Frank Holmes, Chairman of the Cardiff Capital Region City Deal and founding partner of Gambit Corporate Finance, spoke to Mark Powney from Business News Wales.
Tell us about your background and your roles and responsibilities at Cardiff Capital Region City Deal.
I came to Wales a long time ago to study oceanography at Swansea University, then took a job in accounting at Deloitte and stayed with them for a few years. I bought my first store, a Cardiff manufacturing company called Curran, which designed test benches for jet engines, as well as radar and defense equipment.
While I was there, I decided to try something different and started working at Gambit, a company specializing in M&A. This has led me to a number of opportunities, including non-executive directors, international transactions, a governorship at Cardiff Met, participation in schools in the government and private sectors, and assuming a role at Bobath, now Cerebral Palsy Cymru, and sponsoring the Arts.
I was given the opportunity to chair the Economic Growth Partnership and Investment Panel in the Cardiff region. This was a fantastic challenge with some huge rewards and some very long term opportunities.
Can you share your views on how traumatic Covid-19 will be for businesses within the CCR?
One of the biggest problems for companies and the CCR is uncertainty. At Gambit, we conducted a survey of over 60 companies of all sizes in various industries, from financial services to technology. The overwhelming feeling over the next 12 to 18 months was negative. Over 70% of the companies had employees, and a high level of layoffs was expected, especially in the hospitality industry.
The other result was that this takeover of digital technology during the lockout has shown many companies, especially office-based companies, that they may be overstaffed and that productivity gains could be achieved by reducing the number of employees.
One aspect that is not surprising is a decline in investment in innovation, technology and R&D, which is not intuitive, as the element of innovation and investment usually helps to improve productivity and get the economy back on its feet .
The consensus was that we would be in a U-shaped economy that would likely come out in 2022.
What should CCR focus on, how can you best support recovery?
In its industrial and economic plan over a year ago, CCR decided to focus on strengths that focus on companies that can help each other and create an ecosystem and cluster. The evidence points to clusters in semiconductors, we have a strong fintech presence, especially in Insurtech, and there are a variety of medical diagnostics and equipment companies across the region.
Despite Covid, they are still clusters that are here for the future. So I see no need to change this focus. We need to make some changes to our connectivity plan, transportation, and digital infrastructure. One thing that has turned out to be very strong is that our digital infrastructure can not only reach the entire region, but also include 5G and all the new technologies that come onto the market. The other things we need to address are our ability to leverage funds and attract foreign direct investment to these clusters to really grow them and become world-renowned centers of excellence.
CCR attracts many smaller business proposals. What would the ideal investment opportunity look like?
Our investment framework is based on economies of scale. We want significant interventions, especially with the cluster focus and the investable infrastructure. We have decided to focus our investments on innovation, infrastructure and housing, as it is not just about the industrial economy, but about a high quality life in our region.
As for the SME proposals that we have seen, many of them individually are too small for the way the CCR is set up. The solution is to create a cluster growth fund to support businesses that are related to businesses that are part of the ecosystem and to help them grow their business based on innovation.
The other thing we're looking at are challenge funds for companies that can offer solutions to some of the upcoming industrial challenges: clean growth, the future of mobility, AI, cyber, and an aging population. With these resources, companies can meet these challenges, but also improve inclusion while improving equality in the basic economy and in the third sector.
What would you have hoped that we would have learned from this experience?
We are still learning and are still trying to see around the corner as a possible second infection is unpredictable. However, the choice of sectors remains appropriate. We look at our investments in terms of return. We want the means for the benefit of future generations to become evergreen.
Manufacturing is becoming more local, but we also have to export. Our nation and region are too small to rely on localization. With the upcoming Brexit in particular, this is a focus that we must take into account.
That's why we launched a Manufacturing Wales initiative to build pride and a network of leading manufacturers in all sectors that share their goals. We have a kitemark that is a symbol of quality for customers around the world to know that these items are made in Wales and meet the highest standards.
How good is CCR in terms of collaboration? What does real collaboration look like?
What would look good in the next 12 months is better political cohesion. We have three levels of government that affect Wales: the UK, Welsh and local government; and economic cohesion will be very important.
The universities, business and the public sector, which really form real partnerships, are crucial. Regionally, CCR does not look in isolation, but is connected to other regions, stepping outside of Wales and considering the opportunities within the Western Gateway.
We have a huge public sector in Wales and it has to be a really good choice for highly qualified people while recognizing the importance of private sector integration. The private sector has the ability to carry out projects, and the Welsh government may be more in favor of transferring delivery to the best placed private companies and institutions for the particular job.
The CCR 10 priorities for dealing with Covid-19 focus heavily on new financing measures such as the SME Co-Investment Fund and the introduction of new investment mechanisms. Can you expand it?
We will set up two funds. I discussed earlier about replacing the SME co-investment fund with the cluster growth fund for supply chain companies that are pursuing innovation-driven growth. A professionally managed fund that deals with the creation of investments through to the investment itself and the management of this portfolio.
There is also a fund, which is a location and local fund, to regenerate locations and locations that could bring economic benefits. These are convertible bonds that can be converted into equity or mezzanine structures. But we want to make these investments on a large scale. We are considering significant investments as well as a variety of instruments.
Fast forward 12 months, what would you hope for from the CCR team in collaboration with the EGP and what effects would you hope for?
Over the next 12 months, we would have pledged over £ 200m of the £ 495m included in the City Deal. We are currently committed to £ 88m and £ 120m at an advanced stage. So there is a good chance that we will reach this milestone. I expect we will try to forecast 10,000 out of 25,000 jobs and get at least £ 750m in additional funds from the £ 4bn target we have set.
I hope we have been able to simplify our investment processes and build closer ties with the Welsh government in terms of policy direction and shared investment. Clarity about the distribution of the Shared Prosperity Fund and possibly the creation of a CCR development agency with sufficient resources to adopt the city deal and to deal with the future development of the region beyond the city deal goal.
Stronger cohesion with other regions in Wales and seated at the Western Gateway table to take greater chances and avoid duplicating or watering down our own region's economic strengths or plans.
That would be an amazing list of successes and we will do our very best to bring them to fruition.