The Economy Minister said that driving the competitiveness of the Welsh economy has to be a collective effort

A new national development agency, which will deliver business support and seek to attract inward investment at arm’s length from the Welsh Government, will bring in expertise from the private sector to help drive the competitiveness of the economy.

Cabinet Minister for the Economy, Connectivity and Energy, Adam Price, also confirmed that the new administration will have a new key economic target based on improving productivity – on which Wales languishes at around a fifth below the UK average.

In his first major interview, the economist said he will also carry out a full review of the Development Bank of Wales, which is wholly-owned by the Welsh Government, and its suite of financial products, to assess any gaps in its provision of capital to support Welsh firms to scale-up.

Before the election, Plaid set up a number of working groups to scope how a new national development agency could operate at arm’s length from the Welsh Government. It has been touted as a new version of the Welsh Development Agency (WDA), which was abolished by the then Labour Welsh Government of Rhodri Morgan in 2006 with its staff and economic support functions brought directly into government.

At the time, it had a workforce of more than 1,000, with a remit ranging from business support and inward investment to land reclamation and commercial property, and a budget of £200m (worth around £400m today). That scale and reach, even if the money could be found, is not envisaged. Instead, a smaller and more agile body with innovation at its heart is planned.

The agency’s precise remit, staffing levels, and, importantly, budget allocation, will be thrashed out over the coming weeks and months. This will include the potentially thorny issue of having to transfer some existing civil servants into the new body, combined with the desire to bring in fresh blood and thinking from the private sector.

The Welsh Government will also need to consider how it will end existing contracts for outsourced business support under its existing Business Wales brand – although the new agency could have external delivery partners.

Speaking at the Welsh Government’s office in Cathays Park, Mr Price said: “It will be a driver of our economic strategy and it’s going to be the key engine for that.”

On the pre-election work he said: “We tapped into the collective intelligence that is out there. We have some knowledge and expertise from the old WDA, which is still important to draw upon, and also many of the economists we’re very fortunate to have in Wales, and some leading-edge thinkers. We are also speaking to key figures in the business community in shaping our early outline plan, if you like.

“It will be phased, so there will be a design and build phase, but we want to work at velocity – and the kind of velocity that business expects. There is a lot of detailed work, and we want to involve experienced senior people who have founded, run, and in some cases turned around businesses, and that knowledge is very key, as are some of the other knowledge sets.

“So we are putting a team together working with us and creating a process and a structure to deliver that as soon as we can. So that work is already going on.”

When asked when it could become operational, he said it was too early to give any timeframe, whether that be next year or possibly into 2028.

Mr Price said: “It’s absolutely the question to ask, but I can’t give you a definitive answer. The question we’re asking is how quickly we can do this. You probably cannot set everything up at once and be operational across every area.

“We’re going to have to build a critical path here, we’ve got to sequence this, and we are mapping out what those steps are now. I don’t think that just creating a development agency on its own is some kind of panacea, but what it does is absolutely key. So if you create an arm’s-length agency it can work with a degree of agility and dynamism, which in its culture and way of operating is close to business.

“So we’re not just looking at designing a new institution, we are also asking ourselves a very pertinent question: what difference will this institution make through its activities?”

He pointed to Transport for Wales, under its chief executive James Price, as a model that could be emulated as a company of government. It not only operates the Wales & Borders rail network, but is overseeing a new bus franchise model across Wales and is responsible for electrification of the Core Valley Lines.

Mr Price said: “You have a combination of existing skills and knowledge bases, but also specialist knowledge from people in the private sector. We will definitely want to attract the best to work on this very exciting challenge that we are going to set ourselves, which is closing the productivity gap between Wales and the rest of the UK.”

He was asked if the WDA name could be resurrected for the new agency. While it is more than two decades since its demise, it is still a recognised brand.

Laughing, he said: “It will have a name, as we are a nation of poets after all, but it will be important (name) because it will encapsulate the vision and the mission.

” So, we will probably want a name that communicates its purpose, which may reference some of the heritage that we have. We were the nation that built one of the world’s first development agencies, which others were modelled on, but we want to create something that is very much built for now and for the future, so we will have more to say about that in due course.”

