(Title Image: BBC Wales)

Following the primary sector and utilities (Part IV), it’s time to look at what the Welsh economy does with those raw materials.

Introduction to the Secondary Sector

The secondary sector is focused on the exploitation of raw materials (Part IV) to produce usable goods – commonly known as industry or manufacturing. Industrialisation is the process by which a nation develops a secondary sector, with Wales being one of the first nations to industrialise. The secondary sector supports the rest of the economy by producing products which increase productivity and add value.

The secondary sector is usually sub-divided into two broad sub-sectors:

  • Heavy industry produces large, labour intensive and energy-intensive products that usually have a negative impact on the environment (i.e. steel, iron, chemicals, defence, aerospace, construction).
  • Light industry produces smaller consumer goods and components which have a lesser impact on the environment and are often done in a less labour and energy-intensive way (i.e. food, electronics, some types of machinery, vehicles, textiles, plastics, “white goods” like household appliances).

Wales retains elements of both, though the Welsh economy’s mix between heavy and light industry has gradually become more balanced – particularly during the second half of the 20th Century (Part II).

Industrialisation plays a key role in social development. Large numbers of workers, often working in appalling conditions, led to the creation of organised labour/trade unions which, through negotiation and industrial action, leads to collective bargaining and higher pay rates, worker benefits, the creation of state welfare programmes (to deal with industrial diseases) and shorter working weeks.

Sectoral Analysis

 

(Pic: Daily Post)

Aerospace – According to the Wales Aerospace Forum, the aerospace sector in Wales – which includes civil and military aircraft, aircraft maintenance and component manufacturing/supply chain – employs more than 20,000 people, with all companies having a combined turnover of £5billion. Wales is home to around 10% of the UK’s aerospace industry.

The largest aerospace operation based in Wales is the Airbus wing factory at Broughton in Flintshire, which employs around 7,000 workers and contributes around £845million to the Welsh economy. GE Aviation’s engine facility at Nantgarw in Caerphilly is Wales’ third largest company by turnover (2017: £2.36billion) and employs 1,400 people. British Airways also has a major maintenance facility at Cardiff Airport.

There are also smaller, but significant, players in the supply chain including Cwmbran’s Contour Premier Seating (aircraft fittings), Bridgend’s TES Aviation (engines), TB Davies (access equipment) and AMSS (maintenance support), Caerphilly’s AerFin (aircraft end-of-life services), Pembroke Dock’s United Aerospace (composites) and the unmanned aerial vehicle (aka. Drone) research facility at Aberporth in Ceredigion.

Automotive Sector – Road vehicle and transport equipment exports from Wales were worth £4.97billion in 2017. It’s estimated around 18,000 people are directly employed by the sector, contributing £3.2billion to the Welsh economy and whilst having been a major beneficiary of foreign direct investment through the 1970s and 1980s.

The dominant automotive outfits in Wales are the Bridgend Ford and Deeside Toyota engine plants, which employ 1,700 and 600 people respectively. Llanelli’s Calsonic Kansei, which builds various vehicle components, is Wales sixth largest company by turnover (£733.4million) and employs around 500 people, while another major factory is Ebbw Vale’s GS Yuasa Battery.

While the automotive sector has focused on components rather than whole vehicles, Aston Martin is set to construct the first fully-complete car in Wales since the Gilbern at their manufacturing plant at St Athan from 2019, while TVR is establishing a sports car factory in Ebbw Vale. Riversimple, based in Llandrindod Wells, are constructing 20 hydrogen-powered prototype cars which are due to undergo testing in the next few years.

Steel & Metals – Having survived a major crisis in 2016-17, the steel industry remains one of the last vestiges of Welsh heavy industry. Steel, iron and metal exports from Wales were worth £1.56billion in 2017 and Welsh steel made up around 20% of UK steel exports. The same year, there were estimated to be 6,810 people employed in the iron and steel industry in Wales – a fall of almost 90% since 1975. Wales also produces more than half of the UK’s iron and steel.

