The South Ayrshire Economy and its Future Prospects: A Strategic

The South Ayrshire Economy and its Future

Prospects: A Strategic Review

Chris Doyle

Policy, Performance & Communication

South Ayrshire Council

24 August 2011

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CONTENTS

Page

Executive Summary 4

Background to the Report 7

Chapter 1: Current and Future Economic Potential of the South Ayrshire Economy 8

The South Ayrshire Economy in 2011 8

Economic Growth 8

Productivity 9

Employment Structure and Business Base 11

Participation in the Labour Market 13

Unemployment and Economic Inactivity 15

Outlook for the South Ayrshire Economy in the Period 2011-2014 16

General Prospects for Employment 16

Prospects for Key Industrial Sectors 17

Prospects for Different Communities 20

Employment Blackspots 20

Vulnerable population groups 21

The Longer-Term Growth Prospects for the South Ayrshire Economy 23

The Resilience of the Local Economy 23

Diversifying the Employment Base 25

Increasing the Skills Level of the Local Workforce 27

Stimulating New Business Creation and Helping Existing Businesses

to Grow 28

Making the Area More Attractive to People and Businesses 28

Chapter 2: Future Opportunities for the South Ayrshire Economy 30

Fundamental Issues 30

Key Economic Drivers and Future Opportunities 30

Engineering: An Industry in Decline or transition? 31

Tourism: A Driver of Growth? 36

Food & Drink Processing: The Right Ingredients for Growth? 40

Business Support Services: An Economic Driver? 41

The Public Sector: An Uncertain Future? 41

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Inequality of Economic Opportunity 42

Urban Deprivation 42

Town Centre Re-Development 43

Rural Communities 44

Youth Unemployment 45

Concluding Remarks 46

Chapter 3: Challenges for the Future 47

An Uncertain Future 47

Strategic Actions Required for Successful Economic Regeneration 50

Diversifying the Employment Base 50

Stimulating New Business Creation and Help Existing Businesses

to Grow 51

Regenerating Ayr Town Centre 52

Increasing the Skill Levels of the Local Workforce 52

Tackling Spatial Inequalities in Economic Opportunity 54

Making the Area More Attractive to People and Businesses 55

Towards an Economic Strategy for South Ayrshire 56

What are the Key Objectives as Regards Local Economic Development? 56

How Far should the Economic Future of South Ayrshire be Linked to the

Glasgow City Region and what does this Imply for Levels of

Commuting? 56

What Industrial Sectors should Form the Focus of any Strategy? 57

What are the Potential Barriers to Economic Development and How

can the Partnership Assist Overcoming these? 58

With what Other Areas of Policy does any Economic Strategy Need to

Integrate? 58

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EXECUTIVE SUMMARY

1. As a prelude to developing an economic strategy for South Ayrshire, this report attempts to

bring together the available information on South Ayrshire’s economy and to explore the

potential for growing economic output. To provide a strong evidence base for the strategy,

the study seeks to:

review recent trends in industrial output and employment to provide a profile of the

local economy;

examine the potential areas for economic growth; and

assess how the Economic Development Partnership can contribute to realising any

potential.

Specifically, the study examines 5 questions:

What are the key objectives as regards local economic development?

How far should the economic future of South Ayrshire be linked to the development

of the Glasgow city region and what does this imply for levels of commuting?

What industrial sectors should form the focus of any strategy?

What are the potential barriers to economic development and how can the

Partnership assist in overcoming these?

With what other areas of policy does any economic strategy need to integrate?

2. As far as the key economic objectives for the proposed economic strategy are concerned,

these are arguably fourfold:

to halt the current sharp decline in the number of jobs available in the local

economy. Between 2006 and 2010, the number of jobs in South Ayrshire fell by 8%;

most of this decline was in private sector employment.

to diversify the economic base of the local economy. Of the 47000 jobs in the local

area in 2010, 33% were in the public sector, 15% in the retail sector and 13% in

tourism. Together these three sectors provide 60% of all local jobs. This is an

immediate problem as the public sector is facing potential severe job losses as a

result of budget cuts, while both retail and tourism businesses are facing challenging

times as a result of a loss of consumer confidence.

to reverse the current decline in population and the contraction of the working-age

population by attracting more families and professional people to live in South

Ayrshire. This should boost consumer spending locally and assist the revival of

sectors like the retail trade and construction.

to ensure that any benefits from economic growth are equitably shared, so that

deprived areas in North Ayr and rural communities in the south of the local authority

share in any gains.

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3. Inevitably the decline in the economic base of South Ayrshire and the contraction in the

number of local jobs has led to residents seeking work outside the local authority.

Commuting is now a key feature of the local employment market, with around 30% of the

working population resident in South Ayrshire commuting to other areas for employment.

Moreover, this trend has increased over the last decade. However, while this is directly a

response to the lack of local jobs, there is also a certain inevitability about the trend as more

jobs and investment are sucked into cities, like Glasgow. It may, therefore, be sensible to

recognise this inevitability and put in place strategies which capitalise on these commuting

flows, rather than trying to fight them. Even if the jobs are no created locally, the likelihood

is that the income generated will filter into the local economy. In this regard, South Ayrshire

has the potential to be an attractive place to live and building more homes for professional

people may be a way of attracting those working in places like Glasgow to migrate to South

Ayrshire. However, people will only migrate to South Ayrshire if an attractive environment is

sustained. This means revitalising the town centre of Ayr, improving local leisure facilities

and schools, and generally providing a clean and attractive environment.

4. However, while the economic future of South Ayrshire can no longer be considered in

isolation from developments elsewhere in the West of Scotland, the area does need to

diversify its economic base, so as to provide a better market for local employment in the

future. In this study the sectors identified as having the greatest potential for development

are aerospace engineering, renewables and tourism. Each sector presents slightly different

challenges:

The aerospace industry in South Ayrshire is already fairly well established. However,

with 70% of its activity related to aircraft maintenance and repair, uncertainty over

the future of Prestwick Airport potentially affects the sector’s future. However,

some confidence can be drawn from a recent survey of local aerospace businesses

that suggested that firms would not relocate even if passenger and freight

operations ceased at Prestwick. Nevertheless, expanding the number of businesses

specifically connected with the fabrication of airframe components, which might be

less vulnerable to changes in activity at the airport, may be a key aim.

For renewable, the problem is that there are currently only a handful of local firms

currently supplying ‘low carbon’ goods and services. As such, for the potential of

this sector to be realised, a cluster of firms specialising in renewables needs to be

developed. Although the area’s strong engineering tradition might provide the basis

for such a cluster, at the moment this sector is in its infancy and its local

development will face strong competition from other areas in Scotland.

Tourism is a long-standing activity and a major employer in the area. The problem is

that there has been little growth in the sector’s income. The number of tourists and

day trippers visiting the area has stagnated and spending per trip remains low. The

area’s image as a tourism destination is not strong and what image that it has is of a

traditional seaside holiday destination. The area needs to transform its image and

increase the range of holiday ‘experiences’.

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5. However, it is unlikely that any of these potential local economic opportunities will be

realised without some form of public intervention and facilitation. The majority of local

private sector businesses are small and experience elsewhere has shown that it is hard for

SMEs to find the time and resources to invest in the innovation, product development and

research needed to grasp new opportunities. In these circumstances the Economic

Development Partnership has a role in:

helping to identify and raise awareness among local firms of the business

opportunities that could potentially be exploited by them in the three target areas

of aerospace, renewable and tourism;

assisting local firms to develop networks, which offer the opportunity for

collaborative business development, the potential for more integrated supply chains

and a mechanism for jointly exploiting R&D;

targeting business support and investment on those businesses which are able to

increase net local employment;

encouraging a stronger dialogue between local businesses and local training

providers and educational establishments to ensure the supply of young graduates

with the required skills; and

ensuring local infrastructure plans and investments are aligned with the needs of the

key growth sectors.

6. While attracting new businesses and generating new jobs is central to any economic strategy

for the area, a secondary consideration has to be how any growth impacts on the economic

opportunities for different areas and communities. The existence of pockets of high

economic deprivation in North Ayr and Girvan has dominated attempts to regenerate parts

of the South Ayrshire economy. More recently, the growing problem of town centre decline,

especially in Ayr itself, has become an issue, while a concern has developed about the

emergence of a two-speed economy, with the southern, rural part of the Local Authority

experiencing the exodus of young people in response to limited job opportunities and a poor

transport infrastructure. Finally, there is increasing evidence that young adults have been

especially hard hit in terms of job opportunities by the recent recession in South Ayrshire.

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BACKGROUND TO THE REPORT

The Economic Development Partnership of the South Ayrshire Community Planning Partnership

has decided to develop a new economic strategy for the local economy. As a prelude to this, the

current report attempts to bring together the available information on South Ayrshire’s economy

and to explore the potential for growing economic output. To provide a strong evidence base for

the strategy, the current study seeks to:

review recent trends in industrial output and employment to provide a profile of the

local economy;

examine the potential areas for economic growth; and

assess how the Economic Development Partnership can contribute to realising any

potential.

Specifically, the study examines five questions:


How far should the economic future of South Ayrshire be linked to the development

of the Glasgow city region and what does this imply for levels of commuting?


What are the potential barriers to economic development and how can the

Partnership assist in overcoming these?


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CHAPTER 1: CURRENT AND FUTURE ECONOMIC PROSPECTS OF THE SOUTH

AYRSHIRE ECONOMY

The South Ayrshire Economy in 2011

Economic Growth

Total economic output (measured as Gross Value Added or GVA) from the South Ayrshire area in

2008 was just over £1.9bn, representing around 1.8% of Scotland’s GVA of £103.5bn1. This is

commensurate with the area’s share of national employment. However, average growth rates at

1.7% in the decade 1998-2008 lagged behind the Scottish average of 2.2% and the UK average of

2.6% (see Figure 1). In particular, growth in the South Ayrshire economy stalled and reversed

between 2001 and 2003, largely due to the foot and mouth outbreak, which had a particularly

severe impact on agricultural output and tourism in the area. The figure also shows that there was a

fall in economic output across South Ayrshire in 2008, mirroring the falls in Scotland and the UK.

Figure 1

Trends in UK, Scottish and South Ayrshire Annual Growth Rates

Source: SLIMSconsulting ‘Towards a Wealthier & Fairer South Ayrshire’ June 2011

Almost three quarters of all economic output from the South Ayrshire economy is accounted for by

the service sector. In 2008, services accounted for 74% of the total GVA, while industrial activities,

including manufacturing and construction accounted for 24%. This is a similar proportion to the

Scottish average. As shown in Figure 2, the largest sectors in South Ayrshire are distribution,

transport & communications (33% of all output), public sector & other services (30%) and

manufacturing 19%. The area has a relatively small financial & business services sector, which

accounted for only 11% of GVA in 2008, compared to 28% nationally. In terms of output, the key

1 Office of National Statistics

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drivers of the South Ayrshire economy in the period 1998 to 2008 have been the public sector and

distribution, transport & communications. Together they accounted for 86% of total GVA growth

across all sectors in the local economy2.

Figure 2


Productivity

Productivity is a central driver of sustained economic growth. A common measure of productivity is

GVA per employee, which is calculated by taking the economic output of the area and dividing by

the total number of employees. Figure 3 shows comparative trends in productivity levels within

South Ayrshire, Scotland and the UK over the period 1998-2008. In 2008, GVA per employee in

South Ayrshire of £40,600 was 5% below the Scottish average and 15% below the Great Britain

average. Moreover, the productivity gap has been widening, with the growth in GVA over the period

being 39% for South Ayrshire, compared to 45% for Scotland and 51% for Great Britain.

However, an analysis of productivity trends by sector reveals a significant difference between the

service and non-service sectors. Figure 4 shows the trends in productivity for the manufacturing,

energy and construction sectors. This shows that these sectors had productivity around the national

average and for the majority of the decade were slightly above the Scottish and GB national

averages. In contrast, the productivity of local service sector industries has been consistently below

the national averages for the past decade (see Figure 5). Furthermore, local service sector

productivity only increased by 34% over the period, compared to 47% in Scotland as a whole and

2 SLIMSconsulting (2011). Towards a Wealthier & Fairer South Ayrshire, June 2011.

11%

28%33%

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26%24%

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South Ayrshire Scotland UK

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Agri, forestry & fishing

Construction

Manufacturing

Distribution, transport & comms

Public & other services

Financial & business services

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52% in Great Britain. As a result in this sector, there has been a widening productivity gap with the

rest of economy.

