(Title Image: Bevan Foundation)

The service sector may be the biggest part of the economy, but it’s arguably lost its place as “the most important” to this upstart.

Introduction to the Quaternary Sector

The Quaternary Sector is all about information, knowledge and intellectual property – creating new things and coming up with new ways of doing things. It’s arguable whether it’s a stand-alone economic sector at all because all parts of the economy are now reliant in some way on new technology, data and information.

However, that also means that the knowledge economy underpins everything else and is now arguably as important – in face of the many challenges humanity faces, both natural and man-made – to the survival of the modern capitalist system. Knowledge really is power.

The standard definition of “knowledge economy” will include technical consultancy services, research and development (including science), biotechnology and anything relating to digital and IT. You could also expand this to include areas which require an element of creativity such as the media, television & film, music and advertising.

A developed Quaternary sector is the sign of a highly-advanced society and economy as it requires a highly-educated workforce. Wales is lagging behind, but perhaps not by as much as you would think and we might be on the cusp of something big in some areas.

Sectoral Analysis

 

(Pic: Business Wales)

 

Telecoms, Digital & IT – BT is primarily responsible for maintaining telecoms infrastructure in Wales (as well as providing commercial landline, mobile and TV services). A study in 2016 found BT (and EE – who have a call centre in Merthyr Tydfil) directly employed just under 3,900 people and contributes £774million to the Welsh economy every year.

Newport’s Mittel Networks are the largest indigenous telecoms company in Wales (founded by Terry Matthews) and provide business telecoms services, turning over £111million in 2017. There are a number of smaller and medium-sized telecoms companies, whether contractors or smaller internet service providers (ISP). Canadian IT outsourcing company, CGI, has been designated an “anchor company” by the Welsh Government and have three offices in Bridgend and one in St Asaph.

Chepstow-registered Spectrum Internet is probably the largest independent Welsh ISP and one of the few to have its own network and infrastructure – meaning they don’t rely on BT. They specialise in superfast fibre broadband and take part in a voucher programme to provide 1GB-per-second broadband speeds for business, as well as offering home broadband and phone services.

The IT and digital sector in Wales is still small, but rapidly growing and coming into its own, with digital tech companies often featuring in the Western Mail’s annual Fast Growth 50 list. There are suggestions the Welsh tech sector is the fastest-growing in the UK outside of London. Some of the more interesting examples include:

  • IQE & SPTS (Cardiff & Newport) – Manufactures silicon wafer for semiconductors; both companies are heading up a semiconductor cluster at Newport along with another major Welsh semiconductor company. Combined they have an annual turnover of £300million+. It’s hoped the cluster will create 2,000 highly-skilled jobs and put Wales at the forefront of emerging 5G technology (aka. “The internet of things”).
  • Amplyfi (Cardiff) – Identifies trends for business analysis and intelligence using “military grade” artificial intelligence.
  • Raspberry Pi (Pencoed) – A charitable foundation which manufactures the famous “microcomputer” that’s been used globally to teach children coding and other essential IT skills. As of March 2018, 19 million units have been sold making it the “best selling British computer of all time” – a far cry from the ill-fated Dragon 32/64 computer, which was manufactured near Port Talbot in the 1980s.
  • Veeqo (Swansea) – Provides shipping software for online retailers; has rapidly expanded in recent years following Welsh Government and private finance with an aim of reaching a valuation of £100million by 2020.

In 2016, an estimated 34,500 people in Wales were employed in information and communication.

 

Cellnovo have developed the world’s first mobile diabetes management system (Pic: via Wales Online)

Science & Biotechnology – The Welsh Government estimates there are around 11,000 people in Wales working in the life sciences sector and life sciences have been shortlisted as a priority economic sector (Part III). The sector includes businesses involved in medical technologies, regenerative medicine, pharmaceutical services and neuroscience.

While Wales is host to a number of branch offices of large foreign-headquartered science companies like Ortho-clinical Diagnostics (Pencoed), Biomet (Bridgend), Ipsen (Wrexham), GE Healthcare (Cardiff), Renishaw (Llantrisant), Norgine (Pengam) and Convatec (Deeside), there are a number of medium-sized Welsh biotech companies. These include BBI Group – which recently opened a new headquarters in Crumlin – Williams Medical Supplies (Rhymney), Gyrus Medical (Cardiff) and Frontier Medical Group (Blackwood) all of which mainly specialise in medical, dental and diagnostic equipment.

A number of Welsh-based companies are leading innovations in new areas of bioscience.

