. Alternatively, location may be more based on a branch plant model of investment and be more transient, with firms tending to relocate quickly to the most favourable locations when economic circumstances change. This is particularly likely if government assistance has attracted the inward investment and the location decision was based on the advantage of being able to circumvent trade tariffs. Under these conditions foreign owned firms may not bring with them the new technology or high value added production to an area. This is likely to minimise the growth impact on the region. These factors do not however suggest that from an employment perspective, FDI is anything other than beneficial to regions such as Wales, where unemployment is above the national average and earnings are below the national average.

FDI into Wales 3. Few can now doubt that the key to the revival of Welsh business fortunes in the mid 1980s was the gradual shift that took place in Wales away from the traditional smoke-stack industries of coal and steel towards light engineering industries such as component assembly and electronics. The industrial regeneration that this restructuring caused owed much to the steady flow of new (inward) investment into Wales from a number of foreign companies: mostly from the USA, Germany and Japan. Nurtured and encouraged by Welsh Office and WDA initiatives, foreign inward investment into Wales accounted for a disproportionate share of the UK total—over 14% between 1979 and 1991 despite having less than 5% of the UK population. Wales also accounted for almost 5% of total foreign investment in the EU between 1982 and 1994 despite having only approximately 0.5% of the EU population. This resulted in a significant increase in the number of employees in Wales employed by foreign-owned companies. By 1992 their number in manufacturing stood over 70,000 or just under 30% of all employees in the sector at that time. 4. With most of the jobs in manufacturing in foreign-owned companies based in “high growth fast track” industries like electronics, vehicle components and chemicals, there was a marked improvement in the performance of Welsh industry during the mid-1980s recovery. Jobs in engineering in Wales grew by nearly 15% between 1983 and 1990, compared to a fall in all other regions; the Welsh unemployment rate converged steadily on the UK rate; and real GDP growth in Wales was among the highest of all regions in the UK: averaging 4.5% per annum in 1986–90 compared to a UK average of 3.1%. Manufacturing productivity growth between 1981–92 was the highest of any UK region. 5. However, much of the new employment created by direct foreign investment in Wales was concentrated in relatively “low skilled” jobs. Inward investment into Wales was quick to exploit the low labour costs and ready supply of workers. The growth in low-skilled jobs in assembly and the decline in relatively high-paid manual jobs in steel and coal, however, have meant that earnings in Wales have continued to lag behind those in the rest of the UK despite research showing that inward investors usually pay at or above the domestic wage rate.

6. In addition regional growth inequalities in Wales look to have been ampliﬁed by the effects produced by the new investment. The north-east of Wales with its good communications links with the North-West of England and those areas bordering the M4 corridor in the south with good road and rail links to the South- East and Midlands have been most successful in attracting this new investment. One possible criticism of the WDA is that it should have done more to try and attract inward investment projects outside of the A55 and M4 corridors.

7. A signiﬁcant proportion of foreign inward investment into Wales during the 1980s from countries like the USA and Japan, was undertaken in order to avoid the EU common external tariff barrier. Wales not only provided a tariff-free base to foreign-owned companies from which they could exploit the EU market, but also offered the ﬁnancial incentives of low unit labour costs and capital subsidies which were tied to either the Assisted Area programme or to WDA sponsored initiatives.

8. Future foreign direct inward investment is as in the past, likely to gravitate towards areas which have low labour costs, a skilled and ﬂexible labour force in areas with good communications and industrial support environment. Unfortunately Wales’ position on these counts may not be as strong as it once was and Figure 1 shows that Wales is attracting a lower and declining share of UK inward investment. However, in 2009–10 Wales still attracted 6% of the jobs associated with UK inward investment which placed it fourth behind the East of England, London and the North West, still well above its population share but substantially below the percentage attracted in the “golden age” in the 1980s.

Support Environment 9. Partly in response to the decline in the share of inward investment projects the WDA was abolished in 2006 and its activities incorporated into the administration structures of the Welsh Assembly Government. Its brand identity, which was widely recognised around the world and associated with attracting billions of pounds of FDI and creating thousands of jobs, was not maintained. In the short run the reorganisation and loss of brand identity may have had a detrimental effect on attempts to attract further FDI into Wales. cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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10. However, since the 1990s there appears to have been a shift of emphasis in Welsh industrial policy away from the inward investment model and towards an emphasis on supporting indigenous growth and infrastructure. The evaluation of the WDA in 2001 examined the extent to which the WDA had concentrated its attention on FDI at the expense of supporting indigenous ﬁrms. The strategy document Wales: A Vibrant Economy (2005) also tended to emphases the importance of indigenous ﬁrms and perhaps play down the importance of FDI. This theme continued in the latest economic strategy document Economic Renewal: A new Direction (2010). The strategy does emphasize the importance of a high quality infrastructure, including broadening and deepening the skills base and targeting business support. Attracting FDI is considered integral to a more sectoral approach to business support with its focus on six sectors. There is a danger with a “picking winners” strategy, especially if the same high value added sectors are targeted by other countries. Projects such as Amazon (creating up to 1,200 new jobs) may no longer be targeted, however in an economy with relatively low employment, high inactivity rates and many low skilled workers, such investments will provide employment (albeit relatively low paid). At the very least, it may provide a foot into the labour market which may prove to be a stepping stone for further career enhancement.

Labour Costs 11. Despite its lowly position in the UK’s earnings league table, Wales has increasingly faced competition for inward investment from EU countries in southern and eastern Europe, where labour costs are amongst the lowest in Europe. EU expansion has also increased the number of these countries with tariff free access to this expanded European market. Countries in Asia have also seen high levels of inward investment boosted by relatively low labour costs, abundant labour forces and rapidly expanding internal and external markets.

Communications 12. Communication networks within, to and from Wales are falling behind other areas. The rail journey time between London and Swansea is still three hours and has not fallen over the last 30 years. Infrastructure investment and electrification of the railway lines have seen travel times fall dramatically between London and cities linked by the east and west coast railway lines in England and Scotland and further improvements are planned. Research has shown that the connectivity of cities (particularly to London) is an important driver of economic development within the UK. The recent announcement of the planned electrification of the railway line from London only as far as Cardiff has the potential to further reduce the attractiveness of locations west of Cardiff. Wales, Albania and Moldova appear the only countries in Europe which do not have electrification of part of their railway systems. The recent decline in passenger numbers at Cardiff airport and the observation that it appears to be losing out to other regional, airports is another major concern given the importance given to the role of airports in attracting FDI. Robert Reich former US Secretary of Labor emphasised the importance of the quality of infrastructure particularly a world class university and an airport in attracting investment, “brains and quick access to the rest of the world”.

Labour Force Skills 13. It is recognised that in a world where the same equipment is available to all, it is the skills and the resourcefulness of those operating that equipment which determines economic success. The need for additional skills and better training is seen as essential to improving the long term performance of Welsh business and the Welsh economy. The Leitch Review (2006) notes that “there is a direct correlation between skills, productivity and employment “and that whilst “skills were once a key lever for prosperity and fairness. Skills are now increasingly the key lever”. The economic gains from raising skill levels are potentially very large. The Department for Business, Innovation and Skills (2009) report, Skills For Growth: The National Skills Strategy, quotes research that shows that a “one percentage point increase in the proportion of employees trained is associated with an increase in productivity of 0.6 percentage points, which in turn is worth around £6 billion a year to the UK economy” Leitch found that the skills of the UK workforce as a whole were not world class and lag behind many of OECD countries. Leitch found that the UK did not appear in the top quartile out of 30 OECD countries. The position of Wales as shown in Table 1 was particularly weak with regard to “low” skills and “higher” skills. cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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Table 1 SKILL RANK, 30 OECD COUNTRIES UK Wales

“low skills” 17 22 “intermediate skills” 18 18 “higher skills” 12 17

Source: UKCES 2009 14. The Welsh Assembly Government in its strategy document, Skills That Work for Wales also worryingly noted that “the skills of the Welsh workforce lag behind more prosperous regions of the UK and compare poorly to the world’s leading advanced countries. Economic inactivity—strongly related to a lack of skills— remains stubbornly higher than the UK average”. 15. Research presented in the Report reveals that whilst Wales has a relatively high rate of adult participation in lifelong learning, it has a relatively high proportion of young adults classed as not in employment, education or training (NEET). Just over a third of the population obtain, at most, the “low” qualification levels. Whilst a high proportion of 25–34 year olds in Wales have completed upper secondary education compared to 45–54 year olds, the gap in achievement between the two cohorts in Wales is one of the smallest in the OECD. Wales does have a higher proportion of its working age population without qualifications and a lower proportion with degrees when compared to the UK. 16. The recent decline in FDI is probably related to greater competition from low wage countries in Eastern Europe and Asia and a relative real reduction in resources available to attract FDI than the skills base. Rapid growth in Ireland (before the recent economic downturn) was helped by high levels of FDI particularly from North America. This FDI appears to have been attracted partly as a result of relatively low levels of corporation tax, a policy option not available in Wales. However, the trend of inward investment moving away from manufacturing to services and to smaller, more knowledge intensive units may be worrying given recent evidence that skills and qualifications produced by the education system in Wales may be falling behind other parts of the UK. 17. The future capabilities of the workforce will be partially determined by the achievement of the current cohort of students in the education system. It is of concern that recent evidence suggests a gap has opened between students in England and Wales in the percentages of students achieving GCSE grades A*–C. Burgess, Wilson and Worth (2010), when researching this issue, suggest that abolishing school league tables (in 2002) led to a relative fall in GCSE results when compared to schools in England. The fall was relatively large and equivalent to 1.92 GCSE grades per student per year. The key published performance measure, the percentage of students achieving at least five good GCSE passes, falls by 3.4 percentage points per school. The significant differences across schools, “with the effect concentrated on schools in the lower 75% of the distribution of ability and poverty. Schools in the top quartile of the league tables show no effect”. They note these falls are sizeable and are equivalent to what might be achieved by reducing class sizes by around 30%. 18. The latest findings of the PISA survey (2009)—the Programme for International Student Assessment of pupils aged 15—also show Wales falling down the international and domestic league tables since 2006. Out of 67 countries included in the survey, Wales was ranked 38th in reading, 40th in maths and 30th in science and below England, Scotland and Northern Ireland in all three academic areas. 19. Research has suggested that policies designed to bring the skills base up to that of the rest of the UK will help in increasing relative prosperity. However, parity is unlikely to be achieved without an increase in the relative demand for labour within Wales and FDI can help achieve this. 20. Not only is it important to raise the skill base of the workforce, but also the demand for skills by employers. By improving skills and moving up the value chain firms can become more competitive and productive by producing higher quality goods and services. A problem facing the UK and Welsh economy is that it has tried to compete with many developing countries for relatively low value added products. Research has also shown management skills are relatively poor in many organisations when compared to other developed countries and has contributed to reduced productivity and inhibited economic performance. Management practices have been found to account for up to a third of the differences in productivity between firms and between countries. Wales, and the UK generally, has a relatively low proportion of managers with a degree and this has been shown to reduce the probability of introducing new higher quality products and less likely to survive periods of adversity. A long-tail of relatively poorly managed firms and poorly skilled individuals is likely to reduce the long term growth potential of the Welsh economy and further FDI if not offset by other positive factors.

Moving Forward 21. An important issue for education planners and policy makers going forward, is taking account of structural changes which are likely to take place with the Welsh economy. Forecasts suggest we will continue cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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to see a decline in the proportion of the workforce employed in manufacturing and an increase in those working in business and other services. Table 2 CHANGES IN THE INDUSTRIAL COMPOSITION OF EMPLOYMENT—WALES % 2007–17 2007–17 1984 1994 2004 2007 (000s) (% change)

Primary sector and utilities 9.8 4.4 2.7 2.7 −6 −16 Manufacturing 19.0 18.9 14.9 12.1 −26 −15.3 Construction 7.6 6.7 6.8 7.9 8 7.2 Distribution transport, etc 27.1 27.5 27.5 26.9 29 7.7 Business and other services 14.7 16.4 19.2 21.3 40 13.4 Non-marketed services 21.8 26.1 28.8 28.7 27 6.7 All Sectors 1,117 1,214 1,271 1,404 73 52

Source: UKCES, 2009 22. Have we planned for this and has our education system responded? For example, does our schooling system provide sufficient business and economic skills to its pupils? The concern that the educational system may not be delivering necessary skills required by the labour market is longstanding. Back as far as 1776 Adam Smith in the Wealth of Nations wrote, “the greater part of what is taught in school and universities...does not seem to be a proper preparation for that of business”. 23. The education literature suggests that what we teach in our curriculum matters for future labour market success and the returns to different investment can be substantial. For example, research finds dramatic differences in the economic returns to different degrees subjects taken at university. For those having undertaken a 3 year degree at university, those who followed an economics programme are found at the top or very close to the top in terms of salaries achieved in the labour market. Yet this subject is not taught in many schools or just as an option at 16. As well as leading to higher salaries an economics education can provide important life skills, which enable individuals to better understand and control their domestic finances. 24. For Our Future: The 21st Century Higher Education Strategy and Plan for Wales (2009) does not appear to emphasise the importance of Business and Economics skills rather, “in common with other countries, higher education in Wales faces fundamental challenges, which cannot be ignored, including: the importance for the Welsh economy of developing stronger high-level skills and leading edge research in science, technology, engineering and mathematics (STEM)” Higher Ambitions: The Future of Universities in a Knowledge Economy BIS 2009 also noted the importance of enhanced support for STEM subjects but also, “other skills that underwrite this countries competitive advantage”. Clearly business and economic skills and training would be factors improving a country’s competitive advantage. 25. An area in which the WAG can currently determine policy and hence have an extremely important influence on welfare and the economy is in the area of education and skills. Given structural change taking place within the economy and the movement away from employment in manufacturing to services and particularly business services (a trend also coming through in recent FDI projects) a greater emphasis should be placed on business and economics teaching in both our schools and universities, leading to benefits to both individuals and the economy, which would also increase the attraction of Wales as a location for FDI. Clearly universities in Wales have a wider role to play given the evidence that higher educational institutions have played in attracting “footloose “ corporations world wide. 26. The debate about the trade off between inward investment and support to local business is clearly important. Also it is very unlikely that Wales can achieve the share of inward investment it gained in the 1980s when Wales saw its rate of increase in GVA and manufacturing productivity outstrip the rest of the UK, achieved partly by dramatic increases in FDI. The recent decline in relative GVA in Wales is obviously of great importance and of great concern. 27. Measures of economic welfare have long been the subject of controversy but despite its many weaknesses GDP or GVA remain the principal yardstick and starting point in assessing the level of economic activity and welfare in a social. Regional data shows a substantial gap in the level of prosperity in Wales when compared to the rest of the UK and other regions with little signs the gap is closing, indeed the position has significantly declined in the last 20 years. In 2009, GVA per head was only 74% of the UK average and the lowest of any region in the UK. In the early 1990s, during the last recession, it was 83% of the UK average and well above that of Northern Ireland. Wales was the region with the lowest growth rate of GVA over the period 1989–2009. In 2008 Wales had 3 (Isle of Anglesey, Gwent Valleys and Central Valleys) of the 5 NUTS3 areas with the lowest GVA in the UK (133 in total). Reflecting its relatively low levels of prosperity, West Wales and the Valleys qualified for EU Objective 1 funding in 2000. 28. Despite a further round of European funding, GVA in West Wales and the Valleys has continued to fall relative to the UK and stood at 62.6% of the UK average in 2008. Despite the decline in the numbers employed cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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in manufacturing in Wales in recent years and the closure of a number of high proﬁle FDI plants resulting in large job losses, the percentage of manufacturing employment in foreign hands increased between 1998 and 2008 from 36% to 43% suggesting that foreign owned plants are long lived when compared to domestic plants (see Appendix) and increase stability of employment in Wales. 29. Finally given the importance of broadening and deepening the skills base in Wales as emphasised in recent policy documents, including the EU money spent on training through the Objective One and Convergence Programme, it is debatable as to whether we currently have a robust and comprehensive mechanism for analysis trends, matching supply to demand and providing top class labour market intelligence in Wales. Leitch emphasised the fact that Labour Market Information (LMI) is vital in ensuring that economically relevant skills are provided. A report by the Expert Group on New Skills for New Jobs prepared for the European Commission (2010) notes “that we need to better anticipate future skills needs, through improved labour market information (and) developing early-warning systems”. The Report states “wider availability of appropriate LMI would also beneﬁt employers (in their recruitment and human resource development function); education and training providers (in their strategic and business planning): as well as Government and public agencies (in their policy development and priority setting”). The Report notes the importance of having top class labour market intelligence, currently in Wales we are some way off from achieving this. March 2011

Figure 1: Measures of Welsh inward investment success as a % of UK 20

% o 12

f U Number of projects K 10 t Number of new jobs o t 8 Number of safeguarded jobs a l 6

0 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10

APPENDIX FDI and Skills Utilisation in Wales: Evidence WERS2004 A1. In this Appendix we consider in greater detail the advantages and disadvantages to FDI in Wales. We focus specifically on the nature of foreign firms in Wales using the WERS2004 data, linking enterprises to employees. In this way we are able to explore in more detail the sort of role that labour plays in foreign firms, and whether indeed foreign firms pay more or indeed invest more in training needs of their workers…gearing these employees up for a more fruitful employment experience in the longer run.

Skills Utilisation Amongst Foreign Owned Firms in the UK Regions A2. Ideally, we would like to test the extent to which foreign owned ﬁrms do employ more skilled labour or pay more for the labour they employ, and to draw out any differences between inward investment experiences in Wales to the UK as a whole. For this we require linked employer-employee data. The UK has data of this sort are only available from the Workplace Employment Relations Survey 2004 (WERS2004).1 WERS2004 is the ﬁfth survey of its kind, with previous vintages of comparable data running from 1980. Its principal objective is to provide detailed information to central government (and other organisations, such as ACAS) on the nature of employment relations in the UK in establishments with 10 or more employees. It is based on the Government’s Inter Departmental Business Register (IDBR) sampling frame which contains the full list of enterprises operating in the UK, compiled from VAT and PAYE registers. The sample, whilst small (given the very detailed surveys asked of employers, employees and employee groups), can be regarded as broadly representative of the national population and may be weighted accordingly. 1 Other data may be constructed through matching across IDBR drawn datasets, such as ASHE and the ABS, however, these data only provide a 1% sample of workers and these data contain less skills information. cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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A3. In this section, we present some general evidence on workers in foreign ﬁrms in Wales compared with the rest of the UK. Sample sizes are relatively small (around 1,100 workers in Wales in total, domestic and foreign employers combined and around 22,000 workers in the rest of the UK), so we wish to provide some background in order for the reader to judge how representative our selective sample is. We then compare the skills of workers in domestic and foreign owned enterprises and a variety of other characteristics which might help us to understand better the nature of employment and pay in foreign owned ﬁrms in Wales.

A4. We match data on the enterprise with data on the individual employees to identify firms that are foreign owned. We are then able to look at the characteristics of the firm (which sector, what size band) as well as characteristics of the individuals (what qualifications). Table A1 provides an overview of the data in WERS2004 for Wales and the rest of the UK separately. Assuming that “not applicable” is most likely to be domestically owned enterprises, we see that in total, around 84% of workers are wholly or predominantly owned domestically in the rest of the UK, slightly higher than Wales. The real difference between Wales and the rest of the UK stems from a higher proportion of foreign owned firms in Wales, and less jointly owned enterprises, compared with the rest of the UK. Thus, we see that predominantly foreign owned firms account for around 17% of the workers in WERS in Wales, compared to 13% in the rest of the UK.

Table A1

PERCENTAGE OF WORKERS IN FOREIGN OWNED ENTERPRISES, WERS2004 Rest of the UK Wales

Not applicable 30.9 44.8 UK owned/controlled 47.8 34.2 Predominantly UK owned (51% or more) 5.2 3.5 UK and foreign owned 3.2 0.2 Predominantly foreign owned (51% or more) 2.8 3.5 Foreign owned/controlled 10.1 13.7 100.00 100.00 Notes: refusals and don’t know responses excluded. Data unweighted. Shares that are based on less than ﬁve observations are italicised.

A5. Table A2 provides a broad breakdown of sectors in which employees of foreign enterprises are located. It seems to be relatively concentrated. There is a clear dominance of manufacturing, much of which is relatively low technology (food and drink; pulp and paper). Services account for less than 10% of workers. Comparing to the rest of the UK is difﬁcult because of the differences in sample sizes, however, sectors 50–92 (services, including health and education) account for around 53% of the total number of workers in foreign owned enterprises, demonstrating a much stronger role for services in the UK.