Figure 3

Comparative Productivity Trends


Figure 4

Gross Value Added Per Employee for Manufacturing, Energy & Construction, 1998-2008


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Figure 5

Gross Value Added Per Employee for the Service Sector, 1998-2008


Employment Structure and Business Base

Table 1 shows that health is the largest employing sector in South Ayrshire, accounting to 21% of all

jobs in 2009. Together health, public administration, defence and education, that form the public

sector, account for 33% of all jobs locally, compared to 30% nationally. The next most important

employer is the retail sector accounting for 13% of all jobs, followed by accommodation & food

services at 11%.

In terms of individual businesses, the number of active enterprises in South Ayrshire has grown at a

slower rate than the Scottish and British averages over the last five years (see Table 2). Thus, in

South Ayrshire the number of active enterprises grew by 7% between 2005 and 2009, compared to

12% in Scotland and 8% in Great Britain. More significantly, the low rate of business formation has

meant that the number of active enterprises per 1000 adults in 2009 at 35 was considerably below

the GB average of 46 per 1000. This low business density is a characteristic shared with a number of

other local authorities in the West of Scotland, particularly those previously reliant on heavy

industry. However, increasing the business density to GB levels represents a major challenge,

requiring the formation of another 1000 businesses.

£10,000

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£30,000

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£45,000

£50,000

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South Ayrshire

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Table 1

Workplace Employment in 2009

Workplace Employment by Sector, 2009

South

Ayrshire Scotland

No % No %

Health 9,700 21% 383,400 16%

Retail 6,000 13% 237,500 10%

Accommodation & food services 5,100 11% 173,400 7%

Manufacturing 4,900 11% 187,800 8%

Education 3,400 7% 195,900 8%

Transport & storage 2,700 6% 102,500 4%

Public administration & defence 2,500 5% 153,000 6%

Other services 2,100 5% 102,900 4%

Construction 2,000 4% 132,200 6%

Professional, scientific & technical 1,500 3% 149,000 6%

Business administration & support services 1,400 3% 177,800 7%

Wholesale 1,200 3% 73,600 3%

Motor trades 1,100 2% 40,400 2%

Financial & insurance 700 2% 93,500 4%

Property 600 1% 27,300 1%

Information & communication 400 1% 57,000 2%

Agriculture, forestry & fishing 200 0% 33,800 1%

Mining, quarrying & utilities 200 0% 61,700 3%

All Employees 45,800 100% 2,382,500 100%


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Table 2

Changes in the Number of Active Enterprises, 2005-09

Active Enterprises

Change

2004-2009

2004 2009 No %

South Ayrshire 3,000 3,300 200 7%

Scotland 135,300 150,900 15,700 12%

GB 2,106,700 2,282,200 175,500 8%


Participation in the Employment Market

Figure 6 shows the recent in employment among the resident population in South Ayrshire. It shows

that, while employment grew between 2005 and 2007, it fell sharply between 2008 and 2010 as a

result of the recession, so that total employment in 2010 is lower than 2005. More significantly, the

decline in employment in South Ayrshire appears to have commenced a year earlier than in Scotland

or Great Britain, suggesting that there are specific structural problems associated with the South

Ayrshire economy.

However, Figure 6 only gives part of the picture. The South Ayrshire labour market is not self-

contained in that a significant proportion of employed residents travel out of the area for work each

day. Thus, in 2008 thirty-two per cent of residents in South Ayrshire reportedly worked outside the

local authority and there is some evidence that the trend is probably increasing3. In particular, the

economic base of South Ayrshire is contracting quite significantly. Between 2007 and 2010, the

number of local jobs contracted by 8%, compared to 2% nationally in this period. As Figure 7 shows,

the number of jobs in South Ayrshire peaked at 53000 in late 2005 and then declined fairly steadily

to 47200 in late 2010. More significantly, over half the job losses in the local area between early

2007 and late 2010 occurred before the onset of the recession. By comparison, the Annual

Population Survey shows that jobs in Scotland peaked around early 2008 and only then started to

decline. The inference of this is that South Ayrshire businesses felt the need to reduce their

workforce even when the Scottish economy as a whole was growing.

3 SLIMSconsulting(2011). Towards a Wealthier & Fairer South Ayrshire, June 2011

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Figure 6

Trends in the Numbers of Residents in Work, 2005-10


Figure 7

Trend in Total Number of Jobs in South Ayrshire between January 2004 and December 2010

42000

44000

46000

48000

50000

52000

54000

Jan 0

4-Dec 0

4

Jul 0

4 - Ju

n 05

Jan 0

5 - Dec 0

5

Jul 0

5 - Ju

n 06

Jan 0

6 - Dec 0

6

Jul 0

6 - Ju

n 07

Jan 0

7 - Dec 0

7

Jul 0

7 - Ju

n 08

Jan 0

8 - Dec 0

8

Jul 0

8 - Ju

n 09

Jan 0

9 - Dec 0

9

Jul 0

9 - Ju

n 10

Job

Nu

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ers

Source: Doyle C & Irving T (2011). ‘Continuing Impact of the Economic Recession on the South Ayrshire

Economy’, SAC Internal Report, 2 June 2011.

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2005 2006 2007 2008 2009 2010

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Resident Employment, 2005-2010

South Ayrshire Scotland GB

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Unemployment and Economic Inactivity

Based on the wider definition of unemployment adopted by the International Labour Office4, in 2010

there were 4600 South Ayrshire residents who were unemployed; 12% higher than in 2000 (see

Table 3). This increase was broadly similar to that experienced in Scotland as a whole, but

considerably less than the rise in Great Britain. However, the lower increase in the unemployment

rate cannot disguise the fact that unemployment in South Ayrshire at 8.4% is higher than the

Scottish average of 7.4% and the GB average of 7.7%. Nevertheless, as shown in Figure 8, there has

been some contraction in the gap between the area and national averages. However, these figures

may not tell the whole story. The proportion of the working-age population not in work (the so-

called economic inactivity rate) in South Ayrshire has remained stubbornly above the Scottish and

Great Britain averages for the last 5-6 years (see Figure 9). Some of these may represent ‘hidden’

unemployment.

Table 3

Medium-Term Trends in Unemployment

Unemployment 2000 & 2010

Change

2000-2010

2000 2010 No %

South Ayrshire 4,100 4,600 500 12%

Scotland 178,000 200,900 22,900 13%

GB 1,641,000 2,344,600 703,600 43%


Figure 8

Comparative Trends in Unemployment Rates


4 Includes all those who want to work, are available for work and are actively seeking employment, not those

simply claiming Job Seekers Allowance.

0

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Figure 9

Comparative Trends in Economic Inactivity Rates


Outlook for the South Ayrshire Economy in the Period 2011-2014

General Prospects for Employment

The most recent employment forecasts commissioned by SLIMS from Oxford Economics

predicted that employment in South Ayrshire would remain fairly flat through 2010-2011

before beginning to rise modestly in 2011-12 (see Figure 10). However, they expected the

pace of recovery in the local area to be slower than across Scotland or the UK. Whilst

Oxford Economics projected that Scotland would return to 2008 employment levels by

2018, South Ayrshire is not expected to do this until well after 2018. These projections may

even be optimistic with the latest forecasts by the Ernst & Young Scottish Item Club5 and the

Fraser of Allander Institute6 suggesting that the rate of recovery nationally may be slower

than these projections suggest. In their latest updates both Ernst & Young and the Fraser of

Allander expect Scottish employment levels in 2014 to be 3% below the 2008 peak ; this

latter figure compares to the projection by Oxford Economics in Figure 10 of 1% lower

employment in 2014. However, despite the projected recovery of employment, Oxford

Economics forecasted that the number of people out of work and claiming Job Seekers

Allowance (JSA) would only fall slowly and remain above 2008 levels until after 2018 (see

Figure 11).

5 Ernst & Young (2010). Scottish Item Club: Economic Forecast 2011: Summer Update. June 2011.

6 Fraser of Allander Institute (2011).. Economic Commentary, 35(1). June 2011.

20%

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2005 2006 2007 2008 2009 2010

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Economic Inactivity Rates, 2005-2010

South Ayrshire Scotland GB

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Figure 10

Forecasted Employment Levels 2008 -2018 in South Ayrshire and Scotland (2008=100)

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Source: Oxford Economics, cited in Slims Consulting ‘Towards a Wealthier & Fairer South Ayrshire’, Feb 2010

Figure 11

Forecast Change in the Level of Unemployment Claimants in 2008-18 in South Ayrshire and

Scotland (2008=100)

0

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2008 2009 2010 2012 2013 2014 2015 2016 2017 2018

Ind

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Source: Oxford Economics, cited in Slims Consulting ‘Towards a Wealthier & Fairer South Ayrshire’, Feb 2010

Prospects for Key Industrial Sectors

Table 4 summarises the outlook for individual sectors of the local economy.

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Table 4

Prospects for Farming

Farming and fishing in 2010 provided only 900 jobs in

South Ayrshire, representing a little under 2% of the

workforce7. Livestock rearing and dairy farming are

still the predominant activities. Like the rest of

Scotland, farm incomes in the year to March 2010

rose by 18% in real terms. However, while specialist

sheep and cattle farms saw rises, dairy and arable

farmers suffered falls in income. Nevertheless, the

rise in cereal and milk prices in 2010/11, attributed to

global shortages, will have gone some way to

improving both arable and dairy farm incomes.

Unlike other sectors, the future is less likely to be

influenced by consumer spending and more by farm

support policies, inflationary cost pressures and world

food supplies.

Prospects for Construction

The downturn in construction activity in South

Ayrshire started in 2005-06, before the economic

recession began to impact on the rest of the

economy. In 2010-11, the construction industry

remained depressed with the Scottish Construction

Monitor reporting a 29% fall in private house

construction and a 41% fall in private commercial

construction in early 2011, compared to 2008.

However, it also hinted at a slight improvement in

business confidence, although there is continued

anxiety within the industry about reductions in public

construction work. Overall, nationally, the

expectations are that the turnover of the sector will

begin to rise. However, this is predicated on

continued investment in repair and maintenance in

the public housing sector. Whether this will

materialise will depend on the level and distribution

of public sector cuts from 2011 onwards.

Prospects for Manufacturing

Across Scotland, the gross value added (GVA) by

Scottish manufacturing has fallen since the first

quarter of 2008 by just over 6%. Although the Bank

of Scotland PMI index of business activity, published

in April 2010, suggested that manufacturing firms

were seeing a record rise in new orders, the latest

business survey conducted by the Scottish Chambers

of Commerce, published in early 2011, reported a

downward trend in business confidence by

manufacturing firms, fuelled by concerns about

inflationary cost pressures. However, it is noticeable

that productivity levels in Scotland in 2008 were

below those in the UK and placed her in the third

quartile of OECD countries, being 20% lower than the

USA. As a result, the advantage offered by the weak

Pound against both the Euro and the Dollar would

appear to be partly negated by any competitive

disadvantage and this goes some way to explain why

there has been no significant expansion of the volume

of manufactured exports in the last 12-18 months.

Prospects for Manufacturing (cont’d)

In South Ayrshire, the manufacturing sector continues

to contract. From providing 6800 jobs in 2006, this

has fallen to 4700 in late 2010. While it still accounts

for a sizeable component of total economic output

(18% of GVA in 2008), it is no longer the key driver of

growth in the local economy. Overall, the recession

simply seems to have accelerated the contraction of

the sector. .

Source: Doyle & Irving. ‘Continuing Impact of the Economic Recession on the South Ayrshire Economy’, June

2011

7 NOMIS

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Table 4 (cont’d)

Prospects for the Retail & Catering Sector

About 15% of all employment in South Ayrshire is

accounted by shops and catering establishments.

How this sector copes with the impacts of the

recession in the next 2-3 years is critical to the local

economy. Recently, it has suffered from a drop in

consumer spending, leading to a rise in shop

vacancies in Ayr town centre. The first quarter of

2011 continued this trend, with like-for-like sales

down by 2.6% in the period January to March on a

year previously. Consumer confidence is likely to

remain weak, with customers continuing to be

worried about jobs, leading to the emergence of new,

lower spending patterns. As a result, Ernst & Young

are forecasting that jobs nationally in the retail sector

will be largely constant for the next 2-3 years.