How will the development agency ensure it doesn’t add complexity to the current business support landscape across Wales, with its four statutory body corporate joint committees (CJCs), including the Cardiff Capital Region, two freeports and investment zones, local authorities, and a significant role for the UK Government in areas like export assistance and credit support, as well as government back agencies such as UK Research and Innovation (UKRI)?

Mr Price said: “I think alignment is absolutely what we need in every sense. I think we should always ask ourselves whether the landscape of economic development is the one that is going to deliver most efficiently for us.

“But I think any national development agency and the government at a national level wants to work with local and regional partners. So we look forward to working with the corporate joint committees.”

The Cardiff Capital Region is the most advanced CJC and the most successful in securing UK funding for economic development, such as £30m from the UKRI’s Local Innovation Partnership Fund.

While the four CJCs are exploring a voluntary best practice working relationship, there is an inherent competitiveness in seeking to secure backing from government funding streams. Does this help raise standards or create unnecessary duplication of effort?

Mr Price responded: “It’s certainly a good question for us to collectively ask, not just us as a national government, but also speaking with the CJCs and all of the different initiatives, to ask whether this is the best landscape for us. If it is, fine. If it isn’t, then we have the ability to shape that. I think in the initial stages we want to work with all of those partners. We want to avoid any duplication, but also ask how we can add value.

“There are complementary roles, strengths, and skills in there, but what we want to create is an economic development system where we’re all working together, all contributing maybe in different ways. It is not a competition, and what we want to build is cooperation, and that includes the UK Government as well.

“The Welsh Government and the UK Government are committing to driving economic growth and prosperity. So we are very keen to have conversations with all the relevant UK Government ministers to see how we can actually achieve our common goals in a quicker way.”

Plaid Cymru’s manifesto did highlight relatively low jobs created by the city and growth deals across Wales, although they have a long-term target.

The minister said: “I think that we certainly need within every region a regional growth plan, in the same way that we’re going to build an economic development plan for the whole of the nation. So what we want to do there is obviously work with local and regional partners to craft that.”

“And I think in the initial stage, let’s work within the structures that we have. That’s the pragmatic approach. We are creating a national development agency that will work throughout Wales and will have strong regional divisions. Those divisions will work with local government, it will work with business on a local and regional basis, and with those regional structures as well.

“I think it’s a conversation for us to have for another day, and an important one, once we’ve built the development agency, to say, right, okay, with our local and regional partners, is this the right landscape then for us going forward? That is a conversation that we can have collectively. There are no predetermined answers to that question, and it is something that should always evolve.

“There is scope for joint working as well, where different CJCs have different strengths in different areas, and we would want to be part of that conversation, but we see ourselves working very collaboratively with those regional bodies.”

Development Bank of Wales

In its manifesto Plaid committed to a review of the Development Bank of Wales and its financial products, which range from debt to equity. It also manages specific Welsh Government funds, as well a funds in England for the British Business Bank.

He said: “We as a party for many years called for the creation of a development bank, and so it’s good that we have that lever and that institutional capacity.

“What we want to do is to make sure that institution is absolutely able to deliver its very important mission in terms of ensuring access to capital and plugging any gaps that are within a financial system that, as we know, has not historically always been well calibrated in the interests of Wales.

“So we want to build on the experience and the success in many areas of recent years, but obviously, as a new government, we are keen to review what is going well and whether there are areas where there could be further improvement and whether there are gaps in the funding offer, which is key.

“I think it is fair to say the Development Bank of Wales has plugged some important gaps in terms of access to capital, and that is part of its primary function. One of the key questions is what are the gaps now? To what extent is finance, and we like to think that in all of our economic analysis we are trying to prioritise by identifying the key barriers which are holding us back.

“Obviously, we want progress in all areas, but any government has to prioritise and sequence things. So I think one of the questions we are going to ask is to what extent is access to finance still a key constraint in terms of business growth, and we need to be very specific.”

Will that mean a new independent access to finance review that led to the creation of the Development Bank of Wales back in 2018, although in personnel there was no change from its predecessor, Finance Wales?

Mr Price said: “The mechanism that we will use to do that work we have not decided yet, but we will want to sit down with the bank and with the business community and look at this question: what are the gaps now?

