On paper Wales has many of the ingredients needed for a high-value economy. In practice, the results are more limited.
At the moment we are trying to be everything to everyone. We support a broad range of sectors, pursue multiple priorities and spread our efforts across the economy. That may feel inclusive, but in reality it dilutes impact. Productivity does not improve through generalisation. It improves through focus.
The countries and regions that have successfully transformed their productivity have done so by being clear about what they are good at and backing it relentlessly. They build ecosystems around those strengths, invest in research and development, attract supply chains and create a critical mass of capability that drives long-term value.
Wales has not consistently done that.
We have examples of success. The compound semiconductor cluster in South Wales is one of them. It has been built over decades, rooted in research, supported by industry and anchored by companies that are difficult to move elsewhere. That is what a productive sector looks like. It generates high value output, supports skilled jobs and creates opportunities across the supply chain.
But even in that example, we see the limitation of our current approach where support mechanisms to encourage growth are completely out of sync with industry needs.
For every job created in the semiconductor sector in Wales, only a fraction of the wider supply chain benefit is captured locally. The majority of that value leaks out to other regions and other countries because the supporting industries are not here. We are producing world-class outputs, but we are not capturing the full economic benefit.
That is not a productivity problem in the traditional sense. It is a strategic one, too often brought about by changes in government policies and inconsistent priorities that lead to over-complicating delivery.
If we want to improve productivity, we need to think not just about individual sectors, but about the ecosystems around them. That means asking difficult questions. Where do we want to lead? Which industries can genuinely compete at a global level? And how do we build the supply chains that ensure the value created in Wales stays in Wales?
This requires a level of focus that we have not always been comfortable with, where protracted consultative decision making dilutes focus, increases delivery cost and undermines industry confidence to invest.
There is often a reluctance to prioritise. We default to a broad approach, supporting a wide range of sectors in the hope that growth will emerge organically. But the evidence from elsewhere is clear. The most productive economies are not those that try to do everything. They are those that make deliberate choices and align investment behind them rather tan prioritising process over outcomes.
That alignment is critical.
Productivity is closely linked to research and development. The more we invest in innovation, the more likely we are to create high-value industries that can compete globally. But R&D does not exist in isolation. It needs to be connected to industry, to skills and to infrastructure. Without that connection, its impact is limited.
We also need to address the issue of visibility. Many of the industries that have the potential to drive productivity in Wales are effectively invisible to the wider population. Young people do not see them as career options. Schools do not always promote them. Parents are often unaware of the opportunities that exist. As a result, we struggle to build the pipeline of talent needed to sustain growth.
This is not just an education issue. It is a cultural one. If you go into a school in a country like Taiwan, students are acutely aware of the industries that drive their economy. They see clear pathways into those sectors and understand the opportunities available. In Wales, that connection is far weaker. We do not consistently promote what we are good at, and in doing so, we limit our own potential.
There is also a question of ambition. Wales has a strong base of micro businesses, many of which are focused on stability rather than growth. There is nothing wrong with that in itself, but if we want to improve productivity at a national level, we need to create an environment where ambition is encouraged and supported. That means helping businesses to scale, to innovate and to connect into larger ecosystems where they can create more value.
None of this suggests that other parts of the economy are unimportant. Foundational sectors matter. They provide employment and stability. But if we want to shift the productivity dial, we need to place greater emphasis on the sectors that generate the highest value. That is where the biggest gains will come from.
Improving productivity is not about incremental change across the board. It is about making strategic decisions that reshape the economy over time. It is about building depth, not just breadth.
Wales has the capability to do this. We have strong research institutions, innovative companies and emerging clusters that can compete on a global stage. What we need now is the confidence to back them, because until we focus on what we do best, we will continue to fall short of what we could achieve.