However, the recession is not the only force at work

and the level of retail vacancy in South Ayrshire hints

at a longer term structural problem. Except for Troon

and Prestwick, which have a high proportion of small,

independent retailers, vacancy rates have increased

over the period 1999-2009 to 15-16%, significantly

above the UK average of 12% in the second quarter of

2009. The reasons for this include competition from

new retail centres at Silverburn and Braehead, the

diversification of out-of-town supermarkets into non-

food items, competition from internet sales and the

closure and consolidation of national chains, which

account for 7% of vacancies in Ayr. This raises issues

about what the future role of town will be in the

longer term.

Prospects for Tourism

Tourism provides about 13% of all employment in

South Ayrshire. Unlike the retail sector which is

focused on residents, tourism businesses look to

visitors. For that reason the forces shaping business

turnover and employment in this sector in the near

future are different. Across Scotland, the indications

are that the period January to September 2010 saw a

decline of about 4.6% in trips, of 9.6% in bed-nights

and of 9.0% in the average spend on the previous

year. Comparable information for South Ayrshire or

Ayrshire as a whole is currently not available for 2010.

The indication is that, despite favourable exchange

rates, after a slow start the number of overseas

visitors has remained flat, while domestic tourism has

been inhibited by depressed consumer confidence

and concerns about job losses. These challenging

conditions are expected to persist for the next 12-18

months.

Prospects for Financial and Business Services

Compared to Scotland as a whole, financial &

business services account for a very low proportion of

total employment in South Ayrshire; around 8%

compared to 19% nationally. As a result, while this

sector has taken a big knock nationally from the

recession, with around 16000 jobs lost in Scotland

between 2007 and 2010, the impact on employment

locally has been insignificant. In fact employment in

South Ayrshire in this sector has increased by 500

during the period 2006-2010.


2011

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Table 4 (cont’d)

Prospects for Transport & Communication Services

Firms in the transport and communications sector in

South Ayrshire have shown strong long-term growth

and greater resilience in the face of the economic

recession than other businesses Between 1998 and

2008, employment in these industries locally grew by

57% or 1300 jobs. Even recently, there is some

evidence that the sector has been less vulnerable to

the economic downturn, with the number of jobs

rising slightly between 2008 and 2010 by 14% or 400

in South Ayrshire. Much of this employment is linked

with the aerospace industry centred on Prestwick

airport. However, this sector has not entirely escaped

the effects of the recession. Both passenger numbers

and freight volumes at Prestwick Airport have fallen

in recent years.

Prospects for the Public Sector

The public sector, including education and health

accounted for 33% of all jobs locally in the third

quarter of 2010, so what happens to public sector

budgets is likely to have significant implications for

the local economy. Contrary to the view often

expressed, there has already been contraction in job

numbers in the public sector within South Ayrshire

since 2006 of about 8%, though the numbers

employed in this sector locally are still 2% higher than

they were in 2000. However, it is the prospect of

large cuts in the public sector budget for Scotland

that raises the spectre of significant job losses in this

sector over the next 2-3 years.

It has been estimated that the local authorities are

likely to experience cuts of 14-16% between 2010-11

and 2014-15. This could translate into job cuts in

South Ayrshire Council alone during this period

equivalent to 800 full-time posts. Although enjoying

some budget protection, NHS Ayrshire & Arran,

another major employer, is also expected to cut staff

numbers in the period up to 2014-15.


2011.

Prospects for Different Communities

Employment Black-spots

Almost 25% of all those claiming Job Seekers Allowance (JSA) in the third quarter of 2010 were

resident in the Regeneration Areas of South Ayrshire, despite the areas only accounting for 9% of the

resident working-age population. Among 16-24 year olds the situation was more acute, with nearly

18% in this age group within these communities claiming JSA, compared 7% in South Ayrshire as

whole. However, while the gap between these areas and the rest of South Ayrshire in terms of the

percentages claiming JSA has widening in recent years, in terms of the Regeneration Area’s share of

the overall JSA claimants for both the 16-64 (see Table 5) and 16-24 age groups, this appears to be

unchanged.

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Table 5

Recent Trends in the Number and Rate of JSA Claimants in the Regeneration Areas and South

Ayrshire as a Whole

Time Period

Regeneration Areas South Ayrshire

Number % of

Working-

Age

Population

% Share

of South

Ayrshire

Total

Number % of

Working-

Age

Population

2006 Q4 485 7.7 25.0 1940 2.9

2010 Q3 645 10.4 24.6 2620 3.9


2011

Vulnerable Population Groups

The recession has not impacted equally on male and female employment in South Ayrshire. While

the proportion of 16-64 year old males claiming Job Seekers Allowance rose by 0.1 percentage

points between the fourth quarter of 2006 and the third quarter of 2010, the corresponding increase

for women was 0.8 percentage points. However, these figures only tell part of the story. A

significant proportion of women have dropped out of the labour market altogether (see Table 6) or,

even if they have remained employed, they have moved from full- to part-time working (see Table

7). Both increasing inactivity and a switch to part-time working have characterised the female

employment market locally in the last 4 years.

Table 6

Recent Employments for Men and Women in South Ayrshire

Males (16-64) Females (16-64)

Numbers % of Working-

Age

Population

Numbers % of Working-

Age

Population

JSA Claimants

2006 Q4 1814 5.3 569 1.5

2010 Q3 1843 5.4 820 2.3

Economically Active

2006 Q4 28100 82.7 25000 70.0

2010 Q3 28300 83.9 24200 67.7


2011

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Table 7

Recent Trends in Part-Time Working

Males (16-64) Females (16-64)

Numbers % of Male

Employed

Numbers % of Females

Employed

2006 Q4 2500 9.7 9500 39.5

2010 Q3 2600 10.5 10200 44.9


2011

Young adults (16-24 year olds) have also seen a rise in unemployment, as a result of the recession.

Between the fourth quarter of 2006 and the third quarter of 2010, the proportion of 16-24 year olds

claiming JSA has risen from 5.2% to 7.2% in South Ayrshire. By comparison, the percentage rise was

smaller for older age groups (see Table 8). Interestingly, older workers (50+) have seemed to be

affected very little. The percentage claiming JSA has fallen by 0.1 percentage point and the

percentage that are economically active has risen by 3 percentage points.

Table 8

Recent Employment Trends in South Ayrshire by Age Group

Age Group

% of 16-64 Year Olds Claiming

JSA

% of 16-64 Year Olds

Economically Active

2006 Q4 2010 Q3 2006 Q4 2010 Q3

16-24 5.2 7.2 70.4 72.7

25-49 2.9 4.1 86.7 82.9

50-64 1.8 1.7 63.8 66.7


2011

On the other hand, there is no evidence that unskilled people with limited or no qualifications have

been especially adversely affected by the recession. Table 9 shows the estimated percentage of the

population with a particular level of qualifications, who were employed in 2006 and 2009. This

shows that the recession has impacted fairly evenly on all groups. Nevertheless, compared to those

with a degree (NVQ4+), those with no qualifications are only half as likely to be employed in 2009.

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Table 9

Recent Employment Trends in South Ayrshire by Level of Qualification

Qualification Level % of Age Group in

Employment in 2006

% of Age Group in

Employment in 2009

NVQ4+ (degree) 87.2 81.6

NVQ3 81.7 74.3

NVQ2 68.9 71.3

NVQ1 (Standard Grades) 65.8 60.8

No Qualifications 51.1 44.5


2011

From this analysis it is clear that the recession has not impacted evenly on all communities

within the Local Authority. Young people (16-24 years of age) and women have been more

adversely affected than men and older people (50+). On the other hand, there is less

evidence that more deprived communities or lower skill groups have been affected

disproportionately.

The Longer-Term Growth Prospects for the South Ayrshire Economy

The Resilience of the Local Economy

In focussing on the short-term economic prospects and the effects of the recession, there is a danger

that attention is diverted from the underlying strengths and weaknesses of the economy, which are

central to determining the shape of any economic strategy. In particular, an analysis of the

‘resilience’ of the local economy carried out in June 2010 tended to confirm the impression that the

recession was revealing ‘hidden’ structural problems within the South Ayrshire economy8. As shown

in Table 10, using an index of ‘resilience’, in 2009 South Ayrshire appeared to be very nearly in the

bottom quartile of local authority economies in Scotland in terms of its ability to recover from the

impacts of the recession. It was perceived as being weak in terms of:

its dependence on a limited number of key growth sectors;

the skill base of its workforce;

the level of new business creation; and

the level of population and income growth.

8 Doyle C & Irving T (2010). The Impact of the Economic Recession on the Short- and Medium-term Prospects

for the South Ayrshire Economy. Sac Internal Report, 21 June 2010.

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Table 10

Ranking of Scottish Local Authorities by Index of Resilience in 2009

(1= most resilient, 32 = least resilient local economy)

Local Authority Rank

Aberdeen City 2

Aberdeenshire 12

Angus 13

Argyll & Bute 15

Clackmannanshire 23

Dumfries & Galloway 28

Dundee City 22

East Ayrshire 30

East Dunbartonshire 4

East Lothian 5

East Renfrewshire 3

Edinburgh, City of 1

Eilean Siar 11

Falkirk 16

Fife 19

Glasgow City 18

Highland 6

Inverclyde 27

Midlothian 14

Moray 26

North Ayrshire 32

North Lanarkshire 31

Orkney Islands 10

Perth & Kinross 8

Renfrewshire 17

Scottish Borders 9

Shetland Islands 20

South Ayrshire 24

South Lanarkshire 21

Stirling 7

West Dunbartonshire 29

West Lothian 25

Source: Doyle C & Irving T (2010). ‘The Impact of the Economic Recession on the Short- and Medium-term Prospects for the South Ayrshire Economy’. SAC Internal Report, 21 June 2010.

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More disturbingly, South Ayrshire had dropped 7 places in its ranking for economic resilience since

2001, suggesting that it had become less resilient in the last decade. The overall inference was that

the area needed to:

diversify its employment base;

increase the skills level of the local workforce;

stimulate new business creation and help existing small businesses to grow; and

make the area more attractive for people to move in and businesses to set up.

These issues are explored in more detail below.

Diversifying the Employment Base

Of the 47000 jobs in South Ayrshire, 33% are in the public sector, 15% in the retail trade and 13%

tourism. Together these three sectors provide over 60% of local jobs. The public sector is facing

potential job losses as a result of budget cuts, while both retail and tourism businesses are facing

challenging times as a result of a loss of consumer confidence. In the light of this, diversifying the

economic base would seem strategically important to the long-term vitality of the local economy.

Scottish Enterprise has identified six key growth sectors, namely i) creative industries, ii) energy, iii)

financial & business services, iv) life sciences, v) tourism and vi) food & drink. Using the definitions

of these industries, based on the SIC 2003 industrial classification used by Scottish Enterprise, earlier

this year an estimate was made of the numbers of firms and numbers of people employed in these

industries9. Figure 12 shows the estimated number of businesses locally in each of these key

sectors, together with the number that would be expected, if South Ayrshire’s share was

commensurate with its overall share of businesses in Scotland. Figure 13 shows the same

information, but this time for employment. In terms of the numbers of businesses, South Ayrshire

probably has its fair share of key sector businesses, but in terms of employment, except for tourism,

its share is significantly lower than expected. This reflects the fact that the majority of businesses in

the key sectors in South Ayrshire are small. As a result, while 31% of employment nationally is in

these 6 key growth sectors, in South Ayrshire the proportion is only 22%. Another measure of the

‘dynamism’ of the local economy is provided by employment in the so-called ‘knowledge-based

industries’ (KBIs). In 2007 44% of both public and private employment in Scotland was in KBIs, but

only 39% in South Ayrshire10.

9 Doyle C & Irving T (2011). Continuing Impact of the Economic Recession on the South Ayrshire Economy, SAC

Internal Report, 2 June 2011. 10 Doyle C & Irving T (2011). Continuing Impact of the Economic Recession on the South Ayrshire Economy, SAC

Internal Report, 2 June 2011.

