By Jonathan Lowe – Investment Director, MEIF Maven Debt Fund
We are often told that the services sector and knowledge-intensive industries are the future of the UK economy. Some feel London’s reputation in these areas mean that it is the only UK region that can be truly globally competitive.
However, this argument ignores not only the many and diverse sectors which are powering the UK’s economy, but also the strength and promise of the Midlands region that mean it can already be viewed as an “engine” of economic growth .
In many ways, the region is uniquely equipped to roar back to success. The Midlands was Britain’s, and arguably the world’s, first innovation hub. During the nineteenth century, Birmingham registered 300% more patents than any other city globally. The Midlands today is incredibly well connected – sitting at the heart of the country’s transport network. This is reinforced by a recent paper from the Policy Exchange Think Tank stated that the region is the best place in Britain to become a centre for advanced manufacturing, and that many Midlands cities have significant potential to expand further (not least as office rents are often four times cheaper than in London, making the region attractive for many busineses and startups looking to have the space to scale).
The region, of course, has a distinguished history as a centre of manufacturing and engineering, with global firms such as JCB and Rolls-Royce long established in the area. But just as those two companies have modernised and embraced the potential of latest technology, the Midlands too has been reinventing itself. For example, the West Midlands service businesses now employ almost half of the working population, as well as providing over half the area’s Gross Value Add (GVA).
Beyond manufacturing, the Midlands is building momentum as an economic hub, especially when it comes to scale-up businesses in growth sectors. And to accelerate this process further, the UK Government has helped kick-start a renewed focus on investment in Small and Medium-sized Enterprises (SMEs), by implementing its Midlands Engine Strategy to reposition the region, improve productivity, raise skills for business, support enterprise innovation and promote the Midlands internationally.
Indeed, in 2018 the Government rightly highlighted the impressive growth of the Midlands Engine, with the now Chancellor of the Exchequer Sajid Javid noting that the Midlands’ 27,000 regional businesses made up an economy worth over £230 billion (larger than Denmark) and exported £47.5 billion of goods globally.
This has contributed to a pick up in growth in the region, with the Midlands projected to remain the fastest growing outside London and the South East, and GVA growth of 1.7% forecast over the next year. And it is striking just how many vibrant sectors in the Midlands are powering ahead: food processing, medtech, automotive, ceramics, advanced manufacturing, cyber security, video games development, satellites and sophisticated computing are all areas in which the region excels.
One notable corridor of economic activity which is attracting the attention of investors is the Coventry-Warwick area, which has two leading universities along with auto manufacturers Aston Martin, JLR and TATA, and is now developing the ‘Silicon Spa’ – a principal UK hub for computer games development. Similarly, Stoke-on-Trent is looking to build on its long history and expertise in ceramics to develop new markets and product opportunities in applied materials, including polymers.
And growth opportunities are not limited to the Midlands’ towns and cities: the region’s Strategic Economic Plan sets an ambition to build on the strength and resources of the local rural economy with more development in agri-tech, and leveraging the natural assets of areas such as the Peak District National Park and the Cannock Chase Area of Outstanding Natural Beauty.
A key ingredient in generating this economic dynamism has been the growth of SMEs. As the Government noted when promoting its Midlands Engine Stratetgy, the region boasts over 14 % of the UK’s high-growth businesses. A fundamental factor in enabling SMEs to thrive has been better access to finance, where a number of the big commerical banks have played a part by launching dedicated funds to support regional SMEs. The British Business Bank too has played a key role, supplying some £1.2bn of finance to UK businesses, and notably creating the Midlands Engine Investment Fund (MEIF) in collaboration with ten local Enterprise Partnerships (LEPs) across the region. The combination of this institutional funding as well as private equity and venture capital firms has strengthened the local finance ecosystem.
The MEIF made some £250 million of debt and equity funding available, to support small businesses, enterprise and innovation. Since the Fund was launched, it has supported over 40 regional growth businesses, across a diverse variety of sectors, including retail, tech, horticulture, engineering and healthcare. Typically the funds are used for driving expansion, whether that is recruiting a new team, acquiring new plant and machinery or moving to larger commercial premises.
At Maven we have appointed investment specialists specifically for the individual sub-regions of the West, East and South East Midlands, deploying very specific local knowledge of SME and finance community, and enabling small businesses to work closely with and their advisers.
This encouraging picture demonstrates the Midland’s talent, tenacity and capacity to achieve more. It would be good to see even more capital providers, as well as a greater range of business, and corporate finance advisers, to locate, catalyse and help grow scale-up businesses. This will create a virtuous circle of work opportunites attracting and retaining skilled workers to the region, which will in turn create more jobs and attract more investment.
Whilst the world has moved on since the industrial growth and strength of the nineteenth century that made the Midlands pre-eminent as an innovation hub, so has this fantastic region. To plagiarise the Chancellor of the Exchequer, “The Midlands’ dynamic businesses and talented, hard-working people are, without doubt, up there with the best in the world.”