Table A2

INDUSTRY DISTRIBUTION OF WORKERS EMPLOYED BY FOREIGN ENTERPRISES IN WALES, WERS2004 2-digit SIC classiﬁcation Description % workers

15 Food and drink 28.65 21 Pulp and paper production 8.65 24 Chemicals and chemical products 10.27 29 Machinery NEC 18.92 31 Manufacture of electrical machinery and apparatus 1.62 Manufacture of radio, television and communication equipment and 32 apparatus 17.30 34 Manufacture of motor vehicles, trailers and semi trailers 1.08 40 Electricity 5.41 52 Retail trade 0.54 63 Supporting and auxiliary transport activities 4.86 71 Renting of machinery and equipment 2.70 Notes: Shares that are based on less than ﬁve observations are italicised.

A6. As stated above, foreign owned ﬁrms are generally regarded to be of a much larger scale than the average domestic plant (in part, the ability to beneﬁt from scale economies accounts for their ability to enter foreign markets). Employment size of the enterprises is banded in WERS2004. Table A3 reveals the relative size of foreign owned compared to domestically owned enterprises in Wales and the rest of the UK. From Table 3 it appears that there is a critical mass to being foreign owned since they do not have a large proportion cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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of enterprises that are SMEs, but the very largest firms appear not to be foreign owned either. In the case of Wales, there is a greater proportion of small large companies (250 employees+), and those between the size of 2,000 and 9,999—over 28% of foreign owned firms fall into this category in Wales, compared with 37% in the rest of the UK. Thus there is a suggestion that foreign owned enterprises in Wales are smaller than their counterparts in the rest of the UK. Table A3 PERCENTAGE OF WORKERS BY ENTERPRISE SIZE, WALES AND THE REST OF THE UK, DOMESTIC AND FOREIGN OWNED, WERS2004 Rest of the UK Wales Domestic Foreign Domestic Foreign don't know 5.3 6.5 11.8 13.0 not applicable 22.0 14.5 11.0 9.2 less than 50 2.4 0.9 2.4 - 50–99 1.4 0.0 4.8 6.5 100–149 0.8 0.5 2.1 - 150–249 2.2 1.6 1.4 7.0 250–499 4.1 7.0 1.5 14.6 500–999 6.4 3.6 4.7 7.6 1,000–1,999 6.5 8.6 4.5 9.2 2,000–4,999 10.4 20.3 15.5 15.7 5,000–9,999 10.1 17.0 17.7 12.4 10,000–49,999 14.8 14.8 12.2 4.9 50,000–99,999 5.2 1.0 6.5 - 100,000 or more 8.3 3.8 3.8 - Note: refusal responses excluded. Shares that are based on less than five observations are italicised.

Pay of Workers A7. In this subsection, we consider the relative pay of workers in foreign owned enterprises compared with workers in domestic enterprises, for Wales and the rest of the UK. Research has shown that foreign owned firms pay at or above the average wage rate in an area. This has been linked to the skill levels of the workers they employ, the fact that they have a more capital intensive production set up compared to their domestic counterparts, and also linked to the fact that because they have less knowledge about local labour markets and education systems, a wage premium can help filter applications. In Table A4 we consider the extent to which there is evidence to support this position in Wales and the subsequent section looks at worker characteristics that might help to explain our findings. A8. Table A4 shows banded wage data for employees in WERS2004, split between Wales and the rest of the UK and foreign and domestic employers within these regions. Figure A1 presents this evidence graphically. It appears as though there is a stronger tendency for domestic enterprises to pay lower wages, the turning point is at around £311–£360 per week, at which point, as a share of workers, foreign owned begins to exceed domestic shares. This is true for the UK as a whole, but is marked for Wales, particularly at around £541–£680 per week rates, where foreign owned workers are most clearly concentrated. Thus, it appears as though foreign enterprises do pay their workers more than domestic counterparts, although we are mindful of small sample sizes, in the case of Wales based firms, particularly. Table A4 BANDED PAY BEFORE TAXATION BY TYPE OF ENTERPRISE AND LOCATION, WERS2004 Rest of the UK Wales Domestic Foreign Domestic Foreign not answered 1.9 1.3 1.6 2.2 £50 or less per week £2,600 or less per year 3.1 1.0 4.3 - £51–£80 per week £2,601-£4,160 per year 3.4 1.9 4.5 0.6 £81–£110 per week £4,161-£5,720 per year 4.1 2.6 3.7 1.1 £111–£140 per week £5,721-£7,280 per year 4.9 2.7 4.3 1.7 £141–£180 per week £7,281-£9,360 per year 6.0 3.6 5.2 5.0 £181–£220 per week £9,361-£11,440 per year 8.0 5.6 7.7 7.2 £221–£260 per week £11,441-£13,520 per year 9.6 7.4 9.2 7.2 £261–£310 per week £13,521-£16,120 per year 11.0 11.6 12.2 11.1 £311–£360 per week £16,121-£18,720 per year 9.1 11.2 7.7 14.4 £361–£430 per week £18,721-£22,360 per year 10.8 13.2 12.0 8.3 £431–£540 per week £22,361-£28,080 per year 10.8 12.8 12.5 9.4 £541–£680 per week £28,081-£35,360 per year 8.6 9.8 9.3 22.8 cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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Rest of the UK Wales Domestic Foreign Domestic Foreign

£681–£870 per week £35,361-£45,240 per year 4.7 6.0 3.7 6.7 £871 or more a week £45,241 or more per year 4.0 9.2 2.1 2.2 Note: Shares that are based on less than ﬁve observations are italicised.

Figure A1 WORKER EARNINGS BY LOCATION (WALES AND REST OF THE UK) AND NATIONALITY OF OWNERSHIP, 2004

15 % Rest of UK foreign owned 10 Rest of UK not domesc Wales foreign owned Wales not domesc 5

Quality of Workers A9. Having looked at the size, shape and location of the enterprises in which workers in foreign owned firms are based, and the pay that workers on average receive, we now look at the characteristics of the workers compared to domestic enterprises. We focus on qualifications, training, job tenure and full time/part-time prevalence. Given that there are a higher proportion of workers in foreign owned enterprises that are paid higher weekly wages, we would expect this to be reflected in the quality of the labour force, either through qualifications or training. Table A5 contains information on formal educational qualifications, and we note that surprisingly, the proportion of workers in foreign owned Welsh based firms with no qualifications is substantially higher than either domestic firms or foreign firms located elsewhere in the UK. Whilst this might in part be driven by our relatively small sample size, taking low level qualifications together (no quals and below D in GCSEs), these make up around 40% of workers in foreign owned enterprises, compared with only 30% in domestic Welsh based enterprises and around 25% in enterprises in the Rest of the UK (slightly higher amongst domestic than foreign owned plants). Table A5 QUALIFICATIONS OF WORKERS BY TYPE OF ENTERPRISE AND LOCATION, WERS2004 Rest of the UK Wales Domestic Foreign Domestic Foreign

No qualifications 16.2 15.1 12.6 26.7 below D in GCSE 9.0 9.5 8.9 13.6 GCSE grade C and above 25.9 26.9 29.0 22.7 A levels 14.9 14.3 12.6 10.2 First degree 20.2 22.9 21.8 19.9 higher degree 7.2 5.5 7.0 1.1 Other qualifications 6.6 5.8 8.1 5.7 Note: Shares that are based on less than five observations are italicised. A10. Table A5 also shows at the other end of the educational spectrum, in the rest of the UK there is very little difference between the employment of graduates between domestic and foreign owned firms, particularly if we take first and higher degrees together. In the case of Wales, however, there is almost 8 percentage points difference. This evidence for formal education suggests that workers in foreign firms are not more traditionally cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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educated, so perhaps it is more related to the training they receive in post. We therefore consider training received in the past 12 months (2003–2004) provided by the employer. These shares are presented in Table 6.

Table A6

LENGTH OF TRAINING RECEIVED IN THE LAST YEAR (EXCLUDING HEALTH AND SAFETY) Rest of the UK Wales Domestic Foreign Domestic Foreign none 33.8 37.6 26.9 42.8 less than 1 day 9.2 10.4 6.4 7.8 1 to less than 2 days 15.3 14.5 13.1 10.6 2 to less than 5 days 22.2 18.7 27.2 19.4 5 to less than 10 days 10.2 10.1 11.9 10.6 10 days or more 8.5 8.1 13.8 8.9 Note: Excludes those who did not answer. Shares that are based on less than ﬁve observations are italicised.

A11. In Table A6, the proportion of training undertaken by workers in foreign enterprises is, if anything, lower than that received in domestic enterprises. In Wales we see that nearly half employees have one day or less of training in the previous 12 months. Interestingly, training levels in domestic enterprises in Wales seem noticeably higher than in the rest of the UK. It appears therefore that workers in foreign ﬁrms do not receive any more training than workers in domestically owned plants.

A12. Table A7 presents shares of workers by the age group to which they belong. We note that workers in foreign owned enterprises are concentrated in the 30 to 59 age bracket for Wales; although there is some greater spread in the rest of the UK that this ﬁnding holds.

Table A7 Age Rest of the UK Wales Domestic Foreign Domestic Foreign

16–17 1.1 0.9 0.7 0.6 18–19 2.2 2.3 1.8 - 20–21 2.7 2.5 2.5 1.1 22–29 15.2 17.5 13.8 10.6 30–39 24.4 28.1 25.9 27.8 40–49 26.8 24.8 27.8 34.4 50–59 22.4 19.5 20.9 21.7 60–64 3.9 3.3 4.0 3.9 65 or more 0.8 0.6 2.0 - Note: Excludes those who did not answer. Shares that are based on less than ﬁve observations are italicised.

A13. Table A8 provides information by gender and by full time and part time work. Full time work is classed as anything greater than 30 hours a week. Table 8 shows us that workers in foreign owned plants are predominantly male, compared to domestic plants and this is particularly marked in Wales. This probably relates to the type of sectors they have traditionally located in. If we look at the full time-part time split, we note also that compared to domestic owned enterprises, foreign owned plants are signiﬁcantly more likely to employ workers on a full time basis. Thus we appear to have a very traditional workforce.

Table A8

GENDER AND FULL TIME/PART TIME EMPLOYMENT, WERS2004 Rest of the UK Wales Domestic Foreign Domestic Foreign

Male 43.90 62.92 43.68 73.89 Female 56.10 37.08 56.32 26.11

Full time 77.47 89.07 77.16 93.41 Part time 22.53 10.93 22.84 6.59

A14. Finally, we present in Table A9 the length of service within the firm. It can be seen that over two thirds of those working in foreign owned firms in Wales have been employed for more than five years with that firm. This compares with something approaching 50% when looking at domestic firms and foreign owned firms in the rest of the UK. Thus it appears that workers who join foreign owned firms are likely to remain there. cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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Table A9 DURATION IN WORKPLACE, WERS2004 Rest of the UK Wales Domestic Foreign Domestic Foreign less than a year 16.1 14.6 12.0 10.6 1 to less than 2 years 13.3 10.6 9.9 4.4 2 to less than 5 years 26.9 26.2 25.3 16.7 5 to less than 10 years 18.1 19.0 24.0 23.3 10 years or more 25.1 29.1 28.5 45.0

A15. To our knowledge, there has been very little evidence presented on the skill and training levels of workers in foreign owned enterprises compared with domestically owned workplaces. Using WERS2004 we are able to look at this in some detail. That said, we acknowledge that the data are comparatively old now and that sample sizes are small. The next wave of WERS should be available towards the end of next year and it would be interesting not only to compare findings across the two waves, but also to consider more robust analysis using pooled data. In addition, this will provide us with a better understanding of how inward investment has been affected by the recent economic downturn. A16. As things stand, we do not find evidence to suggest that foreign owned firms employ more skilled workers, nor is it evident that they are offered more training. One clear thing to note is the duration in the job is much longer in foreign owned firms, suggesting that the wave of inward investment encouraged as part of the regional selective assistance programme has been long lived. Workers that are employed by foreign enterprises are no more qualified but are secure in their employment.

References Barrell, R and N Pain (1997) “Foreign Direct Investment, Technological Change, and Economic Growth within Europe”, Economic Journal, 107, 1770–1786. Burgess, S, Wilson, D and Worth, J (2010) “A natural experiment in school accountability: the impact of school performance information on pupil progress and sorting”, The Centre for Market and Public Organisation, Working Paper No 10/246. Drifﬁeld, N (1999) “Indirect employment effects of foreign direct investment into the UK”. Bulletin of Economic Research, 51 (3), 207–221. Dunning, J H (1998) American Investment in British Manufacturing Industry. Revised and Updated Edition, Routledge, London. Evans, P, Holz, R & Roberts, A “Empirical Investigation of Foreign Direct Investment in Wales”, Welsh Assembly Government, Economic Research Unit. Harris, R and C Robinson, (2004) “Industrial Policy in Great Britain and its effect on Total Factor Productivity in Manufacturing Plants, 1990–1998”, Scottish Journal of Political Economy, 51 (4), 528–543. Harris, R I D and C Robinson, (2004) “Productivity impacts and spillovers from foreign ownership in the United Kingdom”, National Institute Economic Review, 187, 58–75. Harris, R I D and C Robinson, (2002) “The Impact of Foreign Acquisitions on Total Factor Productivity: Plant Level Estimates from UK Manufacturing 1987–1992” Review of Economics and Statistics, 84 (3), 562–568. Munday, M, Roberts, A and Roche, N “A review of the economic evidence on the determinants and effects of foreign direct investment” Welsh Economy Research Unit.

Written evidence submitted by King Sturge COMMENTARY ON INDUSTRIAL INWARD INVESTMENT IN WALES Summary The property market is an essential part of the “Wales offer” to inward investors. This note provides a commentary on the industrial market in Wales and issues arising, including: — Rising availability of secondhand floorspace allied with increased obsolescence. — Trend of increased availability of larger secondary units (100,000 sq ft+). — Reduced demand—however, still a flow of good quality occupier enquiries. — Reduced closures relating to existing manufacturing investors and increased FDI enquiries. — Take-up is dominated by modern stock in more accessible locations. — Secondary floorspace away from M4/A55 is experiencing more difficult market conditions. cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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— Much reduced new speculative development. — Abolition of Empty Property Relief for business rates has had an impact upon both secondhand markets and new development.

1.0 Supply

Available industrial ﬂoorspace in Wales has risen by 11% over 12 months, according to the March 2011 UK Industrial Floorspace Survey. This survey relates to units in excess of 5,000 sq ft and is undertaken bi-annually by King Sturge.

A total of 18.28million ft² of industrial ﬂoorspace is currently available in Wales, with the trend of rising availability being affected by the number of larger units available. Floorspace in units of over 100,000 ft² now represents 5.66 million ft² or 31% of the Welsh total available stock.

To put this in context, industrial ﬂoorspace availability peaked at just over 11.73 million sq ft in the last recession (August 1993) with a subsequent low of 8.3 million sq ft (summer 1998).

In summer 2005, availability stood at 11.66 million sq ft; therefore there has been an increase of 56.8% over 6 years. In addition, these figures exclude a significant amount of floorspace which has been vacated and subsequently demolished for redevelopment (eg AWE/Federal Mogul, Llanishen; Draka, Llanelli; Pirelli, Newport; Arjo Wiggins, Ely, Cardiff).

INDUSTRIAL FLOORSPACE AVAILABILITY IN WALES—A 10 YEAR VIEW 1.8 1.6 1.4

1.2 ² m 1.0 n o i l

l 0.8 i m 0.6

0.4 0.2

0.0

1 2 3 4 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2

Secondhand Floorspace New Floorspace

Source: King Sturge Industrial & Distribution Today Survey, March 2011

This is a difﬁcult time for the economy and property market as a whole, however, the breakdown of these availability ﬁgures indicates that certain sectors of the market have fared better than others.

Over the past two years, the level of transactions has slowed however there remains a steady ﬂow of occupier transactions. These transactions have illustrated that the downturn has had only a limited impact on rents and capital values for prime stock along the M4 and A55 corridors, although lease terms and incentives have moved in favour of the tenant. Secondary stock, in secondary locations, has however not fared so well with reduced demand leading to falling rents and capital values.

There is a trend of increased ageing of vacant stock and an emergence of an underclass of secondary assets that few wish to buy and few can afford to hold. As a general point, where larger industrial sites are re-occupied, the incoming occupier is rarely of the same quality as the departing company—with overﬂow warehousing and manufacture likely.

2.0Demand

For South Wales, we have plotted the location of those industrial transactions over 50,000 sq ft that have taken place in the period from Summer 2009 to Summer 2010. This plan illustrates a strong bias towards the M4 corridor noted and further analysis indicates a bias towards modern stock. cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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TOUGH TIMES AWAY FROM THE M4 16 TRANSACTIONS OVER 50,000 FT² IN SOUTH WALES (SUMMER 2009/SUMMER 2010)

In our view, away from the primes markets, the quantum of ﬂoorspace coming to the market in the secondary sector is now having an impact upon capital and rental values; however this re-valuation has generated further demand. Whereas capital values for secondhand units in Cardiff might have shifted from £50 to £40 per ft², in the mid and upper Valleys there are examples of units moving from £35 to £15–20 per ft² which then looks attractive for owner occupiers. In the period from Summer 2010 to the present day, there has been increased activity within the Valleys. However, these transactions have been undertaken at signiﬁcantly reduced rental and capital values compared to historically higher levels.

B2 Manufacturing Trends For much of the past 12 years, the trend has been for mainstream manufacturers to disinvest from Wales with plants closed and production transferred to so called “low-cost” economies. Many of these operations could be described as “branch plants” of multi-national companies. In our South Wales Report, March 2009, we noted: “South Wales had started to shake off the trend of “manufacturing shift” to lower cost economies. However, any benefit has been heavily outweighed by the economic downturn.” In our South Wales Report, dated March 2010, we noted: “Whilst our manufacturing sector continues to be hit by closures and job losses, these often appear to be more to do with recession than an over-riding desire to “off-shore” to low cost economies. Research by the trade body, EEF, highlighted one in seven companies repatriating production back to the UK amid concerns over quality control and staffing levels. We have seen a number of such enquiries return to the Welsh market.” In our 2011 South Wales Report, we noted: “Whilst not quite a renaissance, there has been an upturn in manufacturing underpinned by the favourable exchange rate. There are blue chip enquiries back in the market and many existing firms, which were considering their future, appear more settled”. Over the past 18 months, we have received a slow but steadily increasing flow of strong quality occupier enquiries, including the following transactions, with the following trends emerging: — Expansion or relocation requirements for existing major occupiers, eg Invacare UK Ltd has relocated to Pencoed Technology Park, Bridgend (152,000 ft²). — New FDI enquiries, with a focus upon aviation, defence and automotive, eg Toyoda Gosei’s acquisition of Valeo Park, Swansea (214,000 ft²). — Service sector companies—both for our “anchor companies” and the wider economy, eg Gardner Aerospace, Hawarden Business Park (25,337 ft²), Minton Treharne, Forest Farm, Cardiff (63,775 ft²). cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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Well located modern ﬂoorspace has proved successful in attracting good quality occupiers, as evidenced by transactions in South Wales at Parc Nantgarw, Imperial Park and Pencoed respectively. With the pipeline of new development likely to be severely constrained over the next few years, we envisage a continued focus by occupiers on modern, well located stock, whilst values for secondary assets continue to drift.

B8 Distribution Trends Across the UK, the B8 distribution market (Use Class B8: Use Classes Order 1987) has been a major driver of activity in terms of new development. This has been fuelled by increased importation of goods into the UK and a drive to consolidate and make more efficient existing distribution networks. South Wales is not a recognised B8 location for national UK requirements being a “fringe location” within the UK and also suffering from the dual constraints of the Severn Bridge tolls and congestion along the M4 north of Newport. In contrast, Avonmouth has grown significantly as a B8 centre in recent years having attracted a series of major schemes including “consolidation projects” for Tesco and Constellation Brands— which have led to closures of subsidiary warehouses for both on Newhouse Park, Chepstow. Within South Wales, the exceptions are the Wilkinson 850,000 ft² project in Magor and Amazon’s 800,000 ft² “internet fulfilment centre” on Fabian Way in Swansea. In recent years, B8 activity has focused upon central South Wales rather than Magor/Chepstow with Lidl having developed 320,000 sq ft in Bridgend, Peacocks in Parc Nantgarw and Aldi having acquired a 35 acre site in Wentloog, Cardiff (although it has recently placed this back onto the market). There has also been a growth in the number of enquiries for local delivery units, typically 30–50,000 ft² for parcel delivery, distribution and service sector. We believe this is allied to the growth in internet commerce. Prime lettings have taken place involving Veolia Transport (56,000 ft²), Smiths News (52,000 ft²), City Link (50,000 ft²), Amtrak (now FedEx) (22,600 ft²). There is an impression within the property industry that planners are generally ambivalent to B8 projects with the quality of jobs not regarded as equivalent to manufacturing. In our view, there is market demand for a South Wales Distribution Park of 30–50 acres to service the conurbation—this site would need to have strong road access, a central location and be located away from housing to facilitate 24 hour working.

