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The West Midlands is gearing up for a new industrial revolution as the labour market picks up and the HS2 rail project gathers steam. Jacopo Dettoni reports.

 

Its reputation as an unremarkable urban area has haunted Birmingham for years. The UK’s second largest city, Birmingham and the wider West Midlands region have come a long way from an industrial past built on heavy manufacturing which stretches all the way back to the Industrial Revolution, to breathe new life into the local economy.

Unemployment, deprivation and a sluggish economy have been the hallmarks of this transition, but today things are falling into place as the region leverages its industrial know-how to become a centre of advanced manufacturing with global export links.

The evolving needs of next-generation production lines are also driving the development of a whole new offer in high-value-added services for manufacturing, also known as manu-services. Business activity has picked up, although this has not been fully reflected in the job market, where levels of employment remain low. The green light for phase one of the High Speed 2 (HS2) rail project, which was given royal assent on February 23, represents the missing piece expected to definitively unleash the region’s potential in both manufacturing and services by making London accessible in as little time as 49 minutes from Birmingham city centre.

Export-driven growth

Advanced manufacturing and global supply chains have boosted the international profile of the West Midlands region in recent years. The total value of exports from the West Midlands grew by 55.9% between 2010 and 2015, far exceeding that of any other region in the UK, according to figures from Her Majesty’s Revenue & Customs (HMRC). In the same period, exports from the East Midlands increased by 16.6%. Today, the East Midlands and West Midlands regions combined represent the UK’s largest exporter, ahead of the south-east and London, with a total of $31.5bn in exports recorded in the first three quarters of 2016. This is 15% of the UK’s total exports in the period, according to HMRC figures, most of which is in transport machinery and equipment and other manufactured goods. 

Although EU countries remain its main trading partners, the region also boasts a trade surplus with non-European countries, a testament to the high value add of its products. The West Midlands’ trade surplus with China, largely rooted in the export of Jaguar Land Rover (JLR) vehicles and JCB agricultural machinery, reached £2.8bn ($3.51bn) in 2015 and remains an exception in a country that otherwise accumulated a deficit of more than £30bn with China in the same year, according to HMRC and Eurostat figures. 

The robust performance of the region’s export-oriented manufacturing sector, as well as a renewed economic activity in the services sector and new businesses springing up faster than in London or Manchester, means the area’s economy is expected to grow at 5% in 2017 and 4.9% in 2018, up from 3.8% in 2016 and double the 2.5% projected for the UK economy in both 2017 and 2018, according to estimates from the West Midlands Economic Forum.

Mixed employment picture 

However, the region’s recent economic fortunes have yet to filter through to the job market. Employment rates in the Greater Birmingham area, as defined but the West Midlands Combined Authority, have improved the least of any city region in the UK since 2011, according to a 2016 report by London-based think-tank Resolution Foundation. The area showed an employment rate of 64.5% as of June 2016, way below a UK city regions average of 71.6%. The council of Solihull is a notable exception to the area’s poor employment performance trend, having increased overall employment by 16% between 2010 and 2015, more than double the rate recorded in England and the West Midlands, largely on the back of investment from JLR in local production.

Nevertheless, Birmingham’s vast pool of talent is beginning to stir the interest of recruiters.

“We selected Birmingham because we believe there is a latent demand for people who are in the region to stay in the region,” says Andrew Hicks, chief financial officer of Advanced, a UK IT services provider that opened a new customer support base in Birmingham in 2015. “We looked at a range of alternatives and we felt that Birmingham was a good place to house ourselves with its university network and its developing start-up community.”

With a pool of 100,000 graduates to draw from, Birmingham is increasingly on the radar of service providers. Financial powerhouses such as Deutsche Bank and HSBC are in the process of shifting whole functions and teams from London to the West Midlands, chasing cost savings without compromising on workforce quality.

FDI impact

As the labour market improves, foreign investment continues to play a key role in reviving the West Midlands economy. The investment by Mumbai-based Tata in the development of its local JLR facilities hit the headlines recently, and dozens of other foreign investors have flocked to the region in recent years.

Not even the Brexit vote has dented confidence in the region. If the UK as a whole saw announced greenfield FDI fall by annual 39.5% in 2016 as uncertainty over the country’s future foreign trade policies put investment decisions on hold, greenfield FDI into the Midlands grew by 20% to reach $7.96bn in 2016, according to figures from greenfield investment monitor fDi Markets. Foreign developers of industrial areas contributed strongly to this performance, with the likes of US-based ProLogis and Australia’s Goodman expanding their industrial and logistics spaces in the region to cater for the growing needs of the manufacturing sector.

Foreign investment was augmented by solid public investment in the development of local infrastructure. Some £750m has been invested in the upgrade of Birmingham’s New Street railway station. Another £40m went into the extension of the runaway at the Birmingham International Airport to accommodate long-haul flights. City authorities also upgraded the urban light-rail transport system, and set up a Local Enterprise Partnership to support private investment in regeneration projects by carrying out preparation works and making the overall financial equation for the private sector viable.

HS2 hopes

For the arrival of HS2, local authorities have already set aside £907m for the redevelopment of the Curzon Street railway station and the regeneration of the surrounding area. The project is expected to create 36,000 jobs, build 4000 new homes and develop 600,000 square metres of commercial space.

“HS2 would probably add 2% to the growth of the whole region [East and West Midlands combined],” says professor Paul Forrest, head of research at the West Midlands Economic Forum. “The big problem with the Midlands is that it doesn’t connect to Europe. If we can get high-speed access to France, Germany and the Netherlands, our main markets in Europe, that would be a big boost to our export performance, even in a Brexit scenario.”

HS2 is now expected to accelerate the development of the city and the whole West Midlands region, bringing its talent and companies significantly closer to London and mainland Europe, while increasing the city’s overall business proposition. The £56bn project will not come online until 2026, but its development phase will be a major catalyst for development and investment for the region, managed out of an office in Birmingham city centre.

“HS2 is not about 2026, it’s about today,” says Neil Rami, chief executive of Marketing Birmingham. The next stage of the journey for Birmingham and the West Midlands is just beginning.

This article is sourced from fDi Magazine
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