Why a Welsh Stock Exchange could be just what Welsh businesses need

Written by Jenny Randerson AM and published in WalesHome.org on Fri 16th Oct 2009

As the Welsh Liberal Democrats head to Wrexham for our Autumn Conference, we will rightly be focusing on how we can re-balance our economy on a more sustainable footing both in terms of the environment, and in terms of jobs which will be safe and secure.

Just this week we have seen the dark reality of the Welsh economy, with the rate at which people are losing their jobs accelerating wildly, while the rest of the UK saw a fall in the rate of unemployment. Wales now has an unemployment rate of a staggering 9.1%.

Almost every business that I have talked to in recent months have told me that they are concerned about the course that the recession could take before recovery.

Likewise, GVA, the measure of how rich an area is, puts Wales at just 75% of the UK average.

It became very clear right at the start of this recession, that the meltdown in global banking would have a serious and often permanent effect on Welsh companies.

Banking will never be the same again, but the effect is likely to be less heavily felt in bankers pay packets, and more heavily felt by small businesses and their employees.

Since becoming the Welsh Lib Dem Shadow Economy Minister, I have been impressed by the many innovative and entrepreneurial businesses that are trying hard to succeed in the face of a crippling recession and an inactive Government.

The biggest problem that Welsh businesses are facing is a lack of credit and this is likely to continue beyond the recession.

It is likely that for many years, businesses will not enjoy the same availability of credit as they did prior to this recession, and with support from Government limited due to the funding problems it will face, it is essential to be creative in how money can be raised.

The Liberal Democrat Shadow Business Secretary, John Thurso has for some time been investigating the potential for a system of localised stock markets across the United Kingdom. This is something that Wales needs to look at as a matter of urgency.

Until the 1970s, there were a number of successful "local" stock exchanges across the UK, but as the fashions of business gravitated towards big companies and away from smaller firms, these fell by the wayside.

Everyone knows and understands the London Stock Exchange, but this is only really open to a tiny minority of businesses. Underneath that, there are limited options for smaller firms. The Alternative Investment Market (AIM) for example, still requires considerable expense for listing and has been characterised by businesses which made the leap to public listing too soon and have struggled to raise further capital due to the limited number of shares available.

Most big-time investors will follow the bright lights to the FTSE rather than dabbling in the smaller businesses in AIM. This is despite the fact that smaller businesses are often more stable for investors.

I believe that a Welsh Stock Exchange has the potential to be far more successful, as it is more likely to tap in to thousands of people who have never played the markets but would love to invest relatively modest amounts in businesses that are close to their homes and communities.

Wales only has one FTSE 100 business but 99% of Welsh businesses are SMEs, many of whom would relish the opportunity to seek out private capital in this way. Most small firms cannot afford the costs associated with listing themselves on even the junior partners to the London Stock Exchange.

A Welsh Stock Exchange could re-create a link between local capital and local businesses, provide huge potential for small and medium sized Welsh firms to raise capital and act as stepping stones to bigger markets.

There are obviously lots of issues that need careful consideration: what the set-up expense would be, what role the Welsh and UK Governments would need to play in facilitating the development, and how any organisation would fit into current UK and international markets, but if this week has proved anything, it is that we need bold and radical ideas to transform our economy.

There will be some in politics who will dismiss this idea without even considering it, but they are the people who continue to hold the Welsh economy in the crippled mess it is in now.

In the coming months, I will be arguing that the Welsh Government needs to look at this proposal, in consultation with Welsh business, and examine its viability.

There are considerable hurdles to overcome, not least the fact that any scheme would need the approval of the FSA, but business and government may find that such an idea has the potential to transform the Welsh economy, and play a part in creating the conditions that Welsh businesses have been crying out for.