3.0 Issues Affecting the Inustrial Property Market We highlight the following issues affecting the industrial market: 3.1 Condition 3.2 Lack of Speculative Development 3.3 The Abolition of Empty Property Relief (Business Rates) 3.4 Transport & The Severn Bridges 3.5 What Inward Investors Want

3.1 Condition There is an impression of “creeping obsolescence” of the industrial stock, caused by an ageing property stock, reﬂecting the past successes in the 1960s–1990s in terms of attracting industry. The age proﬁle of these businesses contributes to the proportion of ageing stock with a number of buildings reaching the end of their economic life (typically 35–40 years). The ageing of the industrial base can, in itself, become a catalyst for closure with the requirement to re- invest in property, plant or process providing an opportunity to benchmark against relocation. In this regard, the opportunity to secure grant aid for refurbishment is important. In addition, the fragmentation of ownerships of many larger industrial estates through the public sector sell- offs of the 1990s and subsequent trading of single units has led to deterioration in estate management. With no central estate management plans imposed at the time of sale, many estates have lost their “feel” and need to be subject to improvement plans from local authorities.

3.2 Lack of Speculative Development The availability of new ﬂoorspace now stands at 428,000 ft², a decrease of 16% over 6 months and 31% over 12 months. At 2% of Wales’ total available stock this is the lowest percentage share of new stock across all GB regions. The level of speculative development under construction within Wales has been on a declining trend since July 2007. Wales recorded a 66% decrease in the amount of new ﬂoorspace under construction since January 2010 (Source: King Sturge Survey). cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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With development finance scarce and developer confidence low, speculative starts are understandably low. The speculative development tap has been firmly turned off for the foreseeable future. In the medium term this will lead to a shortage of new-build stock in prime locations and therefore rising rents. In the short term, new development is likely to be driven by design and build projects for more specialist facilities which cannot be accommodated in those modern secondhand units constructed to a standard specification. This is likely to include facilities such as cross-dock distribution units, self-storage or units for the rapidly growing waste and energy sectors. Historically, the Assembly Government (and WDA beforehand) has been innovative in exploring structured funding vehicles to either develop directly or offer financial support. The Welsh Industrial Partnership (WIP), a joint venture between RBS and WAG was established in 2002 to speculatively develop high quality industrial and business units in dis-advantaged areas whilst Dragon Partnership is a five year joint venture to develop speculative office and hybrid schemes in top tier grant areas. Under the Welsh Investment Strategic Partnership (WISP) initiative, WAG has taken head-leases to allow developers to speculatively develop high quality floorspace. More recently, the establishment in 2010 of a £55 million fund under the JESSICA initiative (Regional Investment Fund for Wales) could develop a significant influence in the Welsh funding markets. These initiatives have proved to be successful and should be further encouraged.

3.3 The Abolition of Empty Property Relief (Business Rates) The abolition of Empty Rates Relief (EPR), from 1 April 2008, for vacant property has led to an obligation for property owners and developers to be liable for business rates on vacant industrial property after an initial six months void period (three months for ofﬁces and retail). This is an active dis-incentive for speculative developers and investors alike. The abolition of empty property relief has had a wide-ranging impact upon the industrial property market, contributing to an overall tone of reduced rental and capital values, which will, subsequently, affect the balance sheets of much of Wales’ industrial base.

Second-hand Market The dynamics of the market are such that one cannot disentangle the impact of EPR abolition from the impact of recession, lack of bank funding and investor & occupier conﬁdence and say it is the single most important factor. In our view however, this extra cost has had a signiﬁcant impact, particularly upon the weaker sectors of the property market. For example, in recent years the large secondary unit market has been dominated by property companies who have acquired vacant stock for re-letting, refurbishment, sub-division and redevelopment. These property companies have all but gone from the market and, whilst occupier demand and funding are clearly issues, the imposition of “empty rates” has markedly increased holding costs for vacant stock. The net effect is a reduction in demand for second-hand accommodation, falling prices and lower rental and capital values, particularly relating to secondary stock. Finally, we have seen a number of manufacturing units operating at reduced capacity but deciding not to close whilst they compete for new projects within Group. The imposition of business rates on vacant space increases holding costs for these companies. Whilst temporary relief is potentially available (s44a application), the treatment from Councils is not uniform.

Speculative Development Market In our view, this Government action has particularly contributed towards the trend of reduced new speculative development. Currently this charge is an active dis-incentive to future speculative development. Where a developer puts together an appraisal for speculative development, a void period of 12–24 months is usually assumed until a letting is achieved. Indeed, in parts of Wales, new-build units have sometimes been vacant for substantially longer than two years. The introduction of business rates after three or six months for ofﬁce or industrial schemes adds costs to the appraisal and clearly reduces each scheme’s viability. The vision of a return to large scale speculative development in Wales may be somewhat distant, however; a longer period of rates exemption would make a positive statement about how the Assembly is working with business to encourage investment and employment. We have previously made representations to the Welsh Assembly Government to propose a longer period of exemption from business rates for, say two years, for all new speculative development. This would have only a limited impact upon tax receipts as there is little or no speculative development taking place without this measure. In our view, it is measures such as this where WAG has the opportunity to make a positive statement on how it can work with the property industry to encourage investment and employment in the construction sector. cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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The lack of new ﬂoorspace will hinder economic recovery in Wales and if central Government is unable, or unwilling, to act then the Assembly should consider measures to address this.

3.4 Transport and The Severn Bridges In marketing business space across South Wales we rarely encounter any direct references to the Severn Bridge tolls, except within the warehousing and distribution sectors. South Wales businesses tend to see the existence of the tolls as a “given” to be worked around whilst inward investors will assume that the lower costs associated with South Wales will offset this cost—an interesting consideration in a “post grant” environment. The key impact is within the warehousing and distribution sector which has, arguably, been the driver within the UK industrial and logistics market over the past decade. As production has moved offshore so the UK has seen a signiﬁcant increase in B8 warehousing, dominated by large “sheds” alongside the major container ports or central motorway network. Whilst South Wales is a fringe location, in a UK context, the growth of Avonmouth as a regional hub illustrates the opportunity for South East Wales around Chepstow/Magor and Llanwern to share in this.

Reliability The issue of reliability relates predominantly to the original Severn Bridge which has an increased propensity for closure due to bad weather. In addition, and more seriously, the on-going repairs to address corrosion in the suspension wires have restricted HGVs to a single lane in either direction. This combination has; for example, materially affected the marketability of Newhouse Park which lies immediately to the South of the Chepstow interchange (Junction 2, M48) where close to one million ft² has recently been brought to the market. Tesco has announced the closure of its 350,000 ft² chilled foods unit at Newhouse Park to transfer this activity to a “new build” unit at Avonmouth. Other closures include the 151,000 ft² Constellation Brands unit at Newhouse Park which has also moved to a large distribution centre in Avonmouth—albeit Constellation already had their main base in England.

Perception The concept of tolls for payment of major infrastructure projects is accepted the world over, however, there is still a public perception that we are “paying to get into Wales”. Any cancellation, capping or reduction in the toll (particularly for HGVs) would be invaluable in the marketing of Wales to national and international business communities.

3.5 What Inward Investors Want The macro-economic factors attracting inward investors have generally been fully explored before King Sturge, as a property consultancy, comes into contact with any project. At a macro level, the UK manufacturing sector is heavily influenced by the strength of the economy and exchange rates, together with the performance of certain key sectors, eg automotive, aviation, electronics. At a local property level, we would note three main issues: — Balanced Portfolio of Sites and Premises—on a spatial/demand/employment basis, a balanced portfolio of sites and premises appropriate to the needs of new industry is required. This approach was explored in the Property Strategy for Employment in Wales 2004–08 (PwC & King Sturge). — With significant cuts in public expenditure anticipated, funding for site assembly, planning and infrastructure is likely to be scarce and therefore a sharp focus will be needed on which sites/projects are key to economic prosperity and therefore should receive investment. — High Level Contact—inward investors really appreciate the high level contact from Ministers (Westminster & WAG). There is an impression that this has become less of a priority for politicians and this should be reviewed. — “Team Wales”—inward investors enjoy the one-stop nature of the public sector in Wales, which offers a confidential service for what are usually sensitive projects. This is important in driving through obstructions or bureaucracy—although, in our view, this approach has been less effective in recent years (as areas such as planning have become more procedural).

4.0 King Sturge LLP This note has been prepared by Chris Sutton, Partner in the Cardiff office of King Sturge LLP, property consultants. Chris Sutton attended the Welsh Affairs Committee Breakfast Seminar on Monday 6 December 2010 and this note is intended as a follow-up to that discussion. King Sturge has a significant exposure to the industrial sector with over 6 million sq ft of industrial floorspace currently being marketed in Wales. cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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Over recent years, King Sturge has advised on the disposal or acquisition of a wide range of manufacturing premises including many which were formerly occupied by inward investors, including Halla, Warner Lambert, DuPont, Impress Metals, ACCO Europe, AB Electronics, Visteon, Linamar, Valeo, LG Electronics, Hitachi, Fortune Brands (Therma-Tru Doors), Faurecia, Doosan Infracore, Kingspan, Christie-Tyler, Cambria Mobel, Wacker Neuson, Santon, Arjo Wiggins, Sony, Mitsubishi (Diaplastics), Allied Signal, L’Oreal and ZF Steering. April 2011

Written evidence submitted by the Freight Transport Association

1. The Freight Transport Association (FTA) are grateful for the opportunity to respond to the Welsh Affairs Committee inquiry into “inward investment in Wales”. This response will concentrate on the importance of being able to move freight throughout Wales in an expeditious cost effective manner, enabling Wales to compete both within the UK and Europe, whilst utilising existing infrastructure and suggesting where consideration is required for improvement. It will assess what currently works well, and what works badly, what barriers exist to investment in Wales from a transport perspective, and what can be done to shrink or remove them. 2. FTA is one of the UK’s largest trade associations, and uniquely covers the entirety of the logistics sector; representing goods moved by road, rail, sea and air. Its role, on behalf of over 14,000 members, is to enhance the safety, efficiency and sustainability of freight movement across the supply chain, regardless of transport mode. FTA members operate over 200,000 goods vehicles—almost half the UK fleet and some one million liveried vans. In addition, they consign over 90% of the freight moved by rail and over 70% of sea and air freight. FTA works with its members to influence transport policy and decisions taken at local, national and European level to ensure they recognise the needs of industry’s supply chains. Over 400 FTA members are based in Wales. 3. FTA is minded that as a result of the 2010 Comprehensive Spending Review, Wales saw a massive decrease in its public spending allocation. The impact of this resulted in the Welsh Assembly Government having to make some tough choices, with thousands of public sector workers losing their jobs and investment in projects which would have provided jobs not now going ahead (ie the St Athan project, which would have been the biggest ever investment in Wales). As this considerable shortfall has seen an impact on the budgets of all governmental departments FTA would suggest that this reinforces the need for Government to work more closely with industry stakeholders through bodies like the Wales Freight Group to ensure that the limited resources available to it are spent wisely. 4. FTA believes that to fully understand the reduction of inward investment into Wales we first need to understand what the barriers to investment in Wales actually are. On the road network for example we have consistently argued that the high costs of the tolls on the Severn Bridge for goods vehicles are a factor when businesses decide where to locate. These tolls, which are some of the highest in the United Kingdom, are only likely to continue to increase, indeed when the bridge is currently believed to revert back to public administration in around 2017. By then it is very likely that a crossing will cost goods vehicle operators an unsustainable sum in the high 20s. 5. A major component when considering investment in Wales is likely to be the standard of the road network. Road currently remains the dominant land freight mode between Wales and other countries, and also within Wales, this is because road freight movement gives direct access to/from collection and delivery points, the flexibility and freedom for the supplier (or his nominated contractor) to match fleet capacity to demand (volume/ weight of goods to be moved), and the ability to operate “Just in Time”2 delivery systems. It is therefore important for the Welsh economy that roads are maintained or improved to high standards to ensure that goods and people movement to and from Wales are not impacted by congestion.

6. The peripheral nature of many conurbations in Wales means that business rely on a ﬁt for purpose road and rail network to ensure that goods can actually get to market. Therefore it is important for regional economies that trade routes do not get overlooked. Indeed it could be argued that new business in Mid Wales faces particular challenges due to its remoteness from the major road and rail networks. Additionally the rising cost in fuel cannot be overlooked here. In an attempt to ensure that business remain as competitive as possible, they will look to locate close to the main trade routes and subsequently their markets. This in turn is likely to have a negative impact on future growth and job security in Mid Wales and further west due to the additional mileage/cost involved to service customers.

7. The use of rail freight has been on an upward trend since the mid 1990’s. As well as continuing use for coal and other bulk goods, the success story has been about getting into the intermodal market—competing with road for container traffic. However, total market share for rail is still low (about 11% of UK freight movements). There is still the potential to substantially increase rail’s role—with all the environmental and economic benefits that would bring. 2 Defined as—An inventory system where raw materials are delivered right before they are needed on the assembly line, and finished goods are manufactured just before they are shipped to customers. JIT is designed to eliminate waste and avoid the need for large inventories. cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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8. Every tonne of freight carried by rail produces at least two thirds less carbon dioxide than if moved by road. A typical freight can take around 50 lorries off the road. Often measures designed to improve the rail network are only concerned with improving conditions for passengers. Given the carbon targets of both the UK Government, which remain an 80% reduction by 2050 on 1990 levels, and the goal of the manifesto on which Labour have been elected to the National Assembly for Wales of a 3% year on year reduction, making greater use of rail freight is surely a must. Freight traffic, in terms of distance travelled, accounts for approximately 10% of the use of the rail network, when judged by weight that increases to around 30%. 9. There are, however, severe limitations to movement of goods by rail. Most goods are travelling to destinations such as shops or distribution centres that have no rail access, and so the goods must move part of their journey by road. It is therefore crucial to the development of rail freight that appropriate venues exist in the right locations to make transfer between modes as easy and efficient as possible. 10. FTA believe that it is important to ensure that W12 (or at least W10) gauge clearance is provided when electrification is done on the Great West Main Line, and this be extended to Swansea—this allows compatibility with standard freight flows, allowing the line to work as part of rail’s developing Strategic Freight Network. This would improve the connectivity of South Wales as a region, and show the business community that Government has faith in South Wales. 11. Alternate routes out of South Wales are gauge constrained. While this is not a big issue for bulk movements (eg steel and coal) it is an issue for containerised movements. With increased production at places such as Port Talbot, there is a growing demand for container movements. Diversionary routes need a better gauge clearance. In order to attract retail traffic onto rail it is essential that land is available at the intermodal interchange point to attract retail warehousing for regional distribution centres (RDC’s) This will allow retailers to develop RDC’s at the rail terminal allowing rail to be viable at the RDC. 12. There also needs to be a plan for the Welsh ports that are rail connected to have adequate rail infrastructure and land to support the use of rail. Currently we are not convinced there is adequate infrastructure. This radically reduces the ability of rail to compete with road. 13. The Welsh Assembly Government’s Wales Freight Strategy, rightly drafted after consultation with industry, reinforces these concerns with many of the recommendations on rail freight consistent with the statements above. FTA would recommend that these are taken forward, using the Wales Freight Group as a mechanism for delivery. 14. Although FTA welcome the aim to increase travelling times between Cardiff and London it should be noted that a high speed line to Wales is not a requirement for freight. Gauge clearance and improved capacity for lower cost “classic” lines are the necessity. This is not to say that the project may not be justified on the grounds of passenger needs alone, but it is not something to advocate for freight’s needs. 15. Ports policy in Wales unlike Scotland and Northern Ireland is administered by Westminster although decisions regarding land side access to and from the ports are a matter for the Welsh Assembly. Therefore FTA recognises the importance of robust polices within Wales that look at improving and making best use of existing infrastructure which are consistent with the aims of Sir Rod Eddington’s 2006 study. 16. Welsh ports are diverse by nature dealing with a variety of goods and passenger activity. Ports reflect economic activity, especially the industrial activity of their hinterland. The biggest concerns in terms of traffic in the ports of Cardiff and Swansea mirror the industrial activity associated with mines and steelworks. Holyhead has been much more dependent on trade between the UK and Ireland, and Milford Haven has developed a role for petrochemicals traffic. 17. Welsh port unitised traffic transported by road goods vehicles makes up 1% of all UK empty units, 10% of loaded units and 8% of the weight of goods through UK ports. Welsh container traffic accounts for 0.5% of all UK units and 0.4% of the weight of all UK goods traffic. Liquid Bulk throughput represents 15% of all the liquid bulk traffic in the UK. 18. Ports themselves clearly offer regeneration opportunities through employment. It is crucial to remember however that the most important economic aspect of them is what they facilitate—most importantly the effective international trading of goods. The ability to export efficiently is a key component of a region being seen as an attractive place in which to base economic operations. Equally the ability to import to a region helps maintain and develop the standard of living available to the population. Consequently the importance of other UK ports to the Welsh economy should not be neglected. To a large extent, Wales’ major container ports are, and will continue to be, Southampton, Felixstowe and the London ports. Connections from these ports to Wales, via both sea and land are vital to investment in Wales. 19. Ports on the whole are privately owned and as a result their development is a commercial decision based on location and the needs of the market. Current practice incorporates a lengthy planning approval system that discourages developments, with a new requirement on the promoters of particular port development proposals to pay for inland infrastructure developments. The impact of the current Localism Bill, which will doubtless accept that the port is an issue of “national significance”, but not necessarily the pieces of connecting infrastructure, leaving ongoing ports development at the mercy of local objections, could be deeply damaging. cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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20. Government cannot ignore the greater economic benefits from private port developments. Whilst it is not for Government to decide where it wants the freight to flow and where it wants the private developments needed to support the transport of freight and goods, it is the proper role of Government to facilitate the developments. It is important that the Welsh Assembly Government working closely with DfT make a clear commitment to ensuring funding to carry forward these recommendation which include road and rail routes and intermodal sites. 21. The DfT’s guidance on “Funding transport infrastructure for strategically significant developments” (published April 2009) has set out a framework for determining the extent of public contributions to necessary infrastructure upgrades (ie road and rail links). But the key question that will determine the success or otherwise of this policy will be the extent to which the Government provide funds for such improvements. 22. It is important for the future development of Welsh ports that the close working relationship developed with the Welsh Assembly Government through forums such as the Wales Freight group and the Ports Group are maintained. Policy makers must be able to enter into dialogue with operators to ensure that future decisions regarding ports and importantly access are based on the needs of industry. Such an approach would establish a strategic freight policy that is based on the needs of the freight industry, identified by industry, rather than the aspirations of politicians, civil servants and others that might seek to prejudice decisions on investments in strategic infrastructure. 23. The Wales Freight Strategy contains ten clear recommendations aimed at future guidance for policy makers; these recognise the importance of ports to the Welsh economy. 24. Freight transport touches every aspect of society and the economy, these goods reach the end user from all over the country and indeed the world, it is therefore important that Government work with industry in identifying/prioritising investment helping to ensure that Wales along with the rest of the UK come out of this present economic downturn in a stronger, more robust position with the infrastructure in place which will allow the economy to grow. May 2011

Written evidence submitted by Scottish Development International on behalf of joint venture partners: Scottish Government, Scottish Enterprise and Highlands and Islands Enterprise

Introduction Further to your request for information we are pleased to submit the following evidence to the Committee. We hope this provides useful context for your inquiry.

Scottish Development International (SDI) SDI is a joint venture between the Scottish Government, Scottish Enterprise (SE) and Highlands and Islands Enterprise (HIE). It is the trade and investment arm of the joint venture partners. SDI provides services to support inward investment and international trade for the whole of Scotland. SDI’s main objectives are to enable Scottish companies to increase their internationalisation either through increasing export sales or other international activities (eg joint ventures or overseas acquisitions), and to encourage overseas-based companies to set up and expand within Scotland. We have provided an overview of the rationale and our approach in Annex 1 and have, in particular, tried to draw out our inward investment approach.