  • Cellnovo (Pencoed & Swansea) – Manufactures diagnostic and treatment management equipment for diabetes, which is one of the fastest growing diseases in the western world.
  • Trakcel (Cardiff) – Provides supply chain technology for the biotech industry.
  • Pulmonir (Swansea) – Medical devices to help detect and treat chronic lung diseases.
  • Reneuron (Pencoed) – Working on stem cell therapies to treat strokes and some forms of blindness.
  • Jellagen (Pembroke Dock & Cardiff) – Manufactures biomaterials for laboratory equipment and medical devices using collagen from jellyfish.
  • Elidir Health (Bangor) – A tech company specialising in apps to improve communication and information sharing in healthcare environments.
  • Neem (Abertillery) – A clinical trials specialist working on antibiotic resistance, respiratory infections in cystic fibrosis, liver health and infection control in wounds.
  • Proton Partners International (Cardiff) – Built the UK’s first proton beam therapy centre for cancer treatment following Welsh Government and private sector joint investment.

Advanced Manufacturing (Part V) – This has a fairly open definition, but can probably be boiled down to manufacturing things in ways that have either never been done before, improves the efficiency of a process and/or lessens the environmental impacts.

The Welsh Government is backing the construction of an Advanced Manufacturing Research Institute (AMRI) at Broughton in Flintshire, which will focus on aerospace, the nuclear industry, the food industry and automotive industry. They estimate it could boost the Welsh economy by £4billion over 20 years.

Here are just some examples of the pioneering work being undertaken in Wales:

  • Next generation aerospace – General Electric at Nantgarw are currently working on what they describe as the “world’s largest and most fuel efficient” jet engine (GE9X) following a £20million investment. Llanbedr in Gwynedd has long been on a shortlist for a spaceport, which would inevitably attract investment from the satellite industry – however, such investment is unlikely to come from the UK Government as they prefer Shetland.
  • Robotics – Aberystwyth University is home to what they describe as one of “the largest and most well-known” robotics groups in the UK. They’re currently involved in a European Space Agency project to put a rover on Mars. Reeco Automation, based in Caersws, manufactures a number of industrial robots, while experts have said Wales has enough engineering and industrial experience to become a world leader in robotics (Part XIV).
  • Nanotechnology – The development of tiny pieces of technology hasn’t quite taken off as first hoped, but Swansea University hosts a nanotechnology research centre, mainly focused on possible health applications. They’ve worked alongside a number of established companies – including STPS (mentioned earlier) – to create healthcare applications including biosensors, stem cell therapies and sterile wound healing equipment.
  • Autonomous & zero carbon vehicles (see also: The End of the Engine) – I’ve previously mentioned Powys-based hydrogen car manufacturer, Riversimple (Part V). Cardiff University has a centre of excellence for electric vehicle research and has undertaken a number of projects relating to smart transport grids. The University of South Wales also has a centre which focuses on vehicle battery technology and hydrogen vehicle research; its previous incarnation (University of Glamorgan) developed one of the first hydrogen-powered buses.
  • Advanced materials & building methods – Swansea University’s Institute of Structural Materials has undertaken a number of research projects into creating lightweight alloys for use in the aerospace industry. The Solcer House, designed by Cardiff University’s School of Architecture and built at Stormy Down near Bridgend, generates more energy than it consumes and was the world’s first low-cost energy positive house.

    (Pic: Steam)

Creative Industries – The fastest growing segment of the economy, the creative industries are estimated to directly employ 53,000 people with a further 31,000 working in a creative role outside the sector itself. This includes design, the media, publishing, broadcasting, games industry and the arts.

The major player both in terms of employment and investment is the state-run BBC. Wales is a designated drama hub for the UK-wide network and BBC Wales employs around 1,200 people. Elsewhere, Welsh language broadcaster, S4C – which will soon be based in Carmarthen – is a commissioning body that only directly employs around 90 people. ITV Wales’ presence has also shrunk to a token crew working out of Cardiff Bay.

The real strength in the Welsh broadcasting sector is the independent production scene. The largest is Llanelli-based Tinopolis (Turnover 2017: £203million), which makes a number of popular UK network shows – some made in Wales, some not. Other prominent production companies include Rondo Media (Caernarfon & Cardiff), Boomerang (Cardiff) and Avanti Media (Cardiff) – plus a plethora of smaller and emerging companies.

The largest Welsh games producer is Bridgend-based Astra Games (Turnover 2017: £38million), which makes arcade and online games mainly aimed at the online betting industry. Just down the road at Pencoed, Wales Interactive is starting to make a name for themselves in the console and mobile gaming industry, particularly in the innovative interactive drama genre. Games Wales – an umbrella body representing the Welsh games industry – now has over 50 members, the majority of which focus on mobile gaming.

