Comply a report detailing a comparative analysis of two economic regions.

Economic Report

Brief

Comply a report detailing a comparative analysis of two economic regions. Included in the specifications for the report are: -

A current and recent economic history of both regions

Detailed analysis of economic performance indicators of both regions

A critical evaluation of economic indicators of both regions

Forecast (based upon reasoned argument/evidence) of changes in economic performance indicators over the next 1-3 years

An evidenced set of recommendations advising the poorer of the two regions as to how it may improve its GDP figures

Introduction

This report looks at the economy of two regions Newport and Blaenau Gwent. The report looks in detail at the two regions and compares them against each other. This report also looks at how the economies of the regions can be improved and also gives recommendations on how this can be achieved.

Findings/Analysis

To be able to study the two regions in depth we have to first acknowledge that the economies of the two regions do not operate in isolation. The two regions are part of Wales and the UK as a whole and as such there are factors that the region cannot control. Decisions on certain factors affecting the economies of all regions within Wales and the rest of the UK come from the government and the monetary committee. Factors such as Interest rates, Inflation, Exchange rates, taxes etc. For example the Interest rates in London and Newport are the same. Interest rates affect the economies of regions greatly if interest rates are high people are less likely to borrow money to be able to invest and the public are less likely to spend money. If the public spend less money this will affect businesses as they will need to cut back on production that could lead to jobs losses. It could be argued that different regions should have control over there own interest rates thus enabling the regions to low interest rates if they need to attract invest or increase the rates if they wish to encourage saving. The government’s exchange rate policy also affects regions in different ways. If the pound is strong then that would make exporting goods expensive but importing goods cheaper. If a region depends heavily on exporting it’s goods out of the country and the pound is strong then it may become difficult for them to do this as it would be come more expensive for their customers. However if the region depends on importing then the strong pound would benefit them as the imports would be cheaper. Again it could be argued that if regions had control over their own exchange rates then they would be able to adjust them to improve the local economy.

The Welsh Economy as a whole has over the years moved from one dominated by heavy industries such as coal and steel to a base of modern manufacturing and services. It performs relatively poorly when compared to other UK regions. Welsh incomes are low on average and we have too few people in jobs but Wales does have a good record of attracting inward investment. Around a third of employees in the manufacturing sector work in overseas-owned plants. The environment and quality of life in Wales are high and the cost of living is relatively low: house prices, in particular, are low compared to average incomes. Overall Wales performs relatively badly on GDP when compared both to other UK regions and the EU average. GDP per head in Wales is now about 80 per cent of the average for the UK. There are a number of reasons for this. GDP per head in a region will tend to be low if productivity is low; the ratio of jobs to employment ratio is low; the employment rate is low; the ratio of dependants (children and retired people) is high. Welsh output per head is similar to that for most of the English regions outside the South East. Employment rates in Wales are low by UK standards because of high inactivity rates rather than high unemployment rates. The difference is largely explained by the high proportion of people in Wales reporting as long-term sick. Businesses once they become established in Wales, they have a better chance of survival. Over 60% of Welsh businesses survive at least 3 years that places Wales above the averages for both England and Scotland, though behind Northern Ireland. An international study of entrepreneurship found Wales had a low percentage of the population involved in emerging or new firms. Wales has one of the lowest rates of individuals involved in starting a business, there is a low rate of start-up activity generally. A major issue in Wales is the lack of basic skills. The proportion of adults in Wales with basic skills in literacy and numeracy is lower than in England. Wales also has a lower proportion of its population with higher-level qualifications than the UK average (23% vs. 25% with NVQ level 4 and above) and a higher proportion of the population with no formal qualifications. Nonetheless, the Welsh workforce has shown itself to be adaptable and committed though the Future Skills Wales project found that nearly half of working age people undertake no training or learning, a figure that increases to nearly 70% in some parts of Wales. Part of the reason for economic under-performance in Wales is our industrial structure. In the past, Wales has relied heavily on employers basic manufacturing industries. Although most of the jobs shed by these industries over the last 20 years have been replaced the quality and pay of those jobs has not been a match for those lost. Wales is under-represented in high growth sectors and high value-added sectors such as financial and business services and high value adding manufacturing. We also lack local head offices, research and development establishments. The employment structure of Wales has changed significantly in just the last 10 years. The numbers employed in the production industries have fallen while there has been growth in construction, business services and health & social work. Differences will require different actions across the country. We are going to look at two regions with Wales and compare their economies and look at how the economy of the poor region can be improved.