Scotland’s Trade and Investment Strategy 2011–15 In the last year (2010) there was signiﬁcant discussion in Scotland regarding the importance of international trade and investment for Scotland. This has: — been of central importance to the Scottish Government’s Economic Recovery Plan; — been the focus of an inquiry by the Economy, Energy and Tourism Committee of the Scottish Parliament which led to a parliamentary debate; the topic of the National Economic Forum in May 2010 and a topic at the Business in Parliament event in November 2010; and — received greater priority in the plans of SE, HIE and a key range of business organisations and partners. There is overall a broad consensus of the direction of travel and the priorities needed to support greater trade and investment in Scotland. Scotland’s Trade and Investment Strategy was subsequently published in March 2011. The strategy can be found at Scotland’s International Trade and Investment Strategy (hard copies can be provided). cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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Evidence to the Scottish Parliament (2010) In 2010 the Economy, Energy and Tourism Committee of the Scottish Parliament carried out its own inquiry into Scotland’s trade and investment performance. It covers similar areas as your own inquiry (and also included the role of international trade). The ﬁndings from the Committee may also be of interest and can be found at: EET Committee report on International Trade and Investment.

Independent Evaluation of Scottish Development International (2010) The evaluation aimed to assess the impact of SDI activities, focusing on the international activities of Scottish-based businesses, and investment in Scotland by foreign-owned companies. A summary of the inward investment element of the evaluation is provided in Annex 2. The full report can be accessed at SDI Evaluation.

Relationship with Welsh Assembly Government We have regular dialogue with out trade and investment colleagues in the Welsh Government alongside dialogue with the other devolved administration. The most recent dialogue was on the 20 June 2011 at the International Business Development Forum organised by UKTI.

Annex 1 SCOTTISH DEVELOPMENT INTERNATIONAL 1. Introduction To win investment Scotland faces intense international competition to demonstrate it is the best location to invest. SDI’s core competence is in the delivery of world class sales and marketing to both attract investment to Scotland and to encourage and support Scottish businesses to increase their international trade. Critical to future success in attracting investment and increasing trade will be effective partnership working both at a Scottish and UK level, including: — alignment across the public and private sector to enhance the global competitiveness of the business environment in Scotland including: skills, research, transport, infrastructure, regulatory and fiscal environment. — harnessing the full potential of international networks and influencers and working with partners to actively co-ordinate the wider promotion of Scotland globally. Both exports and inward investment are vital in supporting Scottish economic growth. For example, in 2008 Scotland exported £20.7 billion of goods to overseas markets,3 the ratio of overseas exports to total turnover in Scotland is around 10%. Exports to the rest of the UK were estimated to be £42.3 billion. While the 1,825 foreign HQd enterprises in Scotland employed over 263,000 people (15% of total) with combined turnover in excess of £61 billion (28% of Scottish total). If companies owned elsewhere in UK are included there are 4,595 enterprises employing 628,000 people (35% of total private sector employment in Scotland) with turnover of £115billion (52% of Scottish total).4 In our key sectors Scotland is/or has the potential to be globally competitive in both attracting overseas investment and talent and in Scottish businesses gaining market share overseas. For example, Scotland has both natural, technical and research assets which give us significant international opportunities to be a world leader in developing a low carbon economy. SDI and our partner agencies can play a vitally important role in attracting investment to grow our renewable energy sector and in supporting the indigenous supply chain to maximise the global economic opportunities from clean technologies. To do this, we must focus our efforts on helping Scottish businesses to become more globally competitive; and effectively communicating the benefits of investing in Scotland to companies around the world in an increasingly challenging environment. We remain responsive to the needs of our customers and continue to help them respond to the short term challenges they face in the current economic climate as well as supporting longer term growth. A key priority is to work with SE, HIE and other partner organisations to encourage businesses to consider their international aspirations and look beyond Scotland for opportunities to grow their business. If we are to maximise the impact we have in supporting Scotland to become a more globally competitive economy, then we need to nurture our existing partnerships and develop new alliances with both the public and private sector. We need all our partners to get behind the common purpose of internationalisation with everyone playing to their respective strengths so together we can deliver more for Scotland. SE, HIE and Business Gateway provide a seamless provision of customer focused business support to companies while SDI focuses on specialist international business development support. SDI continues to be both an integral part of 3 Global Connections Survey 2008. 4 Government, ONS (IDBR), 2008. cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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SE and HIE while aligning with other public and private sector partners to strengthen Scotland’s competitiveness and create a globally competitive business environment.

2. Global Context The IMF forecast5 in January that most growth this year is likely to come from emerging economies including China (10%), India (8%) and the Middle East (5%) with developed nations showing slower growth eg US (3%), Eurozone and UK (1%) and Japan (2%). The devaluation of Sterling, (which is 23% lower against the $ compared to June 2008, 12% against the Euro and 34% against the Yen) gives an advantage to Scottish exporters albeit against the backdrop of weak demand in most market sectors. An increased level of uncertainty in the world and increased sophistication from competitor countries means Scotland and SDI need to further increase ﬂexibility and agility to respond to international opportunities. All this sets out a tough and fragile global and domestic environment within which Scotland needs to compete to attract investment and support Scottish companies to internationalise. Scotland, in a global context, is a very small market and tends to closely track UK performance6 which has slow growth forecast in the medium term.7 Therefore overseas markets become even more critical in accelerating recovery through both increasing international trade and attracting further investment into Scotland.

3. Economic Rationale and Global Trends Overview There is a considerable body of evidence highlighting the market failures and barriers to international trade and investment that amply justify public sector intervention, particularly in positively addressing information gaps, developing international networks and internationalisation skills8. The key findings are summarised below: The key barriers which impede internationalisation are: — in general companies over estimate the risks involved in exporting and entry into new markets and as a consequence become risk averse; — for businesses wishing to trade overseas there are irreversible sunk costs involved with entry and exit being costly undertakings. This has a scale element. In particular smaller companies, lacking diversified management structures, do not have specialist resources (eg a marketing manager) which enable them to begin exporting. Such investment may be beyond many in the short term without public support; and — in many cases businesses become locked into markets and courses of action and don’t consider exporting. An outside stimulus (eg attendance at a course or an event) can make a company change its direction and consider new markets. The key barriers to attracting investment in Scotland are: — potential investors are unaware of the benefits of locating in Scotland in terms of such things as skills, research base, infrastructure etc; and — the private sector alone cannot maintain adequate institutions and networks that support international linkages and knowledge flows. Governments also play a key role in providing access to contacts and key decision makers, and to some types of information, which private sector service providers cannot. Government reputation, in particular for impartiality and trust, is also an important aspect. It should also be noted that the attraction of foreign investment is highly competitive and therefore Scotland needs to focus efforts on where it has a globally competitive proposition. The role of government: — Governments and their agencies are well placed to address the barriers highlighted above. There is strong evidence that companies engaged in internationalisation or inward investment activity on average generate higher levels of labour productivity, pay higher wages and employ more people than their competitors who are not internationally active. Even more compelling is that companies who do enter new overseas markets further increase productivity as they are exposed to new ideas which they then adopt. 5 IMF World Economic Outlook, January 2010. 6 Scotland’s Chief Economic Advisor, State of The Economy, Dec 2009. 7 IMF World Economic Outlook January 2010, In 2011: World Growth 4.3%, UK Growth 2.7%. 8 DTI Economic paper on “International Trade and Investment—The Economic Rationale for Government Support” July 2006. cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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— The information, contacts and ﬁnancial support made available through government and its agencies helps encourage greater investment and reduces the perceived risks to businesses. While the multiplier effect (eg inward investors will source a proportion of its products/ services locally) means the beneﬁts are spread wider through the supply chain.

Global International Investment Flows Research by the OECD9 suggest that international investment flows dramatically reduced in 2009 by 50% with some sectors particularly affected eg automotive. This is forecast to stabilise in 2010 however further declines cannot be excluded. Overall the policy emphasis by countries has been to ensure free trade is not restricted. However there is a general concern that policies may be implemented in a way which supports “smart” protectionism, this includes policies to support indigenous companies eg bailouts. There has been a significant increase in Foreign Direct Investment (FDI) flows in emerging economies. In 2000 emerging economies in the G20 accounted for only 1% of G20 FDI outflows while in 2008 this had increased to 12%.

Trends in Trade The WTO report for 200810 shows that with the onset of the recession there was a weakening of demand for goods and services, and imports and exports quickly dropped. Trade has also been adversely affected by the lack of credit to ﬁnance imports and exports. As we can see from chart below, exports and imports began to fall sharply across the OECD economies during the third quarter of 2007 and throughout the remainder of the year, deteriorating markedly during the third and fourth quarters of 2008. This rapid contraction closely mirrored the reduction in GDP experienced across OECD economies during the ﬁnal two quarters of 2008. As we can see from Figure below, global exports rose sharply across the world during the early part of 2009 as the global economy emerged from recession. In fact, there has been a dramatic rebound in world trade. WORLD EXPORT VOLUMES11 40 % 30 20 10 0 -10 -20 -30 world -40 emerging Asia -50 2007 2008 2009

Having fallen by as much as 40% during the second half of 2008, by the middle of 2009 growth in world exports had resumed. Some observers attribute this growth particularly to the demand for imports across Asia, especially the huge growth in China’s imports. In fact, China doubled its imports from $50 billion to $100 billion during 2009 which has obviously been a huge boost to the global trading system.12 For Scotland the Global Connections Survey13 shows that estimated export sales from Scotland have steadily increased from £17.8 billion in 2004 to £20.7 billion in 2008 despite the onset of the worldwide recession. Scotland continued to grow its exports in all manufacturing and service areas but export growth slowed in areas such as electronics and instrument engineering, mining and agriculture. Scotland has managed to increase exports to European and North American economies during this period. The biggest reduction in exports was to Asia. Future export trends are difﬁcult to assess, the present fragile state of the global economy means total demand is less while the relative low value of sterling presently makes Scotland more competitive. 9 The global economy and the global investment agenda—an OECD perspective, remarks by Angel Gurría, OECD Secretary- General, USCIB Global Investment Conference, Washington, 10 March 2010. 10 WTO (2009) World Trade Report 2009. 11 Netherlands Bureau for Economic Policy Analysis (2009). 12 UNCTAD (2010) Report on G20 Trade and Investment Measures. 13 Global Connections Survey. cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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Trends in Investment The UN14 reported that overall FDI falling by 39% from $1,700 billion to $1,000 billion in 2009, with decreases across all major groups of economies. After severe declines in 2008, FDI flows in developed countries dropped by a further 41%, while transition and developing nations fared little better, with a slump of 39%. The US, the UK, France, Sweden and Spain all saw sharp dips. In June 2009 Ernst & Young15 reported that inward investment into Europe was flat in 2008, demonstrating the global recession’s toll on investment projects into the region. The report, which examines figures for international investments into Europe, new projects or expansions, revealed that in 2008 Europe secured over 3,700 investment announcements, the same as in 2007. The number of projects remained steady but the impact of the impending recession on new employment was severe. The number of jobs created fell 16% to 148,000, accelerating a downward trend underway since 2004.

4. Developing SDI’s Strategic Direction SDI working closely with SG, SE and HIE has just refreshed its Strategic Direction and Priorities for the next three years (2010–13). This has been developed taking into account: (1) SG, SE and HIE priorities eg key sectors (2) evaluation evidence; (3) customer demand; (4) changing global opportunities.16 Flowing from this strategic direction, SDI’s objectives are to: — attract investment and talent which builds on Scotland’s globally competitive sectors; — raise the aspirations and capabilities of more Scottish businesses to think, compete and trade globally; and — actively work with others to increase the global competitiveness of the business environment in Scotland and to align the wider promotion of Scotland internationally. The main changes in emphasis in the strategic direction include: — responding to the specific demands of each key sector with recognition of the growing opportunities particular sectors such as renewables given Scotland’s natural assets and technical competencies; — raising the aspiration of more Scottish companies to internationalise by working with others; — even deeper engagement with globally competitive companies who can add the most value to the economy; and — greater emphasis to be placed on exploiting emerging sectoral opportunities in growth markets particularly fast developing economies. Customer feedback and evaluation evidence demonstrate that the current products and services provided by SDI deliver real, tangible benefits and offer a balance of practical support, access to information, expertise and business networks. In particular SDI staff bring specialist expertise across all key sectors, provide international market access through our overseas field operations, and remain close to customers through staff located in all parts of Scotland. Just as importantly to support the efforts of Scottish companies to grow revenues from international markets is that SE, HIE and Business Gateway deliver a suite of other complementary interventions to increase the competitiveness of Scottish businesses. For example, innovation and leadership support are critical in raising competitiveness and enabling companies to exploit international opportunities.17 An example of this complementary support includes the Scottish Manufacturing Advisory Service (SMAS) delivered by SE. SMAS specialise in providing manufacturing firms of all sizes throughout Scotland with expert advice, one-to-one support, training and events including lean manufacturing and driving productivity improvements. Scotland also has key strengths in advanced manufacturing eg photonics, imaging systems, sensors. The company base has extensive experience at providing end to end supply chain capability from research and design through to fulfillment and aftercare. This has been built up in Scotland over the last 60 years through the Electronics industry. The highly skilled workforce, world class university research base and support like SMAS make Scotland a very attractive location which SDI can sell to potential investors.

The Scottish Economic Recovery Plan: Accelerating Recovery The role of internationalisation in accelerating recovery is one of the central priorities in the Government’s Recovery Plan. The Plan recognises that “we are likely to see a repositioning of individual economies in the 14 United Nations Conference on Trade and Development (Unctad). 15 Ernst & Young’s annual Country Attractiveness Survey 2009. 16 SDI Strategic Direction, Priorities and Approach, 2010–13. 17 Weblinks: SE—http://www.scottish-enterprise.com/ HIE—http://www.hie.co.uk/ BG—http://www.bgateway.com/ cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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global economy and restructuring of industrial sectors within these economies, Financial and trade flows will alter bringing new opportunities for Scotland to exploit its comparative advantage”. Within the Plan there is a firm commitment to scale up support for exports and emphasis on the central importance of internationalisation with a renewed strategy to target inward investment opportunities where Scotland has a strong global position. Recent initiatives include: — International Strategy support—helping companies deal with a changed economic environment. — Export credit finance workshops—alerting the Department for Business, Innovation and Skills (BIS) and UKTI on instances where access to credit insurance is cited as a constraint. — Trade missions—offering practical support for internationalisation including an enhanced programme of trade missions, with the aim of supporting participating companies to generate in excess of £250 million in international revenue. — Exhibitions and Missions programme—490 companies received support to attend overseas exhibitions in the year to December 2009, helping to secure additional overseas business. — Overseas Market Support—554 companies in the year to December 2009 benefiting from market research and/or in-market support for their business development. There has been a changing balance of inward investment activity recently to safeguard existing jobs while taking the opportunity to attract new investment where possible eg the success with Tesco PF in attracting 800 new jobs shows that opportunities do arise and a quick, co-ordinated response can result in positive outcomes. Despite the very challenging global trading conditions, SDI has delivered many new projects to bring and retain jobs from overseas investors. Between 1 April 2009 and 28 February 2010 SDI has secured 3,627 planned jobs through inward investment (of which 1,789 are planned high value jobs). As a result of the highly developed approach to customer support and inward investor aftercare there is a high level of insight into the challenges facing businesses. By maintaining strong working relationships with company representatives we are able, in the vast majority of cases, to provide early warning of potential re- structures or closures and to work with the company and key stakeholders to ensure all avenues are explored before decisions are made eg Vestas/Skykon, Goldfish. The internationalisation response going forward is fully reflected in SDI’s strategic direction articulated at the beginning of this question. As the economic situation evolves we remain committed to continually reviewing our activity and directing resources to areas of greatest opportunity.

5. Support Provided by Scottish Development International SDI support to attract investment and talent SDI has developed a world-class sales and marketing approach focused on promoting the competitive advantage that Scotland’s globally competitive sectors can offer to existing and prospective investors. We promote Scotland as a place for businesses to invest, including the capabilities of Scottish based businesses and our research organisations as trade or investment partners. We also promote Scotland to globally mobile talent as a great place to further their career. We ensure the sales and marketing approaches we choose to reach our customers are the most effective and represent good value for money. The power of face-to-face communication cannot be underestimated. Recognising the value of personal recommendation, we use Globalscots and other networks as advisors to Scottish business and as sources of new opportunities. Scotland has a very positive image, although its business reputation is not always well understood. In a world where competition for investment is ever more intense, we, with partners, need to manage this reputation more effectively by increasing use of new channels (eg online) to both retain and improve our position and increase the return on investment. In 2008–09, when global FDI was signiﬁcantly down, SDI still managed to secure over 1,807 high value jobs of these: — 90% were in key sectors, and — 49% were R&D related (rising from just 12.5% in 2002). In focusing on our key strengths we need to attract the type of investment which is sustainable and will make a long term difference eg Scotland has secured 22% of R&D inward investment projects18 into the UK in the last three years (up from to 17% in 2004) with over 35 projects including PPD, Doosan Babcock and Chevron. 18 European Investment Monitor. cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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As well as new investment we need to ensure we continue to support and develop existing investors through effective aftercare. Last year, more than 80% of the high value jobs that were secured came from existing investors; demonstrating both their commitment to Scotland and the globally competitive offering Scotland has. SDI has built up its sales and marketing competencies over many years. This has been externally acknowledged through a number of awards won, including: — Ranked 6th out of over 210 Inward Investment Agencies by the World Bank in 2009 (and top in UK). — This year voted 8th top region in Europe out of 142 by the Financial Times in their fDi awards (with Edinburgh being voted “Best Small City of the Future” for the 2nd time in a row and Glasgow being voted 2nd for “FDI Strategy for Large Cities”). This capacity needs to be continually developed for SDI to maintain its world class standing and comparative advantage over other trade and investment agencies.

6. Deployment of Resources Detailed below is a summary of the key activities carried out by SDI both in Scotland and in overseas markets. It should be noted that resources are used flexibly between trade and investment activities eg overseas staff have sector expertise which they will fully utilise to both work with potential investors to Scotland while also supporting Scottish businesses to find new markets overseas. Direct Customer Support Activity includes: — Overseas offices in 22 countries. — Co-location of customer facing staff with SE/HIE staff in local offices. — Overseas sales force targeting strategic inward investment opportunities and securing further investment for Scotland. — Specific work for individual trade and investment customers, ranging from market research to reaching senior decision-makers. — Networking, contact-building and opening doors for business—up to and including the highest levels of business and key government contacts. — Building links to Scotland’s science and education base. — Creating and providing platforms to showcase Scottish excellence and enhancing Scotland’s reputation globally through events. — Attraction of talent to Scotland through Talentscotland. — Influencing in Europe and supporting Scotland to access EU funding through Scotland Europa. — Planned annual investment of £17.5 million and 215 customer facing and delivery staff. Marketing and selling of Scotland’s strengths, online services and support: — Focused on demand stimulation, developing an efficient “engine room” to support the business and delivering and managing products to address the needs of Scottish businesses to grow internationally. — Demand stimulation is driven by sector marketing strategies, focusing investment on key subsectors within key markets. Direct activity, including internet marketing, will continue to dominate SDI’s activity. There will also be significant demand stimulation activity for key products such as strategy and preparedness support. — Development of a world class website and extranet that will enable a smarter engagement with customers, prospects, partners and staff. We will continue to develop smarter and more focused propositions based on where Scotland has a competitive advantage. — SDI’s product offering will be further enhanced through the development and delivery of solutions which address the needs for more strategy support, preparedness, sales and marketing and Internet marketing. There will be new web based solutions which will give all businesses access to support in these areas. — Support functions including: performance management, ministerial briefing team, CEO’s office. — Planned annual investment of £5.9 million and 36 staff.