There are at least four major players in the Welsh metals industry. Firstly, Tata-ThyssenKrupp which run the Port Talbot, Llanwern, Caerphilly and Shotton steelworks (producing steel for the white goods and automotive industry) and Trostre tin-plating works; Newport-based Liberty Steel (Turonver 2017: £183.5million) specialises in hot rolled-coil; Llanelli-based steel processor, Dyfed Steels (Turnover 2017: £42.8million), and Cardiff-based electrical steel specialist, Celsa UK (Turnover 2017: £436.2million; 11th biggest company in Wales by turnover).

Chemicals – Wales is a big player in the chemicals industry and its another remnant of heavy industry still with us, including oil refining, general organic and inorganic chemical production, plastics and pharmaceuticals. Chemical exports were worth £1.93billion in 2017 and petroleum and related exports were worth £1.58billion.

Some of the major companies in the chemicals industry in Wales include Barry-based Dow Corning (Turnover 2017: £505.8million), the Royal Mint (Turnover 2017: £506.4million), Newport and Wrexham-based Solutia (Turnover 2017: £101million) and Deeside’s Warwick Chemicals.

Milford Haven is the UK’s third busiest port by tonnage handled and the UK’s most important energy port, with refining and storage facilities for oil and liquified natural gas (LNG) and storage capacity for 8.7million barrels. The economic impact to the economy was estimated in 2011 at being £412million.

 

(Pic: via Twitter)

Food & Drink – There’s a fairly active Welsh food and drink scene. It’s considered a “rising star” by the Welsh Government, being given priority sector status (Part III) and set a target of generating £7billion in sales by 2030 alongside an increase in GVA impact to £1.4billion. In 2016, Wales was very close to hitting the first target, with £6.9billion in sales. Food and live animal exports were worth £498million in 2017, with almost half of that being meat and dairy products (Part IV).

While SA Brain is just as focused on the hospitality side of the pub trade (Part VI), they’re a £150million drinks company. There are also a number of smaller, local breweries and distilleries like Tomos Watkin, Wrexham Lager, Penderyn whiskey, Bang On Brewery and the famous award-winning Tiny Rebel. I’m also surprised by the number of commercial, often award-winning, vineyards in Wales – despite the fact vines have been grown in Wales – especially the Monmouthshire, Powys and Vale of Glamorgan – since Roman times.

A particular area of strength is baked goods. Cardiff-based Finsbury Foods (Turnover 2017: £314.3million) oversee several subsidiaries; they’re also listed on the FTSE 250. Brace’s (bread) is a major employer in the Newport area, and an important Welsh commercial brand, employing some 330 people with a turnover of £30million in 2017.

Wales also has medium and smaller size food companies such as Castell Howell (Llanelli), Global Foods, Euro Foods (both Cardiff), Jenkins Bakeries (Llanelli), Talgarth Bakery (Maesteg) and £80million turnover company Peter’s Food Services, based in Bedwas (most famous for its pies). Edwards of Conwy and Llaeth y Llan both supply meat products and yoghurts respectively to several supermarkets.

Bon Bon Buddies, based in Blackwood (Turnover 2017: £44.4million), are a major supplier of branded confectionery and experienced significant growth in European sales. Anglesey-based manufacturer Madryn produces crisps from locally-sourced potatoes (Jones o Gymru).

Construction & Engineering – According to the Welsh Government, there are 13,000 construction and engineering companies employing around 112,000 workers in Wales. The annual Index of Construction shows that the Welsh construction industry has outgrown the UK industry consistently since 201, with around 60% of people working in construction being self-employed.

Flintshire-based Redrow is one of the “Big Four” UK housebuilders and the fourth biggest company in Wales by turnover (2017: £1.6billion). There are also a large number of medium-sized construction and engineering companies such as Bangor’s Watkin Jones (Turnover 2017: £266.8million), Swansea’s Dawnus Group (Turnover 2017: £196.8million), Abergavenny’s Alun Griffiths (Turnover 2017: 154.3million), Aberdare’s Walters (Turnover 2017: £121.4million), Bridgend’s Jehu Group (Turnover 2017: £41.7million), Llanmoor Homes and Cardiff’s JR Smart.

Electronics & General Manufacturing – While Wales has lost many of previous anchor electronics companies (like Sony’s Bridgend television plant), there’s still significant electronics and machinery manufacturing capacity left in Wales, including Cardiff’s Panasonic factory (Turnover 2017: £227.8million) which specialises in household products.