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Figure 12

Number of Firms in South Ayrshire in the Six Key Growth Sectors and the Expected Numbers in

South Ayrshire

050

100150200250300350400450

Nu

mb

er

of

Bu

sin

ess

Creativ

e

Energy

Financia

l & B

usiness

Life Sc

ience

s

Tourism

Food &

drin

k

Actual

Expected


2011

Figure 13

Number of People Actually Employed in South Ayrshire in the Six Key Growth Sectors and the

Expected Numbers in South Ayrshire

0

1000

2000

3000

4000

5000

6000

7000

Nu

mb

er

of

Bu

sin

ess

Creativ

e

Energy

Financia

l & B

usiness

Life Sc

ience

s

Tourism

Food &

drin

k

Actual

Expected


2011

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Increasing the Skills Level of the Local Workforce

The Leitch Review in 2006 stated clearly that skills were a key driver of economic success and that

20% of the observed international differences in labour productivity was attributable to differences

in skill levels, with Scotland and the UK faring badly in international league tables11. However, these

observations are not the same as saying that there is an ever growing demand for degree-level staff.

In 2007 Oxford Economics made some forecasts of the demand in South Ayrshire for labour in the

period 2007-2017 by qualifications12. Of the 33,000 job openings anticipated over this 10-year

period, it expected that 8000 would be for graduates, 6000 would be for those with Highers, HNCs

and HNDs and a further 14000 would be for those with Standard Grades13. As Figure 14 shows,

relative to the numbers of people of working age with different qualifications in South Ayrshire, the

future shortages are not so much for degree-level staff, but for people with intermediate

qualifications. Thus, it is expected that 8000 staff with degree-level qualifications will be required,

compared to 21700 residents with degrees (NVQ4+). Comparable figures are provided for NVQs 1, 2

and 3 and for those with no qualifications. From this, it is possible to see that future labour demand

is greatest relative to the pool of those with sub-degree qualifications (NVQs 1-3). While the onset

of the recession may have reduced the job openings in the immediate future, it is unlikely to have

altered the pattern of demand by qualification level.

Figure 14

Estimated Demand for Labour by Level of Qualification between 2007 and 2017 in South Ayrshire

Relative to the Pool of Working-Age People Qualified to Given Levels

0

5000

10000

15000

20000

25000

Nu

mb

ers

No Qual

ifica

tions

NVQ1 & 2

NVQ3

NVQ4+

Anticipated DemandBetween 2007 and 2017

Working-AgePopulation


2011

11

HM Treasury (2006). Leitch Review of Skills: Prosperity for All in the Global Economy – World Class Skills. 12

SLIMS (2007). South Ayrshire 2007 Labour Market Statement 13

These figures are not based so much on an expansion of the total number of jobs available in South Ayrshire, but anticipated staff turnover, including retirements.

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Stimulating New Business Creation and Helping Existing Businesses to Grew

While new business development has generally been shown to have a positive impact on economic

development, in Scotland the evidence suggests that stimulating new firm creation does not

increase sectoral employment14. The reason for this is that new firm creation both increases and

destroys jobs. The immediate impact of a new firm is to create new jobs, but in the longer term,

whether this increase is sustained depends on whether the new firm displaces existing firms or,

through increased competition, improves the performance of all firms locally in that sector. In

Scotland, and other areas characterised by comparatively low rates of business formation and low

entrepreneurial activity, the evidence is that the displacement effect predominates, resulting in no

long-term increase in employment. In the case of South Ayrshire, as noted earlier, the growth in the

number of businesses in recent years has trailed behind the Scottish average, suggesting that it is

likely that the contribution of new business growth to overall employment locally has been

negligible, as it has been for Scotland as whole.

Moreover, there is inherently no good reason to link new business formation to job creation. For

there to be real and significant employment benefits, the new businesses need to grow. Typically,

new businesses are one-person enterprises, so that the addition of 210 businesses to the total stock

of firms in South Ayrshire between 2004 and 2009 can only be expected to have increased job

opportunities by a maximum of 210, unless the new businesses grow fast. In reality more than 55%

of the new businesses created in South Ayrshire in 2004 had ceased to exist by 200915. This indicates

that far from growing many new businesses will quickly die. Real growth is achieved by getting a

new company to expand and in doing so take on more labour. The focus needs to be on the ‘quality’

of businesses created and not the number.

Making the Area More Attractive to People and Businesses

Trying to stimulate the local economy through creating new jobs is only one possible strategy. An

alternative that has attracted attention is the idea of consumer-led growth. In this case, rather than

focusing on jobs, the focus is on increasing the spending power in the local economy through

increasing the supply of housing and attracting more people to live in the area. Even if the in-

migrants continue to commute to other areas to work, the hope is that they will spend their money

locally and so indirectly boost local employment.

However, such a strategy would require a reversal of current trends. Between 2001 and 2009, the

population of South Ayrshire fell by 0.7%. The reason for this is that net in-migration to the local

14

Fritsch M & Mueller M (2005). How persistent are regional start-up rates? An empirical analysis. The Emergence of Entrepreneurial Economics: Research on Technological Innovation, Management and Policy, 9, 71-82; Helmers C and Rogers M (2007). Innovation and the survival of new firms across British regions. Discussion Paper, University of Oxford.; Lee S, Florida D and Arcs Z (2004. Creativity and entrepreneurship: A regional analysis of new firm formation. Regional Studies, 38, 879-971; Mueller P, van Stel A and Storey S (2008). The effects of new firm formation on regional development over time: The case of Great Britain. Small Business Economics, 30, 59-71 15

Office of National Statistics (2010). Business Demography 2009.

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authority was only just over 350 per year in the period 2001-02 to 2008-0916. This was insufficient to

compensate for the natural fall in population, through declining births and rising deaths, which led

to an average annual decline in population of 410 per year in the same period. To achieve

population growth, average annual net in-migration would need to rise by about 18%. Even then, a

growth in the size of the local population would not necessarily guarantee that consumer spending

locally would rise proportionately. Residents may choose to spend some of their income outside the

area. A household shopping survey conducted in 2003 for example showed that over 20% of items

liking clothing and furniture by Ayrshire residents were made In Glasgow17. All this suggests that it

may be difficult in practice to engineer locally consumer-led economic growth, based around

increasing the local population.

16

General Register Office for Scotland 17

Doyle C & Clark E (2005). Implications of City Region Growth Models for South Ayrshire: A Re-Analysis. SAC Internal Paper, November 2005.

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CHAPTER 2: FUTURE OPPORTUNITIES FOR THE SOUTH AYRSHIRE ECONOMY

Fundamental Issues

The preceding analysis suggests that the economy of South Ayrshire is stagnating. Between 2007

and 2010, there has been a dramatic (8%) fall in the number of jobs available locally. Increasingly,

the working population must find work in neighbouring areas, with nearly a third of all residents

employed in South Ayrshire commuting to other areas for employment in 2008. As a result, the area

is gradually becoming part of the ‘commuter zone’ for Greater Glasgow. More worryingly,

assessments of the resilience of the local economy are not promising, suggesting that the area may

not be able to cope very well with the challenges posed by prolonged economic recession. As a

consequence, although average household incomes in South Ayrshire remain above the national

average18, there are worrying signs that the incidence of poverty and worklessness is increasing over

time. Thus, even though the rates of poverty and worklessness are still lower than in the

neighbouring areas of North and East Ayrshire19, the widely held view that social and economic

problems in South Ayrshire are of a different order from those in neighbouring areas looks

increasingly suspect. For this reason the future of the South Ayrshire economy is likely to be bound

up with that of Ayrshire as a whole.

Against this background, this chapter explores 3 questions:

What are the main drivers of the local economy?

What are the opportunities for the future and how well placed is the local economy to take

up these opportunities?

Are all communities and areas with South Ayrshire equally well placed to avail themselves of

potential future opportunities?

Key Economic Drivers and Future Opportunities

In 2006, an attempt was made to estimate where the comparative advantage of the South Ayrshire

economy lay in terms of identifying those industrial sectors20:

which were net exporters, exporting a significant volume of goods and services to markets

outside of Ayrshire;

whose growth was likely to have a significant direct impact on the rest of the local economy

through purchases of raw materials, goods and services; and

that were dynamic and had the potential to grow, as reflected in above average gross

margins and their apparent comparative advantage.

18

SLIMSconsulting (2011). Towards a Wealthier & Fairer South Ayrshire, June 2011. 19

Scottish Neighbourhood Statistics 20

Doyle C & Clark E (2006). Growing the Ayrshire Economy: A ‘Polycentric’ Model of Economic Development. SAC Internal Report, March 2006.

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This revealed that the industries that appeared to be the local economic drivers were:

the transport and equipment sector connected with Prestwick airport and the associated

aerospace complex;

the public sector, which is the area’s major employer;

the food processing sector; and

business support services (advertising, market research, tax consultancy and accountancy).

The significant omission in this list is tourism, which for much of the last decade has shown limited

growth. Nevertheless, this sector continues to attract attention as an industry, which has the

potential to grow21. At the same time, the development of the aerospace complex at Prestwick

Airport has grown out of the area’s engineering tradition. The engineering industry still accounts for

nearly 8% of the area’s economic output and so it may be a possible future economic driver. The

opportunities for expansion afforded by each of industrial sectors are examined below.

Engineering: An Industry in Decline or Transition?

There are just under 70 engineering businesses in South Ayrshire, employing 3390 in 200922. A

decade earlier, the sector employed 6000 people23. A very large part of these jobs (75%) are

connected with the aerospace sector (see Table 11), which saw a 6% growth in jobs in the last

decade24. Outside the aerospace industry, the majority of engineering firms are small, employing

around 20 people, and largely centred on the production and basic processing of metals. These

firms in this traditional engineering sector are vulnerable to global competition from low-cost

producers in Asia and the Far East, so that the future does not look bright for firms outside the

aerospace industry. Even in the case of the aerospace industry, there is a question mark over its

future. Firms congregated in the area attracted by the development of Prestwick Airport. In recent

years, both passenger numbers and freight volumes at Prestwick Airport have fallen. In 2010,

passenger numbers and freight volumes were both down by 9% on the previous year and much

more on 2008. A lot of this decline is only indirectly linked to the recession and is primarily driven

by the decision of airline operators, like Ryanair, to move activities elsewhere25. However, the

aerospace complex now seems sufficiently established that, in a recent survey, the majority of

businesses said that they would not re-locate away from Ayrshire, even if Glasgow Prestwick ceased

operating passenger and freight traffic26. Furthermore, training in the skills needed by the local

industry will be strengthened with the launch of a degree in aircraft engineering by the University of

21

See Report by the Chair of the Economic Development Partnership to the Community Planning Board of the South Ayrshire CPP on 23

rd February 2011.

22 Definition of engineering based on the classification employed by the Sector Skills Council for Science,

Engineering and Manufacturing Technologies. 23

Annual estimates of employment and output by manufacturing industries provided by the Office of National Statistics for Scottish Local Authorities. 24

Doyle C (2011). Engineering in Ayrshire: An Industry in Decline or Transition? SAC Internal Report, 9 August 2011. 25

Doyle C & Irving T (2011). Continuing Impact of the Economic Recession on the South Ayrshire Economy. Sac Internal Report, 2 June 2011. 26

SQWconsulting (2008). Economic Impact of Glasgow Prestwick Airport. Final Report to Glasgow Prestwick Airport, South Ayrshire Council and Scottish Enterprise, February 2008.

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the West of Scotland at Ayr. Perhaps the one downside of the industry is the fact that locally the

industry has weak linkages with the rest of the economy, with very little of the inputs being

purchased locally27, so that the impact of the industry’s growth on the rest of the local economy is

limited.

Table 11

Estimated Employment in Engineering in South Ayrshire by Industrial Grouping in 2009

Industrial Grouping Employment Industrial Grouping Employment

Basic metals and metal

products (including wholesale

metals and scrap)

575 Electronics 125

Mechanical Equipment 46 Automotive 6

Electrical Equipment 2 Science and engineering R&D 5

Marine & aerospace 2625 Manufacture of medical and

surgical equipment and

orthopaedic appliances

6

Total 3390

Source: Doyle C ( 2011). Engineering in Ayrshire: An Industry in Decline or Transition? SAC Internal Report

9 August 2011

Given the area’s engineering base, there has been speculation about the potential to develop a new

economic base, built around renewables and the provision of low carbon goods and services28.

However, a ‘low carbon’ sector is about more than just engineering services. A recent report by the

Department for Business, Enterprise & Regulatory Reform (BERR) distinguishes three different

market segments29. First, there are the more traditional Environmental services, including activities

like waste management and recycling. Then there is a range of rapidly growing Renewable Energy

technologies, connected with hydro, wave and tidal power, geothermal energy generation and

power from wind and biomass. Lastly, there are a number of Emerging Low Carbon activities, such

as reduced emissions from within the transport and construction sectors, nuclear energy, energy

management and carbon capture and storage. A summary of the kinds of activities subsumed under

each market segment is presented in Table 12.