SDI—Return on Investment The return on investment compares favourably against other business support evaluations and very favourably against Regional Development Agency evaluations of inward investment.19 The main factors considered in order to maximise ROI are: 19 Based on looking at value for money comparisons between the different evaluations conducted and making an assessment of their comparability given the differences in the methodologies used. cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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Factor Example

Government Economic sectors with greatest potential (the identiﬁcation of key sectors) Strategy SE & HIE Board strategic the focus on supporting companies to exploit their global competitive direction advantage (globally competitive companies) Sector/Industry plans helping to identify the nature of speciﬁc growth opportunities Economic analysis relatively longer term opportunities that have led us to invest more in China and shorter term opportunities such as trying to exploit changes in market conditions (eg opportunity to increase Scottish salmon exports) Competitor analysis the ability of Scotland to successfully compete against international competitors and understanding of the unique strengths of the Scottish proposition Economic circumstances the introduction of the sell now, pay later campaign, in quick response to the, then emerging recession Current operations understanding the relative relationships between investment made in different geographic markets and the return achieved in relation to the overall global sectoral opportunity staff capabilities eg we have a small team covering a global geography and must maximise contribution each individual can make Evaluation evidence we learn both from the analysis of others (eg UKTI) and our own past activity

SDI working with Scottish partners to deliver seamless support If Scotland’s international ambitions are going to be achieved then there needs to be close collaboration of effort across the different public and private sector players to deliver this. As referenced earlier, SDI and its partners provide a number of international products and services to support Scottish businesses and potential investors to achieve their international aspirations. These include training, R&D support as well as more direct ﬁnancial assistance through RSA and other grants. Support will most often be delivered through a package of interventions to assist companies with their growth plans over a period of time. SDI works closely with both public and private sector partners to realise international opportunities. We also work with pan-UK agencies, and UKTI in particular, to good effect and this is described in more detail in the Q7 response.

7. Balance Between Trade and Investment The activities of SDI are both demand and opportunity driven. Business customers look for assistance based on their own growth aspirations and the international opportunities which they can capture, while the key sectors in Scotland articulate the key strategic gaps where they can both expand overseas trade and attract new investment to fill gaps in the sector in Scotland. Both inward investment and international trade are critical contributors to Scotland’s economic growth. The relative importance, and therefore resources that should be devoted to each, varies over time and across sectors. Inward investment and internationalisation are not mutually exclusive, for example inward investors are major exporters from Scotland (in many cases Scotland looks to attract the European base for both American and Asian corporates). The challenge was described in the Fraser of Allander20 Economic Commentary Report from June last year: “The expansion in Scotland’s export base necessary to secure the desired increase in growth is unlikely to be achieved without significant successes in attracting inward investment. There are obvious difficulties in the attraction and retention of high quality foreign direct investment. But Scotland won’t make the transition from recovery to a higher growth path without it, given that Scotland’s domestic business birth rate remains stubbornly low and business R&D is amongst the lowest in the western world. The issue of how we can attract the required high value, inward investment to rapidly boost our export base should be a key topic of public debate in Scotland over the next few years.”

Summary of Opportunity (Demand) in Key Sectors Detailed below is a summary of the speciﬁc demands placed on SDI by the key sectors for both trade and inward investment. Flexibility and the ability to respond quickly to new opportunities are critical given the dynamic global economic environment. Where the opportunity balance of activity is signiﬁcantly skewed to 20 Fraser of Allander Economic Commentary June 2009. cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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one area of activity (eg trade rather than FDI) then this is indicated by a+ (those not marked indicate that balance of activity is broadly the same). Sector Trade Foreign Direct Investment Energy target new opportunities and supply chain enable supply chain to capture more UK, development including Offshore wind, - Renewables European and Global business including: Bioenergy, Hydrogen & Fuel Cells, promote Offshore Wind and Marine Saltire Prize, attraction of technical talent - Thermal, Work intensely to promote Scottish Carbon Targeted inward investment to support capability and expertise in CCS capture & development of the sector in Scotland. Ì technologies worldwide storage increase value of international activity targeted R&D centres, Enhance Scotland as a - Oil & Gas from Scotland supply chain by £5bn by key centre in oil & gas subsea, attraction of 2012 (baseline of £5.6bn in 2007) Ì technical talent CI & ET increase levels of international focus on activity which supplements present - Creative collaboration, encourage start up strengths e.g. R&D in ICT, major games Industries companies to be 'born global', exploit IT company, attraction of creative talent assist companies in key product markets utilise international networks to increase the - Enabling e.g. sensors, modelling & simulation, potential for job creation via specific inward Technologies informatics to access global markets investment, attract talent support the international growth stem cells and translational medicine a priority, aspirations of organisations located in attract anchor tenant for Edinburgh Bioquarter, Life Sciences Scotland including stem cells, attraction of senior management talent. Explore regenerative medicine, clinical and emerging potential for telehealthcare and natural translational medicine, drug discovery and products in Highlands & Islands. medtech. Focus on key sub-sectors e.g. helping protect Scottish based operations, exploit asset managers to access markets where expansion opportunities, maintain and grow high Financial government support is important to make value FS & BS operations in Scotland, Services high level connections, for example China homeworking opportunities in rural areas, & Japan attraction of talent Ì Working with Scotland Food & Drink exploit premium growth market functional food/nutritional health offers good Food & Drink opportunities building on the industry's medium to long term potential. String focus on role as a premium player, promote supporting existing investors. opportunities & embed international action planning into companies Ì working in collaboration with VisitScotland deliver higher value new developments within Tourism and limited AM companies particularly for Scotland e.g. 5 star city centre hotels and golf markets not covered by VisitScotland resorts Ì network international business development Universities support for the universities (and colleges), attract business investment which compliments key markets are India, China and the the research being developed in universities Middle East with a focus on new business

SDI also continues to support the international opportunities in other growth sectors including: Chemicals, Textiles, Aerospace, Defence and Marine, Forest Industries, Healthcare, Education and Construction.

Prioritisation of public sector resources and interventions SDI fully agrees with the need to prioritise resources and interventions in relation to opportunity and impact on economic growth. We have outlined in our response to earlier questions and in particular Q6. The approach that is undertaken to try to achieve the optimal balance between short term and longer term considerations. In addition we believe it is helpful to inform the Committee of the following:

Key sectors and other growth sectors SDI will continue to work with its partners to focus efforts on key sectors and areas of opportunity (eg technologies) where Scotland is/can be globally competitive. A summary of opportunities for each key sector is given in Q5.

Assessment of opportunity determines geographic coverage As the world economic map evolves, Scotland needs to re-assess global opportunities to take advantage of the shift in international economic activity towards developing markets. Work is underway to evaluate the criteria to be applied in the future identiﬁcation and selection of key fast developing markets. These criteria are likely to include: cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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— Market match with the profile of Scotland’s globally competitive sectors. — Market size and potential for growth. — Strategic economic importance. — Strength of the scientific, technical and research base. — Performance of Scottish businesses relative to competitors. — The additional impact SDI can have in supporting firms. The results of this work will inform future demand generation activity and the SDI market awareness raising programme. Where SDI has no direct local presence then we work closely with UKTI staff to deliver for Scotland. SDI OVERSEAS LOCATIONS

8. Joined Up Working Across the Public Sector SDI’s Strategic direction includes increased emphasis on ensuring alignment of internationalisation work and supporting the wider promotion of Scotland. There is recognition of the much wider collaboration with both public and private sector partners eg VisitScotland, Skills Development Scotland, Scottish Funding Council, industry bodies, universities SEPA, Historic Scotland, etc, as well as collaboration with other players outwith Scotland, particularly UK agencies eg UKTI, FCO, BTU to support internationalisation of Scottish businesses and the attraction of investment to Scotland. Through the Strategic Forum, SDI has been working with SG and partner agencies to strengthen overseas collaboration. Four general areas have been identified by the partners where future collaboration has the greatest potential to reap significant benefits. These are: — Promotion of Scotland. — Innovation & Commercialisation. — Major Events. — Wider Business Engagement (eg industry/ private sector). In all these areas significant collaboration already happens and the desire of partners was to assess how this could be further strengthened. Work is now ongoing to develop approaches in all four areas. For example, in the areas of science, technology and innovation several bodies contribute valuable expertise, notably Chief Scientific Officer, Scottish Funding Council, Universities and industry bodies. We need to promote and support further commercialisation from our strong knowledge-generating capacity and ensure Scotland reaps the global dividend from this asset base.

UK level co-operation SDI works in partnership with UKTI to ensure that companies based in Scotland beneﬁt from an integrated package of SDI and UKTI Trade and Investment services. We extend our combined resources to support success in international markets for Scottish businesses. cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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UKTI provide the market intelligence and, in some geographies, access to markets where SDI do not have a physical presence. UKTI staff based in UK embassies and High Commissions overseas offer SDI both economic and business insights, often with commercial implications. Some typical examples of joint working include: — Olympic & Commonwealth Games—joint conferences and the UKTI/BIS sponsored Compete-For web portal. — UKTI business opportunities have been incorporated into SDI’s International Business Opportunities product eg tailored sales leads, fiscal stimulus opportunities. — UKTI Professional Advisors Network—SDI encourages Scottish professional advisor companies to engage in the UK’s network and is establishing a Scottish Advisors Network to mirror UK approach. — Ongoing cooperation on high profile market awareness events eg the recent Asia Taskforce event at Murrayfield stadium. — Co-location of SDI staff in a number of Embassy/Consulate offices.

SDI in partnership with UKTI also offer: — information on local regulations; — advice on local partners, commercial services (lawyers and accountants), and on setting up joint ventures or local investments; and — market research, ranging from simple checks on whether a market exists for a particular product through to more complex work supporting product launches or signiﬁcant investments in global markets by businesses.

European Co-operation

Through Scotland Europa, SDI continues to ensure Scotland’s voice is heard in Europe through networking and inﬂuencing. It increases the positive perception of Scotland as a place to do business. Scotland Europa also supports access to EU funding opportunities.

Enterprise Europe Scotland (EES), delivered by SE, also plays a key role for Scottish business, supporting Europe’s largest technology and business network, connecting knowledge know-how and people across Europe. The Enterprise Europe Network spans more than 40 countries, has over 600 partner organisations, 4,000 advisors and thousands of companies interested in doing business in Europe.21

Wider industry and private sector engagement

The role of Industry Advisory Boards is critical in articulating the demands of industry and the international elements of this to allow SDI and other partners to prioritise and respond to this demand.

SDI works closely with partners involved in each key sector to ensure the international opportunities are fully exploited. An example of this approach in the attraction of investment to Scotland is given below: Translational Medicine Research Collaboration (TMRC), and the Scottish Academic Health Sciences Collaboration (SAHSC) It was recognised that Scotland had a competitive global advantage in Translational Medincine as a result of expertise and systems in the NHS in Scotland and in Scotland’s major universities. SDI and SE worked with these organisations and developed a very compelling proposition which was presented to global top 10 pharmaceutical company, Wyeth. This resulted in 2006 in the establishment of a major multi-centre collaboration with Wyeth in Scotland. To take the intiatiative forward the Translational Medicine Research Collaboration was formed. The TMRC involves four of Scotland’s universities, NHS Scotland and SE. SDI’s specific role was in helping facilitate a coherent plan with the pan-Scotland “team”, facilitating the front end selling of our proposition to the company. In terms of drug development timescales it is still comparatively early days, but to date 68 research projects have been initiated and Wyeth (subsequently acquired by Pfizer) have invested approximately £33m in the initiative. Wyeth themselves made clear that if there hadn’t been the genuine depth of collaboration between the various public sector organisations they wouldn’t have come to Scotland, and the opportunity for significant economic and health benefits would have been lost. To capitalise further on Scotland’s expertise in this area, the Scottish Academic Health Sciences Collaboration was established in 2009. The SAHSC created a world leading platform for patient oriented research that will contribute significantly to Scotland’s reputation as a centre of excellence 21 http://www.enterprise-europe-scotland.com/sct/ cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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in Translational Medicine. This new initiative built on the close existing collaboration between SDI, SE, NHS Scotland and academic partnerships already existing in Aberdeen, Dundee, Edinburgh and Glasgow, and through these to other Scottish Health Boards and Universities. SDI and SAHSC are currently undertaking joint international marketing to major global pharmaceutical and med tech companies to attract further investment to Scotland.

9. Resources

The resources for SDI are prioritised as part of SE, HIE and SG planning process. It is an objective led approach that looks at the value trade and investment can deliver to the sustainable economic growth of Scotland and how this complements other strategic priorities eg innovation, business growth, and investment.

It is a dynamic process, if opportunities arise during the year eg a major inward investment opportunity, then SDI work with partners to try and secure the investment. Where resources are a potential constraint then this is discussed with Government as needed.

It should be noted that signiﬁcant resources for supporting the attraction of investment come from partners eg RSA delivered through SE, vocational training delivered through Skills Development Scotland. SDI work closely with partners to provide a package of support which meets the investors needs and delivers economic impact for Scotland.

A key factor in our success will be enhancing the business environment. Our overseas market intelligence can give us a key insight into how our sectoral strengths are viewed across the globe and where we should focus more or less.

For inward investors some of the key issues overall when considering locations include: — Quality and availability of labour and skills (eg graduates). — Tax, government incentives and political risk. — Costs (eg labour, energy, real estate). — Communications infrastructure.

Other issues mentioned are quality of government/regulations, direct travel links and quality of inward investment support. Government needs to continue to prioritise these assets to ensure Scotland strengthens its globally competitive position. SDI can then support the marketing of these to attract new investment to Scotland.

Efﬁciency

SDI will continue to challenge how costs can be further reduced, while the effectiveness of our work can be increased and have a greater impact on the Scottish economy.

The support service model of SE is essential to enable SDI to drive down internal costs (eg HR, IT, ﬁnance, procurement, facilities, and research). This also ensures we have the competencies to draw on when we need them eg the present evaluation has used both the SG, E and HIE economics and research expertise.

SDI’s approach to FDI is a blend of public and private sector resources. For example, RSA grants are fully dependent on agreed levels of investment by the companies concerned.

Skills and Expertise

SDI already has a strong skills and knowledge base both at a geographical and a sector level. Over 75% of SDI staff have relevant direct private sector business to business sales and marketing experience while around 80% of staff employed in overseas locations are local nationals with relevant experience and qualiﬁcations in business development.

Through SE’s Learning & Development team we have focused on competency based training for many years and provided professional development based on the present and future needs of the business. Recognising the increasingly competitive global environment for FDI and supporting Scottish companies to internationalise we have recently taken steps with the support of SE Learning & Development Team to put in place the SDI Academy which focuses on enhancing consultative selling competencies of SDI staff and ensure SDI staff maintain the specialist skills necessary to support the business development efforts of Scottish companies (eg Institute of Export level qualiﬁcations). cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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Many of the skills required to internationalise can be provided by the private sector. SDI work to strengthen existing relationships with private sector bodies (eg trade associations, international legal ﬁrms, accountants, specialist employment agencies and others) to help ensure these skills are matched with the businesses which could beneﬁt from them.

10. Benchmarking SDI is always looking to benchmark itself against other competitor investment bodies around the globe and there are certainly lessons to be learned. We monitor Scotland’s competitor agencies and as appropriate use this knowledge to develop or enhance products and services. A recent review by The World Bank ranked SDI sixth in the world among investment bodies for its ability to bring new investment to a region and boost a local economy. The review compared over 210 international development bodies to assess their performance in attracting inward investors—and rated SDI above all other UK agencies. “SDI has proven to be very effective in facilitating foreign investment projects, further building on Scotland’s reputation as a successful global investment location” World Bank quote. SDI, in particular, was recognised for its work in the areas of customer care and follow-up, as well as attracting inward investment and knowledge to Scotland. This benchmarking exercise helps us identify where we can improve the way we operate. For example in the 2007 report our website scored 76% (just in the top quartile), from this we focused on developing the site based on both customer feedback and learning from “best in class” organisations. Subsequently the website scored 86% in 2008. After the latest report we have focused particularly on improving our enquiry handling processes.

11. Market Research Global Market research We have good data on how the Scottish proposition in key sectors is perceived in comparison to competitors, but we need to keep this constantly up to date by refreshing our market data through access to secondary research eg Financial Times FDI competitiveness database, and through listening and acting on customer feedback. We will conduct fresh market research, for example, in under-research sectors. We know the characteristics of the overseas businesses we want to attract as investors and the characteristics of those Scottish businesses where targeted trade support can most beneﬁt the economy. We have good market intelligence on what these potential investment and trade partners are looking for, though more work remains to be done on the priorities for particular sectors (and sub-sectors) in particular geographical markets.

UK and Scottish level research The Global Connections Survey provides a useful snapshot of Scotland’s export activity and is particularly useful in understanding the barriers to trade experienced by Scottish businesses, this is used to help design future interventions. It collects detailed information about export values and destinations of goods and services across the economy as a whole (not just manufactured goods). It also includes exports to the rest of the UK— used as a Scotland Performs indicator. It is, however, a sample survey and completing it is not a mandatory requirement for companies. The index of manufacturing exports provides a useful more up-to-date picture, although this is limited to manufacturing and to overseas sales volumes and provides less detailed information than the Global Connections Survey.

SDI (SE and HIE) research SDI continues to build its evidence base to help better understand the impact of its activities. This includes working with both SE and SG colleagues to ensure a good fit with the Government’s performance framework and the SE performance measurement systems. SDI with the joint venture partners is just completing one of the most comprehensive evaluations trade and investment activities and the impact these activities have had on the Scottish economy. The research included secondary research to learn from the present academic literature, this was then used to support the design of the primary research. Key findings from this are given in Q1 and Q3. More detailed work is being conducted to ensure we fully gain the learning from this and apply this going forward. This work has been used to inform our strategic direction and will help us in both the prioritisation and design of future interventions to ensure they deliver more economic benefit for Scotland. SE conducts regular surveys of the companies they work with and the results are analysed monthly. This information gives up to date information on their present and forecast growth and whether they expect exports to increase/decrease. This helps us indentify where we should focus efforts. SDI Overseas Offices collect market intelligence on a continual basis and feed this back to help inform decision making Scotland. cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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Annex 2 INDEPENDENT EVALUATION OF SCOTTISH DEVELOPMENT INTERNATIONAL (2010) Inward Investment SQW Evaluation 2010

The analysis of SDI’s inward investment activities covers the period 2001/02 to 2007/08. SDI data reports 440 assists to 328 companies. Between 46 and 65 companies were assisted each year over that period. As a result of SDI activities, the following outcomes were found: — SDI assisted businesses had higher employment (than comparable unassisted plants) of around 10%. — SDI assisted businesses paid higher real wages (around 15%) when compared to non-assisted plants. — 73% of assisted businesses consider SDI to have been fairly or very important in ensuring their continuing presence in Scotland. — 56% reported employment/activity safeguarded as a result of SDI support. — 53% had increased their investment at an existing site; 44% had increased training; 38% had improved their access to Scottish universities; 25% had increased R&D activity; and 25% had increased their use of Scottish suppliers. — 30% consider their presence has had a positive effect on suppliers’ use of technology and productivity levels. — Half of the businesses interviewed had grown since arriving in Scotland while only 7% had contracted. Between 2001 and 2008, inward investment by SDI averaged £6 million a year, with RSA and other public sources providing an annual average investment of £29 million per annum; a total of £35 million a year. Businesses were asked to estimate the number of jobs that they would attribute to the package* of SDI support that they received (ie how many more jobs are there than would have been the case without SDI involvement). — net additional employment to date is 18,000 — net cost per job to date £14,000 — the ratio of GVA per £ invested is 11:1 — Estimate of annual GVA generated by employment over the period is £300 million` Data from SDI Policy Evaluation by SQW Consulting, May 2010. The results were obtained through: (1) An econometric analysis of inward investment carried out by Professor Richard Harris, Department of Economics, Glasgow University. (2) Interviews with businesses conducted by IBP Strategy and Research as a subcontractor to SQW for this assignment. * including but by no means exclusively ﬁnancial support

June 2011

Written evidence submitted by Associated British Ports Introduction 1. Associated British Ports (“ABP”) is the UK’s largest and leading port operator with 21 ports around Britain handling around one quarter of the UK’s entire seaborne trade. 2. ABP owns ﬁve ports in South Wales; Newport, Cardiff, Barry, Port Talbot and Swansea. ABP also owns and operates Cardiff Container Line, which offers a unique door-to-door container logistics service connecting the UK with Ireland. 3. Ports have a key role to play in attracting investment and driving economic growth. It has been estimated that ABP’s South Wales ports generated over £2.78 billion for the Welsh economy, supporting over 16,000 jobs. Over the past 10 years ABP’s ports in South Wales have been involved in attracting a wide range of investment projects, providing signiﬁcant value to the Welsh economy. 4. ABP therefore welcomes the opportunity to respond to the call for evidence for the inquiry regarding the inward investment in Wales.

