In 1976, the Welsh Development Agency (WDA) was set up in a bid to drive inward investment, stimulate business development and utilise unused derelict land in the principality. It’s believed that during its active years, the WDA injected roughly £12bn of inward investment into Wales and created hundreds of jobs.
In fact, while the WDA was active, between 1985 and 2005, unemployment in Wales fell by 9.3%, the second-largest deduction for UK regions.
Why then, given its impressive report card, was the WDA killed and absorbed by the Welsh government under then First Minister Rhodri Morgan in 2006?
Professor Brian Morgan from the University of Wales in Cardiff calls the closure of the WDA “the worst policy decision of the past 20 years”. So, what led to this misstep and what has been the long-term impact of the WDA’s absence on Welsh FDI flows? Is there even a way that the WDA could return?
The Welsh Development Agency's legacy
David Parker is an international investment promotion expert who worked for the WDA for ten years. Of its impact, he says: “It was massively successful. There's no question about that. It has a history over decades of bringing in major investment into Wales and at a critical time.”
[The WDA] was massively successful. There's no question about that. It has a history over decades of bringing in major investment into Wales and at a critical time. David Parker, former WDA staff member
Parker explains that the WDA was crucial to diversifying the Welsh economy away from its traditional industries of coal and steel, which were dominant in the mid-1970s when the agency was conceived. As the above chart shows, the WDA oversaw a period in Wales in which unemployment figures decreased significantly. As steel and coal jobs became fewer and fewer in Wales, other sectors rose in prominence.
Morgan – who was the WDA chief economist between 1991 and 1998 – highlights that “by 2001, after many successful years attracting investment projects, more than 30% of manufacturing jobs in Wales were being provided by foreign-owned firms”.
Parker adds: “[The WDA] did an incredible job in bringing in new jobs to Wales, many of them in manufacturing – automotives, electronics and aerospace – but not exclusively manufacturing. So, the WDA was a big success. When I joined, I felt that history, I felt that legacy, I felt that I was joining an extremely special organisation with a track record of success.”
Morgan believes his years spent at the agency in the 1990s were particularly formative for the organisation. “The WDA was moving from being focused only on inward investment and it was branching out to more indigenous business development, but it was still all linked to inward investment,” he explains.
Morgan adds that the objective at that time was for the WDA to develop initiatives such as ‘Source Wales’, which was created to motivate inward investors to use local companies in their supply chains and development programmes.
Morgan says: “These development programmes enabled aspiring companies to become part of the ‘Source Wales’ brand. It was utilising that inward investment drive to improve the ability to use indigenous companies in the production process.”
This twin-track approach saw the quality and productivity of these indigenous companies improve as they were integrated into more supply chains and mergers through inward investment. Morgan says that these "frontier companies" were crucial to the WDA’s success.
So, given these success stories, how did the WDA fall apart? What were the factors behind its downfall?
Overindulgence and the beginning of the end for the WDA
Parker describes the WDA as an organisation that perhaps got too big for its boots. “During my time, I felt it started to become very bloated," he says. "It employed more than 1,000 people, and its remit got broader and broader – way beyond inward investment. I was one in a team of 100.”
Why send one person to Japan for a meeting when you can send three or four in business class? As many successful organisations do, the WDA fell victim to overindulgence. David Parker
Alongside inward investment, the agency was responsible for land reclamation, property development and supply chain development. Parker believes this wide remit caused the WDA to lose focus. “I experienced quite a lot of wastage," he says. "Why send one person to Japan for a meeting when you can send three or four in business class? As many successful organisations do, the WDA fell victim to overindulgence. So, it was massively successful, but perhaps eventually somewhat victim to its own success.”
The agency gained a reputation for overindulgence, which brought with it controversy. The early 1990s saw a prominent scandal for the agency when Gwyn Jones was appointed as chairman by then Welsh Secretary Peter Walker, following a private meeting at a Conservative Party fundraising lunch. Jones resigned before the WDA was cited in a 1992 Commons Public Accounts Committee report, which found the WDA had been party to a number of questionable activities.
These activities included giving out illegally bloated redundancy payments to the sum of £1.4m between 1989 and 1992, and paying almost £250,000 to former executive Mike Price to ensure his silence following an internal conflict in 1991. This was alongside a laundry list of unethical and pricey practices, such as flying directors via Concorde.
