No short-term fix for Wales’ productivity gap, report finds

Research, development and innovation activity in Wales’ private sector ranks lowest in the UK and is a major factor in the nation’s poor productivity performance, according to a new report.

Researchers from Cardiff Business School, who are part of the Wales Productivity Forum, examined Office for National Statistics data to better understand Wales’ productivity challenge.

A skills gap, small private sector and little capital investment into the country also contribute to low productivity performance, the study shows.

Post-Brexit disruption to trade agreements and port activity through Ynys Môn and Pembrokeshire, and damage to small and medium-sized enterprises (SME) in the hospitality and tourism sectors pose further threats to Wales, the report adds.

Lead author Professor Andrew Henley of Cardiff Business School, who coordinates the Wales Productivity Forum, said: “While we’re seeing similar productivity challenges right across the UK, the picture here in Wales is a major concern. The data shows that over a decade between 2008 and 2019 the productivity gap between Wales and the rest of the UK has remained wide. This is despite three successive seven-year programmes of support from EU Structural Funds.”

Productivity measures the amount of economic output generated by each worker and, in 2019, output per hour worked in Wales stood at 84.1% of the UK level, ranking lowest across all the UK regions and devolved nations except Northern Ireland.

Wales’ weak productivity performance is historically attributed to a legacy of deindustrialisation from coalmining and metals production, particularly in the South Wales valleys.

Professor Henley added: “This is not something that is going to be solved overnight. Instead, we are going to need long-term and strategic measures to see productivity growth in Wales.

“One significant advantage we have is in our policymaking, which has been really ambitious in recent times. And, while productivity is not necessarily the objective of legislation like the Wellbeing of Future Generations (Wales) Act, it can be the means through which we deliver on the Act’s wellbeing goals of prosperity, resilience, inclusivity and sustainable net-zero development if Wales invests in skills, research and future technologies.”

Forum member Joanna Swash, Group CEO of Moneypenny, said: “This report is a timely reminder that, like the rest of the UK, we face significant productivity challenges in Wales.

“At Moneypenny we have seen the difference positive employee engagement and exceptional customer service can make in helping improve company productivity. We also invest in the latest technology to assist our people and services, increase efficiency, and ensuring we continue to lead the way in outsourced communications.

“By working together, sharing best practice alongside our partners and by helping boost technology uptake among businesses, we can improve productivity levels in Wales and the rest of the UK.”

The report also highlights the role of the Development Bank of Wales, formed in 2017, to leverage additional investment funds to Welsh businesses in partnership with commercial investors and lenders to stimulate SME growth and research and development activity.

Forum Chair and Wales Director of the Institute of Chartered Accountants in England and Wales Robert Lloyd Griffiths OBE said: “We hear a lot about how higher productivity is key to unlocking Wales’ economic potential and delivering prosperity. This analysis shows that we have some catching up to do and offers solutions for how we might do it.

“As the Forum’s first output, I hope that the analysis it brings is welcomed by stakeholders in business and in policy contexts, so that we might turn words into action and begin to rebuild and re-purpose our economy over the coming months and years.”

The report, ‘Wales’ Productivity Challenge: Exploring the issues’, is one of eight regional studies across the UK and the start of the forum’s work in highlighting where local and national policymakers can make a positive difference to productivity in Wales.

The Wales Productivity Forum is made up of key figures in industry, research and policy and has been set up as part of the work of The Productivity Institute, a new £32m research centre investment from UK Research and Innovation’s Economic and Social Research Council (ESRC), bringing together ten leading universities and research institutes.