The Importance of ABP South Wales for the Welsh Economy 5. In 2010 ABP’s ports in South Wales handled around 14 million tonnes of import and export cargoes. Our ports provide Wales with essential links to global markets, serving a range of destinations including Ireland, the Iberian Peninsula, the Mediterranean, India and the Far East. ABP’s ports in South Wales also serve the Midlands, London, M4/M5 corridor and the South West. 6. In addition to general cargo trade for distribution within the hinterland area, several ports service industry and manufacturing plants located on or near the port estate. In particular Port Talbot, Barry, Cardiff and cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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Newport provide essential facilities for such businesses handling both inbound raw materials and product shipped to markets in the UK, Europe and globally. 7. A 2009 report by The Welsh Economic Research Unit estimated that ABP’s South Wales ports directly and indirectly support over £2.78 billion per year of gross output to Welsh economy, account for over 16,000 jobs, and provide a GVA of £902.5 million (2% of Welsh total). The report highlights that the ABP facilities support “economic development by enabling businesses to compete with European counterparts”. 8. The South Wales Ports are considered key to the existing Welsh economy and of strategic importance to the region for further economic growth and inward investment. Ports should be regarded, not just as a transfer point between sea and road, but as true multimodal hubs, with road, rail and sea access, backed with vital services, warehousing, storage and development sites, all essential to attract inward investment in the manufacturing, energy and distribution sectors. 9. Going forward ports will become even more important for the Welsh economy given the importance of generating export-led growth. Ports can also play a crucial role in promoting the growth of new manufacturing and technology businesses since strategic sites in and around ports offer excellent connectivity to international markets, both for exports and the import of components and raw materials. This means that ports not only drive growth but also help achieve a wider re-balancing of the economy. This objective combined with the large number of strategic sites available in or near South Wales ports should give Wales a natural advantage compared to many other parts of the UK.

ABP South Wales at the Heart ofInwardInvestmentProjects 10. ABP has had significant involvement in a number of foreign investment projects that have taken place over the past decade and plays an ongoing and vital role in the support of a number of key manufacturing facilities in South Wales. Notable examples where ABP ports at South Wales support key manufacturing facilities that require importation of raw materials and efficient access to the market place for their products include: Dow Corning Ltd at Barry, Tata Steel at Port Talbot, Cardiff and Newport, Celsa steel at Cardiff, Rockwool insulation products at Bridgend via Cardiff, Intertissue at Baglan via Swansea and Scott Timber Group at Barry. ABP has also undertaken capital investment to support the needs of many projects. Such existing and former investment projects include: — The development at Newport of an importation and distribution facility for St Gobain, a world leader in construction markets, to provide a supply route to their UK operations including the Jewson chain. — The development and investment in facilities at Newport with Sims Metals to establish the Port of Newport as a global centre of excellence for the recycling of metals. — The provision of innovative container logistics service at the Port of Cardiff to support Tata’s trade with Ireland by providing competitive and cost-effective solutions. This trade has included the investment in specialist coil carrying equipment. ABP also provide a range of other port facilities to Tata at the South Wales Ports. — The creation and management of an importation and storage facility at Swansea to provide a vital supply route for raw materials to the Intertissue plant at Baglan Bay. — ABP was key to facilitating the construction of the Amazon facility in Neath Port Talbot by working closely with the German-based construction company. ABP’s ports also had major environmental benefits by helping avoid significant road miles since the alternative consideration was to use road transportation from East Coast UK ferry ports. — Import/export facilities supporting the £80m investment in a new smelter at Celsa, Cardiff. — Import/export facilities supporting the Dow Corning multi-million investment at its Barry silicon site. 11. ABP is currently working hard with a wide range of customers to attract further foreign investment to Wales. A significant number of these investment opportunities relate to the renewable energy sector and include projects associated with offshore and onshore wind power generation, biomass power generation and Energy from Waste projects. Examples include Prenergy’s plan to construct a biomass power station at Port Talbot and the opportunities that are currently being investigated with regard to Offshore Wind Power Generation for RWE. 12. The benefits that ABP ports offer to investors in renewable energy include the significant development sites adjacent or near to quaysides which can assist future development requirements. Sites include areas in excess of 40 acres that have road, rail and sea access.

The Potential of South Wales Ports 13. As key international gateways, ports are crucial for driving economic growth. The desire to create a low carbon economy, the need to promote export-led growth and contribute to re-balancing the economy further underlines the importance of ports and their potential to be major hubs of economic growth in themselves, for example by attracting new manufacturing and technology businesses. In this respect South Wales has major advantages. In particular, ABP South Wales several major development sites at: cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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— Cardiff (sites up to 40 acres). — Port Talbot (sites in excess of 40 acres, with the ability to reclaim and develop additional cape size berths). — Newport (sites up to 20 acres). 14. This advantage is supported not only by the excellent connectivity of South Wales ports internationally but also with the proximity to a wider UK hinterland, serving Wales, the Midlands and south west with a huge market accessible within a short road or rail journey.

The Importance of WAG Promotion 15. ABP has played a leading and successful role in attracting significant investment to the Welsh economy. Central to this has been proactive marketing by ABP locally, nationally and internationally. 16. It is however recognised that the Welsh Assembly Government could play a greater role in promoting investment in Welsh ports, particularly through facilitating strategic engagement with potential customers who express a high-level interest in investing in Wales or, more broadly in the UK. With respect to the latter, it is important that WAG ensures effective and ongoing liaison with UK Government departments such as the Department for Business, Innovation and Skills. 17. ABP has attended a number of excellent events and trade missions organised by WAG to promote Wales to investors and for business development. Whilst recent budgetary cuts have resulted in a reduction in participation at such events by WAG, ABP considers that continuing to support such events is prudent given the potentially significant benefits available to the wider Welsh economy. Enhanced marketing and communication efforts at UK, EU and wider international level may be needed to further increase participation and increase value for money. 18. At the moment ABP’s available development sites are identified in the WAG property database, but opportunities that arise from this are rare. More could therefore be done to highlight these valuable strategic assets.

Engagement with Welsh business 19. ABP has been pleased to engage constructively with WAG ministers and civil servants across a number of departments and functions over the past number of years. ABP is keen to continue to work closely with WAG to take forward joint initiatives which have been identiﬁed. 20. ABP considers that a key government contact is established for businesses such as the ports, who can act as a key link and involve the various WAG personnel and departments as appropriate. Further there should be a structured framework for ongoing liaison over time. This will improve on the current ad hoc approach which can sometimes result in lost time and potentially missed opportunities. 21. ABP considers that the direction, focus and level of support that has been provided by WAG to organisations involved in promoting Wales needs to be more consistent. Clarity should therefore be given to the future strategy in a clear and concise way and the routes open to obtain support should also be simpliﬁed to single points of contact who can work across various disciplines, departments and functions

Investment inInfrastructure 22. Given the vital importance of ports in encouraging inward investment it is important that investment in infrastructure prioritises road and rail links to ports. This recognises the need to deliver economic growth and the need to maximise value-for-money in the context of a tight ﬁscal environment. 23. At the same time, however, it is important that careful attention is paid to making sure public investment does not unbalance the business case of existing and future private sector investment. 24. Regarding Foreign Direct Investment, ABP considers that in contrast to aid being focused on the valleys, assistance should be given to the urban/city areas, principally Cardiff, Swansea and Newport where communications, transport and commercial services are readily available and concentrated. Many of ABP’s employees are domiciled in the valleys but easily commute to work at its port sites using road and rail services from the valleys. It is at the coastal fringe, the city region, where motorway and port/rail freight access is at its best that the FDI offering can be maximised.

Strategy 25. ABP believes that one of the key aspects essential to attracting foreign investment to Wales is the ability to change and act quickly. Government efforts should therefore focus on identifying future trends and opportunities and then putting the measures in place early to ensure that maximum beneﬁt is captured as these trends develop. This should include aspects such as ensuring that policy and legislation are in place early, cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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without ambiguity, and efforts should also be made to speed up the planning process and reduce the costs and stages involved in achieving the same.

Tough Competition for Investment 26. It is important to recognise the tough competition for investment, both with other parts of the UK and indeed internationally. For example, Wales has been disadvantaged in seeking to attract renewables developments by the existence of a £60 million government fund to support wind energy in England (the Offshore Wind Manufacturing Fund delivered through the Grant for Business Investment scheme) and a similar scheme in Scotland offering some £70 million of potential public investment. Such support has not been made available to renewables businesses who might also consider Wales as an investment location. 27. It is evident that competition for investment will increase over time. It is therefore essential to ensure that Wales offers the best possible environment to invest and that this is widely recognised.

Conclusion: How toMaximise Inward Investment in Wales 28. ABP believes that ports are crucial to maximising inward investment in Wales. We therefore believe that WAG should consider taking the following steps: — Acknowledge the major challenge of successfully competing for investment within and outside the UK. — Fully recognise that ports are crucial to meeting this challenge and recognise ABP as an “anchor company”. — Identify and capitalise on opportunities to vigorously promote Wales to international investors, by for example liaising closely with the UK Department for Business, Innovation and Skills. — Enhance engagement with the Welsh business community by having a single point of contact to communicate and coordinate inward investment opportunities. — Fully exploit Wales’ advantage in offering signiﬁcant development sites in and around ports, for example by increasing the promotion of these unique strategic assets. — Prioritise investment in infrastructure that supports port development and which offers the best return for the taxpayer. — Develop a strategy to identify and capitalise on key investment trends, allowing WAG to adapt and respond quickly to change. May 2011

Written evidence submitted by Tata Steel Europe 1. Introduction 1.1 This document represents written evidence submitted by Tata Steel to the House of Commons Welsh Affairs Select Committee’s Inquiry into Inward Investment in Wales. 1.2 It follows an introductory information-gathering event at Port Talbot steelworks for Members of the Committee on 5 April 2011. At this event Committee Members met the Wales-based Chief Technical Ofﬁcer, Uday Chaturvedi and other principals of Tata Steel Europe. Following an introductory brieﬁng about the organisation, the Committee saw presentations on the subjects of potential investment in enhancing the supply of vital raw materials (the Margam Coal Project), and also downstream innovation in the Sustainable Buildings Envelope Centre, (SBEC), photovoltaic coatings, (PV) and also research and development into other functional coatings. This is a project known as SPECIFIC, (Specialised Product Engineering Centre in Functional Industrial Coatings). It is envisaged that the 5 April event will be followed by a similar information-gathering event at Tata Colors’ plant in Shotton sometime in the autumn of 2011. 1.3 The evidence in this submission has been focused on the activities of the Wales-based Tata Steel Strip Products UK and the Tata Colors operating hubs. Further evidence may be explored from other Wales-based Tata businesses which are not to be excluded from the attention of the Inquiry and which may be presented as additional information on request.

2. General Principles 2.1 Tata is demonstrating its commitment to investment in Wales. The £7.4 billion acquisition of Corus was followed by further support in the time of the 2008–09 economic crisis. Tata maintained the £60 million BOS Energy Recovery project at Port Talbot in the eye of the economic storm. Since the acquisition Tata has announced capital investments approaching £250 million in Wales. cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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2.2 The majority of the Wales based Tata sites derive their substrate from the Strip Products operating hub, serving markets which have shown the greatest propensity for recovery since the economic crisis. This has made Wales a focus for positive development. Other operations, such as Cogent, based at Orb, Newport, are focused on specialised markets. 2.3 A positive factor in the principle Wales-based sites has been the improvements in performance achieved by the Strip Products businesses since 2005. This has been through a continuous improvement process known as “The Journey” which has directly involved employees at all levels in an ongoing process of cultural change. 2.4 The steel industry is well established in Wales and Tata credits the capability and commitment of the workforce and also supporting organisations in this country. The Welsh Government now credits the industry with the label “Anchor Company” for the economy. Devolution in Wales clearly presents the Welsh administration with opportunities to focus on the needs of the economy’s key components. Tata is pleased to have close, positive working relationships with government; the company believes that the steel industry can play a vital role in the Welsh Government’s definition of a “sustainable” (ie: prosperous, environmentally— and community—conscious) society. 2.5 It is important to recognise that Tata Steel is an international enterprise. While the company may benefit from its close relationship with the devolved government, both government and company need to be wary that political and regulatory inconsistencies can be costly and frustrate further development. 2.6 Political constraints at all levels of government exempt the steel industry from capital intervention. However, the political environment can make Wales a “perfect habitat” for industrial growth, perhaps a vivarium for steelmaking. 2.7 Vital opportunities exist for significant investment in energy, further reduction of carbon dioxide emissions, by-product optimisation, new product development, training and skills development and research. 2.8 Visitors to Port Talbot are greeted with the words: “The Pride and Passion of Welsh Steelmaking” in 2 metre-high letters and also the sight of the 5 metre-tall steel Welsh dragon. Investment into the steel industry in Wales is readily made in the context of the strong cultural, community link between Wales and the industry.

3. The Tata Vision 3.1 Tata Steel expresses a vision to be the global steel industry benchmark for value creation and corporate citizenship. The organisation prides itself in a distinct philosophy, which derives from the founder, Jamshetji Tata in the mid-Nineteenth Century. He wrote on one occasion: “The community is not just another stakeholder in the business, but is, in fact the very purpose of its existence” The company expresses it’s determination to act at all times to: 1. Ensure the safety and well-being of all employees. 2. Respect and safeguard the environment. 3. Provide customers with the best possible products and services. 4. Contribute to our local communities and to society in general. 5. Generate a good return on investment to our shareholders. 6. Maintain the highest ethical standards with our suppliers and contractors and in all business dealings. To realise these aspirations, the company is aware that continuously it must improve.

3.2 Arguably, such values and beliefs were common to the pre-acquisition operations in Europe. However it is important to stress a genuine difference in culture, perspective and outlook in Tata steel today: a more intense focus on values and community engagement, on the business’ role in a global (not UK-or EU) economy and, above all a vision which extends to long-term planning (for following generations)—and direct involvement both up-and down-stream (backward integration and downstream diversiﬁcation).

The past two years have seen an unprecedented economic downturn and other UK-based Tata Steel enterprises have been worse affected by the crisis. These events did force Tata to defer some of its investment plans and even close some facilities—causing job-losses. These measures were painful but essential to ensure the long-term viability of the European business.

4. About Tata Steel 4.1 Tata is the largest manufacturing company in the UK. Associated with the former Corus, but marques such as Jaguar Land Rover and Tetley, the company has arguably been a leading investor in the UK manufacturing economy since the economic crisis in 2008–09. cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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4.2 The company does not exist as a single entity in Wales, although the dominant physical signiﬁcance of the integrated steel works at Port Talbot makes it something of a headquarters in Wales. The location of some of Tata Steel’s key Corporate functions at this site makes it one of the largest Corporate management locations outside TSE’s formal headquarters in Millbank, Westminster.

4.3 The Tata Group Tata Steel forms part of the Indian international Tata Group. One of the world’s fastest growing corporations, the Group’s activities span seven major industry sectors: — Information technology and communications. — Engineering products and services. — Materials. — Services. — Energy. — Consumer Products. — Chemicals. The group is India’s largest private sector employer—the company now employs over 350,000 people in 80 countries, worldwide. The Group’s 2008–09 revenue was $71 billion. Some two-thirds of this revenue is derived from international markets. Founded by Jamshetji Tata in the 1860s, the company retains his strong commitment to enhancing the community through a strong commitment to high standards of values and beliefs. A core Tata principle is that the relationship between company and community is inextricable. Investment into the organisation also represents investment into the community.

4.4 Tata Steel Often described as the “flagship” Tata Steel is one of the world’s top ten steel producers. With manufacturing operations in 26 countries. The combined group has an aggregate crude steel capacity of more than 28 million tonnes and approximately 80,000 employees across four continents. Turnover from the steelmaking business in 2009–10 was $22.8 billion. An important feature of Tata’s steel business is its depth and scope. The organisation is backwardly integrated into self-sourcing vital raw materials—such as iron ore and coking coal—and the organisation has downstream capability in the automotive industry (Tata Motors and Jaguar Land Rover) too. This enhances the benefit of investment at any part of the chain—by creating far-reaching waves of benefit into the wider community. This feature does contrast with the UK steel industry of the recent past.

4.5 Tata Steel Europe (TSE) The UK-based Tata businesses form a key part of TSE, a single legal entity within the Tata Steel Group. The second largest steel producer in Europe, TSE has an annual crude steel capacity of 18 million tonnes. The organisation has major manufacturing sites in the UK (notably for this Inquiry, in both North and South Wales), the Netherlands, Germany, France and Belgium. The company has sales ofﬁces and service centres in over 40 countries. The European operations of Tata Steel were acquired by Tata as the Anglo-Dutch company, Corus in 2007, although the formal rebranding of these business units formally was commenced later in September 2010 as “Weathering the Storm” of the 2008–10 economic crisis was the overarching priority. Europe’s second largest steel producer, TSE’s main steelmaking operations are located in the UK and the Netherlands. The company supplies steel to many of the most demanding markets: construction (structural steels and also steel for components and the buildings envelope), the automotive industry, (in the UK alone, the company lists Jaguar Land Rover, BMW Mini, Nissan and Honda among its customers), mechanical engineering, packaging and many others. Tata Steel’s UK operations directly employ 20,000 people and indirectly support more than 100,000 jobs nationally. In many cases it is the largest local private sector employer and the development of its activities have been, and continue to be, integral to surrounding local communities.

4.6 Tata in Wales Port Talbot integrated steelworks and its essential sibling plant at Llanwern form the Strip Products UK operating hub. The packaging steels business (a key manufacturing site of which, is based at Trostre, Llanelli). The Colors business which manufactures coated steels for the construction and also electrical appliance industries, is based at Shotton and Tafarnaubach. Speciality businesses, exist in the form of the smaller Wales- based Catnik and Colorsteels businesses. Finally the Distribution and Buildings Systems Division also includes Wales based sites. A summary is detailed below. cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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4.7 Overview of Tata Businesses and Sites in Wales Approx Direct Business Locations Nature of Business Employees

Tata Steel Strip Port Talbot Production of Hot Rolled Coil used in 5,500 Products UK Llanwern the construction, automotive, electrical/household appliances packaging and other industries Tata Steel Colors Shotton Production of coated & organic coated 650 Tafarnaubach products for the construction, electrical appliance and other industries. NB: Shotton hosts the Sustainable Buildings Envelope Centre (SBEC) and the Photovoltaic (PV) research project Tata Steel Packaging Trostre, Llanelli Steel for packaging applications— 850 cans, boxes, trays, etc. Some other specialised markets Cogent—shortly Orb, Newport, South Wales Specialised grain-orientated steel for 450 Tata Steel Electrical electrical applications including wind Steels turbines Colorsteels Cross Keys Coated strip steels for heavy 120 applications Tata Steel Building Caerphilly Steel lintels for building construction 100 Systems (Catnic) Tata Steel Building Shotton Profiled steel composite panels for 100 Systems walls and floors for commercial construction Tata Steel Living Shotton Modular steel units for construction— 100 Solutions currently not operating *SPECIFIC Baglan Innovation Centre R&D into functional coatings for (50) steel. A partnership project under the legal aegis of Swansea University ~8,000 * Sustainable Product Engineering Centre for Innovation in Functional Industrial Coatings 4.8 Tata does not publish formal business results for its Welsh operations. However, regularly dubbed “Wales’ No 1 Company” in the Western Mail “Wales Top 300,” the company is loosely estimated to make a contribution to the Welsh economy of some £2.5 billion. 4.9 Tata in Wales employs some 8,000 men and women. The economy here has the benefit of a relatively high degree of interdependency of the Tata business units here, forming something of a product chain in Wales. This enables Tata—and the government too—to view the steel industry here with an end-to-end approach. This means developing holistic policies and strategies, which take the complete view of the industry and its contribution to the community in Wales. This matters in developing policies concerning the industry’s impacts—air quality, carbon dioxide emissions and by-product management—as well as strategies to encourage further growth. 4.10 In Wales, Tata is: — The largest manufacturing company. — The largest private energy user—but also the largest private generator of energy. — The leading commissioner of freight haulage by rail and road. — A major supporter of university research and development. — The largest recruiter of apprentices in a three-year scheme. Some 300 people (not all of them are “young”) are engaged in the scheme at any one time. — A major recruiter of functional trainees and graduates. — A major recruiter of people via agency/contract sources. — A major contributor to regeneration, through the Wales-based UK Steel Enterprise organisation. 4.11 In addition to the above, Tata Steel in Wales is a major investor into community activity in the communities adjacent to the company’s main sites. Activities supported by the company include: — Public and community events—such as local eisteddfod, charity activities etc. — Sponsorships for local groups and individuals. — Environmental projects—rural and urban. cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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— Learning and educational projects—including curriculum-related activity within schools. — Community awards and donations. 4.12 Tata Steel is currently liaising with Cardiff University to conduct a formal study, which rationalises the real impact of the company on the community in Wales. In the past, academic observers have commented that for every wage paid by the company in (its past forms)—as many as twenty roles depend upon it in the community. This assessment may be somewhat generous. However, the vital input of local partners and service providers in the two large engineering projects at Port Talbot, the £185 million Blast Furnace No 4 rebuild and the £53 million BOS Off Gas project—will generate considerable indirect employment—permanent or temporary. 4.13 Downstream developments in the industry may positively affect general employment levels too. The technology demonstrated in the Sustainable Buildings Envelope Centre (SBEC) and the coatings technologies (including PV) have been estimated to contribute to the protection or creation of some 10,000 jobs in the UK.