Despite significantly downsizing their operations in Wales, Sony still manufactures professional and broadcasting cameras at their Pencoed plant.

Wales, particularly north-east Wales, has a strong presence in the building materials and packaging industry, including Tetra-Pak, Kronospan, Nice-Pak and Kingspan. Elsewhere in Wales, there’s are other key manufacturing anchor companies such as the international greetings company, IG Design – based in Ystrad Mynach – and insulation specialists Rockwool, based on the outskirts of Pencoed.

All-Wales Context

27.9% of Welsh economic output in 2016 came from water, energy (Part IV), manufacturing, production and construction – the highest proportion of any UK nation (Scotland 22.9%; Northern Ireland 24.8%; England 18.6%). Also, manufacturing and production (22%) alone made up a higher proportion of the Welsh economy than any UK nation or English region.

There are clear areas of expertise in terms of manufacturing, in particular machinery and equipment – which made up around 5.2% of the Welsh economy in 2016, contributing just under £3billion in GVA. Food and drink processing is also another area of relative strength, being worth just over £1.5billion to the Welsh economy.

While construction is the biggest sub-sector within the secondary industries at 5.9% of the Welsh economy – on a par with Scotland and Northern Ireland – the Welsh construction sector is slightly smaller than England’s (6.3% of GVA) though, perhaps surprisingly, it’s proportionally bigger than London (5.1%).

I’ve combined manufacturing (which includes utilities – Part IV) and construction figures for the sake of brevity, but it’s worth pointing out some big differences in how manufacturing and construction spread jobs and productivity around the country.

Construction GVA is relatively evenly spread, making up around 6-7% of GVA in nearly all NUTS3 regions. The only regions where construction makes up a noticeably smaller proportion of the local economy are Wrexham & Flintshire (4.3%) and Cardiff & Vale of Glamorgan (4.8%).

When it comes to manufacturing, there’s a clear polarisation. Manufacturing makes up a much greater share of the economy in the Valleys and northeast than anywhere else – the reasons being obvious (WDA policy – Part II – and major anchor companies being based there).

What’s perhaps a little surprising is that secondary sector GVA isn’t proportional to jobs. For example, while Bridgend is part of a NUTS3 area with a high proportion of production & construction GVA, there are almost half the number of jobs in production (8,400) than Wrexham (14,800), Cardiff (15,500) and Caerphilly (13,200).

163,000 people were estimated to work in production and manufacturing and 102,900 in construction – a total of 265,900 jobs or around 18.9% of the workforce (compared to 27.9% of economic output). This suggests that while the proportion of workers decreases, manufacturing is becoming more efficient and productive, while construction (which is often more labour intensive) perhaps isn’t yet.

SWOT Analysis: Welsh Secondary Sector

Strengths

 

(Pic: ResearchGate)

Very strong, highly localised supply chains – Wherever you are in Wales, in most cases you could probably source all the physical components needed to manufacture simple products within a 100-mile radius. On paper, this is a huge advantage to an industry as it means an efficient, highly-secure “just in time” system can work well. In practice, however, it’s hampered by poor infrastructure; if you’re sending things from one valley to another or from northern to southern Wales it means a longer than necessary trip despite the relatively short distance. So while this is a strength on paper, it’s not fully realised yet.

Secure energy and water supplies (Part IV) – You need this if you want to make anything! They’re also becoming more important factors in both social and economic development. On paper, Wales faces little to no risk of suffering brownouts, blackouts or serious droughts. This makes Wales a natural base for energy-intensive industries and will be vital for emerging technologies such as batteries (for electric vehicles), advanced manufacturing and robotics.

Competitive on cost – I don’t like using this as an example, but it’s a fact that Wales is a pretty cheap place to make anything, in part because of lower average wages and the levels of financial support offered by the Welsh Government and the Development Bank. This makes up for low productivity and explains why many of the key anchor companies which were attracted here by the WDA remain here. Plentiful utilities, small supply chains, lower labour costs and a government willing to bend over backwards to accommodate you: manufacturing heaven.