In terms of future opportunities, the BERR report assessed that the areas with the largest market

opportunities within the UK, reflected by sales growth, were in the Renewable Energy and Emerging

Low Carbon market segments rather than Environmental services. This can be seen in Figure 15.

Employment is shown on the horizontal axis, current (2007) growth on the vertical axis and market

value by the bubble size. Only the largest sectors by market size are labelled. Box A shows the

27

Doyle C & Clark E (2006). Growing the Ayrshire Economy: A ‘Polycentric’ Model of Economic Development. SAC Internal Report, March 2006. 28

Doyle C, Jarvie L & Irving T (2011). Implications of the Pursuit of a Low Carbon Economy for South Ayrshire. SAC Internal Report, March 2011 29

BERR (2009). Low Carbon and Environmental Goods and Services: An Industry Analysis. March 2009.

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Table 12

Breakdown of the Activities Encompassed by the Three Sectors of the Low Carbon Market

After BERR (2009). Low Carbon and Environmental Goods and Services: An Industry Analysis

three largest Emerging Low Carbon sub-sectors in terms employment, growth and sales, while Box B

shows the four Renewable Energy sub-sectors with the largest growth. As can be seen these latter

sub-sectors show above average growth and sales, but employment prospects are less good than the

sub-sectors in Box A. Box C groups the largest Environmental sub-sectors and it is evident that sales,

employment levels and growth rates are all lower than for those business sectors covered by Boxes

A and B. Finally, all the other sub-sectors that currently show healthy growth rates, but which have

a much smaller impact on employment or sales, are in Box D. In general, the indications are that the

sub-sectors with the greatest future growth opportunities appear to be:

Wind energy

Solar photovoltaics

Carbon finance

Alternative fuels

Geothermal

Biomass

Building technologies

Alternative fuels for vehicles.

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Figure 15

Sub-Sectors with the Greatest Future Opportunity for Growth


In the case of Scotland, the most important market segments are connected with i) alternative fuels

and building technologies, ii) wind and geothermal energy generation, iii) carbon recovery &

recycling and iv) water & waste management. This can be seen from Figure 16, which provides a

breakdown of the sales, employment and growth of the Scottish low carbon sector in 2007/08. As in

Figure 15, sales are indicated by the size of the bubbles, growth rates are on the vertical axis and

employment is represented on the horizontal axis.

The number of businesses in South Ayrshire with the theoretical potential to expand into the

production of low carbon good and services has been put about 420 (see Table 13). Together these

companies employ around 4800 people. However, the gap between the potential and the reality is

illustrated by a detailed examination of the Yellow Pages and Thompson’s directories. Coupled with

web searches, this has revealed only a handful of Ayrshire businesses have any involvement in the

supply of low carbon goods and services. The significance of this is that, for a business sector

centred on the low carbon sector to evolve, there needs to be a core of ‘innovators’, who attract

other similar businesses to the local area. At the moment in South Ayrshire, it is very debatable

whether this exists. Moreover, some experts have questioned whether Scotland as a whole has

been fast enough in developing a low carbon economy. Germany’s early investment in renewable

energy is thought to have led it to capture a significant proportion of the global renewable energy

market30. This ‘first mover’ advantage could be difficult to compete with. Some experts have also

questioned the Scottish Government’s view that the low carbon economy is the key to future

30

UNEP (2007). Green Jobs: Sustainable Work in a Low-Carbon World.

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economic growth, contending that, far from creating jobs, the renewable sector will destroy jobs by

displacing potential growth elsewhere. Thus, Verso Economics has suggested that for every job

created in the renewable sector in Scotland, 1.1 jobs will be lost31, largely because it would divert

investment away from other potential areas of growth. All this underlines that translating the

potential opportunities for developing a low carbon sector locally, centred on its existing expertise in

engineering, will require a focussed and concerted effort, as well as a high degree of commitment

from local businesses.

Figure 16

Sales, Employment and Growth in the Low Carbon Sector in Scotland


31

Verso Economics (2011). Worth the Candle? See http://politics.caledonianmercury.com/2011/02/28/new-report-casts-doubt-on-scotland%E2%80%99s-role-as-the-%E2%80%98saudi-arabia-of-renewables%E2%80%99/#

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Table 13

Potential Business and Employment Base in South Ayrshire for Developing a Low Carbon Economy

by Sector/Market

Sector/Market Number of

Businesses

Number of

People Employed

in these

Businesses

Environmental

Air pollution 129 2322

Contaminated land reclamation 229 3437

Environmental monitoring & control 68 375

Marine pollution 58 1836

Waste management, incl recycling 250 3263

Water and wastewater treatment 224 3182

All Environmental 343 4316

Renewable Energy

Large-scale renewable energy 194 2952

Micro renewable energy 110 2098

All Renewable Energy 250 3241

Emerging Low Carbon

Alternative fuels 8 31

Carbon capture & storage 5 26

Carbon finance 0 0

Energy management & building technology 22 177

All Emerging Low Carbon 28 182

Potential Size of Existing Low Carbon Sector in South

Ayrshire

425 4788

Source: Doyle C, Jarvie L & Irving T (2011). Implications of the Pursuit of a Low Carbon Economy for South

Ayrshire. March 2011.

Tourism: A Driver of Growth?

Tourism has been perceived for a long while as a sector with growth potential locally. It is estimated

to employ directly and indirectly about 13% of the labour force in South Ayrshire and injects just

over £160M into the local economy. However, the income from tourism has remained static for the

last decade32. To expand the income from tourism, two recent reports32,33 have identified that there

needs to be i) more visitors, ii) an increase the spend per trip and (ii) an extension of the season.

The critical question is how feasible are any of these aspirations.

32

Doyle, C (2010). Tourism in South Ayrshire: The Present Profile and Future Opportunities. SAC Internal Report, 6 July 2010. 33

Doyle C, Steel D & Don K (2011). The Visitor Economy in Ayrshire: The Present Profile and Future Opportunities. SAC Internal Report, 23 February 2011.

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In 2009, South Ayrshire received just over 1.4M visitors and 3.1M tourist days. Nearly half the

visitors were day trippers. This underlines a problem that South Ayrshire does not have a strong

image as a tourism destination and what image that it has is of a traditional holiday area for those

living in Glasgow. With the development of the overseas holiday market in the 1970s, its market has

contracted and it has not managed to move on successfully. Despite efforts to rebrand and promote

the area as a tourism destination in the last decade, the position is essentially unchanged. In 2000,

between January and September, South Ayrshire attracted 1.29M tourists of which 0.77M were day

visitors; for the comparable period in 2009, 1.18M tourists, of which 0.66M were day visitors, visited

the area. To reverse the slide in visitor numbers, the area needs to identify what its comparative

advantage is in terms of tourism and the type of tourists that it is seeking to attract. In this regards

VisitScotland’s Ayrshire & Arran Visitor Survey for 2008-09 provides pointers, indicating that visitors

associate the area with Burns, golf, horse-racing and the sea. Table 14 shows the opportunities and

challenges connected with each of these. Essentially, this shows that it is unlikely that any one

activity or initiative will provide the basis for growth. Instead attracting more tourists will depend on

increasing the diversity of ‘experiences’ to be had and the development of ‘niche’ products. The

resultant growth in visitor numbers will be gradual.

Increasing the spend per trip will also be an important part of any tourism strategy. In 2009, the

average spend per day visitor to South Ayrshire was £28, while the average tourist, staying overnight

in the area, spent £42 per night34. The latter figure is markedly lower than the Scottish average for

tourists of £64 per night. This may be due to there being fewer high cost activities available within

Ayrshire, with people taking advantage of activities such as walking or cycling to allow them to enjoy

the area’s rural character. It also probably reflects the composition of the tourists. Whereas 19% of

the tourists visiting Scotland were from overseas, some surveys suggest that only 12% of visitors to

Ayrshire come from outside the UK. The significance of this is that UK tourists to Ayrshire only

spend about 67% as much per day as overseas visitors. Combine this with the fact that the average

length of stay in 2008 was only 3.2 nights for UK tourists and 5.9 for overseas visitors, then the

average UK tourist only brings in £158 per head per trip, while overseas tourists bring in £312 per

head per trip. The comparable figures for Scotland are £231 and £499. Again this underlines that

the spend by tourists in Ayrshire is well below the national average and suggests that increasing the

spend is just as important as increasing the number of visitors. This can be achieved by:

finding ways to encourage visitors to spend more nights in the area, through promoting

short-breaks and using evening events and festivals to encourage more day trippers to stay a

night ;

offering new experiences or facilities to encourage existing visitors to spend more per day;

attracting new visitor groups, through developing new attractions and expanding markets

like conference tourism; and

specifically increasing the spend of day trippers.

34

Doyle C (2010). Tourism in South Ayrshire: The Present Profile and Future Opportunities. Sac Internal Report, 6 July 2010.

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Table 14

The Opportunities and Challenges Facing Attempts to Increase Visitor Numbers to South Ayrshire

Building on the Area’s Association with Robert Burns

It is estimated that Robert Burns is worth nearly

£160M to the Scottish economy. Of this 66% came

from tourism, with the majority of the benefits

accruing to Ayrshire. However, the problem with the

Burns heritage is that is split between Ayrshire,

Dumfries & Galloway and Edinburgh. Comparable

literary attractions in the UK, such as the Shakespeare

County, the Bronte County, Wordsworth’s Lake

District and Beatrix Potter’s Lakeland have been able

to sell themselves as an identifiable geographic

destination. This partly explains why festivals, like

“Burns an’ a’ That”, have not had the economic

impact anticipated. All this underlines that

establishing South Ayrshire as ‘Burns County’ has still

some way to go.

Developing the Tourism Potential of Coastal Areas

Over 30% of both day visitors and tourists associate

the area with traditional seaside holidays and about

45% of tourists and 15% of day visitors to the area

state that they visit the local beaches. The area’s

scenery is perceived to be the most important

attraction. The problem is that the development of

overseas holidays has sapped the market for the UK

traditional seaside holiday and, if South Ayrshire is to

tap more of its potential tourism value, it has to look

at developing new ‘experiences’.

Among the options explored have been expanding

activity tourism (eg cycling, canoeing, horse riding,

etc). Certainly activity tourists spend twice as much

as other tourists to the area. The expansion of sailing

and eco-tourism has also been mooted. However, for

these to grow, there is a need to develop both the

facilities and area’s image of ‘outdoor’ tourism

destination.

Opportunities for Expanding Golf Tourism

The estimated income to South Ayrshire from Golf

Tourism is about £11M. Its expansion depends on

identifying target markets and seeking to attract

more visitors out of season. In 2009, golf tourists

from North America were declining in numbers. This

has created a premium on attracting golfers from

Europe and from new emerging markets, who have

found the weak Pound an attraction. Golf tourists to

Scotland also tend to be male and aged 35-54. This

has led to the idea that more should be done to

attract women and families. In turn, this has

suggested that greater attention should be given to

offering holiday packages combining golf with other

activities, like shopping. However, attracting more

golf tourists may only be feasible if they can be

persuaded to come outside the May-September

period, when the demand for rounds of golf outstrips

supply on the more prestigious courses. This may not

be easy, as surveys have suggested that the weather

is an actual deterrent to more visiting Scotland,

although anecdotal evidence suggests that this may

not be true of all markets, such as Scandinavia.

Expanding the Market for Horse-Racing

Among day visitors, but not tourists, Ayr Racecourse

ranked quite high as a tourist attraction and a reason

to visit South Ayrshire. In 2009, Ayr Racecourse had a

total attendance of 95000, up 15% from 2000.

However, attendances are concentrated around the

Ayr Grand National and Ayr Gold Cup, which together

account for just over 40% of all attendances. Racing

‘tourists’ are an important element, with 32% of all

visitors to the course travelling more than 50 miles

and as much as 30% of those attending the Ayr Gold

Cup staying at least one night.

However, to increase attendances, Scottish Racing

identified that Scottish courses need to attract

visitors to the courses by putting on festivals/events

targeted at non-traditional markets. Examples in

recent years at Ayr have been the Saints and Sinners

Racenight and Ladies Days, which probably account

for the growth in attendances in recent years. Also

the development of floodlit all-weather tracks would

allow more racing in the winter months, but this

would entail significant investment. Consequently,

growth in attendance levels at Ayr Racecourse is

unlikely to be achieved in the short-term.

