- Economy of Wales
The Economy of Wales. In 2004, according to ONS provisional data, headline
gross value added(GVA) in Waleswas £39,243m, making the Welsh economy the tenth largest of the UK's twelve 'regions' (counting Wales, Scotlandand Northern Irelandalongside 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 manufacturingsector contributed 32%, whilst agriculture, forestryand fishingcontributed 1.5%.
As with the rest of the
United Kingdom, the currency used in Wales is the pound sterling, represented by the symbol £. The Bank of Englandis the central bank, responsible for issuing currency, although banks in Scotland and Northern Ireland also have the right to issue their own banknotes. The Royal Mint, who issue the coinage circulated over the whole of the UK, have been based at a single site in Llantrisant, south Wales since 1980, having been progressively transfering operations from their Tower Hill, Londonsite since 1968.cite web
work=Royal Mint website] Since
decimalisation, in 1971, at least one of the coins in UK circulation has depicted a Welsh design, e.g. the 1995 and 2000 one Pound coin (shown left). However, Wales is not represented on any of the coins currently being minted.cite web
title=The New Designs Revealed
work=Royal Mint website]
outputper 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 averageand 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 standardsbetween Wales and more prosperous parts of the UK is not pronounced. [ [http://www.wales.gov.uk/subitradeindustry/content/wave/wave-part5-e.pdf Wales A Vibrant Economy] ]
In recent years, the service sector in Wales has seen above average growth compared with the rest of the UK.
Cardiffand to a lesser extent Swanseaand Newportare centres for retail, hotelsand 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 sectorjobs in Wales are in the non-productive public sector: public administration, health and education. [ [http://www.statswales.wales.gov.uk/TableViewer/tableView.aspx?ReportId=1526 Beyond 20/20 WDS - Table View ] ] Compared to more prosperous parts of the UK, Wales lacks high-value added service sector employmentin sectors such as finance, business services and research and development. [http://www.iwa.org.uk/publications/pdfs/Hodgelecture05.pdf Julian Hodge Institute of Applied Macroeconomics Annual Lecture 2005] ] 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 areaCardiff is a smaller than other major British regional cities like Leedsor Glasgow, or prime cities in smaller countries such as Dublin, Copenhagenor Helsinki. With its mountainous landscapeand 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 expenditureof £1.8 billion. 11.9 million of these trips were made by UK residents with 0.9 million coming from overseas.
Wales has a diverse
manufacturingsector. 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, Tafarnaubachand Caerphilly, although only the Port Talbot Steelworksremains as a major integrated steelmaking plant. [ [http://www.corusgroup.com/file_source/StaticFiles/Corus_locations.pdf Main manufacturing locations of Corus] ] Nearly all the tinplateand much of the aluminiumof 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.
Wales is an important producer of
automotivecomponents: Fordhas a major engine plant at Bridgend, Linamarhas a transmission components plant at Crymlyn Burrowsand Borg Warnerhas a major components plant in Kenfig, South Wales. Timethas a plant in Waunarlwydd, Swansea, which is one of the world's major suppliers titaniumbar for jet engineblades and medical applications. [ [http://www.timet.com/corpstructure.html TIMET Corporate Structure] ]
During the 1980s and 1990s, a major growth sector in manufacturing was the
electronicsindustry with over 130 North American and 35 Japanese companies establishing operations in Wales. 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 regionwhile higher skillactivities are located in another.
Approximately 80% of the
land usein Wales is for agriculture. With its grasslandand hilly upland terrain, livestockfarming is more common than crop cultivation. Wales is famous for its sheep, of which there is a populationof more than 10 million, outnumbering the human population of more than three to one. Cattlefarming for beefand dairyproducts is also common. About 13% of the land is covered by forestryand woodland. Wales's fishingindustry is concentrated mainly along the Bristol Channel. In total, agriculture, forestry and fishing only contributes 1.5 % of the Welsh economy.
Over recent years, Cardiff, the northern and southern
coastal belts, and some ruralparts of Wales have experienced the biggest increase in employment, while the South Wales Valleysand other industrial towns have suffered. This pattern probably reflects a combination of: the increasing importance of quality of lifefactors in location decisions (a key factor behind Counter urbanisation); the greater role played by the largest conurbations as centres of service sector businesses; and the effects of skill-biased technical change on the demand for labour, disadvantaging 'skill poor' declining industrial districts. [ [http://new.wales.gov.uk/about/aboutresearch/econoresearch/economicresearch/ercompletedresearch/?lang=en Welsh Assembly Government | Completed Research] ]
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
Bridgendand 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 317,500 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 Manchesterand 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 Walesand 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 Tydfiland Neath Port Talbothave 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 marketbecause of declining demandand the operation of the benefits system. [ [http://cep.lse.ac.uk/briefings/pa_incapacity_benefit.pdf Incapacity Benefit Reform:Tackling the Rise in Labour Market Inactivity] ] [ [http://www.wales.gov.uk/subitradeindustry/content/wave/wave-e.htm Wales A Vibrant Economy] ]
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 Talbotwhere a 35% increase was reported. [http://www.hbosplc.com/economy/includes/Wales_2005_Q3.doc Halifax House Price Index - Third Quarter 2005] ]
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, Cardiffand Newport. The M4 connects Wales with England at the Second Severn Crossing; the original motorway link was re-numbered the M48 Severn Bridgefollowing 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 junctionwith the M53 motorwaynear Chesterto Holyhead. The A465 road, currently being upgraded to dual carriageway, provides a link between the M4 near Neathacross the Heads of the Valleysto Monmouthand the English Midlandsvia 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
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
Shropshireand Herefordshire. Generally traffic between North and South Wales is modest. The main North-South railway line is the Welsh Marches Line.
