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 a chart mapping Newport’s GDP over several years. 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.