News - 26 July 2016

New research points way to boosting business productivity

Findings from an expert study into productivity performance affecting the Derbyshire and Nottinghamshire economy have been revealed by the D2N2 Local Enterprise Partnership.

The initial analysis report into the D2N2 economy’s ‘productivity gap’ – by Richard Kneller, University of Nottingham Professor of Economics and an expert in economic productivity – was done on behalf of the D2N2 LEP. The private sector-led Partnership of business, local authorities, higher and further education providers, and voluntary and social enterprises, promotes economic growth and jobs creation across Derby, Derbyshire, Nottingham and Nottinghamshire.

‘Productivity’ measures how much output is generated by a business’s activities, for each unit of input (which includes staff time, energy use, raw materials, etc). For example, a manufacturing company which discovers how to make more or better products with fewer materials, using less employee time or reduced energy needs could improve its productivity levels.

Professor Kneller’s findings – revealed for the first time to around 160 delegates at today’s (July 26) 2016 D2N2 Annual Conference and AGM, held at West Nottinghamshire College’s Mansfield campus (D2N2 Chief Executive David Ralph is pictured, above, opening the event) – included that:

  • During 1997-2008 the D2N2 economy’s total-factor productivity (or TFP) – which measures increases in an area’s economic output against the resources it puts in, including labour and capital investment, to assess its long-term growth – grew at an average of 1.7% a year. This was higher than the average rate for England’s 39 Local Enterprise Partnerships. Professor Kneller’s research showed one reason for this was that more companies with above average productivity were based in, or chose to start-up in or relocate to, the D2N2 LEP area.
  • Despite this, productivity in the D2N2 LEP area (as with many other LEPs) is below the national average. There are different ways to measure productivity but the D2N2 area’s output per full-time equivalent worker in 2013 (the latest figures available) was worth around £55,437, approximately 85% of the then average for England. 
  • Most sub-sectors of the D2N2 area economy suffer (to a greater or less extent) from a productivity gap compared with national average figures, with the exception of transport equipment manufacturing. The latter is a D2N2 key sector, and benefits hugely from the presence locally of global names such as Rolls-Royce, Toyota UK and Bombardier.

D2N2 and Professor Kneller will use this initial analysis to further investigate possible reasons for the D2N2 area’s productivity gap and potential solutions.

Reasons could include shifts in the national economy; wide variations in the productivity performance of different firms, even those working in the same field (which is particularly marked in the East Midlands); and too few of what the new research calls ‘global frontier firms’ – highly productive, usually larger and engaged in international markets, and heavy investors in innovation – located/locating in the area, which would raise overall average productivity levels.

The research points to a number of ways in which the area’s productivity gap could be addressed and reduced. (Examples of how D2N2 is already working on these issues are also given below):

  • Area wide initiatives to encourage and help companies to invest in innovation and research.
  • Example of current D2N2 work – In May, D2N2 announced the £20.3m ‘Enabling Innovation’ and the £2.7m ‘Catalysing Growth through Research for Transport Equipment Manufacturing’ projects, to enable thousands of SMEs across its area to access technical and other expertise at area universities, over three years. D2N2 is funding half the projects’ costs through the European Regional Development Fund (ERDF) portion of its €251m in European Structural and Investment Funds (ESIF), and the remainder will come from the universities involved.
  • Encouraging more of the ‘global frontier’ class of firms to relocate or set-up within the D2N2 area’s catchment.
  • Example – The LEP manages the Nottingham & Derby Enterprise Zone sites, which offer preferential business rate discounts for firms based within its five sites. 
  • Support labour and capital markets which help the best firms to invest, to adapt, to grow and employ the best workers.
  • Example – D2N2 is working with other LEPs to develop the Midlands Engine Investment Fund, a £250m fund to support SME investment and growth.

The headline findings will be used by D2N2 and its partners as evidence to revise the LEP’s Strategic Economic Plan. The current version of the Plan – the ‘road map for growth’, or D2N2’s blueprint showing the area’s economic needs, and the long-term actions and investment it will take to address those – was published in March 2014. It is due to be updated, to meet ongoing changes.

David Ralph, Chief Executive of the D2N2 Local Enterprise Partnership, said: “We have been aware for some time that productivity in our area, though better than in other English LEP areas, could be improved.

“One of the ways D2N2 can help business is by providing intelligence on an issue which is slowing economic growth, as Professor Richard Kneller has done here, and using that to indicate solutions. We were already working along many of the lines his research suggested, which is encouraging.

“Using this new evidence to help revise our Strategic Economic Plan, which we had already planned to do to reflect changing needs, now the LEP has been in place for five years, means we can set out exactly how the LEP’’s resources and funding can be used to help improve productivity locally.”

For more information on D2N2’s Strategic Economic Plan see the web link HERE

For further information about this media release contact D2N2 Communications Manager Sean Kirby on 0115 9578749 or email: sean.kirby@d2n2lep.org

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