Source: Doyle, C (2010). Tourism in South Ayrshire: The Present Profile and Future Opportunities.

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However, there are very real challenges to increasing the spend. With its image as a place for short-

breaks or a place to visit as part of a wider tour, for example of premier Scottish golf courses, this

suggests that it may be quite difficult to increase the average length of stay in South Ayrshire. At the

same time, increasing the spend per trip, both by visitors and day trippers, will mean providing more

opportunities to spend, which will mean more investment. Finally, attracting new visitor groups may

well require the area to compete with existing tourism ‘hotspots’ in Scotland.

Like other visitor destinations, the seasonal pattern of visits to Ayrshire is highly skewed towards the

summer months. At the same time, for tourists to the area the average length of stay increases

from 2 days in February to 5 days in August. The result is that hotel and guest house occupancy

rates show a very skewed seasonal distribution (see Figure 17), with occupancy rates of 20-30% in

the period November-February and of 60-80% in June-September.

Figure 17

Percentage Occupancy Rates for Hotels and Guest Houses in Ayrshire by Month in 2008

0

20

40

60

80

100

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

% O

ccu

pan

cy

Hotels Guest Houses

Source: VisitScotland (2008). Tourism in Ayrshire & Arran 2008.

The pattern is consistent with many traditional seaside areas. However, a comparison of the

occupancy rates for both hotels (see Figure 18) and self-catering accommodation (see Figure 19) in

Ayrshire, Scottish Borders and Highlands does suggest that some other ‘rural’ areas in Scotland are

more successful in sustaining occupancy rates outside the summer season. As a result, the annual

average occupancy rates for hotels in Ayrshire, Scottish Borders and Highland in 2008 were 53%,

58% and 59%; the comparable figures for self-catering accommodation were 42%, 53% and 47%

respectively. This shows that it is not just cities, like Edinburgh and Glasgow, that can sustain higher

occupancy rates than Ayrshire, but other areas reliant on ‘outdoor’ and ‘rural’ holidays. This

indicates that South Ayrshire needs to be less passive in attracting ‘out-of-season’ tourists and give

more consideration to expanding the range of visitor ‘experiences’, to include activities less

dependent on the summer season.

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Figure 18

Comparative Percentage Occupancy Rates for Hotels in Ayrshire, Scottish Borders and Highland by

Month in 2008

0

10

20

30

40

50

60

70

80

90


% O

ccu

pan

cy Ayrshire

Borders

Highland

Source: VisitScotland (2008). Tourism in Ayrshire & Arran, Scottish Borders & Highland 2008.

Figure 19

Comparative Percentage Occupancy Rates for Self-catering Accommodation in Ayrshire, Scottish

Borders and Highland by Month in 2008

0

20

40

60

80

100


% O

ccu

pan

cy Ayrshire

Borders

Highland

Source: VisitScotland (2008). Tourism in Ayrshire & Arran, Scottish Borders & Highland 2008.

Food & Drink Processing: The Right Ingredients for Growth?

In 2008, food and drink processing accounted for about 18% of the Gross Value Added and about

11% of employment in manufacturing in South Ayrshire35. This is a slightly lower proportion than

nationally, where it accounted for 25% of the manufacturing GVA and 21% of manufacturing

employment36. Nevertheless, the sector’s GVA locally grew by 40% in nominal terms and 13% in real

terms between 1998 and 2008. However, while the sector’s output grew, both the number of

businesses and the numbers employed have halved. Today, there are 19 businesses employing just

35

Office of National Statistics. Estimates of employment and output by manufacturing sectors by Scottish Local Authority 36

Scottish Government (2010). Food and Drink Scotland: Key Facts 2010.

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under 540 people37. Sixty per cent of this employment is in 2 firms, with the majority of other

businesses employing less than 10 people. Table 15 provides a breakdown of the firms and

employees by speciality. In terms of turnover, the dominant activities are meat processing (34%),

alcoholic drinks (28%), bread & biscuits (18%), confectionary (11%) and animal feeds (8%)38.

Table 15

Estimated Number of Food Firms and Employees by Speciality in South Ayrshire in 2009

Speciality No of Firms No of Employees

Meat processing 4 209

Fish processing 2 38

Ice cream manufacture 1 1

Bread and biscuit manufacture 4 41

Confectionary 1 65

Other food processing 2 4

Animal feed processing 4 39

Drinks manufacture 1 140

Total 19 537

Source: Inter-Departmental Business Register for 2009

From this analysis, it is clear that, although the Ayrshire Economic Partnership have recently

identified the food & drink sector as a strategically important sector for Ayrshire, the number of

businesses involved in South Ayrshire is very small and only two (a whisky distiller and a meat

processor) are of any size, suggesting that the sector is too fragmented and too small to offer a basis

for local economic growth.

Business Support Services: An Economic Driver?

Business support services, defined as advertising, marketing, consultancy and business support,

were identified as an area of comparative advantage for South Ayrshire. Altogether, there are

around 200 firms, employing just under 900 people in 200939. However, it is unclear whether the

size of this sector is a function of factors internal rather than external to the South Ayrshire

economy. If, as seems likely, the sector largely services other local business, it will not function as an

economic driver. Instead its future is entirely dependent on the dynamism of the local economy.

Given this, its development is unlikely to be a key element of any local economic strategy.

The Public Sector: An Uncertain Future?

The public sector traditionally in the West of Scotland has played an important role in sustaining

employment and household incomes, so increasing the spending power in the local economy. In

South Ayrshire, around 30% of the working population is employed in the public sector, with the

37

Inter-Departmental Business Register data for 2009. 38

Cogent (2005). West of Scotland: View of Global Product Trade. Report prepared for SAC, October 2005. 39

Inter-Departmental Business Register data for 2009.

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Council and the National Health Service together providing nearly 25% of all local jobs40. However,

while in the past attracting public sector jobs to the area might have a represented an important

element of any economic strategy, since the onset of the recession and the UK Government’s

decision to shrink public sector budgets, the emphasis has to switch to increasing private sector

employment.

Inequality of Economic Opportunity

While attracting new businesses and generating new jobs is central to any economic strategy for the

area, a secondary consideration has to be how any growth impacts on the economic opportunities

for different areas and communities. The existence of pockets of high economic deprivation in

North Ayr and Girvan has dominated attempts to regenerate parts of the South Ayrshire economy.

More recently, the growing problem of town centre decline, especially in Ayr itself, has become an

issue, while a concern about the emergence of a two-speed economy, with the southern, rural part

of the Local Authority experiencing the exodus of young people in response to limited job

opportunities and a poor transport infrastructure. Finally, there is increasing evidence that young

adults have been especially hard hit in terms of job opportunities by the recent recession. In South

Ayrshire, unemployment among 16-24 year olds rose to 20.1% in April 2011, virtually the same as

Glasgow and nearly twice the level in Edinburgh41.

Urban Deprivation

Datazones, that form part of the 15% most deprived communities in Scotland, are exclusively

concentrated in the urban areas of South Ayrshire, notably in North Ayr and Girvan. While having

just 12% of the working-age population, in the last quarter of 2010, they accounted for 31% of all

claimants of Job Seekers Allowance (JSA) and 32% of all 16-24 year olds claiming JSA42. They also

accounted for 34% of all 16-19 year olds within South Ayrshire not in employment, education or

training in 200843. While research has shown that this concentration of worklessness is strongly

connected to local housing policies and especially the location of social housing, past regeneration

strategies may have contributed to the persistence of these pockets of economic deprivation44.

Initiatives, like the Fairer Scotland Fund, because of their funding criteria, tended to focus attention

on strategies which sought to improve conditions in the deprived areas through actions and

investments in these areas. However, elsewhere in Europe successful attempts to regenerate run-

down inner city areas have avoided ‘isolating’ the areas and framing policies solely targeted on these

communities. Instead they have accepted that the regeneration of run-down inner city areas will

only happen within the context of the wider redevelopment of the city. The implication is that high

unemployment in areas like North Ayr is unlikely to be best solved by trying to create jobs in North

Ayr, if for no other reason it is often difficult to attract firms to deprived areas. Instead, the solution

40

Inter-Departmental Business Register data for 2009. 41

http://www.nacasadvice.org.uk/news/28/north-ayrshire-tops-scottish-league-for-youth-unemployment 42

Scottish Neighbourhood Statistics. 43

Scottish Neighbourhood Statistics. 44

Doyle C & Sherlock D (2010). Strategic Review of Community Regeneration Activity in South Ayrshire. SAC Internal Report, 25 October 2010.

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has to lie in the wider employment strategies pursued for South Ayrshire. In this respect, the latest

employability action plan for the area recognises the importance of adopting a more strategic

approach to supporting people into work45. This involves the mapping of an employment ‘pipeline’,

linking the individual, training support agencies and local employers to ensure that there is a

supported route from worklessness to employment. Clearly, this needs to be linked into the vision

behind any local economic strategy.

Town Centre Redevelopment

Integral to the regeneration of the area and of communities, like North Ayr, is the redevelopment of

Ayr town centre. As the historic county town and an important hub of economic activity, the town is

an important driver of the local economy. The Ayrshire Household Shopping Survey of 2009

revealed that 68% of all food and grocery spending by South Ayrshire households was done in Ayr.

The comparable figures for clothing & footwear, electrical appliances, and furniture & carpets were

71%, 61% and 79% respectively46. It is also the key location for retail and office-based activities

within the Local Authority, as well as an entertainment and leisure hub for the local population. It

should also play a central role in the area’s tourism, though there is a widespread view that it is

underperforming in this role, let down by its ‘townscape’, retail and evening entertainment and the

quality of its accommodation. As a result, the town is not attracting enough tourists, nor are they

spending enough money, in comparison to the town centre’s tourism potential.

In the last decade (see Figure 20) Ayr town centre has seen a rise in shop vacancies to levels

significantly above the UK average of 12% in the second quarter of 200947. Significantly, in Prestwick

and Troon, where there is a high proportion of small, independent retailers, vacancy rates have

fallen. The reasons for this are48:

Retail centres, like Silverburn and Braehead , outside South Ayrshire are attracting shoppers

away, especially with improvements in the A77;

The diversification of out-of-town supermarkets into non-food items has reduced the

footfall in town centres;

At the same time, existing town-centre businesses have faced increased competition from

internet sales and the rise of discount clothing companies, which now account for 20% of

clothing retail sales;

Closure and consolidation of national chains, which account for a third of vacancies in Ayr;

and

The move of supermarkets and furniture and electrical retailers to out-of-town locations,

reducing the overall goods on offer in the town centres.

45

South Ayrshire Workforce Plus Group Action Plan 2011-12. 46

These figures do include the spend at Heathfield, which is significant for electrical appliances and furniture. 47

Ayrshire Joint Planning Unit (2009). Household Shopping Survey 2009, November 2009. 48

South Ayrshire Council (2009). Monitoring Statement 2009. Part 1: Summary of Changes and Key Issues.

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Recognition of these problems connected with Ayr town centre led to the development of a

strategy for re-developing the town centre49,50. This strategy is clearly integral to any wider

economic strategy.

Figure 20

Trends in Shop Vacancies between 1999 and 2009 in Ayr, Prestwick, Troon, Girvan and

Maybole

0%

5%

10%

15%

20%

25%

% of All Shops

Ayr Prestwick Troon Girvan Maybole

1999

2009

Source: Town Centre Intelligence, The Local Data Company, Geofutures, 10 July 2009.

Rural Communities

Just over 32% of the local authority’s population (some 36000 people) are to be found in the ‘rural’

areas of the Local Authority, with a third living in the communities of Maybole and Girvan. However,

as a recent study underlined51, there are some unique issues connected with the economic

development of these areas. In particular, the sustainability of many rural communities is heavily

bound up with their economic resilience.

Even more so than in South Ayrshire as a whole, employment in the rural areas is dominated by the

public, whether it is the Council, schools or the NHS. Just under 50% of all jobs in the rural areas in

2009 were in the public sector. Together with hotels & restaurants, manufacturing and the retail &

wholesale sector, just four sectors accounted for 77% of all employment in the local area. In

particular, the high concentration of employment in the public sector is of real concern, given the

anticipated cuts to public sector budgets. At the same time, although there are nearly 1000 jobs in

manufacturing, two-thirds of these are accounted for by just 5 companies. This means the rural

economy locally is very dependent on the performance and profitability of a handful of key

businesses in this sector.