5. The Significance of the Tata Acquisition to the Steel Industry in Wales 5.1 The Acquisition was a massive investment and vote of confidence for the industry. Tata invested some £7.4 billion into the acquisition of Corus in early 2007. This represented the climax of a strategy pursued by the former Corus Board to secure a sympathetic international partner to secure a long-term future for Corus in Europe. It was a take-over, but the new owner immediately following the acquisition could forgive many to perceive it as a partnership—perhaps owing to the light touch on the tiller. The significance of the investment as protection for the steel industry in the UK was revealed when the economic crisis occurred in 2008. Tata halved its manufacturing capacity; in Wales this meant the idling of Blast Furnace No 4 at Port Talbot and also mothballing of the Hot Rolling Mill at Llanwern. The downtime was optimised by an investment of some £5 million into BF4 to prolong its campaign life until 2012. Equally the HRM at Llanwern was developed to create a flexible working facility. The company worked together with the (then) Welsh Assembly Government to minimise reductions in manpower and further upskill the workforce through a (maximum available within legal constraints) £1.6 million training and development programme through ProAct.

5.2 Tata’s Support for European Operations During the Economic Crisis In the teeth of the economic downturn Tata provided further support in additional capital and cash-injection at levels of about £1 billion. We can only speculate how Corus may have fared in the absence of Tata’s continuing support throughout the crisis. The resumption of operations of both facilities in the autumn of 2009 sent a message to the community that the industry was not only Weathering the Storm, but is Fit for the Future.

6. A Summary of Major Tata Investment* in Wales since 2007 * The table illustrates key investments only, for illustrative purposes only. Excluding additional resourcing to “Weather the Storm” and investment in training and personnel development Date Value announced £m Site/Project Beneﬁt

2006 60 Port Talbot Basic Oxygen Steelmaking Energy Recovery of hydrocarbon gas Recovery Project for recycling within works. Energy efﬁciency. Substantial reduction in carbon dioxide and PM** emissions 2007 10 Port Talbot Steelworks Coke Ovens Quench Process and capacity Tower improvement, improvement in air quality 2008 1.2 R&D Centre of Excellence in Energy Process development in both Optimisation and By-Product recovery, Cardiff areas leading to improvement University School of Engineering in energy & wastes management 2008 11 Photovoltaic coatings accelerator project, Developing energy-generating Shotton steel for the construction industry 2008 7 Cogent, Orb. Site developments and new state- Reduction in site footprint of-art ofﬁce facilities and new facilities 2008 5.7 Cogent, Orb. Value Added product focus Improvement in product quality into value added domain cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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Date Value announced £m Site/Project Beneﬁt

2008–10 10 Tata Colors: Technology to improve coatings Product improvement and adherence for construction applications new product development 2009 7 Technical Improvements into Blast Furnace Extend BF campaign life for No.4 further 2 years 2010 1.2 Tata Packaging, Trostre Improvements to the Batch Annealing Process 2010 Approx 7 Margam Coal Project Feasibility study into technical viability of a mine for coking coal from Port Talbot steelworks 2010 185 Rebuild of Port Talbot Blast Furnace No.4 to Increased/improved take place in 2012 productivity in core operational plant 2010 6.5 Sustainable Buildings Envelope Centre (SBEC) Demonstration & development facility for sustainable steel solutions in construction 2010 20 SPECIFIC R&D facility for functional coatings—in partnership with Swansea University and a consortium of others 2010 3 Llanwern Pickle Line improvements Process enhancement 2010 6 Site improvements Contribute to the Air Quality Action Plan—“greening project” 2010 3.2 Cogent, Orb. New Product Application for Product improvement grain-orientated steels 2011 11 Port Talbot “Heavy End” electrical infrastructure 2011 53 Basic Oxygen Steelmaking Offgas Recovery Energy recovery from steam project generated by the BOS cooling system. Reduc in bottleneck (407.8) ** Particulate Matter

7. Investment priorities 2011–13 Tata Steel’s investment priorities for the immediate future fall into three categories:

7.1 Energy — Improving the company’s energy balance by upgrading power plant and improving the efﬁciency of energy-intensive operations. — Further improving the company’s capability to recover energy for re-use within sites. — Investing in energy generation at major locations to offset energy requirements at other plant. — Further improving the self sufﬁciency of the key sites in energy.

7.2 Raw Materials Securing supply of feedstock is vital at competitive rates. The Margam Coal Project has the sole objective of securing supplies of coking coal for steelmaking (not energy generation—or as a commercial venture). Should the project go ahead, the estimated additional £500 million investment which may create 500 new jobs—is aimed to supply the South Wales steel industry with high-quality coking coal for around 25 years. A hard copy of the presentation made to the Committee by Andy Dunbar, Manager of the Margam Mine Project has been previously provided. While the importance of the potential investment is not to be underestimated, it is not proposed to repeat the detail within the presentation in this document. Additional evidence could be provided on request. (Periodic update). Tata Steel is backwardly integrated into the supply of iron ore and other essential commodities for the Welsh steel industry. Relevant to the supply of raw materials is the provision of adequate transport infrastructure: ports, rail and road—at competitive cost. This is a matter which local, devolved and UK national government directly can inﬂuence. cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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7.3 Process Improvement Major investment opportunities exist in energy generation, coke-making, ironmaking, steelmaking, rolling and cold-processing. It is the very large investments at the heavy end, which often take the headlines in the industry: the investment—and the impact—is large. All the above processes feature in the investment vision for the business. A major challenge for the whole of society lies in the availability of sustainable energy. For the steel industry in Wales the secure supply of energy at a competitive cost is essential for the future of the industry. The current power plant at Port Talbot is often referred to as 1970s technology. Tata’s investment vision has a high degree of focus in increasing self-sufficiency in energy at the integrated steelworks. A positive way forward may be for a truly integrated energy strategy be developed in which private/industrial generation may contribute-to and benefit-from its part of the whole. Realising opportunities here may achieve the mutual goals of approaching the carbon dioxide emissions reduction targets and maintaining competitiveness, but in principle converting the community’s perception of the steelworks from an environmental issue to an environmental asset. One notable potential improvement lies in the results of the £35 million pan-European steelmakers’ research project, ULCOS that is developing Ultra-Low Carbon Dioxide (emitting) Steelmaking. Prototype ULCOS technologies are being installed in other parts of Europe, (including in Tata sites). At this time, the Welsh integrated steel plant has many improvements in store (not least in the Blast Furnace No 4 rebuild)—but is yet to see the installation of ULCOS plant. New plant to the Welsh site is under consideration, such as a Rotary Hearth Furnace at Port Talbot, which will enable the business to derive greater efficiencies in deriving valuable metallurgical content—including high-cost materials, such as Zinc. Tata Steel’s downstream processes in Wales have also seen—and are likely to see—further process improvements.

7.4 New Product Development It is important to stress that while in “end-use” may lie the ultimate driver for product improvement, NPD takes place at all parts of the product chain driven by user-demand, cost-and-value, environmental impact, yield and also issues such as regulation (such as recent developments to eliminate chromium passivation in galvanising technology). In the past three years, R&D at the Heavy End at Port Talbot and Llanwern has delivered a new product, Fortex which offers beneﬁts to steel processors and also a new product, developed in partnership with the relevant Government departments, to provide protection for military vehicles.

8. Factors Influencing Investment 8.1 Confidence in markets remains the overriding motivator for investment. The steel industry is regularly seen as a barometer for the state of the industrial and manufacturing economy. The diversity of markets served by the community of Wales-sited Tata Steel businesses supports this notion. The Strip sector has seen some fragile recovery: there can be no doubt about the improved confidence of the company in the automotive sector, driven largely by the high-value end and the improved outlook for export. The international value of the Pound has assisted here. 8.2 UK growth is very modest compared with the high rate of growth in the developing economies. However, the main factors which retains UK steel capacity in its current higher cost environment are proximity and accessibility to the customer, service quality and, above all the quality of expertise in the UK, and the resulting ability consistently to develop and manufacture special and high-value products. 8.3 To sanction further investment, Tata Steel needs to be confident of the operating environment in Wales. To a considerable degree this is driven by powers outside Wales—examples being the EU Emissions Trading Scheme to reduce carbon dioxide emissions, and also the upper-limit for installation of new energy generation plant at 50 MW capacity. (The needs of the Port Talbot integrated steelworks total 175 MW alone). 8.4 The Chief Executive Officer of Tata Steel Europe made clear his concerns about the affect of well- meaning measures to reduce environmental impacts upon the fragile economic recovery in the UK. Unilateral UK Government measures such as energy market reform and the Carbon Floor Price place additional strains upon the UK steel industry, which threaten to impact on UK competitiveness with an additional handicap. Briefs detailing Tata Steel’s position on key political developments can be prepared on request by the Committee. 8.5 An issue, which is managed in Wales and locally, is the improvement of air quality. The Port Talbot area is an area designated for special monitoring and thresholds exist for acceptable inclusion of airborne dust, and- or particulate matter (of particular type/size). Tata Steel is committed to minimising its emission of PM—and much has been achieved in recent years. Further work is being carried out to pinpoint the source of specific PM and the company has an Air Quality Action Plan for reducing known sources. The second quarter of 2011 has seen an unusually high number of incidents of exceedence of the PM threshold. On this matter, we appeal cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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to government at all levels to work together with Tata Steel and other potential sources in the community—to achieve a sustainable solution which does not restrain economic development. 8.6 The dependency of the steel industry on people perhaps has been underplayed in this submission. The size of the workforce and the annual recruitment of “talent” in the form of apprentices, functional trainees, graduates and specialists has been stated. But it is vital that the business be recruiting in an environment in which capable people are aware and enthusiastic to work within—or associated with—the steel industry. 8.7 In the five years prior to the economic crisis employee numbers in the Strip Products UK business unit, (Port Talbot and Llanwern) increased by about 700. Since that time, this essential operation has maintained its employee numbers, and through a flexible employment model, it has been able to develop a versatile manpower resource to match market requirements. The company’s rate of natural attrition is 5.2%—which reveals a high rate of retention—which gives us, confidence in enhancing employees’ skills within the business. 8.8 A large proportion of our intake is young people who have reached the end of full-time education. Over 100 of our annual intake are graduates and apprentices. A further 40 are student placements in a yearlong internship, following which a proportion may be offered sponsorship to lead them to our graduate intake. Some 425 (8%) of our workforce are under the age of 25. 8.9 There is a general skills shortage in technical and engineering areas in a highly competitive market. In general this is true despite the fact that Tata Steel’s Strip Products UK sites in South Wales are located in—or near to—areas of relatively high unemployment or dependence on benefits. We are informed that economic inactivity rate is still high at 23% and both this and unemployment, it is confirmed, is associated with low skills- levels (Welsh Assembly Government, 2004). We believe that the issue of second—or even third—generation unemployment creates a negative cultural phenomenon with respect to work. Our evidence here is instinctive, but we support the irresistible view that encouraging inquisitiveness and ambition through the development of practical and valuable skills is an appropriate route to meet this challenge. We urge the governments at all levels to increase and improve the education strategies to further raise awareness of the vital role that the steel industry plays in the economy and also raise awareness of opportunities within the industry. This is an area in which we might work in partnership. June 2011

Written evidence submitted by E.ON Introduction E.ON is one of the UK’s leading power and gas companies—generating electricity, and retailing power and gas—and is part of the E.ON group, one of the world's largest investor-owned power and gas companies. We employ around 12,000 people in the UK and more than 85,000 worldwide. Through our global Climate and Renewables business we are one of the leading green generators in the UK, with sites located from Cambridgeshire to Kintyre. Our current operational sites include three offshore wind farms, Scotland’s ﬁrst biomass plant at Lockerbie, a wave energy convertor and 18 onshore wind farms. We also have some 1500MW of renewable generation in development. Our comments on this inquiry are from the perspective of this area of our business and the potential we see for investing in renewable energy in Wales. Across our business our footprint in Wales includes a gas ﬁred power station at Connah’s Quay in North East Wales, involvement in energy and carbon saving programmes, including for example a new low carbon heating system to serve off the grid properties in Ceredigion, mid Wales and our Community Energy Saving Programme (CESP) scheme at Tai Calon in South Wales. We are also partners, with RWE, in Horizon Nuclear Power which is developing plans for a new nuclear power station at Wylfa on the Isle of Anglesey. However, in terms of investment in renewable energy we currently have just one joint venture project in Wales at Rhyd- y-Groes.

Investing in Renewable Energy in Wales Our primary concern when considering whether to invest in renewable energy in Wales is the lack of ambition shown by the Welsh Assembly Government (WAG), given the signiﬁcant renewable resources which are available. The identiﬁcation of the TAN-8 areas for development led to winners and losers and explains our small renewable footprint in Wales. For those developers unsuccessful in securing an area as part of TAN- 8 there are now limited options for investment in wind projects in Wales. We believe that there is much potential and that, if there are suitable projects that broadly meet the criteria used for selecting TAN-8 site but fall outside the TAN-8 areas, they should be considered favourably as part of an important contribution to meeting carbon emission and renewable energy targets across the UK and, importantly for Wales, as an important economic driver for local towns and communities. We also recognise the need to preserve the Welsh countryside and it is important that this is balanced with the desire for economic growth. cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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There are other signs of growth within Wales in the skills and infrastructure required—highlighted recently by the opening of the Mabey Bridge wind turbine factory in Chepstow—and this is positive when looking at inward investment. However, in turn we believe there needs to be a step change in the WAG ambition for renewable energy. In contrast, the investment opportunities for renewables in Scotland are much clearer. Whilst direct comparisons are not always helpful it is worth noting that the Scottish Government has adopted challenging targets and is very much “open for business” for new renewable energy developments. We were recently selected by the Forestry Commission Scotland as a development partner for new renewable energy projects. Scotland is a key area of focus for us and this announcement added to our existing Scottish renewables portfolio.

Investment in Grid Infrastructure When looking at where to invest in the UK we also have to be mindful of grid connections and the subsequent impact on the economics of a project. If generation has to be reduced because the power cannot be transmitted across the grid system, this will damage the economics of renewable investments. Given that Wales is a net exporter of electricity from all sources (mostly coal, gas and nuclear) to the rest of the UK it is necessary to transport some of the energy generated over significant distances to reach the point of demand. Significant investment in the grid infrastructure is required in Wales and adjoining parts of England to enable the full potential of renewables and other forms of low carbon generation to be realised. This points to the importance of an open and efficient planning system to ensure speedy decisions can be taken about the infrastructure required to support renewable energy projects. We have welcomed the steps taken by the UK Government to improve the planning system and hope this continues. However, there is a separate layer of approvals for electricity generation schemes of 50MW and above (defined as nationally significant infrastructure projects under the Planning Act 2008) when consenting associated works to a project and these separate decisions may fall under the jurisdiction of the local authority. This can lead to further delays to a project and could act as a deterrent to an investment decision in the first place. We would recommend that investment in renewable energy projects in Wales would be greatly improved if all the decision makers worked together to ensure an integrated approach which delivers timely decisions.

Conclusion Wales has huge potential as a location for renewable energy projects. With greater ambition from the WAG and more attention paid to the infrastructure and grid challenges, Wales could see signiﬁcant inward investment in renewable energy from a wider group of developers and companies. June 2011

Written evidence submitted by Renewable UK Cymru Summary — RenewableUK Cymru is part of RenewableUK, the Trade Association for wind, wave and tidal power with 656 corporate members. — With many members active in Wales, a Welsh Office was founded in 2006 with a strategy group, staffed office and annual conference to discuss the particular challenges in place in Wales. — Many of RenewableUK Cymru’s members are foreign-owned multi-nationals. — It has been demonstrated that renewable energy makes a significant contribution to the Welsh economy, comparable to established industries, and has the potential to bring a good deal more investment into many rural communities in Wales. — There are individual actions such as increased funding for marine energy, sufficiently replacing the gap left by the removal of the Welsh Development Agency, and the need to improve portside facilities that can improve the climate for foreign investment, and help ensure manufacturing and supply chain jobs come to Wales. — However, the major issue with attracting foreign investors is ensuring that there is confidence that projects can proceed through the planning system and consistent policy is geared toward ensuring they do so. — Planning is listed by developers as one of their major concerns, as is the lack of a roadmap for delivery of the different renewable energy streams. Already ambitious targets have been missed, and there is a danger that Wales is not seen as being a serious place to do business. — The Welsh Government needs to show leadership and commitment to established policy if business confidence is to be retained. cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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Current Level of Foreign Investment in Wales with Reference to Windand Marine Projects 1. In an attempt to quantify the economic value of wind to Wales, Arad Consulting surveyed a number of RenewableUK Cymru members in 2010 on issues such as annual turnover, current levels of employment, expenditure of goods, services and contracts, and expected payments of community benefits. This survey covered 20 businesses active in the wind sector in Wales, and included developers, manufacturing and engineering businesses, and those engaged in legal or consultancy work. This information applies to both domestic and foreign investors. 2. The overall turnover of organisations operating in the wind sector in Wales is £4 billion. Of this £253 million is generated in Wales, with £123 million derived from activity linked to wind energy. The turnover is currently over two thirds the size of the agriculture sector and more than twice the value of the fishing and forestry sections put together. 3. Current employment stands at 800 FTE in the wind industry in Wales, and is expected to rise to 1,041 by 2012. The average wage paid to those employed is £44,000 per annum. As many of these jobs are provided by foreign-owned developers, it can be seen that wind energy is an area where encouraging foreign investment can bring high rewards. 4. Foreign investment is also provided by the purchasing of goods and services and awarding of contracts to local firms. In 2009 this equated to £68 million. 5. The overall value was calculated to be £325,000 per MW of installed electricity.

Role Played by the Welsh Government andthe UK Government in Attracting Foreign Investment andthe Effectiveness of Cooperation between the Various Government Agencies 1. The Economic Development portfolio is devolved to the Welsh Government (WG). In previous years the Welsh Development Agency (WDA) acting as an Assembly Sponsored Public Body (ASPB), encouraged business development and investment in Wales until it was abolished and functions absorbed into WAG in 2006. 2. WDA was quite successful in attracting wind farm companies to invest in Wales (eg Acciona, Gamesa) but it is less clear whether subsequent efforts to stimulate inward investment in the renewable energy sector have been as successful. An effective government mechanism or agency is required in order to attract inward investment in this sector. 3. The equipping of Welsh ports to take advantage of the current opportunities that arise from the development of offshore wind farms is a key concern for RenewableUK. Recently we have seen both the UK Government and WG maintaining that responsibility for investment belongs to the other Administration. RenewableUK holds concerns that without joint-working, all Welsh ports will miss out on plans to adapt in response to the challenge. It is important to have clarity from both Governments on which Administration has the responsibility for ports investment. RenewableUK suggests a joint declaration should be made that both are fully committed in drawing up and implementing a strategy for the upgrade of ports. This will allow for discussion between developers of offshore wind farms, port authority managers and potential investors such as manufacturers, supply chain providers, construction or operations and management companies. 4. In terms of tidal stream and wave technologies, the Low Carbon Revolution identiﬁes up to 4GW of generating capacity by 2025. RenewableUK discusses further below how this might be achieved, but it is key that the Welsh Government works coordinating European and other sources of funding to make this possible.

Potential for Increased Investment in Wales with Reference to Windand Marine Projects 1. In RenewableUK Cymru’s 2010 study on potential rates of growth in the marine sector, nearly 80% had expected turnover growth of 5–20% over the next year with this split evenly between 5% and 10% and 10–20%. 2. This equates to growth from £123.5 million to £134.5 million. Further growth was also expected during 2012. 3. The Arad Report assumes growth in the wind industry of 2.2GW in Wales by 2020. This suggests that by 2020 turnover could be £1bn equating to 2.2% of Wales GDP. None-the-less, this evidence suggests that the target of 4GW from wave and tidal technologies set out within the Low carbon Revolution may be unrealistic in this timeframe.