Did political vendettas kill the WDA?
Alongside garnering a reputation for being indulgent, the WDA also had governance issues and contentious relationships with prominent Welsh politicians.
Morgan says: “[The dismantling of the WDA] was personal and political. At the time, Rhodri Morgan (then first minister) was unpopular. There were a lot of things going wrong within the [Welsh] government, so it was looking for something to take the heat off.”
At the time of the merger, the WDA had poor leadership and it certainly needed reform, but what it did not need was merging into a risk-averse, process-driven and compliance-focused department of the civil service. Professor Brian Morgan, the University of Wales
Rhodri Morgan’s government took what was perceived to be radical action and announced the closure of the WDA in 2004, with the Welsh government set to take over its function as an investment promotion agency (IPA) in 2006.
Morgan believes this was a mistake, saying: “At the time of the merger, the WDA had poor leadership and it certainly needed reform, but what it did not need was merging into a risk-averse, process-driven and compliance-focused department of the civil service.”
So, why did the Welsh government feel such action was required and why was the WDA singled out? The answer may not be rooted in reason. In 2006, then Welsh Assembly economic development minister Andrew Davies ordered an unprecedented inquiry into WDA activities, a move Morgan believes was personally motivated.
“Andrew Davies has a lot to answer for,” says Morgan, “It was heard on the grapevine that Graham Hawker [former chief executive of the WDA] had told colleagues in a meeting that he had Davies ‘where he wanted him’ and that WDA staff were 'not to worry about complying' to him.”
Allegedly, Davies took great offence to Hawker's rumoured attitude. Alongside this, Rhodri Morgan was perceived to have a long-standing aversion to the WDA.
Morgan explains: “Rhodri Morgan had fought against the WDA as an opposition MP and that continued to be his mindset even as first minister.”
The combination of Rhodri Morgan and Davies’ disapproval of the agency and the fractured relationships with those on its board made for potent disdain. This, alongside the Welsh government’s own perceived public failures, meant that culling the agency was ultimately perceived to be a flex of political muscle in a bid to prove dominance.
Morgan says: “[Rhodri Morgan and Davies] thought: ‘Forget about strategic leadership, let’s give it to the WDA.’ It was pure political chicanery and vengeance with no economic rationale whatsoever. They’ve since tried to give it some rationale, saying we needed to be more accountable. In my opinion, there was no accountability because there were no targets for economic development or inward investment – nobody was held to account whatsoever.”
Did the WDA meet an inevitable end?
When asked if the closure of the WDA was inevitable following the various agency scandals, Parker says: “With hindsight, it was inevitable, but I don't think we saw it coming.”
What had made the announcement of the agency’s dissolvement more surprising to employees such as Parker was that the WDA had undergone extensive restructuring – with the blessing of the Welsh government.
The closure may [of the WDA] ultimately have been quite impulsive. It struck me as a very sudden decision that absolutely nobody in Wales saw coming. David Parker
Parker says: “I think Hawker, the leadership, team, staff (myself included), probably felt reassured that any threat from the Welsh government to close the WDA was minimal given that it had just endorsed the new structure. That leads me to believe that the closure may ultimately have been quite impulsive. It struck me as a very sudden decision that absolutely nobody in Wales saw coming.”
The announcement was followed by a flurry of high-profile resignations from the WDA, including that of Hawker. When describing the transition, Parker paints the Welsh government as an exasperated parent trying to keep its rebellious teenager in the form of the WDA in line and explains that the existing friction between the two remained throughout the transition.
Business as usual?
After the shock of the initial closure of the WDA, and then the various aftershocks of the subsequent high-profile resignations, those left in the agency found their feet again, according to Parker.
He says: “To a large extent, business went on as normal. From the announcement in 2004 to the official closure in 2006, I pretty much did what I always had and in 2006 we expected significant change, and that didn’t really happen.”
This relative calm was reflected in FDI project figures in Wales for the years immediately following the 2004 announcement. In fact, project numbers rose slightly between 2005 and 2007.