While communities, like Dundonald, Symington, Tarbolton, Mossblown and Coylton in the north of

the rural area (Kyle) are relatively buoyant, the picture is very different in the south (Carrick).

Overall, the population of the Kyle area has grown by 5% between 2001 and 2009 and household

incomes are relatively high, with only 16% estimated to have incomes below £10000 per year. More

49

City Development Cooperative Ltd (2007). Ayr Town Centre Strategy. January 2007. 50

Erz Limited (2008). Ayr Town Centre Strategy: Strategy Development & Review. May 2008. 51

Doyle C (2010). The Rural Economy of South Ayrshire. 22 December 2010.

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than 60% of employment in the area is in the public, retail and financial sectors and being located

within the broad triangle formed by the towns of Ayr, Irvine and Kilmarnock, these communities

have reasonable transport links. In contrast, much of the Carrick area, outside Maybole, is exhibiting

population decline, reflecting the fact that the area is more rural and more isolated than the Kyle

area. Nearly 30% of employment is in traditional manufacturing industries, some of which are in

decline. Jobs in the retail, finance and communications sectors have flowed in more slowly into

Carrick than Kyle. As a result, many of the jobs in Carrick are low-skilled, low-paid and seasonal. In

real terms, incomes are 10% lower than in Ayr, Prestwick and Troon and 22% of households in

Girvan and South Carrick are estimated to have annual incomes of less than £10,000 per year.

Not surprisingly, the recent action plans for many of these communities in Carrick (Ballantrae, Barr,

Colmonell, Dailly and Lendalfoot) have stressed the need to expand local job opportunities52.

Typically, over 70% of respondents consulted on the future vision for their communities wanted

small business development to be encouraged, with a similar percentage in favour of developing

tourism. This seemed to reflect the fact that, unlike the communities in Kyle, they saw themselves

as more self-contained. This is probably a function of the distances from main centres of

employment, apart from Girvan. It is also perhaps significant that they talked of promoting small

business development, rather than attracting larger businesses. More than in Kyle, access to

services and facilities were also cited as a real issue.

All this underlines that from the perspective of economic development, rural areas in South Ayrshire

cannot be treated as a homogeneous community, for which there is a single prescription.

Nevertheless, the picture of the local rural economy that is emerging is that it has a relatively weak

economic base, being dependent on small one-man businesses and the public sector for a high

proportion of its jobs. The inference is that the rural economic base in South Ayrshire needs to be

diversified to include a wider range of industries. However, it was concluded in a recent report53

that the infrastructure and institutional environment was not conducive to new business formation

in these areas. Barriers included obstructive planning policies, limited broadband provision,

insufficient affordable housing and poor transport links.

Youth Unemployment

The onset of the recession has focused the spotlight on joblessness among young adults aged 16-24

years. Figure 21 shows the estimated unemployment rates for 16-24 and 16-64 year olds in South

Ayrshire from 2004 to 2010; these figures are expressed as a percentage of the economically active

population and use the ILO definition of unemployment, which is broader than simply those claiming

Job Seekers Allowance. Two things are evident. First, since the onset of the recession, there has

been a sharp rise in the unemployment rate for 16-24 year olds to nearly 26% in 2010. Second, the

unemployment rate for young adults has increased at a faster rate than for the population as a

whole. Thus, while the rate has increased from 5.2% to 10.4% for the working-age population

between 2008 and 2010, it has increased from 11.3% to 25.7% for 16-24 year olds over the same

52

Doyle, C (2010). The Rural Economy of South Ayrshire. SAC Internal Report, 22 December 2010. 53

Doyle, C (2010). The Rural Economy of South Ayrshire. SAC Internal Report, 22 December 2010.

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period. This is raising the spectre of a generation of young adults, who may potentially spend their

working life in and out of work. Trying to ensure that new employment opportunities are created

for this age group specifically ought to be a central part of an economic strategy.

Figure 21

Trends in the Unemployment Rate for 16-24 and 16-64 Year Olds in South Ayrshire Expressed as a

Percentage of the Economically Active Population in Each Age Group

0

5

10

15

20

25

30

2004 2005 2006 2007 2008 2009 2010

% o

f Ec

on

om

ical

ly A

ctiv

e

Po

pu

lati

on

16-24 Year Olds 16-64 Year Olds

Source: NOMIS

Concluding Remarks

From this review of the area’s economic opportunities, three things are clear:

First, it is likely that the trend towards a growing proportion of the resident population

seeking work outside the local authority will continue, given that the area’s economic

opportunities are comparatively limited. The inference is that ensuring there are good

transport links to and from South Ayrshire will be critical, if people are to be able to remain

in South Ayrshire and commute to find work in Glasgow. Moreover, this underlines that the

economic future of South Ayrshire cannot be separated from the wider economic future of

the West of Scotland.

Second, any of the local economic opportunities identified will not be realised without some

form of public intervention and facilitation. The majority of local private sector businesses

are small and experience elsewhere has shown that it is hard for SMEs to find the time and

resources to invest in the innovation, product development and research needed to grasp

new opportunities.

Third, any economic strategy for the local area needs to recognise that it is about more than

simply generating new jobs. It needs to integrate with other strategies connected with

regenerating deprived communities in North Ayr and Girvan, revitalising the town centres,

especially that of Ayr, tackling youth unemployment and ensuring that any economic gains

benefit both urban and rural communities within South Ayrshire.

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CHAPTER 3: CHALLENGES FOR THE FUTURE

An Uncertain Future

The evidence from the preceding analysis is that without fairly active intervention the area is

potentially going to experience economic decline. Thus:

Economic output, as measured by Gross Value Added (GVA) per head of population, has

grown more slowly than in Scotland as a whole (see Figure 22). Whereas between 1995

and 2008, the GVA per head of population in Scotland grew in nominal terms by just

over £9000, the equivalent increase in South Ayrshire was only £7600. As a result, the

gap in GVA per head between South Ayrshire and Scotland has widened in the last

decade.

This is probably a reflection of the fact that the number of jobs available in South

Ayrshire has contracted quite sharply in recent years (see Figure 23), so that an

increasing proportion of those in work locally must find employment outside the Local

Authority. At the time of the 2001 Census, it was reported that 28% of local people in

work commuted to areas outside the Local Authority, but by 2008 the Annual Population

Survey put this percentage at 32%. Unless this trend is halted, the likely consequence is

that the area will increasingly become part of the dormitory zone for Greater Glasgow.

At the same time, the local economy has become increasingly dependent on the service

sector (see Figure 24). Employment in manufacturing-related industries (manufacturing,

energy and construction) has fallen from 21% in 2006 to 18% in 2010. The significance

of this is that this trend will need to be reversed, if aspirations to build on the area’s

engineering tradition are to be fulfilled.

Nor is there much evidence that the benefits of economic growth locally have reduced

social and spatial inequalities. The number of datazones (communities) in South

Ayrshire reported to be in the 15% most deprived areas in Scotland has steadily risen

from 13 in 2004 to 18 in 200954. More generally, the distribution of income has become

more skewed with time. Figure 25 presents the distribution of earnings in South

Ayrshire in 2002 and 2010. Specifically, ranking people in work by the level of their

earnings from poorest to richest, it shows what proportion of workers share what

proportion of the total earnings pot. If earnings were equally distributed, the

distribution would conform to the ‘line of equality’. In so far as the actual distribution

does not conform to that line, it measures the degree of inequality, with the further

away the actual line is from the line of equality, the more unequal the income

distribution55. It can be seen that the 2010 curve is further from the line of equality than

the 2002 curve, implying that the better off are gaining at the expense of the worse off.

54

Doyle C & Sherlock D (2010). Strategic Review of Community Regeneration Activity in South Ayrshire. SAC Internal Report, 25 October 2010. 55

These figures only consider earnings not wealth.

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Figure 22

Trends in Gross Value Added per Head of Population in South Ayrshire and Scotland, 1995-

2008

Source: Office of National Statistics on Regional GVA

Figure 23

Recent Trends in the Numbers of South Ayrshire Residents in Employment and the Number of

Jobs Available Locally

Source: NOMIS

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Figure 24

Trends in the Percentage Share of Manufacturing Jobs in Total Employment in South Ayrshire,

2004-2010

Source: Office of National Statistics

Figure 25

Distribution of Total Earnings from Employment in South Ayrshire in 2002 and 2010

Source: Annual Survey of Hours and Earnings

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The preceding analysis also shows that there is no simple panacea for the problems confronting the

South Ayrshire economy. Instead progress will be achieved through a range of actions directed at:

diversifying the employment base;

stimulating new business creation and helping existing local businesses to grow;

re-generating Ayr town centre, so that it serves as a magnet for growth;

increasing the local skills base;

tackling spatial inequalities in economic opportunity; and

making the area more attractive to people and businesses.

The implications of each of these strategic actions are considered below.

Strategic Actions Required for Successful Economic Regeneration

Diversifying the Employment Base

Of the 47000 jobs in South Ayrshire in 2010, 32% were in the public sector, 15% in the retail sector

and 13% in tourism. Together these sectors provide 60% of employment. While the public sector

has helped to cushion some of the fall in local employment, since the onset of the recession, the

high proportion of jobs in this sector is a concern, at a time of public sector budget cuts. There is a

need to increase private sector employment. However, this is unlikely to be easy. As Figure 26

shows, the public sector’s share of total employment in South Ayrshire has hovered around 30% for

much of the last decade. Reducing this to even 25% would require an extra 2300 jobs to be created

in the private sector. Against a background of a fall in private sector employment of 6000 jobs

locally between 2004 and 2010, this would represent a significant turnaround.

Figure 26

Percentage Share of Total Employment in South Ayrshire in the Public Sector

Source: NOMIS

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As noted earlier, the areas of economic opportunity are tied up with i) engineering, notably

aerospace, ii) renewables and iii) tourism. However, in the case of the local aerospace industry, 70%

of the activity is connected with maintenance and repair of aircraft. The future of much of this work

is likely to be tied up with the future of Prestwick Airport and the decisions of airlines. This might

suggest that attention should focus on attracting more businesses, like Spirit Aerosystems and

Goodrich, which are concerned with the fabrication of components. As regards renewables, while

the area’s engineering tradition offers a base for the development of an industry built around

supplying low carbon goods and services, the reality is that there are only a handful of businesses

currently operating in this field. Even tourism, which is a significant employer in the area, is

stagnating. The growth in tourism income in the last decade has been small and overall South

Ayrshire lacks a strong image as a tourism destination. The inference is that these potential

opportunities will not be realised without active intervention from the Council and local

development agencies in the form of:

encouraging key businesses to relocate to South Ayrshire;

raising the awareness of existing local businesses of the opportunities for business growth;

and

assisting local businesses in accessing finance, developing their supply chains and opening

new markets.

Stimulating New Business Creation and Helping Existing Businesses to Grow

While new business development has generally been shown to have a positive impact on economic

development, in Scotland the evidence suggests that stimulating new firm creation does not

increase employment56. The reason for this is that new firm creation both increases and destroys

jobs. The immediate impact of a new firm is to create new jobs, but in the longer term, whether this

increase is sustained depends on whether the new firm displaces existing firms or, through increased

competition, improves the performance of all firms locally in that sector. In Scotland, and other

areas characterised by comparatively low rates of business formation and low entrepreneurial

activity, the evidence is that the displacement effect predominates, resulting in no long-term

increase in employment. In the case of South Ayrshire, the net stock of businesses has only grown

by 7% between 2004 and 2009, compared to 12% for Scotland as a whole57. As such, business

growth in recent years has trailed behind the Scottish average, suggesting that it is likely that the

contribution of new business growth to overall employment locally has been negligible, as it has

been for Scotland as whole.

56

Fritsch M & Mueller M (2005). How persistent are regional start-up rates? An empirical analysis. The Emergence of Entrepreneurial Economics: Research on Technological Innovation, Management and Policy, 9, 71-82; Helmers C and Rogers M (2007). Innovation and the survival of new firms across British regions. Discussion Paper, University of Oxford.; Lee S, Florida D and Arcs Z (2004. Creativity and entrepreneurship: A regional analysis of new firm formation. Regional Studies, 38, 879-971; Mueller P, van Stel A and Storey S (2008). The effects of new firm formation on regional development over time: The case of Great Britain. Small Business Economics, 30, 59-71 57

Office of National Statistics (2010). Business Demography 2009.