Conditions Necessary to Attract Foreign Investors to Wales with Reference to Windand Marine Projects 1. During RenewableUK Cymru’s 2010 Economic Beneﬁts Study, respondents were asked to identify the key policy levers needed to ensure that Wales fully beneﬁted from transforming its electricity supply and encouraging foreign investment. cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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2. Key points highlighted were the need to develop skills within employees to ensure that jobs remained local, active Welsh Government encouraging manufacturing and service organisations to locate in Wales, easing of constraints such as planning, better communication of economic beneﬁts such as community beneﬁts payments to encourage support for developments.

3. For the 2011 Welsh Assembly Elections, RenewableUK Cymru published a manifesto, drawn up by its members of key policy demands. This again highlighted specific policy asks. Key amongst these were: producing a roadmap for delivery from the Low Carbon Revolution Policy Statement for each of the technologies that RenewableUK represents, committing funds and support to develop Welsh Ports, standardising Welsh route-of-entry for skills training, establishing minimum requirements for community benefits funds, improving onshore planning opportunities and regime, ensuring that the offshore planning regime is properly resourced and enabling, looking to maximise marine development and ensuring that marine technologies are properly resourced and funded. Between the two documents there is some common ground that it is useful to explore further in order to see what will influence investors to develop in Wales.

4. Skills—Across the UK 55,000 skilled workers are needed for direct jobs in marine and wind, and 30,000 for indirect jobs in the supply chain. Of the 55,000 needed for direct employment, 44,000 of these are new roles, and it is essential to ensure that provision is made for these workers, and they are pushed towards the right courses if Wales is to reap the beneﬁts of foreign investments into renewable energy.

5. Roadmaps for delivery—Concern is felt that whilst there have been highly ambitious targets in the past for renewable energy development these have not been adhered to. To ensure the conﬁdence needed for investment, detailed roadmaps must be laid out for all technologies to ensure how ambitious targets can be met and constraints lifted.

6. Developing Welsh Ports—If the UK’s ambitions are to be realised on offshore wind development, and the right policy conditions in terms of support in the UK put in place to encourage developers to build out capacity, there is potential for signiﬁcant manufacturing investment by companies that have already expressed interest such as Siemens, Vestas, Mitsubishi, Doosan and Gamesa. Two of the large offshore wind zones are on the Welsh coast so there is potential for manufacturers to base a factory there, leading to hundreds of direct and supply chain jobs. However, port development is needed to ensure that ports are suitable for the establishment of these facilities. Grants have been announced for the development of port side facilities in both Scotland and England, and should the Welsh Government not quickly announce a workable strategy, the opportunity to host a factory will be lost.

7. Community Beneﬁts—In 2011, RenewableUK launched a community beneﬁts protocol applicable in England, specifying a minimum amount to be given to those communities that host onshore wind farms of above 5MW. RenewableUK Cymru feels that a similar approach in Wales would enable further support for its projects and is keen to work with the Welsh Government on this, in the same way that the UK Government provided positive assistance and advice during the formulation of the English protocol.

8. Onshore Planning Opportunities—To deliver on the Welsh Government’s low carbon targets, and to ensure the number of jobs predicted in the Arad report, it is key that confidence is not lost by onshore wind developers. In RenewableUK Cymru’s 2011 Manifesto we called for a revisiting of TAN 8 which protected existing areas whilst identifying new areas, while re-affirming a clear presumption in favour of development within the Strategic Search Areas (SSAs) which the industry was directed to by the Welsh Government. RenewableUK Cymru urged the Government to show leadership in communicating to the public the need for onshore wind farms and grid upgrades, and was therefore very disappointed with its statement in June regarding development in Mid-Wales. Identification of new areas would help deliver the Welsh Government’s objectives to deliver 2GW onshore wind while ensuring that future turbine density and cumulative impacts within the SSAs remained at acceptable levels. In order to accelerate delivery against the Welsh Government’s 2010 targets, RenewableUK Cymru also urged the Welsh Government to provide further resources to help Local Planning Authorities deliver schemes. Another way of speeding up the planning system would be for the Welsh Government, rather than Local Authorities to deal with Associated Development proposals. Overall the Welsh Government needs to show leadership so that we can truly deliver onshore wind.

9. Offshore Planning—To ensure that offshore wind proceeds without the sort of delay experienced by onshore developers, RenewableUK Cymru recommends a role for the Sustainability Committee of the Welsh Assembly to scrutinise the Government and industry as to the rate of offshore energy delivery. To further ensure a lack of delay in marine planning it is important that the Welsh Government Marine Unit is fully resourced and able to deliver. Finally, the development of the Marine Conservation Zones must be done with the potential for offshore wind development in mind.

Maximising wave and tidal development—The Severn Estuary is one of the areas identiﬁed as having a large potential for tidal development, and with the decision not to bring forward a barrage, RenewableUK Cymru urges further consideration of what potential there is in this area, alongside other potential areas such as Pembrokeshire and Anglesey. We urge leasing rounds be taken forward such as those that have proved successful in Scotland, creating zones for wave and tidal development. However, it is important that this development is both properly funded and resourced. RenewableUK Cymru calls for academic research work cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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conducted by the Low Carbon Research Institute to continue to be supported via the Welsh European Funding Ofﬁce and would like to explore further the potential for maximising European funds. June 2011

Written evidence submitted by Professor Garel Rhys CBE, Cardiff University Business School

Thank you for asking me to submit a short memorandum on the topic of Inward Investment into Wales. As so much of the entrepreneurial gap in Wales (and the UK) has in the past been ﬁlled by inward investment the post-Tsunami policies of the Japanese makes it vital that we have a coherent and focused policy in place to attract such investment.

The Japanese will want to make sure that they are never again exposed to single sourcing of supplies from Japan. This will need massive investment off-shore. Many countries will gradually wake up to this so the competition for such investment will be intense. Only the quick, well prepared and well resourced will succeed. The danger is that this, and other inward investment opportunities, will occur precisely at the time when Wales and England are in the middle of a major restructuring of their inward investment arms where all too often the perception is that chaos and indecisiveness have replaced our previous reputation for world class inward investment policies and structures.

A perception is growing with potential inward investors that Wales is not really interested anymore. In turn this results in a belief that it is too difﬁcult to do business in Wales. This is no good at all at the best of times but especially in a post-recession period when speed is of the essence in the ultra competitive world of inward investment. Investors feel that they are being put through hoops to see if they really want to stick around— they do not believe that this is a way to do business. Often this perplexes business as if they are supported with an initial investment by the WG then they will invest in following projects almost automatically—the money is lined up. What this means is that private business will only invest if Wales or England shows “commitment”. Although additionality rules suggest otherwise it is not the money “per se” that is key, but an atmosphere of commitment. Part of this is of course speed of decision making, contact with the same ofﬁcials and decisiveness. Already some of the new English regional entities are showing what is needed in this respect, especially in terms of deploying people who quickly grasp and understand the investors offering and requirements. It would be tragic if the wider world gets the impression that Wales is indecisive and frustrating and generally generates the wrong signals. Time does not wait upon WG reorganisation.

Notwithstanding all this one does have sympathy for many of the officials in the WG service. With all that has gone on with one reorganisation after another, and various culls of the numbers employed, the administration is short of the right sort of competence. That is, it is unfair to young officials required to make decisions and judgements on major, influential and expensive projects. Many do not feel experienced enough, hence a fear of getting it wrong.

If ofﬁcials do not know what to do then delays occur as decisions are postponed. Investors are asked to go over the same ground in a series of meetings, often not meeting the same ofﬁcial twice. It is likened to being asked to jump over one bar after another as boxes are ticked and re-ticked. As a result an atmosphere of indecisiveness is generated.

The “base unit” of decision making is increasingly the sector team. However, so many of these are so small they cannot do very much. Such teams are aided by sector panels of the great and the good, but it has been put to one that in effect they do not exist in any meaningful form.

There is no longer an “International Business Wales”. So Wales is weak on the trade and inward investment front. Indeed, the situation presented to the outside in too many areas is one of complete disarray. That is, there is no identiﬁable structure, no “peg in the ground”, no decision making. Similarly little “relationship management” with companies now exist, except with “anchor” companies which are more inﬂuential and deemed as regionally important. This type of relationship was a Welsh competition advantage.

Potential investors all too often feel that they are being shunted back-and-forth when they try to establish contact with the Welsh administration, and to no real effect. The experience has been described as horrendous. It is more driven by ticking boxes than by decision making. Some investors have been moved on by sectors that felt a project was too big for them, others felt they were facing “boys with toys” who displayed a failure to understand the nature and signiﬁcance of a project. It is to be hoped that the feeling of fear of failure, which generated indecisiveness, is addressed and eradicated. An “esprit de corps” is a must between WG ofﬁcials if we are to be the player we were in inward investment. June 2011 cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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Written evidence submitted by the Brazilian Embassy in London We very much welcome the inquiry into ‘Inward Investment in Wales’ by the Welsh Affairs Committee in the House of Commons and the general interest in attracting Brazilian companies to Wales. We hoped to put together a general overview of trade and investment between our two countries, but since the official statistics from our Ministry of Development, Industry and Foreign Trade always refer to the United Kingdom as a whole, unfortunately it has not been possible to collect specific data in relation only to Wales. We are however more than happy to pass on the information we do have regarding Brazilian investment in Wales. According to the above mentioned Ministry, only one company appears in their overseas investment database: the Brazilian mining company Vale, which owns the Clydach refinery as part of their global nickel business operations. The following text has been taken from Vale’s website: Clydach Refinery, Wales, U.K. The Clydach Refinery—affectionately known as the Mond—was built in Clydach, near Swansea, Wales, at the turn of the 20th century, and started production in 1902. The plant, which was built by Ludwig Mond, the inventor of the nickel carbonyl process, was the heart of the village and one of the largest employers in the Swansea valley for many years. With improvements in processing and a rationalization of products, the refinery employs over 220 people in the town of 8,000 many of whom are pensioners and most of whom have had some connection with the Mond. Clydach was recently made part of the City of Swansea, Wales with an aggregate population of 230,000. In 1999, a new $14 million expansion at Clydach was commissioned to serve the specialty nickel products market. Community Involvement Over the years, the Refinery has been at the heart of the town and our contribution continues. Each year, the company donates 12,000 pounds to a Community Liaison Committee comprised of local council members, community activists, school governors, teachers, and company representatives which in turn distributes the money to local charities on our behalf. The Committee meets bimonthly to discuss issues concerning the refinery and the community, including the disbursement of charitable donations on behalf of Vale. We support an industry-awareness program at 10 local schools, which is linked to the school curriculum. Every month, a class of school age children, between the ages of 10 to 11, tours the Clydach Refinery. We also support the Clydach Development Trust, a fund recently established to attract financing from the European Union, Welsh Assembly and local authorities for projects to improve cultural and lifestyle amenities in the area. Environment Vale has made huge strides in the environmental arena over the years and as legislation has become more stringent, the Refinery has kept pace improving all water and air borne discharges significantly, and working with the community to reduce noise especially at night. The refinery is both OHSAS 18001 and IS 14001 certified. Contact: Mr. Tony Davis Regulatory Affairs and Compliance Manager at the Clydach Refinery The Embassy of Brazil in London has also provided support in the past to a Brazilian furniture manufacturer, Palanex, which has a representation office in Pembrey: Palanex Com. Imp. Exp. Ltda. Palanex has been manufacturing furniture for many years and since 1985 has been exporting to North, Central and South America, Europe and Middle East. They are a major manufacturer of furniture located in the southern state of Rio Grande do Sul. All of their products are manufactured using timber from forests managed in accordance with international standards and guidelines. Contact in Wales: Sandro Roque Pasa Export Director at Palanex U.K Unit 1A Pembrey Properties Industrial Estate Pembrey SA16 0HZ Wales Site: http://www.palanex.com With regard to the links the Embassy of Brazil has had with the Welsh Government, I can confirm that the former Ambassador of Brazil to the United Kingdom of Great Britain and Northern Ireland, H.E. Carlos Augusto Santos-Neves, went on an official visit to Wales from 29 June to 1 July 2008. The new Ambassador cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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of Brazil to the UK and Northern Ireland, H.E. Roberto Jaguaribe Gomes de Mattos, also has plans to make an ofﬁcial visit to Wales in the near future. We welcome and support initiatives, such as ﬁscal incentives, that could encourage Brazilian companies to invest in Wales and strengthen the commercial relations between our two countries. While apologizing for the limited information we have been able to provide this time, we wish to emphasize that we are genuinely keen to cooperate with future developments in the area of Brazil-Wales economic, commercial and investment relations, and that you should not hesitate to contact us again. July 2011

Written evidence submitted by Nuon Renewables About Nuon Renewables Nuon Renewables is a leading publicly owned international renewable energy company. Within the UK, Nuon Renewables has been working to create sustainable value and growth through the development, delivery and operation of wind energy projects. It is a company with the highest sustainability and corporate social responsibility credentials, and a focus on delivering beneﬁts to the local environment, economy and society of its developments across the country. Nuon Renewables is a major investor in Wales. Since 1996, we have invested around £35 million into the Welsh economy through our portfolio of projects to support the delivery of the Welsh Government’s renewable energy targets and its vision for a Sustainable Wales.

Why Wales? Wales is competing in an international market. The decision to invest in Wales was made on the basis of a clear policy and ambition in Wales in relation to renewable energy. The country benefits from significant renewable energy potential through its excellent wind, wave and tidal resource. Wind energy is the main viable technology in the short to medium term to support the delivery of WG’s clear renewable energy policy and targets, as set out in TAN 8 and more recently in the Energy Policy Statement—A Low Carbon Revolution. The decision to invest in Wales was also guided by the opportunity to contribute to the development of the nascent renewables industry in Wales, and clear indications in relation to the delivery of local benefits that aligned well with our corporate policy and mission to create sustainable value and growth.

Our Experiences as an Inward Investor Our experience as an inward investor in Wales has been mixed. Welsh Ministers have consistently reiterated the importance of early engagement with stakeholders and communities—an approach which we as a developer have embraced but is not always reciprocated by consultees. A lack of buy-in and understanding at a local level of key policies that are fundamental to Wales’ renewable energy aspirations has been a major barrier to maximizing benefits to Wales from the significant investment that a renewable energy development offers. We have seen examples of good practice, particularly from Neath Port Talbot CBC through their understanding of effective economic development delivery from major infrastructure developments, but from our experience, it is the exception and not the rule. There seems a “fear” of the planning process from stakeholders across the board. There is clear guidance on the actions that a developer, local authority and key stakeholder may take to maximise the benefits from a project to the local economy, without compromising the planning process. This is very poorly understood, and as a result, engagement on major inward investment projects happens at a time when it is generally too late to maximise the potential benefits.

The Opportunities for Wales to Develop Regional Renewable Energy Hubs The Welsh Government’s identification in the Economic Renewal Strategy of the importance of developing regional economies in Wales is extremely relevant to the renewable energy sector. Through TAN 8, seven strategic, geographically defined areas have been identified for the development of wind energy. The opportunities that this policy direction creates for Wales is significant, as it can enable the development of regional economies focused around the delivery of TAN 8. Investors are currently aligned in these regions, investing heavily in Wales’ policy direction, and the opportunities to build on this investment and develop opportunities in these regions are significant. Some examples of this regional approach achieving long term economic benefit to the region can be seen in Texas and California where regional developments of scale have enabled strong renewable energy sectors to develop, benefiting the regional and rural economy.22 22 Job growth from Renewable Energy Development in California (2002); The New Texas Energy Powerhouse (2002). http://www.windpoweringamerica.gov/econ_project_search.asp cobber Pack: U PL: CWE1 [E] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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Where Things Work

Pen y Cymoedd Wind Energy Project is an example of a project where we have looked at the big picture opportunities and have engaged with the public in a robust manner to understand what we need to deliver to make the project a successful sustainable energy project that delivers for the area/region. Some of the aspects prioritized include a 1500 habitat management plan, plans to develop tourism opportunities (through a virtual visitor experience), significant local economic development stream of work, early work on a £1.8 million community benefit fund and in depth analysis work with local communities to understand their aspirations and priorities. This has been possible through a clear vision/mission at the start of the project and an engagement strategy that enabled us to understand in the first six months what we should be prioritizing. Clear guidance from government on the opportunities that an holistic approach to project development can offer is urgently required to ensure that this is the consistent approach across the board.

Nuon Renewables has been working with Neath Port Talbot CBC in one of the regions to develop a workstream and funding support package linked to the proposed Pen y Cymoedd Wind Energy Project. The package is available at no cost to the individual businesses, and will begin with a review of current capability to be competitive in the industry, ahead of developing a structured programme of support for the business. This is one example of the ways in which business and the public sector are working effectively in Wales to beneﬁt the economy of the region. The work ongoing is outlined in more detail in Annex 1 (Parts A and B).23

In addition, the project provides a community benefit fund currently worth around £1.8 million to local communities (the final total will depend on the final installed capacity of the project). This funding is a guaranteed stream of income for local communities for the 25 year life of the project, offering almost unprecedented opportunities to create long term plans for the development of local economic and regeneration opportunities. Early indications show that the most important priorities for the fund for the local communities are local jobs and skills development, as well as tackling energy efficiency issues. With a number of community benefit fund opportunities available across regions in Wales, the fund is a further area where we see opportunities for Wales to benefit and work with local communities to create strategic long terms solutions that tackle economic barriers and support the development of sustainable, resilient communities in Wales.

The lessons learnt from these experiences can be a model to replicate elsewhere to build regional economies in Wales around high growth industries.

Planning for the Future: Ensuring Wales captures the beneﬁts from Renewable Energy Investments

From our experience, there are a number of matters to prioritise to ensure that Wales truly beneﬁts for the signiﬁcant investments that renewable energy companies are making in Wales.

With new powers now in place in Wales, the Welsh Government must ensure that a clear and effective policy framework is in place which has been subject to robust scrutiny. Business wants policy stability and recognition when it is doing the right thing right through the process to keep us on track and to ensure that we understand what is required.

The Welsh Government must ensure that it engages effectively with stakeholders on its key policies to ensure that its policies are well understood and that there is buy in at all levels. From our experience, early engagement is absolutely key, and we feel strongly that this principle of early, thorough engagement should apply to government’s engagement across sectors on key policies that are of strategic importance.

Clear guidance is required on planning and economic development which makes clear the involvement that stakeholders should have in the early stages of a project. Such guidance is in place at UK government level, but within Wales this is an issue which needs to be addressed. Recent reports have also recognized that the planning process requires further guidance on the signiﬁcance of economic development as a material consideration. A sustainable economy is one of the core principles of sustainable development, and the lack of guidance in planning terms should be addressed robustly.24

TAN 8 is a policy which has created a major opportunity to have a cohesive, cross-sector approach to future sustainability solutions. Wind projects are 25 year projects that can offer real beneﬁts to the economy, local communities and the environment, but there is a danger of them being developed in a vacuum due to a fear of the planning process and a reluctance to engage in early dialogue on economic development issues. There is an opportunity to develop a large number of Welsh jobs in the supply chain through a long term policy commitment—from construction jobs to sourcing local materials to the development of local hubs for long term Operations and Maintenance. The evidence from areas of America demonstrates clearly the potential opportunities and beneﬁts of taking such a strategic approach. 23 Not published on the Committee’s website. 24 Planning for Sustainable Economic Renewal, Research Report to the Welsh Government, Roger Tym & Partners in association with Asbri Planning, June 2011. cobber Pack: U PL: CWE1 [O] Processed: [15-02-2012 15:07] Job: 008852 Unit: PG01

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Final Summary The Welsh Government is well placed to act as an enabler across sectors in Wales. As a business we have seen real benefit from taking a holistic approach to projects—working early with key stakeholders, the community and local authorities, and through this work building a strong evidence base to support our projects. The WG’s role as facilitator across public/private sectors is imperative—and engagement with business should happen at the earliest opportunity. Long term policies on areas such as renewable energy need to be well thought through, and must undergo robust consultation. The current late changes to TAN 8 aspirations have seriously damaged investor confidence and growth of green jobs in Wales. The legacy of the Wales’ renewable energy policy can be significant as it offers the opportunity to kick start growth and investment in green jobs—creating opportunities for Welsh companies in new industries, delivering regeneration through community benefit opportunities, and seizing large scale habitat development opportunities. Without a coherent approach, delivery will be piecemeal. It is an opportunity to truly foster Wales’ vision for a sustainable Wales into a reality. July 2011

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