Building Productivity Through Skills, Infrastructure and Investment

When businesses talk about productivity, they are rarely talking about abstract measures or league tables. They are talking about value: how to create it, how to sustain it and how to build on it over time. From what we see across Wales, organisations are focused on how investment in technology and innovation can help them generate new value, rather than simply doing more of the same.

That focus very quickly brings skills into the conversation. Businesses need people with the right capabilities to make those investments pay off, yet there is often a mismatch between the skills available and the skills required. Closing that gap is one of the most practical ways of improving productivity. It strengthens business performance, but it also supports better jobs and wider opportunity, which is why skills matter far beyond individual firms.

Productivity also has an important social dimension. A significant proportion of the working-age population in Wales is currently economically inactive, and that represents both an economic and a social challenge. Helping more people to participate in productive work can raise living standards while also easing pressures elsewhere in the system. In that sense, productivity, economic opportunity and wellbeing are closely connected, even if they are not always discussed together.

This link is often overlooked because productivity is seen as a technical economic concept. In reality, its effects permeate through society. There can be a tendency to separate economic wellbeing from social wellbeing, as though they sit in different lanes. In practice, they are two sides of the same coin. Move one lever and the other responds. When productivity improves, it creates new value and new opportunity, which in turn helps address some of the most persistent challenges facing households and communities.

Human capital sits at the centre of this. Getting the skills base right is crucial, but it is only one part of the picture. Businesses also need the confidence to invest, and that confidence depends on the wider environment in which they operate. Creating the conditions for investment is therefore just as important as developing talent.

Digital infrastructure is a key enabler in this regard. It underpins how businesses operate, how they innovate and how they connect to markets. Technologies such as artificial intelligence are increasingly pervasive, cutting across all sectors and industries. How those technologies are deployed to drive new value will be critical. Strong digital infrastructure reinforces investment decisions and closes the loop back to skills, by creating demand for higher-value roles and new capabilities.

We have seen how this alignment can work when skills development is closely linked to industry need. Collaboration between businesses and education providers can deliver tangible productivity benefits when it is designed around real demand. The challenge is ensuring that these opportunities are not concentrated in a small number of places, but are accessible across different parts of Wales, including areas that face more structural barriers.

This is why place matters so much in the productivity conversation. Productivity is shaped not only by what happens within firms, but by the basic fabric of the places in which they operate. That includes transport, housing and cultural assets, as well as less visible infrastructure such as utilities and digital connectivity. Pride in place matters. So does how easily people can move, work and build a future in a particular area. These factors play a significant role in shaping business confidence.

Investment decisions reflect this wider context. Businesses need capital to grow, and when they secure it, that investment is deployed into people, facilities, equipment and innovation. Each of these contributes to productivity over time. Supporting highly innovative, high-growth businesses can help accelerate this process, particularly when investment is patient and focused on the medium to long term.

Public investment has a vital role to play, but it should not be seen as the end point. Government investment is most effective when it is treated as seed capital: a catalyst that creates the confidence for the private sector to co-invest. When used well, it can leverage significantly greater private capital into human capital, infrastructure and innovation, amplifying the overall impact.

Productivity improvements do not happen quickly. They are the result of cumulative choices around skills, infrastructure and investment, reinforced over time. But when those elements are aligned, the benefits extend well beyond individual firms. They flow through to people, places and communities.

If there is one message I would emphasise, it is the importance of creating the conditions for co-investment. Public investment should be used to build confidence, not crowd out private capital. Treated as seed capital, it can unlock innovation, strengthen human capital and support long-term productivity gains. That is how productivity moves from an economic concept to a practical force for better outcomes across Wales.

Rhys Thomas talks about this and more in the Unlocking Wales' Productivity Potential podcast episode Understanding Productivity in Wales. Listen to the podcast here.