Newport is Wales’ newest city and is the gateway that links Wales and England. Newport is the third largest urban area in Wales covering an area of approximately 190sq km with a population of 137,000 (2001). It is set on the western bank of the river Severn and the river Usk runs through its centre. The M4 motorway runs through the north of the city and the main railway line to London also passes through Newport. A regions wealth is measured in terms of Gross Domestic Product( GDP). GDP is the regions income per head of population. Below is ...

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As we can see from the chart there has been a steady increase in GDP. Many factors can affect GDP the most important being Unemployment. The more people employed the greater the income. Figures show that during 1999 and 2001the number of people employed in Newport rose by 10,000 to 68,000 people employed and that added to those actively seeking work that figure could rise to 72,000. That means that during 2000/01 81% of Newport’s population were either in employment or were actively seeking work. Economic activity rates are a calculation of how many people of working age are actively seeking work. So it is important that we also look at the age of the population. It is clear that if more people are nearing retirement then it could damage GDP.

It is not only getting people employed that will improve GDP but also what jobs they are employed to do. Traditionally the primary and secondary industries do not produce as much wealth as the tertiary sector industries. Newport’s industrial past was involved in the Railways, Docks and the Steel industry. In recent years we have seen a slow down in the primary and secondary industries with a trend for international companies to move production to the Far East to take advantage of lower costs. In the past couple of years we have seen the loss of over 2500 thousand jobs in the manufacturing industry with just over 50% of those from Corus Llanwern. The losses of these jobs were mainly as a result of plants closing. These plant closures not only affect the plants themselves but also all the contractors that worked for the business and the suppliers that supplied material to the businesses. Despite these job losses there was no increase in the unemployment rates of Newport as other sector, especially the service sector continued to grow and create employment. The number of unemployed actual fell from 3033 April 2001 to 2683 March 2003. Over this period 3358 jobs were created. The table below shows that over the last two years the highest percentage of jobs created were in the retail sector.

Two new retail developments created the largest amount of Jobs, the Wm Morrison store in Rogerstone and the Big W store at 28 East retail park created approx 700 jobs between them.

The following projects also helped to create jobs in Newport.

The expansion of the Sims Metals Recycling depot at Newport Docks

New contracts gained at Cogent Defence and Security Networks

The restart of steel production and processing at Alpha steel

The introduction of new products at Panasonic Communications

Development of the BT directory enquiries operation at factory road

The consolidation of some new functions at the ONS business statistics office at Duffryn

The opening of Bannatyne Leisure health club

The opening of Newport City Live Arena

The latest figures show that there are 71,300 working in Newport.

Investment is also an important factor to GDP. Newport has been able to attract substantial investments that have helped to offset the losses in the primary and tertiary sectors. Investments in Celtic Springs and Cleppa 4 business parks at junction 28 of the M4 by developers are producing prestigious offices to attract a new companies offering services such as call centres etc. They also hope to attract large multi site organisation that wish to concentrate departments such as their human resources and accounts on one site. There has also been investment in other areas of Newport including Newport docks and 28 East retail park. Newport docks has benefited from nearly £10m of investment. This investment included the construction of a new terminal for the St Gobain group and an extension to the ABP Dowds terminal. 28 East retail park in a development off Docksway consisting of 6 units. Current occupiers include Big W, MFI, Comet, Allied carpets and KFC. Over two years private sector investments in Newport have total £177.7M. The table below shows the proportion of investment by sector over the past two years.