There are so many prominent and growing companies in the field of advertising, web development, performing arts and design there are far too many to list. Some notable ones include Powell Dobson (urban design/planning), Holder Mathias (architecture & urban design), S3 Advertising, Golly Slater (advertising), Cardigan-based denim manufacturer Hiut, Carmarthen-based fashion retailer Howies, No Fit State Circus and Melin Tregwynt (furnishings design & manufacture).

A subsidiary of Reach (Trinity Mirror), Media Wales – of the Western Mail, Wales Online and numerous local titles – is probably the largest publisher in the country. Somewhat surprisingly, nearly all of the other major publishing houses in Wales are located outside of Cardiff, including Y Lolfa (Tal-y-Bont, Ceredigion), Seren Books (Bridgend), Gomer Press (Llandysul), Parthian (Cardigan) and Gwasg Carreg Gwalch (Llanrwst).

All-Wales Context

The information, communication, science and creative sector makes up a far smaller proportion of the Welsh economy (9.8%) when compared to England (19.6%), Scotland (14%) and Northern Ireland (10.1%). There’s definitely a correlation between having a high proportion of GVA generated from the knowledge economy and a higher overall GVA.

The first thing to note is that the creative sector doesn’t really generate that much in terms of added value in Wales, contributing just £687million – this is despite the efforts that have gone into making Wales a hub for television production as well as the knock-on impact of S4C etc.

At just 2.8% of the economy (£1.67billion) the information and communication sector in Wales is the smallest of all the nations and regions of the UK, while the professional and scientific sector – which makes up around 7% of the economy is the joint smallest with Northern Ireland.

It should come as absolutely no surprise that Cardiff & Vale of Glamorgan has the highest proportion of its economy dedicated to information, communications, science and creative industries at 14.9% – much bigger than anywhere else. Generally speaking, the more “urban” the local authority the higher the economic contribution of the knowledge economy.

Drilling down into the figures further produces one or two surprises. Swansea has the highest proportion of its economy dedicated to information and communication alone (4.5%). While after Cardiff & Vale of Glamorgan (10.8%), Newport & Monmouthshire has the largest proportion of its economy generated from professional, scientific and administrative services (7.4%).

194,600 people were estimated to work in information, communication, science and professional activities in 2016. There are three demonstrable “hubs” for employment in the knowledge economy within Wales.

Cardiff is home to just under 27% of the knowledge economy jobs in Wales (52,200). This is more than the next three closest local authorities combined; Swansea (19,200), Newport (11,200) and Flintshire (11,000). So almost half (~48%) of all knowledge economy jobs in Wales are located in Cardiff-Newport, Swansea and Flintshire with the rest spread around Wales.

Again, there’s a general correlation between urbanisation, the number of these knowledge sector jobs and GVA. In shorthand, the more people and more quaternary sector jobs there are, the higher the GVA, the less there are, the lower the GVA – with Anglesey and the Heads of the Valleys standing out in the case of the latter.

You also would’ve expected more knowledge economy jobs in Ceredigion because of Aberystwyth University, though knowledge economy jobs are likely to make up a high proportion of all available jobs there due to the smaller population.

SWOT Analysis: Welsh Quaternary Sector

Strengths

 

(Pic: Swansea University)

Small nation; easier to experiment – There’s a reason Wales has often been a testbed for relatively new policies in a UK context, but the same should be said for innovation in the economy too – except it perhaps hasn’t been taken advantage of yet. If you’re going to push the boundaries of policies or new technologies it’s often much easier to roll it out in a smaller country than a larger market.

High numbers of university spin-outs with good survival rates – A HEFCW report from 2016 (pdf) claimed that 14.9% of UK graduate and university spin-out companies still operating after 3 years were in Wales and 12.9% of all UK university spin-outs were in Wales. This is up to three times more than our UK population share. IQE started as a spin-out and a number of the fastest-growing companies in Wales – like Hut Six Security (cyber security) and Kar-Go (autonomous vehicles) – are graduate companies.

A relatively well-educated workforce (Part XIII) – At the end of 2017, 37.4% of the Welsh working age population were qualified to at least first year university level or equivalent (Level 4), while only 8.7% had no qualifications. While the former figure is below the UK average (40.9%), it places Wales ahead of 7 nations and regions and ahead of the East of England, which is home to Cambridge University. Globally, Wales could be in or around top 20 nations for adults who hold a tertiary level education or equivalent.