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 gasfacilities are under construction here. The other major Welsh ports are Swansea, Port Talbot, Barry, Cardiff, Newportand Holyhead. Cargo handled at these includes coal, iron ore, timber, scrap metal and other dry bulk industrial material. There are regular ferry services to Irelandfrom Fishguard, Pembroke Dockand Holyhead. Cardiff International Airportwas the only airport offering scheduled flights in Wales until 2007. It handled around 2 million passengers in 2005. In 2007 Anglesey Airportbecame an airport for public scheduled flights to Cardiff only. There are hopes for more flights to selected airports in England and Ireland from there.
On 28 November 2006, a trial of a new
telecommunicationsnetwork technologywas rolled out in the village of Wick in the Vale of Glamorgan. The new network BT 21CN, will offer data transferspeeds of up to 24Mbit/s, offering Welsh broadbandcustomers a wider range of services, including high-speed video telephony, video on demand, WiFiaccess and corporate VPNaccess. 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. [ [http://www.a2mediagroup.com/?c=123&a=11379 A2Media.com:Wales leads the way into 21st Century Networks] ]
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. [ [http://www.users.globalnet.co.uk/~hills/cc/book/ch13%20science.htm The Battle for Cefn Croes] ] Electricity generation encompasses a broad mix of technologies including Nuclear (e.g.
Wylfa), Coal (e.g. Aberthaw), Gas (e.g. Baglan Bay), Wind ( Cefn Croes) and hydro-electricity (Dinorwig).
The role of the public sector
According to the Welsh Assembly Government's economic development strategy, the role of the
public sectorin the economy is to help create a stable and favourable business environment, promote skillsand innovation, address market failuresand invest in economic infrastructureincluding transportand information technology. [ [http://new.wales.gov.uk/about/strategy/strategypublications/walesavibranteconomy/?lang=en Wales A Vibrant Economy] ] Fiscal and economic policy, energypolicy, employment law, social securityand various other aspects of market regulationare reserved mattersdetermined at Westminster.
public sectoris also an important employerin 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 proportionof 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 manufacturingand extractive industries continued to contract, and the rest of the service sectorexpanded at a generally slower rate.
It should be noted that not all
employmentin public administration, education and health is in the public sector. There is significant private and voluntary sectorprovision of health, education and social care, and some governmentdepartments and agencies outsourceadministrative functions to private companies.
Controversies in economic policy
The decline in Welsh
GDPper person (relative to the UK average) over recent years has prompted policy debate. There have been suggestions - for example, by Plaid Cymru[ [http://www.plaidcymru.org/content.php?nID=14;ID=109;lID=1 Plaid to take tax fight to Treasury 24 January 2007] ] - that Wales should attempt to emulate the Irish ' Celtic Tiger' model, particularly its low corporation taxrates, in order to stimulate investmentand growth. However, economists including Nicholas Craftsand John Bradley[ [http://www.fraser.strath.ac.uk/Allander/Allander%20Papers/Bradley.pdf Committing to Growth, Allander Series] ] 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 Affairsin 2003, Phil Cookeargued that the Assembly Government had responded to the loss of productive employmentin manufacturingby substituting new jobs in the public sector, making Wales increasingly dependent on fiscal transfers from Whitehall. Cooke alleged that a relatively 'weak' devolutionsettlement had prevented the Assembly from developing innovative economic policies, especially when compared to Scotland. [ [http://www.iwa.org.uk/news/press_releases/pr_secterm_chall.htm Weak Devolution Settlement Hinders Economic Development] ] However, critics including Ron Davies [ [http://news.bbc.co.uk/1/hi/wales/3232340.stm BBC News | Wales | 'Weak' assembly harming Wales] ] and John Loveringclaimed that Cooke's argument (that a more powerful Assembly was the necessary precondition to more effective economic policies) was a non-sequitur.
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. Commercewas most advanced in the small coastal ports that had regular exchange with Bristolor Liverpool; the other major sources of external trading contact were the drovers, who drove cattlefrom Mid Walesfor saleand slaughterin the English Midlandsand Londonfrom 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
mineraldeposits, the arrival of English entrepreneurs and financiers, and changes in technology. The development of iron smeltingby coke made the South Wales Valleysa natural industrial location, and from the mid 18th century, increased demandfor metals and coal was generated first by war, and later by the advent of steamshipsand 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 metalsmelting and later tinplateproduction. Metallurgicalindustries 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
immigrationfrom England, and to a lesser extent, further afield. By the first decade of the 20th century Glamorganshireand Monmouthshirewere 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 industryrather the newer, growing light industrysectors 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 employmentopportunities.
* [http://forum.europa.eu.int/irc/dsis/regportraits/info/data/en/ukl_eco.htm Eurostat: WALES - Economy]
* [http://www.themanufacturer.com/britishindustry/content_page.html?article_id=440 British Industry - Safe Haven]
* [http://new.wales.gov.uk/topics/businessandeconomy/?lang=en Welsh Assembly Government]
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