When these figures are put into context, however, Wales can be seen to be starting a period where it would trail behind the rest of the UK in FDI league tables. Morgan says: “During this period of institutional upheaval, Wales inevitably lost out in the FDI stakes. Figures for FDI trends show that Wales went from being one of the top performers in UK FDI in the period 1990 to 2004, to becoming almost the worst performer by 2009.”
A contributing factor to this was the time it took to dismantle the WDA and re-establish it within civil service.
Of this, Morgan says: “The first five years of the merger were completely taken up by civil servants trying to merge with this completely different organisation. No wonder investment was on the backburner – it took five years of complete anarchy of the government trying to sort out the minutiae of individuals being put into the new organisation.”
Alongside the closure of the WDA, the loss of its branding is perceived as a huge and lasting blow to Welsh FDI inflows, denting the country’s relevance within the global market.
The merger could have happened without taking the bizarre, and still unexplained, commercial decision to abolish the internationally recognised WDA brand. Professor Brian Morgan
Parker says: “The profile of Wales as an inward investment destination has absolutely dropped significantly [compared with] what it was. The WDA really did put Wales on the global map as a destination for investment. I don't see that anymore.”
In an ironic turn of events, Morgan explains that other European countries, such as Estonia, Latvia and Lithuania, which had been influenced by the success of the WDA, were inspired to set up their own IPAs, similar in design to the WDA. They have now outlasted their inspiration.
The decision to rebrand the WDA to International Business Wales (IBW) under the merger has also been widely condemned, with Morgan saying: “The merger could have happened without taking the bizarre, and still unexplained, commercial decision to abolish the internationally recognised WDA brand.”
This newly branded IBW was, according to Parker, working in a very similar way to the WDA and shared a lot of the same staff members. When another expenses controversy reared its head in 2009, it was essentially the kiss of death for any remnants of the WDA. KPMG was appointed to investigate the misuse of expenses and despite finding no discrepancies, the damage was done and the IBW brand was dismantled having never scaled the heights of its predecessor.
Parker says: “Following the IBW closure, a completely new structure was put in place, which bore no relation whatsoever to the WDA and it was much more civil service-orientated. That period in 2009 was really the final act of the WDA.”
Lose the schmooze
With the WDA and the IBW now just lingering memories, the Welsh government has been left with the task of attracting investment to the principality. However, finding supporters of its strategies is not easy, particularly when compared with the achievements of the WDA.
The qualities you look for in someone that is able to secure a major inward investment deal are not the same qualities that you look for in a civil servant. David Parker
Parker believes the worlds of FDI and civil service are in some ways incompatible. “The qualities you look for in someone that is able to secure a major inward investment deal are not the same qualities that you look for in a civil servant,” he says.
Parker adds that the world of inward investment largely requires an ability to ‘schmooze’, something that could be prohibited, or at the very least frowned upon, within a government setting.
When speaking to MPs in 2011, former chair of the WDA, Sir Roger Jones, seemingly agreed with this sentiment, saying: "You need to be fleet of foot and you do not get fleet of foot in the civil service… The private sector is only interested with outcomes, whereas the public sector is only interested in process."
Indeed, Parker explains that inward investment deals are often done through socialising over lunch or dinner, or at rugby matches, Wimbledon and in Royal Ascot boxes. “[Schmoozing] doesn’t sit comfortably with the civil service and it would be seen as a terrible misuse of taxpayers money," he says. "An Ascot box, for example, would be seen as a cost, not an investment. But if that box cost £10,000, but the investor invests £500,000 that’s actually a massive return on investment.”
Morgan is more sceptical and believes that the Welsh government isn’t as averse to schmoozing as some believe. “The merger ministers couldn't wait to get on international trips," he says. "That was the part of it they really wanted to control. [Welsh ministers] went on international investment trips to China, Eastern Europe and South Africa – they were loving that.”
Pro-schmooze or not, a crucial and unavoidable part of civil service that Parker believes has hampered Wales’ competitiveness on the FDI global stage is the added bureaucracy. He describes a proposed trip to Los Angeles to pitch for investment in the early days of the WDA merger as an example of compliance being an obstacle to investment.
“It took me 16 days to get the trip approved, it had to go up to director general," says Parker. "By the time I got the trip approved, it was too short notice for many of the companies that I wanted to meet with. Instead of ringing them three weeks before I landed, I was ringing them a few days before and so they couldn’t accommodate me at such short notice.”