“In conversations that I have had with businesses, venture capital specifically, and what you might call active capital more broadly, has been identified as an area where we still need to create a mechanism in Wales.

“What do I mean by active capital? Passive capital is basically where you get the money, but with active capital – and venture capital is a principal form of that (though not the only one) – you are given some money, but also some know-how to make sure that you as a business succeed and that the investment works well.

“So that is just one example of an area we would be keen to look at: so where are we, and what more can we do in terms of access to capital? And part of the question is what would be the role of the development bank and the development agency.”

Asked whether equity could come out of the development bank and sit within the new development agency, with fund managers sought to run specific funds with requirements on match funding and leverage investment levels, he said: “At this stage we cannot rule anything out, but that should not be read as meaning that is going to happen, as we need to carry out the work (review).

More broadly he added: “It’s a technical question and not a theological one, so we basically need to do the analysis on that. We have identified, as I said, that active capital is an area where businesses tell us there is more that we need to do. Let’s test that against the empirical data. Then if we do find this is an issue, then we need to think about what form that intervention should take.”

Economic targets

The new government will also establish a fiscal and economic commission to support the collection and analysis of Welsh economic data, and the setting of clear targets on the economy, as well as critical thinking, including around innovation. It will also conduct a skills audit to identify the needs of Welsh employers.

On economic targets, he said: “I think we need a single headline goal, and we will have one. It has to be a meaningful one and something that crystallises. We can say the words ‘close the prosperity gap’, but you have to make that specific. And it has to be ambitious but achievable. So I think stretch targets are good, as they catalyse you and keep you focused. But you also have to have a reasonable basis for believing it is achievable

“We are not yet able to say what the target will be, but in terms of the measure I think what is important there is that it is a measure where you hold more of the levers. With GVA more broadly and including GVA per capita, there are so many macroeconomic and demographic factors you could be blown off course through no fault of your own.

” However, if you look at productivity, by which I mean GVA per hour worked (the rate in Wales is currently around 84% of the UK), that is where we do control many of the levers… like skills for example and education more broadly, also innovation, particularly the adoption of technology and innovation etc.

“So I think in terms of the measure, it is the productivity gap and how fast we can close that productivity gap. We are doing work on that now as we speak, and we will have a target which will be ambitious.

On the fiscal and economic commission he said he isn’t yet able to identify members. He added: “We are still at the scoping stage with that, but, you know, and it really is parallel with the development agency.

“But in terms of the general principle, it mirrors exactly what the Basque Country did in the early 1980s and early 90s. They created economic development agency SPRI, which was modelled on the Welsh Development Agency. They also created Orkestra, their economic institute of competitiveness.

“So they set up at the same time what is fairly universally seen as the most successful development agency in the last 30 years, as the Basque Country went from pretty much where we were in the 1980s to now at the top level both in Spain and across the EU in terms of economic development.

“But they created deliberately an economic institute independent of government in order to keep them focused and keep them honest, and also to make sure that the programmes of the government and of SPRI were aligned with leading-edge thinking.

“Obviously what you do is absolutely critical, but thinking is also part of this, and having alongside a development agency a leading-edge institution which is able to capture in data terms where we are, not just the single headline goal, but also some of the secondary indicators which are leading indicators, as well as keeping us in line as closely as possible with leading-edge thinking.

“I think that innovation is absolutely central to our economic development strategy and to closing that productivity gap.

“It is key, not just in terms of new product development, which people tend to instantly think of, which is absolutely important, of course, commercialising knowledge from a university base etc. But actually the other bit of innovation, which is its spread, diffusion, and adoption of technology and other forms of innovation.

“So innovation is going to be right at the heart of what we do. I think in terms of the institutional design, we see the development agency as a national innovation body. We want to build on the classic strengths of a development agency in many areas, so being very good at inward investment will be part of it. But there are things as well which are more oriented to the economy of today and tomorrow, and innovation.

“There are things that only governments can do, and we need to step up to the plate and realise our own responsibilities for the part that we play in closing the prosperity gap. But governments cannot do it on their own, and so on a target that we talked about, closing the productivity gap, it has to be a collective endeavour.

“As a government we need to tap into the collective intelligence of the nation. That is what we are going to do in designing the development agency and the economic commission.”