This report examines productivity and well-being performance in Wales, Welsh fiscal and public investment frameworks, and the Welsh Government’s regional development and public investment governance practices. It identifies strengths and challenges in these areas and highlights immediate and longer-term actions that could help the Welsh Government meet its dual objective of growth plus inclusiveness.

The Welsh Government and local authorities are aware of the territorial disparities they face and are committed to addressing them. Successfully achieving large-scale territorial objectives, such as minimising disparities or increasing well-being, is linked to the good governance of regional development and public investment policies. It leads to more effective use of public investment funds and creates growth possibilities. To support more effective public investment, the Welsh Government and local authorities could refine their approach and take stronger action in three areas: i)effective policy design and co‑ordination, ii) sound and appropriate fiscal and investment frameworks, and iii) building capacity for policy implementation and learning by and at all levels of government.

The Welsh Government has set an ambitious and innovative path for regional development and public investment. It focuses on generating growth and increasing productivity, as well as on reducing territorial disparities and ensuring the well-being of citizens, now and in the future. At the same time, the Welsh Government and local authorities are working in a context of uncertainty. Uncertainty arising from Brexit, which can affect multi-level governance systems and regional investment financing. Uncertainty arising from the COVID-19 crisis, which will further strain the Welsh economy, service delivery capacity and its fiscal health.

This introduction features the framework of analysis used in this OECD report. It discusses the importance of effective multi-level governance for regional development and public investment, defines the investment cycle and presents a list of capacities necessary for productive public investment, based on the OECDRecommendation on Effective Public Investment across Levels of Government. Wales receives the highest amount of European Union (EU) Structural and Investment Funds, per capita, in the United Kingdom (UK), underscoring the need to ensure public investment is optimised in a post-Brexit era, and also post-COVID-19. The complexity of the Welsh multi-level governance system supporting regional development and public investment is described, as is the on-going devolution process, and the high-level governance issues that could limit the Welsh Government’s ability to effectively realise its growth and well-being objectives.

Chapter 3 begins with a snapshot of Welsh territorial and socio-economic conditions. It then explores the regional divide in productivity and inclusive growth in Wales, highlighting disparities in labour productivity growth and putting this in the context of different productivity growth models. It identifies challenges and opportunities to enhance productivity across the full Welsh territory, with a focus on the role of cities, transport networks, demographics, skills, research and development (R&D) and business dynamics. The chapter also assesses well-being performance, noting that well-being outcomes in Wales are often higher than or equal to OECD standards but lower than United Kingdom (UK) averages. Youth unemployment and income deprivation are examined, as well as how inequalities can exacerbate a population’s vulnerability to environmental and health risks, such as the COVID-19 pandemic. The chapter concludes with the importance of a place-based approach to regional development for addressing territorial inequalities in economic performance and for generating well-being throughout Wales.

This chapter, divided into two parts, explores the challenges surrounding fiscal frameworks and public investment financing in Wales. Part 1 features the constraints that the Welsh Government and Welsh local authorities face in their fiscal frameworks, and how these affect the ability of governments to fulfil their responsibilities, including in public investment for development and growth. Part 2 makes a case for introducing a coherent public investment framework for regional development in Wales, particularly given a need to optimise limited resources. It explores ensuring co‑ordinated public investment in light of Brexit, discusses existing and new investment financing practices, and calls for making the most out of City and Growth Deals. It also offers insight into building capacity for stronger place-based public investment and highlights some innovative sources of public investment financing, including land value capture, green procurement and participatory budgeting.

Chapter 5 features an extensive discussion of the strengths and challenges of Welsh governance structures in their ability to support regional development and public investment. It focuses on the role of strategic frameworks and makes a case for introducing a unique national regional development policy, in order to align priorities and maximise limited resources, and for taking an integrated approach to development planning by regional and local bodies. It examines existing co‑ordination mechanisms for regional development policy and public investment, and identifies potential new ones. It also explores obstacles to policy implementation and options for overcoming these, such as cross-jurisdiction co‑operation, “learning by doing” and outcome-based monitoring and evaluation. The chapter emphasises the importance of building trust-based partnerships among different government actors, as well as with citizens, and closes with a series of recommendations for action.

This case study on Mid and South West Wales offers an economic analysis of the advantages and disadvantages of establishing three versus four economic regions. It considers the economic, administrative and institutional capacities of Welsh local authorities, examining their fiscal autonomy in terms of spending, revenue and the need to generate economies of scale. The case study then compares the potential of a Mid and South West Wales model (one region) versus a Mid Wales and South West Wales model (two regions). In doing so, it focuses on such aspects as population, demographics, labour markets, community patterns, gross value added (GVA), deprivation, connectivity and local government spending. Using a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis, the advantages, disadvantages, risks and opportunities of both possibilities are highlighted. The case study concludes with recommendations for moving forward when establishing economic regions, certainly in Mid and South West Wales, but more generally as well.