Written by:
Frank Holmes
Chair
Cardiff Capital Region Economic Growth Partnership
Founding Partner, Gambit Corporate Finance
The economic consequences of Covid-19, and more particularly the Government’s sweeping lockdown response to it, are now too well known to need repeating.
We don’t yet have all the figures in to measure the full extent of the damage done, or know the amount of economic scarring that has taken place. We can’t say how long the recession will last – whether it will be V-shaped (unlikely), U-shaped (as most people seem to think), W-shaped or even a very harsh L-shaped, recovering in 2023.
But we can – and must – think about how best we help stimulate the recovery. This was the purpose of a recent exercise by the UK Government, in which Business Secretary Alok Sharma invited prominent people in the business and economic community, members of the Government’s Economic Recovery Taskforce, to think about promoting recovery and levelling up economic performance across the regions and nations of the UK. Our responses to the questions asked are set out below.
Barriers to investment
One problem has been historically low levels of investment in R&D, and in Wales especially, the dependence on EU grant money to support science, innovation and research. The UK Government is committed to boosting national R&D spending from 1.7% to 2.4% of GDP by 2027, but this will need a roadmap and some thinking about how Government agencies such as UK Research and Innovation allocate funds to achieve levelling up.
In general, we need to move away from funding one-off projects to promoting clusters and eco-systems, using tools such as the Strength in Places fund. In Cardiff Capital Region (CCR) our investments are focused on developing clusters in key sectors – compound semiconductors, medical devices and diagnostics, fintech, cyber data and AI, and creative.
We are looking to build sovereign capabilities in key industries of the future that are also underpinning and enabling technologies. Compound semiconductors are a good example, because as well as being an important sector in their own right they are essential to advanced medtech, new energy systems, ultra-low emission vehicles, 5G and digital communications.
Government and business working together
Leveraging the investment already being stimulated by devices such as Cardiff Capital Region City Deal can help government and business identify meaningful opportunities for investment. In CCR, our Industrial and Economic Growth Plan is both evidence based and business led, and has framed a growth strategy that can call upon a £495m investment fund.
One of the key principles is that it is an ‘evergreen’ fund, which demands a return on investment in order to build self-reliance rather than creating dependency. This sits with our belief that government needs to become more entrepreneurial, and move into the territory of accepting risk for reward rather than doling out grants.
This is facilitated by the distributed leadership we have in the CCR. The Regional Cabinet comprises the political leaders of our 10 constituent local authorities; they have accountability and responsibility for policy decisions. But they are assisted by our private sector-led Economic Growth Partnership, who assess all investment proposals and advise the Regional Cabinet.
No single priority
There is no single priority that is more important for government and business to work towards in order to level up regional economies, because they are all complementary. If you wanted to promote medtech, for example, you would have to look at skills, digital and physical connectivity, R&D, energy security, strategic premises and so on, because all are necessary to developing a resilient medtech cluster.
The same is true of clusters and ecosystems in other sectors. Ultimately they overlap and complement each other, and it is a mistake to separate them out into silos and think one is more important than another. That being said, Covid-19 has proved the critical importance of good digital connectivity, and in the immediate term 5G and digital infrastructure is a priority.
Something we are pursuing in CCR is the use of Challenge Funds to stimulate both more innovative public services and local economic markets. There are plenty of future challenges that we need to face – an ageing population, clean growth, mobility, AI – that require the input of innovative companies which all too often fall by the wayside because of their inability to access public procurement.
FE colleges can better provide the skills business need if they are given three-year rolling commissions, which would give them greater certainty and allow them the confidence to develop new courses. As for universities, regional funds and joint investment programmes could help them invest in new courses, as with Cardiff University’s National Software Academy established with help from Welsh Government, and Cardiff Metropolitan’s new School of Technologies providing degrees in software engineering, coding and digital analytics.
Strengthening public support
The CCR model of a Regional Cabinet assisted by a private sector led Economic Growth Partnership combines democratic legitimacy and accountability with expert advice and insight. That sort of public-private collaboration will play a big part in the recovery.
Regional bodies such as CCR should be free to carve out their own paths without initiatives being imposed from outside. At the same time, regional disparities and inequalities will widen further unless there is some consistency in regional investment frameworks. There is also a need to make sure our public officials are of the calibre to face the challenges of the 2020s and beyond.
Finally, we need to move away from over-reliance on traditional economic metrics such as productivity to embrace other economic, social, and environmental measurements including wellbeing and wellness. In the CCR and the UK generally, the recovery cannot be about prosperity only, it must be about shared prosperity.
The economic shock of Covid-19 has been severe; the recovery is uncertain. We must use all the devices and ingenuity we have to make sure it is not just swift, but lasting and sustainable. This will require collaboration by all stakeholders, including government at all levels, academia, social enterprise and business.
