The £1.2bn City Deal could be deemed a failure, despite hitting its headline targets that include creating 25,000 new jobs and lifting gross value added by 5%, unless it provides opportunities for people in the most deprived communities of the Cardiff Capital Region.
And the director for the Cardiff Capital Region City Deal, Kellie Beirne, said the project, which aims to leverage a further £4bn in private sector investment, has to play a key role in helping Wales to get a bigger slice of billions of pounds in new innovation focused funding from the UK Government, and from other sources such as the various research councils and Innovate UK.
Addressing Cardiff Breakfast Club, Ms Beirne said the City Deal also had to ensure that “brilliant and entrepreneurial” youngsters from deprived backgrounds were given opportunities to flourish in the region’s new emerging sectors, like in compound semiconductors where she said they could earn three times more in a day then they could in a week “making sandwiches,” for food outlets.
That early stage commercialisation of the cluster was boosted earlier this year with nearly £40m in City Deal funding to acquire a site in Newport, which in turn is being rented on commercial terms to technology firm IQE for the production of compound semiconductors.
Ms Beirne said that with no more City Deals from the UK Government, the existing one had to evolve an evergreen approach, with returns on investment reinvented back to fund new projects.
She said the region, which has a population of 1.5 million covering ten local authorities in south east Wales, was home to some of the most deprived communities not just in the UK but western Europe like Blaenau Gwent.
With academia and leading tech firms such as IQE, the region is confident of creating the world’s first of industrial scale compound semiconductor cluster with the potential of creating thousands of new high-skilled and well-paid jobs.
Compound semiconductors are essential components inside many of the devices changing the way we live, such as wifi smartphones, GPS, satellite communications and more efficient LEDs.
Ms Beirne said: “I still know loads of people that I grew up with in south Wales and I know their kids too. They are great kids, who are very talented and brilliant with technology.
“They will tell you all you need to know about compound semiconductors, but at the moment they use their talents and skills in illegitimate and sometimes illegal ways.
“Every other month I find myself writing letters to judges and saying ‘look I don’t advocate what they are doing, but they have never seen hope or opportunity’.
“The best we are offering them at the moment is earning not very much say making sandwiches. These kids are entrepreneurs and they really get enterprise and business… so making sandwiches is not going to do it for them.
I really believe we should be trying to fill that industry [compound semiconductors] with these kids and that is something we absolutely have to achieve in this City Deal.”
However, she said that these youngsters were unlikely to apply for roles through the conventional recruitment process, so needed to be reach out to.
City Deal funding
The City Deal is based on a tripartite funding arrangement from the Welsh and UK governments and the region’s 10 local authorities themselves also committing funding from capital borrowings.
She said it would be easy to hit the headline targets over the next 20 years in creating 25,000 new jobs, achieving a GVA uplift of 5% and leveraging a further £4bn in private sector investment, but that the City Deal could still be a failure.
She added: “We could hit every single one of those targets, but fundamentally miss the point. So, we could get GVA uplift just by the wealthy firms getting wealthier and we could easily create 25,000 jobs by building call centres everywhere. They wouldn’t last as they would be automated almost immediately, but we would hit the target.
“So we don’t want to be in that position where this becomes just a numbers game, it has to be something deeper and more intense.
“More often growth strategies in isolation exacerbate inequality. The tide of change is great and it takes loads of people with it, but it also leaves far too many people behind and that is the fundamental we are trying to contend with.
“Innovation will have a massive role in our region, but on its own it is not enough to drive the generalised prosperity that we want to see in our region.
“Our regional cabinet [made up of the ten local authority leaders] is absolutely committed is making sure that the social justice message really resonants through everything that we are trying to do. Growth that does good is the mantra. We want that to be not just radical and inclusive, but really and genuinely sustainable.”
Much bigger picture
She said one of the difficulties Wales has had in the past in terms taxpayer backed funding programmes, was too much of a focus on process. She added: “We should be fleet of foot and enabling and intervening quite quickly. So the City Deal is definitely not the limit to our horizon, it is just one of the means alongside many tools that we need to deploy if we are to really to make the step change in this region.
