Gibraltar 1 Wales 0

Early last year my wife and I visited Gibraltar; those of you who have not yet visited haven’t missed much – Churchill is Prime Minister and the war is still being fought. What really caught my eye in this strange time-warped land was the announcement of a major economic initiative – the launch of the Gibraltar Stock Exchange.

Why, in a tiny enclave on the Mediterranean of 2.6 square miles and a population of less than 30,000 should this community be taking such a monumental step? The answer is clear – there is a very strong and proven link between economic growth and an active and successful stock exchange. So why not in Wales?

It has been argued ad infinitum that perhaps the greatest weaknesses of the Welsh economy is a sound financial sector providing finance and capital – a fundamental underpinning for a successful, entrepreneurial economy. Wales’ politician’s unimaginative response is an Investment Bank, which will simply not work. Businesses need time to grow, and the need is for a more patient and intelligent source of capital than simple, crude bank lending. A sophisticated means of building a sound, indigenous financial sector is the establishment of a Wales Stock Exchange.

Growing businesses seeking to finance an expensive investment may prefer to borrow over the long term and, at present no such local opportunity is available. Short term lending, much preferred by the banks is often inappropriate; funding through the exchange would provide an opportunity to avoid interest and capital re-payments and thus become more profitable in a shorter period of time.

An exchange would substantially expand legal and financial expertise, the development of a financial sector and an equity market built on understanding the unique needs of Welsh business finance. This in turn would reflect both in business education and the development of a wider, business and financially literate community. In addition, it would encourage internal growth and ownership, provide new sources of long term funds for Welsh firms and individuals and act as a catalyst for a regional financial cluster.

A unique opportunity would be provided for the Welsh population to invest in businesses within their own area, although of course interest in trading in the exchange could come from anywhere. Investment through the exchange would mean that local passive funds in the economy can turn into active financial capital.

There are areas of other, innovative – indeed exciting – financial activity. Investment by ordinary shareholders in the market would encourage different sources of personal wealth creation, especially if – as an incentive to invest – there was a tax ceiling on dividends lower than that on earnings. In addition, stock options for local management would in turn develop knowledge and commitment; individual shareholding employees would build their own pensions. Additionally, and given the number of private limited companies in Wales, the exchange could develop expertise as a base for Tradable Unregistered Equity, a system in which shares are not sold in public offerings but through large investors. This type of trading benefits small, family owned companies – the very backbone of the economy – that need capital but fear external takeover.

In addition, a corporate bond market would form an important part of the exchange’s activities, indeed corporate bonds are becoming an increasingly important source of business finance. The exchange could in time further develop the bonds market allowing the Assembly to raise its own finance and thus providing the opportunity to raise revenue without actually affecting personal incomes. It would be a means by which government (or an appropriate government agency) might invest directly in a business, a system common in Europe.

Many economies are looking to become centres of internationally traded services; the Exchange would provide a base for such a development within the Welsh economy. With appropriate expertise, the Wales Stock Exchange could establish itself as the institution used by smaller business organisations in the UK and indeed Europe, for which a gap in the market is increasingly emerging. The London Stock Exchange (and other exchanges) is increasingly concerned only with large investors and big business. The European Private Equity and Venture Capital Association has identified the need for a European “Small-Cap” exchange to make finance available to smaller firms. Although in the short run this may be too ambitious for a Wales Exchange, it illustrates the wider growing need for small amounts of finance. Imagine – Wales a base for European finance!

Exciting ideas, however is there a wider effect on the economy? Research published by Professor Rob Huggins suggests that, overtime and with an eventual 60 listed businesses, Wales per capita GDP might rise by as much ten percentage points. Imagine!

None of these potentially exciting and successful activities can be provided by an Investment Bank.

When, in an article for the IWA I presented the case for a Wales Stock Exchange, the response was dismissive (at least those who did respond – the Welsh Government remains silent). The problems of establishing an exchange are many, but it is instructive to look at what’s happened in some of Europe’s small nations. All exchanges trade in corporate bonds and in addition Malta trades 13 equites, Tallinn 17, Luxembourg 19, Dublin 73 and Cyprus 94. In Finland, the Helsinki Stock Exchange trades a healthy 136 equities. Here is a small (by population) state very much on the fringes of Europe, hailed as a major economic success in which the commercial and business acumen of its Stock Exchange played no small part.

So…what about commitment? In March 2010 I attended a workshop on the possibility of developing the case for a stock exchange hosted by Cardiff solicitors Darwin Gray and presented by BTA Consulting. Two interesting things happened – firstly, the invited representative of the Dublin Stock Exchange offered the use of that organisation’s expertise and trading platform as a way to establish the new Welsh exchange, thus removing the major barriers to set up. The second? The representatives of the Welsh Government present were at great pains to dismiss the idea and stonily point out that “a stock exchange is not government policy.”  

Since the 2016 Assembly election there (seems) to exist a commonality of purpose amongst the political parties in addressing funding issues. Some form of investment bank is not the answer. A stock exchange is about far more than finance and building wider financial literacy and business skills – it is about sending a message of confidence in ourselves.  

Anybody listening?