Alongside such delays, the prices of flights and hotels had gone up by the time the trip was approved, making everything more expensive. Given the civil service's tighter budgets, the trip ultimately didn’t go ahead. The notion of striking while the iron was hot – which can often prove crucial to landing investment deals – was reportedly anathema under the Welsh government.
This new focus on compliance potentially hurt investment with projects plummeting in 2011, just five years after the initial announcement.
Morgan says: “It all became about compliance. It was a completely different attitude to what was needed. The WDA had been very ‘get up and go’ and forceful… whereas in the Welsh civil service you kept your job based on complying… The main customer switched from being potential FDI projects to ministers.”
What now for Wales?
In more recent years there have been good news stories around Welsh FDI. In 2020, Wales was the only UK region to increase inward investment during Covid-19.
However, prior rankings of Wales’ FDI paint a more negative picture. ONS figures show that for total UK FDI capital value between 2015 and 2019, Wales was the second-lowest region (ahead of Northern Ireland) in FDI stocks, at £19bn out of a total of £661bn.
I think Wales will certainly languish at the bottom of league tables. We're very much in the hands of the UK investment agency and we've lost that ability to generate FDI leads ourselves. Professor Brian Morgan
For Morgan, his belief is that the Welsh government has been unbearably slow off the mark. “Fifteen years after the horse bolted, they’re realising they need to put resources into inward investment," he says. "The Welsh government has come out with statements that are absolutely laughable. In 2019, it was saying things like ‘aftercare is the main thing for investment’. We were already doing that in 2005 – all of it stopped between 2005 and 2018. They were completely absent for 15 years and that absolutely hurt Wales.”
It seems denial around the closure of the WDA being a mistake runs deep in the Welsh government. In 2012, a report by the House of Commons Welsh Affair Committee stated that the abolition of the WDA had resulted in "reduced Welsh visibility in the global marketplace". Furthermore, the report recommended the establishment of "a successor trade promotion agency should be a priority for the Welsh government".
Almost nine years on from the initial report, no such agency has been set up and the responsibilities of Welsh inward investment have remained with the civil service.
The WDA, or its untimely death, has once again become a political issue. As recent as February 2021, Conservatives dangled the possibility of a rebirth of the agency and its branding in their manifesto ahead of the Welsh parliamentary election.
When campaigning, Russell George from the Senedd (Welsh Conservative party) said: “[The WDA’s] reintroduction would give Welsh firms a much-needed cutting edge as we seek to take advantage of the opportunities provided by Brexit and would build capacity in a creaking economy in desperate need of a turbo-charge."
Despite being ultimately unsuccessful in the 2021 election, the Welsh Conservatives did gain five seats.
Morgan believes that little will change in the WDA argument under the newly re-elected Labour Party, who are set to hold on to power until 2026, as it was a Labour government that culled the WDA.
Ultimately, Morgan thinks Wales' FDI will continue to fall short of its potential, "I think we'll certainly languish at the bottom of league tables. We're very much in the hands of the UK investment agency and we've lost that ability to generate FDI leads ourselves."
Lessons from the Welsh Development Agency
Parker believes that the WDA and its abolition should serve as a cautionary tale to other countries. "It's quite clear that any city, region or country looking to attract investment [should] have an agency that either operates at arm's length from its governmental body or, if it is part of the government, it should have its own unique working practices, branding and flexibility," he says, adding: "I can't think of many good examples of IPAs working from within governments successfully."
The abolition of the WDA is a contentious topic in Wales, even years after its death. One thing that could quieten the disgruntlement is Wales, and its major cities such as Swansea and Cardiff, continuing a strong FDI-based recovery from Covid-19. However, in spite of a promising 2020, the challenges caused by the virus, along with difficulties stemming from Brexit, would suggest that the sorry saga of the WDA is unlikely to vanish from public view any time soon.
This article forms part of Investment Monitor's extensive UK coverage, which also takes in the country's manufacturing decline, the history of Scotland's quest for independence (and whether or not it can afford it), and the impact of the Good Friday Agreement on Northern Ireland. We have also produced a UK Cities Scorecard and taken an in-depth look at more than 25 locations (including Cardiff and Swansea) in our Future of British Cities series.