Economy of Wales

2008/9 Schools Wikipedia Selection. Related subjects: Economics

The Economy of Wales. In 2004, according to ONS provisional data, headline Gross Value Added in Wales was £39,243m, making the Welsh economy the tenth largest of the UK's twelve 'regions' (counting Wales, Scotland and Northern Ireland alongside the nine English Government Office Regions). It is also ranks as the 43rd largest economy in the world. The modern Welsh economy is dominated by the service sector. In 2000, services contributed 66% to GVA. The manufacturing sector contributed 32%, whilst agriculture, forestry and fishing contributed 1.5%.

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

Economic sectors

Services

In recent years, the service sector in Wales has seen above average growth compared with the rest of the UK. Cardiff and to a lesser extent Swansea and Newport are centres for retail, hotels and restaurants, financial and business services, with Cardiff enjoying significant growth in recent years.

However, Wales does not have a favourable occupational structure. A relatively high proportion of service sector jobs in Wales are in the non-productive public sector: public administration, health and education. Compared to more prosperous parts of the UK, Wales lacks high-value added service sector employment in sectors such as finance, business services and research and development. This is attributable in part to a comparative lack of economic mass (i.e. population) and the absence of a really large city - judged by its wider urban area Cardiff is a non-metropolitan city significantly smaller than other major British regional cities like Leeds, Manchester or Bristol, or prime cities in smaller countries such as Dublin, Copenhagen or Helsinki.

With its mountainous landscape and numerous sandy beaches, Wales has always attracted much tourism. In 2002, nearly 13 million trips of one night or more were made in Wales, generating expenditure of £1.8 billion. 11.9 million of these trips were made by UK residents with 0.9 million coming from overseas.

Manufacturing

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

Milford Haven has two oil refineries which represent around a fifth of United Kingdom capacity.

Wales is an important producer of automotive components: Ford has a major engine plant at Bridgend; Borg Warner has a major components plant in Kenfig, South Wales; and Visteon (previously Ford) has a large transmission components plant at Jersey Marine near Swansea.

During the 1980s and 1990s, a major growth sector in manufacturing is the electronics industry with over 130 North American and 35 Japanese companies having operations in Wales. Welsh manufacturing is noted for its high productivity. However, research and development activity in this sector is relatively scarce and is generally undertaken elsewhere - a characteristic of a 'branch factory' economy where routine production is located in one region while higher skill activities are located in another.

Agriculture, forestry and fishing

Approximately 80% of the land in Wales is used for agriculture. With its grassy and hilly terrain, livestock farming is more common than crop cultivation. Wales is famous for its sheep, of which there is a population of more than 10 million, outnumbering the human population of more than three to one. Cattle farming for beef and dairy products is also common. About 13% of the land is covered by forestry and woodland. Wales's fishing industry is concentrated mainly along the Bristol Channel. In total, agriculture, forestry and fishing only contributes 1.5 % of the Welsh economy.

Regional variations

Over recent years, Cardiff, the northern and southern coastal belts, and some rural parts of Wales have experienced the biggest increase in employment, while the 'losers' have been the South Wales Valleys and other declining industrial towns. This pattern probably reflects a combination of: the increasing importance of quality of life factors in location decisions (a key factor behind Counter urbanisation); the greater role played by the largest conurbations as centres of service sector businesses (Cardiff in the Welsh context, even though the city itself is relatively small); and the effects of skill-biased technical change on the demand for labour, disadvantaging 'skill poor' declining industrial districts.

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

A significant part of the earnings (and value-added per job) variations within Wales are due to structural factors such as economic mass and occupational mix rather than like-for-like lower pay or productivity. Cardiff, with 319,000 people, benefits from its capital status, a hinterland in south east Wales and good connections to London and southern England. The city is the primary location for service sector activities in Wales, with 26 per cent of Welsh service sector output and 22 per cent of Welsh service sector employment, compared to 19 per cent of all employment in Wales. North east Wales benefits from proximity to Cheshire, Greater Manchester and Merseyside, and there is significant cross-border commuting. The Valleys and the western areas of Wales have less economic mass and are more distant from major economic centres in England. These are some of the poorest regions in Europe and qualify for Objective One funding.

Many parts of Wales suffered from the continuous decline in heavy industry over the 20th Century - culminating in the virtual disappearance of coal-mining in the 1980s. The demise of ' smokestack' industries left a legacy of relatively high unemployment. Although unemployment has declined in recent years, rates in West Wales and the Valleys still tend to be higher than the Welsh average, and economic inactivity (a form of hidden unemployment) continues to be a major problem in these areas. Merthyr Tydfil and Neath Port Talbot have some of the largest proportions of people in the UK not working due to long-term illness or disability, though in practice many individuals classified as "unable to work" through sickness are often actually low skilled workers incentivised to exit the labour market because of declining demand and the operation of the benefits system.

Property

The Halifax bank reported in the 3rd quarter of 2005, that the average house price in Wales is £149,464 compared with a UK average of £166,074. Wales saw an annual house inflation figure of 5.3% compared with 3.0% for the rest of the UK. Over the last ten years, house prices have risen by 201% in Wales. In Q3 2002, Greater London prices were 2.7 times higher than in Wales; now they are just 1.7 times higher. The fastest price rises occurred in Port Talbot where a 35% increase was reported.