Weaknesses

 

(Pic: Parker Environmental)

 

Lack of relevant technical and vocational skills – While it’s right to say that successive Welsh Government have made moves to expand the uptake of apprenticeships, the over-emphasis on academic qualifications in the education system is leading to critical shortages of skills needed for industry and construction – which often leads to jobs being taken by qualified immigrants. An Open University study from July 2018 found that 61% of employers in Wales have had to leave jobs vacant due to a lack of skills, with particular shortages of skilled tradespeople (electricians, carpenters, bricklayers), IT skills and project management skills.

Lack of high-end design, research and development (Part VII) – Wales has historically been very good at making things, but they’ve often been designed and developed elsewhere and that’s often where most of the economic benefit comes from once those ideas are patented and licensed. The creative industry may be a strength, but Wales – with a few exceptions – has often been lacking when it comes to seeing new products through from drawing board to sale (especially when compared to Scotland); we’re often only involved in the “making it” part.

Too much focus on intermediate goods – As mentioned in Part I, Wales has long specialised in producing intermediate products (processed manufacturing materials like steel, components, parts, prefabricated items) which don’t count towards GVA figures seeing as most of our major anchor companies and employers focus on manufacturing intermediate goods. So, for example, wings made in Broughton count towards French GVA figures because they’re attached to the finished planes in Toulouse, while steel only counts once it’s actually turned into something – whether cars or tin-cans. The question we should be asking is why we’re not making the finished products here?

Opportunities

 

Just one example of a strong Welsh brand with potential for further growth. (Pic: Village Dairy)

Making good use of public procurement & insourcing – Health, local government and schools already have significant economic power at their disposal when it comes to buying manufactured goods (Part VIII), such as machinery or pharmaceuticals. Independence would also mean Welsh defence and foreign aid procurement, while future devolution could bring law enforcement procurement. While it’s right to say that government should always seek value for taxpayers money, there’s no reason why the Welsh Government shouldn’t ensure that Welsh companies are best placed to offer that to the Welsh public sector once the social and economic impact of local procurement is taken into account.

Building up pre-existing strong Welsh brands – There’s a familiar story when it comes to medium-sized Welsh businesses; they become locally successful, develop a niche, then the owners sell to an English or foreign company and the business they started becomes nothing more than a subsidiary which, in many cases, eventually closes and moves production elsewhere. Doing more to make sure these high growth Welsh-based industries – which have the potential to be regional or global leaders in their field – remain in Welsh ownership is key to securing both their own future and economic growth. It’ll be a mark of progress when it’s Welsh companies routinely buying out foreign ones, not the other way around.

Developing stronger links between industry and universities (Part VII, Part VIII) – Manufacturing, construction and skilled trades have an image problem, with stereotypes of physical labour, uncertain wages and not being held in the same regard as academic and white collar work. The truth is that manufacturing is on the cusp of a new revolution (Part XIV), often pays extremely well and increasingly requires the vocational equivalent of higher degrees. Closer co-operation between the engineering side (industry) and the theory/research side (universities) might raise the profile and stature of advanced manufacturing.

Threats

 

(Pic: BBC Wales)

Trade barriers and withdrawal of foreign investment (Part X) – A hefty proportion of goods manufactured in Wales are exported; every wing made and Airbus, a sizable proportion of Welsh steel and nearly every engine made by Ford and Toyota. While in the short-term it’s unlikely that any tariffs that may be introduced once the UK leaves the EU will have an impact, it will certainly make companies think carefully about where they invest in the future when it comes to new product lines.

Outsourcing – Outsourcing is where one internal function of a company is contracted out to a third party, which may not even be in the same country. This is mainly associated with the call centre industry, but it happens in manufacturing too. Wales has benefited from outsourcing in the past (i.e. branch factories) but in a globalised economy there are now far more competitors which mean jobs move from Wales to somewhere else in order to manufacture the same products; Burberry and Bosch are the most high profile examples.

Automation (Part XIV) – This could be seen as both an opportunity and a threat. The opportunities are increased productivity and higher-skilled work in the manufacturing sector. The risks are a rapid decline in the number of manufacturing jobs (as factory floor roles are replaced by machines) and a workforce left with outdated skills and qualifications. The ways to turn this from a threat to an opportunity are education, innovation and seeing products through their entire cycle from design to manufacturing, marketing and sales entirely within Wales (as mentioned earlier).

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