The high proportion of manufacturing investment is due largely to investments in new plant at Corus Llanwern and by Alcan. There have also been some infrastructure projects by the public sector that will bring benefits to some of Newport’s more commercial areas. The largest project is the recent commencement of construction of the Southern Distribution road that will link junctions 24 and 28 of the M4 motorway with a two-lane dual carriageway that will include a new river crossing. This new road will greatly increase accessibility of the southeast Newport industrial areas with the motorway and will also open up sites for development on the west side of the river. Newport is able to attract this investment for several reasons. Newport has superb transport links that include the M4 motorway, Newport Docks and excellent rail links. Newport is also close the two international airports in Cardiff and Bristol enabling products to be transported world wide quickly and effectively. For businesses to locate in Newport there is not only the need for suitable land for premises but also suitable housing for the employees of the business. Newport has a large housing stock with more developments taking place. Most of Newport’s housing is in Council tax bands A-C that would provide excellent accommodation for people moving into the area. When looking to move into an area people not only look at housing but also at the educational and recreational facilities offered in the area. Newport has 55 primary schools, 8 Secondary schools, Colleges and a University. Newport has good examination achievements with 68% of pupils achieving 1-5 GSCE grade A*-C. Newport also has excellent recreational facilities with a bustling city centre that hosts a wide variety of shops, bars and restaurants. There has also been announcements within the last year that has helped to promote Newport as a commercial centre. Firstly was the announcement of City status in June 2002 and secondly was the announcement that the Celtic Manor Resort was to host the International Ryder Cup in 2010.

Blaenau Gwent was formed in April 1996 after a local government reorganisation. Blaenau Gwent is situated in the South East Wales valleys and covers an area of approximately 109 sq km with a population of 70,100 (2001). Blaenau gwent is made up of the following towns/villages :-

Abertilliery, Badminton, Beaufort, Blaina, Brynmawr, Cwm, Cwmtillery, Ebbw Vale, Georgetown, Llanhilleth, Nantyglo, Rassau, Sirhowy, Six Bells and Tredagar.

The graph below shows how the GDP in Blaneau Gwent has changed.

We can see from the chart that there has been a small increase in GDP over these years from £6200 per head to £7981 per head which is a lot lower than Newport’s £12424. GDP is the main indicator of a regions wealth so we can see that Blaenau Gwent is not as well off as Newport. As discussed earlier unemployment can have a great effect on GDP so it may be that Blaenau Gwent has higher unemployment. Figures have shown that during 1999-2001 the percentage of people of working age that were in employment in Blaenau Gwent fell by 4.4% to 54.6% of the population. In comparison during the same period the percentage of the working age population in employment in Newport rose from 70.9% to 77.5%. This may help to explain why Newport has a higher GDP than Blaenau Gwent. Blaenau Gwent has an increasingly ageing population with only 57 % of the population of working age. This links to some of the worst health statistics in Wales and the UK with Blaenau Gwent having the worst physical health score in Wales, the second worst mental health score and the worst score for people on long term illness. This also can affect GDP as while these people are not working they are not able to contribute to GDP figures. As explained earlier though it is not just unemployment rates that effect GDP, it can also be effect by the type of industries that are in the area and the average wages that are earned. The valleys areas of South Wales are traditional primary and secondary industry areas with 41% of those employed working in these sectors. In contrast only 27% of those employed in Newport work in these industries the remaining work in the tertiary sector. Below is a chart showing how the working population is made up compared with Newport.

As you can see from the chart Blaenau Gwent relies heavily on secondary sector industries whereas the largest proportion of Newport’s employees work in the expanding tertiary sector. It is also thought that some sectors of the tertiary sector bring more wealth to the area. For example having a large financial and banking area within the region may attract more business to the area. The chart above shows that Newport has a larger Banking and Finance sector that Blaenau Gwent and it is usual for specialist business such as this to pay higher wages than other sectors. The average weekly earnings for employees in Blaenau Gwent were £325.10 compared to £394.40 in Newport. These figures when used in conjunction with details on the types of jobs in the area help to show that it is likely that the more skilled tertiary sectors jobs pay higher wages and this may also be used as another reason to explain Newport’s higher GDP. The area Blaenau Gwent covers is made up mainly of mountains and Valleys that is the main reason why approximately 75% of the land area in Blaenau Gwent remains undeveloped. This land may very difficult to develop and may not have the infrastructure in the area to be able to attract new businesses to the area that would create new jobs and could improve the GDP of Blaenau Gwent. When looking at moving to an area investors will probably not only look at the land available to develop but also the workforces that is available. Employers need a workforce that is going to be able to cope with the demanding markets that all businesses are faced with due to global competition and the consumers need for quality at competitive prices. The high proportion of unemployment in Blaenau Gwent may act to it’s advantage when investors are looking to locate their businesses in the area as it would mean there would be people that could be employed. An investor would also look at the skills of the work force. If the business was skilled/specialist work and as such required a skilled/specialist workforce then the business would need to look at the educational and training facilities within the area to make a judgement on whether the workforce they require would be available in the area. In Blaenau Gwent 66% of pupils achieve 1-5 GSCE grades A*-C this is only slightly below that of Newport’s 68%. Blaenau Gwent has several areas that are ideal for developments that include Tredegar Business Park, Rassau Industrial Estate, Tafarnaubach Industrial Estate, Crown Business Park, Roseheyworth Business Park and the Marine Industrial site. Most of theses sites already have some business located on them but offer more space for further investment. Blaenau Gwent is a development area and as such offers high levels of assistance to businesses wishing to locate to the area and has been given Objective one status under the European Union Funding structure. This assistance is offered to businesses as a way of attracting them to the area and is usually in the form of grants.