Infrastructure

Transport

In 2003, Wales has 83 miles (133 kilometres) of motorways. The M4 motorway, which terminates near Pontarddulais, serves major southern Welsh towns and cities like Swansea, Neath, Port Talbot, Bridgend, Cardiff and Newport. The M4 connects Wales with England at the Second Severn Crossing; the original motorway link was re-numbered the M48 Severn Bridge following completion of the new structure. The M4 links to the M5 and M25 and passes Bristol, Swindon, Reading, Slough, and Heathrow Airport, starting at the A4 in West London. North Wales is served by the A55 'expressway' trunk road, which runs from a junction with the M53 motorway near Chester to Holyhead. The A465 road, currently being upgraded to dual carriageway, provides a link between the M4 near Neath across the Heads of the Valleys to Monmouth and the English Midlands via the A40 and M50 motorway.

There are only 2 railway lines with intercity express trains, following the north coast and south coast respectively. The Great Western Line serving south Wales crosses the Severn via the Severn Tunnel.

Due to the mountainous terrain of mid Wales, north-south transport is difficult. There are only a few trunk roads (the A483 and A470 are the main north-south roads in central Wales), few rail services, and many travellers find it easier to travel north-south via routes through Shropshire and Herefordshire. Generally traffic between north and south Wales is modest. The main north-south railway line in central Wales is the Heart of Wales Line, though this does not provide a direct connection to North Wales.

Milford Haven has the largest port in Wales. It is also the fifth largest in the United Kingdom and contains a significant oil and natural gas terminal. Major liquid natural gas facilities are under construction here. The other major Welsh ports are Swansea, Port Talbot, Barry, Cardiff, Newport and Holyhead. Cargo handled at these includes coal, iron ore, timber, scrap metal and other dry bulk industrial material. There are regular ferry services to Ireland from Fishguard, Pembroke Dock, Holyhead and Swansea. As of January 2007, the future of ferry services from Swansea is in doubt.

As of 2005, Cardiff International Airport is the only airport offering scheduled flights in Wales. It handled around 2 million passengers in 2005.

Telecommunications

On 28 November 2006, a trial of a new telecommunications network technology was rolled out in the village of Wick in the Vale of Glamorgan. The new network BT 21CN, will offer data transfer speeds of up to 24Mbit/s, offering Welsh broadband customers a wider range of services, including high-speed video telephony, video on demand, WiFi access and corporate VPN access. With the success of this trial and the subsequent roll out across Wales and with the backing of the Welsh Assembly Government on this project, the Welsh economy is set to benefit from the most advanced telecommunications network in the World.

Utilities

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


The role of the public sector

According to the Welsh Assembly Government's economic development strategy, the role of the public sector in the economy is to help create a stable and favourable business environment, promote skills and innovation, address market failures and invest in economic infrastructure including transport and information technology. Fiscal and economic policy, energy policy, employment law, social security and various other aspects of market regulation are reserved matters determined at Westminister.

The public sector is also an important employer in Wales. In 2004, 30% of jobs in Wales were in public administration, education and health, compared to 24% in the UK as a whole. West Wales and the Valleys had a higher proportion of jobs in these sectors than East Wales. Between 2001 and 2004, the number of jobs in public administration, education and health in Wales grew by 12%, 10% and 7% respectively. At the same time manufacturing and extractive industries continued to contract, and the rest of the service sector expanded at a generally slower rate.

It should be noted that not all employment in public administration, education and health is in the public sector. There is significant private and voluntary sector provision of health, education and social care, and some government departments and agencies outsource administrative functions to private companies.

Controversies in economic policy

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

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

Economic history

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

Until the middle of the 18th century economic development in Wales was restricted by its peripheral location, predominantly upland topography, poor communications and sparse population. Commerce was most advanced in the small coastal ports that had regular exchange with Bristol or Liverpool; the other major sources of external trading contact were the drovers, who drove cattle from Wales for sale and slaughter in the English Midlands and London from the 14th century onwards. The drovers were instrumental in establishing the first banks in Wales, such as "Banc Y Ddafad Ddu" in Aberystwyth.

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

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

With limited indigenous capital and labour, from the 1850s industrialisation in Wales attracted an increasing flow of immigration from England, and to a lesser extent, further afield. By the first decade of the 20th century Glamorganshire and Monmouthshire were experiencing large scale net migration, contributing to cultural and linguistic change in south east Wales, although the region would retain a Noncomformist majority and sense of distinctive Welsh cultural identity.

Despite explosive growth in the early 1900s, by the 1920s it was apparent that Wales was facing economic difficulties, largely because of its reliance on older heavy industry rather the newer, growing light industry sectors that were becoming established in the more prosperous parts of England. From the 1970s, Wales' traditional heavy industries began to disappear, being replaced by new jobs in light manufacturing and services. Wales attracted an above average share of the foreign direct investment (FDI) into the UK over this period, but many of the new plants established by foreign firms were essentially 'branch factory' operations offering low wage, low skill employment opportunities.

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