Weaknesses

 

(Pic: Wales Online)

Slow uptake of high-speed broadband; poor rural telecoms – Access to broadband isn’t a problem for 96% of the Welsh population following Superfast Cymru – according to Ofcom in 2017 (pdf) – but there’s still relatively low uptake of high-speed broadband services, which tend to be more expensive than standard broadband. The Ofcom report also says average rural download speeds were still half those of urban areas.

Lack of Research Council funding – According to the Reid Review from June 2018 (pdf), despite having around 5% of the UK’s population and some world-leading research, Wales only has 1% of the seats on UK research councils, compared to 11% for Scotland. Wales also receives just 3.5% of UK research funding. It was recommended that the Welsh Government provide an additional £88million a year towards innovation and quality-related (QR) research.

Graduates tend to choose the public (Part VIII) over the private sector – According to the ONS (pdf), 40% of workers in the public sector had a degree-level qualification compared to 21% in the private sector. This is likely to be even more pronounced in Wales where public sector workers make up around a quarter of the workforce. The only part of the private sector where graduates are in demand is finance and banking – where Wales has a weakness (Part VI). The obvious reason why would be that teachers, nurses etc. require a degree, but the public sector generally pays more and there’s relatively more job security with higher levels of trade union membership.

Opportunities

 

(Pic: Cardiff University)

Innovation in public servicesA 2013 report from Nesta, which went largely unnoticed, said there were two key strengths to foster an environment of innovation in Wales. Firstly, the closely-knit nature of public services in Wales and secondly the high quality of social science research. One of the biggest barriers is a so-called “silo mentality”, where things are often done on a need to know basis and ideas from the outside are considered threats. Collaboration between public and private sectors on research – and the development of new ways to do things – could not only result in higher productivity and improved public services as well as attracting cutting-edge companies with a social benefit mindset to Wales.

Full control over research funding and intellectual property – Scottish and Northern Irish universities already do significantly better than Wales in terms of producing patent-protected innovations and products, contract research and facilities/equipment income. Lack of R&D in Wales is one of the hidden factors behind our low productivity levels compared to the rest of the UK and independence would provide us with an opportunity to create a new system for funding and protecting research from scratch which plays to our own strengths.

Control over broadcasting – The opportunities resulting from full control over broadcasting aren’t necessarily restricted to film, radio and TV production, but digital innovations as well. It’s safe to assume that if Wales had control over broadcasting and media regulation some extra money would be spent on making programmes in and for Wales. However, the chance to do things differently could present opportunities to open up some aspects of broadcasting to smaller players (i.e. having a system similar to the Dutch where there’s no single national broadcaster, but lots of specialist broadcasting associations who make programmes, spreading jobs and increasing broadcasting plurality).

Threats

Being left behind by 5G – Just as Wales catches up on 4G and superfast broadband, 5G will create superfast wireless broadband which could theoretically connect every single device and make smart buildings viable(aka. “Internet of Things). It’s a completely brand new technology which will require another round of infrastructure investment. While this is obviously an economic opportunity – and would likely solve the issue of “not-spots” – at the pace of previous changes, it’s likely Wales will be a good decade or two behind unless the planning for 5G starts now (which would be ironic if the Newport semiconductor cluster builds 5G technology for the rest of the world).

A continued “Brain Drain” – In August 2017, London South Bank University’s Prof. Deian Hopkin revealed Wales is a net-exporter of graduates (20,500 more graduates left than entered between 2013-2016) and suffers from high levels of graduate underemployment, with 40.6% of graduates working in non-graduate roles – the highest rate of the UK’s nations and regions. Simple economic necessity (more, better-paying jobs) might be why so many highly-qualified young people leave, as well as the pull factor of living in a major city. Independence could provide more graduate-level opportunities closer to home as some key state functions – private and public – have to relocate to Wales from London; for example, a Welsh diplomatic service and banks would likely have to set up small head offices in Wales for administrative reasons.

Boom and bust cycles in tech – People have been saying that we’re on the cusp of a tech “bubble burst” for a number of years but it hasn’t arrived yet. There are signs though that the bubble might deflate instead of bursting; Twitter and Snapchat routinely make losses, while Facebook recently saw the biggest one-day drop in share price in American history. There are lessons from the “dot-com bubble” of the early 00s there, but it’s true to say that while investors often get very excited about backing the “next Google”, tech start-ups are often overfunded and short-lived. Wales shouldn’t put all its eggs in the knowledge economy basket; sometimes the best long-term bets are those reliable, unglamorous businesses that chug along for 30-40 years.

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