Conclusion/Recommendations

Regions can not exist in isolation. As stated before the regions studied in this report form not only part of Wales but also the UK as a whole and part of the EU. As such there are some things which can not be controlled at a regional level. Interest rates, exchange rates and inflation are uniform throughout the UK. Although these factors are the same throughout the regions they may not always affect different regions in the same way. Lower interest rates may benefit an area wishing to attract investment and promote spending but would not help an area wishing to curb borrowing and promote saving. In a similar way a strong pound may help an area that depends on imports but in a area of exporters a strong pound could lead to problems in that region. Exporting goods would become more expensive which may lead to a decrease in demand, any decrease in demand can lead to production being scaled back and the possibility of job cuts. A regions wealth in measure by its GDP which is a measure of income per head of population. Many factors effect GDP, the most important of these being employment figures. Newport is the most prosperous of the two regions, we can see this as it has a higher GDP. In Newport the economic activity rate is 81% compared to just 60.9% in Blaenau Gwent. The economic activity rate is a measure of those of working age who are currently employed or who are actively seeking work. As you can see the poorer region has fewer people in work or actively seeking work. As GDP is a measure of income per head it may be possible to increase GDP by increasing the number of people in employment. So if Blaenau Gwent can increase the number of people in work they may be able to increase their GDP. There are many ways in which a region may be able to increase the number people in employment for example schemes helping people back to work are schemes to attract new businesses to the area. Blaenau Gwent Council has recently been awarded over £3 millions of European funding towards a £5.18 million project aimed at getting people back to work. The council is due to launch the scheme in 2004 which will help people out o benefits and back into work. The project is a venture between the Council, Working Links, Jobcentre Plus, Careers Wale Gwent and the Welsh Development agency. The project called Jobs Match is a three year programme aimed at creating jobs and providing training to increase the number of people in employment. The scheme has been designed to help almost 1000 people back into employment, to start their own business, to encourage people into further/higher education and to help support community or voluntary organisations. This project along with others run by the Council and other organisations are aimed at getting more people into employment. When introducing schemes such as this the Council also needs to look at whether there are enough jobs in the area to fulfil the project aims. To increase the number of people in employment you also need to attract investment and new businesses to the area. Blaenau Gwent is a development area and as such grants and special loans are available from the government to help business get started in the area. It is important that Blaenau Gwent information on these schemes is available readily. Another way to possibly increase GDP is to try and increase average weekly wages. For Blaenau Gwent to be able to increase their average weekly wage to the same level as Newport they have to look at the types of industry that are located in Newport and how they may be able to attract industries similar to that to Blaenau Gwent. It is generally thought that manuals work is not as highly paid as skilled works. It is usually thought that the higher paid jobs are mainly in the tertiary sector. From the analysis above we can see that Newport has mainly tertiary sector business whereas Blaenau Gwent has mainly secondary sector businesses. Only 37.9% of the businesses in Blaenau Gwent are in the tertiary sector compared to 47.1% of businesses Newport. GDP in Blaenau Gwent may be improved by attract tertiary sector and high value businesses.

Comply a report detailing a comparative analysis of two economic regions.

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