“It has to be about full investment and making it evergreen. [City Deal]. Our ambition is to absolutely live off our interest and not our capital. That is fundamental to changing the mindset and culture that we need to try and achieve.
“And the great message that I had from the other day from the UK Government is that there will be no more City Deals and future investment will all be through the Industrial Strategy. That’s fantastic as everything now will go through the Industrial Strategy Challenge Fund and the Shared Prosperity Fund.”
New funding approach
The Industrial Strategy Challenge Fund has an annual budget of £6.4bn. Ms Beirne said: “It is not a fund that you bid or are able to make submissions to. It is a fund that is organised around challenges and missions. What we now have to demonstrate is that we can understand problems and frame them correctly and go about responding to them.”
The challenges include those around artificial intelligence, data, clean growth, future mobility and an ageing society.
On the boards of UK Research and Innovation and the various funding councils that sits underneath it, Wales currently has little representation, while Scotland has around 25%.
She added:“We have a real job of work to do to be at the right table and having the right level of influence commensurate to the job that needs to be done. One of the things we are starting to work on is an industrial strategy for the region.
“I know that we don’t want more strategies, but I what I am talking about something that will just be a couple of pages that gives that key means of engaging with UK Government, setting out our competitive strengths and showing what we are really serious about.”
How the money could be assigned
With £734m in the City Deal ring fenced for the next phase of the Metro with electrification of rail’s Valley Lines, that only leave a wider investment fund of just under £500m.
Ms Beirne confirmed under consideration was channeling the funding into three pots, including a new challenge fund which will encourage bidders to come up with innovative ideas that would then seek match funding from the UK Government’s industrial strategy funding streams. There will also be funding on commercial terms that could invest say equity to help a firm in the region move from the R&D stage to commercialisation. The third strand will to be funding for infrastructure projects from rail to digital.
On the proposed new challenge fund she said: “It would essentially be match funding for the Industrial Strategy Challenge Fund and the Welsh Government’s Economic Action Plan and we are having very productive conservations with Innovate Uk at the moment and we are working on a co-investment package. However, it is still to be confirmed.”
She said the public sector has a vital role to play in efforts to boost innovation and improve productivity across the region.
She said: “One of the features of this region is that we have one of the highest levels of public sector employment. This is seen by many as being a massive source of economic weakness, but I think we can turn that into a huge source of economic opportunity.
“In our region we spend around £3bn a year in public sector procurement. I think that £3bn could be re-purposed if innovative businesses could be financed and have a massive impact on our economy and our communities. But it is going to take some one really brave and bold to take that first step and we are willing to take that in the Cardiff Capital Region and we have got plans for a public services test bed.
“I think there a really fundamental message between the connect between the public service world and the wider economy. So human capital is the critical factor and it is not just about financial capital. We are thinking about ideas, resources, assets, skills and talent. All of that is so significant in the way that we need to grow our economy.
“This is really fundamental as what we are finding increasingly is that economic competition is no longer just between countries, but that it is at a city region scale.
“We have been implacably unproductive in parts and quite low in competitiveness in overall terms. We are certainly not where we need to be. And I think dependency have played a really big part in that.
“This region has been partially an assisted area since 1934, which I find quite incredible. And whatever happens with Brexit we just don’t have the buffers or cushions in our economy that you find in other places.
“The UK Government has set quite a significant target to increase GDP spend on R&D from 1.7% to 2.4% by the year 2027. I know it doesn’t sound much and only puts us on OECD average levels, but it really is a potential game-changer in terms of the increase in the level of spend.
“In Wales we don’t spend anything like 1.7%. However, as we are targeting from a low base I think we can make quite a significant contribution.
“So innovation isn’t just something that high-growth knowledge intensive businesses do. Increasingly the public sector is embracing innovation as it recognises how critical it is to its future. And I think the way we engage with civic society is quite critical as well, And this is where we can have a competitive edge.”