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Moreover, there is inherently no good reason to link new business formation to job creation. For

there to be real and significant employment benefits, the new businesses need to grow. Typically,

new businesses are one-person enterprises, so that the addition of 210 businesses to the total stock

of firms in South Ayrshire between 2004 and 2009 can only be expected to have increased job

opportunities by a maximum of 210, unless the new businesses grew fast. In reality more than 55%

of the new businesses created in South Ayrshire in 2004 had ceased to exist by 200958. This indicates

that far from growing many new businesses will quickly die. Real growth is achieved by getting a

new company to expand and in doing so take on more labour. The focus needs to be on the ‘quality’

of businesses created and not the number.

Regenerating Ayr Town Centre

In many ways the state of Ayr town centre is symptomatic of the local economy. The Ayr Town

Centre Strategy, published in January 200759, summed up the problem as follows:

“Without coordinated actions and significant investment Ayr will not evolve into the attractive

destination for tourists which it could become. Tourists will not visit the town centre in significantly

higher numbers than they do today, and quality retail and leisure operators will invest in other

locations. Independent businesses in the north end will continue to struggle and without a quality

independent retail/leisure area to attract shoppers and tourists, the ‘high street’ retail sector will be

more exposed to competition from out of town. Ayr will make less GVA contribution to the Ayrshire

and Glasgow city region economies.” [Page 25].

From an economic perspective, there is a real need to combat the high retail vacancy rate by

developing the town centre’s image as a place with a different shopping experience. The

recommendation of the consultants was that the focus of efforts to redevelop the town centre

should be on:

attracting upmarket independent retailers, to differentiate the town centre as a shopping

destination from competitor retail localities; and

stimulating the provision of evening leisure activities in the town centre, as a way of both

providing a magnet for tourists and for reducing crime and the perception of crime in the

town centre.

Increasing the Skills Level of the Local Workforce

The Leitch Review in 2006 stated clearly that skills were a key driver of economic success

and that 20% of the observed international differences in labour productivity was

attributable to differences in skill levels, with Scotland and the UK faring badly in

58

Office of National Statistics (2010). Business Demography 2009. 59

City Design Cooperative Ltd (2007). Ayr Town Centre Strategy: The Renaissance of Ayr Town Centre. January 2007.

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international league tables60. Certainly, if employment statistics provide an indication of

the area’s perceived skills base, then South Ayrshire is not an attractive area for high tech

firms to locate. In 2007, 44% of both public and private employment in Scotland was in so-

called ‘knowledge-based industries’; the equivalent figure for South Ayrshire was 39%61.

Equally, the area’s share of key growth sectors is low. Scottish Enterprise has identified six

key growth sectors, namely i) creative industries, ii) energy, iii) financial & business services,

iv) life sciences, v) tourism and vi) food & drink. While 31% of employment nationally in

2009 was in these six key growth sectors, in South Ayrshire the proportion was only 22%62.

However, these observations are not the same as saying that growth locally in key sectors is

hampered by a lack of degree-level staff. In 2007 Oxford Economics made some forecasts of

the demand in South Ayrshire for labour in the period 2007-2017 by qualifications63. Of the

33,000 job openings anticipated over this 10-year period, it was expected that 8000 would

be for graduates, 6000 would be for those with Highers, HNCs and HNDs and a further

14000 would be for those with Standard Grades64. As Figure 27 shows, relative to the

numbers of people of working age with different qualifications in South Ayrshire, the future

shortages are not so much for degree-level staff, but for people with intermediate

qualifications. Thus, it is expected that 8000 staff with degree-level qualifications will be

required, compared to 21700 residents with degrees (NVQ4+). Comparable figures are

provided for NVQs 1, 2 and 3 and for those with no qualifications. From this, it is possible to

see that future labour demand is greatest relative to the pool of those with sub-degree

qualifications (NVQs 1-3). This underlines that initiatives, like the recent degree in aircraft

engineering to be delivered by Ayr College and the University of West of Scotland, which

provide skills tailored to the vocational needs of local employers, will be critical to

rejuvenating the local economy.

60

HM Treasury (2006). Leitch Review of Skills: Prosperity for All in the Global Economy – World Class Skills. 61

Futureskills Scotland (2010). Employment and Business Profile for South Ayrshire 2009. 62

Inter-Departmental Business Register for 2009. 63

SLIMS (2007). South Ayrshire 2007 Labour Market Statement 64

These figures are not based so much on an expansion of the total number of jobs available in South Ayrshire, but anticipated staff turnover, including retirements.

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Figure 27

Estimated Demand for Labour by Level of Qualification between 2007 and 2017 in South

Ayrshire Relative to the Pool of Working-Age People Qualified to Given

Levels

0

5000

10000

15000

20000

25000N

um

be

rsNo Q

ualifi

catio

ns

NVQ1 & 2

NVQ3

NVQ4+

Anticipated DemandBetween 2007 and 2017

Working-AgePopulation

Source: SLIMS (2007). South Ayrshire 2007 Labour Market Statement & NOMIS.

Tackling Spatial Inequalities in Economic Opportunity

Economic growth is arguably not solely about increases in total Gross Value Added, but also about

the ‘quality of life’. This latter concept embraces the idea of improving the economic opportunities

for more disadvantaged communities and areas. In the context of South Ayrshire, this means that

any economic strategy should contribute to:

improving employment and household incomes in the most deprived areas of Ayr and

Girvan;

improving the economic opportunities in rural areas, notably in the rural areas to the south

of Ayr; and

improving the employment opportunities of young adults.

Actions, which might help to realise these objectives, are summarised in Table 16.

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Table 16

Actions to Reduce Economic Inequalities and Improve Economic Opportunities

Economic Objective Actions

Regeneration of deprived

areas

changing attitudes to work and training; and

adopting a more strategic approach to supporting people into work

by ensuring a more integrated route from worklessness to

employment, involving benefit agencies, training providers and

local employers working in partnership.

Reduce youth

unemployment

Improve economic

opportunities in rural

areas

improving the responsiveness of planning policies to the needs of

rural businesses by reducing the strong presumption against

development in these areas;

improving broadband provision in rural South Ayrshire, so all

communities having access to download speeds in excess of

2Mbps;

increasing the provision of affordable housing;

improving the frequency, reliability and integration of public

transport.

Making the Area More Attractive to People and Businesses

However, growing the local economy is also about making South Ayrshire an attractive area for

businesses to relocate. Obviously, an expansion in the size of the local market and an increase in

consumer spending power locally can be a magnet for certain industries, such as the retail and

leisure sectors. In turn, growth in these sectors can attract business support services, while the

demand for housing stimulates the construction industry. In such a model, growing the population

by attracting professional families and skilled workers is seen as economically beneficial. Even if the

in-migrants continue to commute to other areas to work, the hope is that they will spend their

money locally and so indirectly boost local employment. However, such a strategy would require a

reversal of current trends. Between 2001 and 2009, the population of South Ayrshire fell by 0.7%.

The reason for this is that net in-migration to the Local Authority was only just over 350 per year in

the period 2001-02 to 2008-0965. This was insufficient to compensate for the natural fall in

population, through declining births and rising deaths, which led to an average annual decline in

population of 410 per year in the same period. All this suggests that it may be difficult in practice to

engineer locally consumer-led economic growth, based around increasing the local population.

On the other hand, the growth in local employment is likely to depend on a growth in the number of

businesses. Whether new business stay in South Ayrshire or relocate there has been shown to

depend on four key ‘locational factors’, regardless of the type of business66. These are:

65

General Register Office for Scotland 66

Experian (2008). Business Investment and Relocation: NWDA.

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a good telecommunications infrastructure;

comparatively cheap and available land for development;

proximity to the founder’s home town, family, school; and

the attractiveness of the local environment.

Clearly, these factors can be influenced by the Council and development agencies, through planning

policies, housing strategies, environmental policies and investment in infrastructure. This underlines

that other areas of local authority activity need to complement any economic strategy, if it is to be

successful.

Towards an Economic Strategy for South Ayrshire

As indicated at the start of this report, the study has sought to answer five key questions, which are

likely to shape any future economic strategy. The principal findings from this strategic review are

summarised below.


The key economic objectives for any economic strategy are arguably fourfold:

to halt the current sharp decline in the number of jobs available in the local

economy. Between 2006 and 2010, the number of jobs in South Ayrshire fell by 8%;

most of this decline was in private sector employment.

to diversify the economic base of the local economy. Of the 47000 jobs in the local

area in 2010, 33% were in the public sector, 15% in the retail sector and 13% in

tourism. Together these three sectors provided 60% of all local jobs. This is an

immediate problem as the public sector is facing potential severe job losses as a

result of budget cuts, while both retail and tourism businesses are facing challenging

times as a result of a loss of consumer confidence.

to reverse the current decline in population and the contraction of the working-age

population by attracting more families and professional people to live in South

Ayrshire. This should boost consumer spending locally and assist the revival of

sectors like the retail trade and construction.

to ensure that any benefits from economic growth are equitably shared, so that

deprived areas in North Ayr and rural communities in the south of the local authority

share in any gains.

How far should the economic future of South Ayrshire be linked to the development of

the Glasgow city region and what does this imply for levels of commuting?

Inevitably the decline in the economic base of South Ayrshire and the contraction in the number of

local jobs has led to residents seeking working outside the Local Authority. Commuting is now a key

feature of the local employment market, with around 30% of the working population resident in

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South Ayrshire commuting to other areas for employment. Moreover, this trend has increased over

the last decade. However, while this is directly a response to the lack of local jobs, there is also a

certain inevitability about this trend as more jobs and investment are sucked into cities, like

Glasgow. It may, therefore, be sensible to recognise this inevitability and put in place strategies

which capitalise on these commuting flows, rather than trying to fight them. Even if the jobs are no

created locally, the likelihood is that the income generated will filter into the local economy. In this

regard, South Ayrshire has the potential to be an attractive place to live and building more homes

for professional people may be a way of attracting those working in places like Glasgow to migrate

to South Ayrshire. However, people will only migrate to South Ayrshire if an attractive environment

is sustained. This means revitalising the town centre of Ayr, improving local leisure facilities and

schools, and generally providing a clean and attractive environment.


However, while the economic future of South Ayrshire can no longer be considered in isolation from

developments elsewhere in the West of Scotland, the area does need to diversify its economic base,

so as to provide a better market for local employment in the future. In this study the sectors

identified as having the greatest potential for development are aerospace engineering, renewables

and tourism. Each sector presents slightly different challenges:

The aerospace industry in South Ayrshire is already fairly well established. However, with

70% of its activity related to aircraft maintenance and repair, uncertainty over the future of

Prestwick Airport potentially affects the sector’s future. However, some confidence can be

drawn from a recent survey of local aerospace businesses that suggested that firms would

not relocate even if passenger and freight operations ceased at Prestwick. Nevertheless,

expanding the number of businesses specifically connected with the fabrication of airframe

components, which might be less vulnerable to changes in activity at the airport, may be a

key aim.

For renewables, the problem is that there are currently only a handful of local firms

currently supplying ‘low carbon’ goods and services. As such, for the potential of this sector

to be realised, a cluster of firms specialising in renewables needs to be developed. Although

the area’s strong engineering tradition might provide the basis for a cluster, at the moment

this sector is in its infancy and its local development will face strong competition from other

areas in Scotland.

Tourism is a long-standing activity and a major employer in the area. The problem is that

there has been little growth in the sector’s income. The number of tourists and day trippers

visiting the area has stagnated and spending per trip remains low. The area’s image as a

tourism destination is not strong and what image that it has is of a traditional seaside

holiday destination. The area needs to transform its image and increase the range of holiday

‘experiences’.

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What are the potential barriers to economic development and how can the Partnership

assist in overcoming these?

However, it is unlikely that any of these potential local economic opportunities will be realised

without some form of public intervention and facilitation. The majority of local private sector

businesses are small and experience elsewhere has shown that it is hard for SMEs to find the time

and resources to invest in the innovation, product development and research needed to grasp new

opportunities. In these circumstances the Economic Development Partnership has a role in:

helping to identify and raise awareness among local firms of the business opportunities

that could potentially be exploited by them in the three target areas of aerospace,

renewable and tourism;

assisting local firms to develop networks, which offer the opportunity for collaborative

business development, the potential for more integrated supply chains and a

mechanism for jointly exploiting R&D;

targeting business support and investment on those businesses which are able to

increase net local employment;

encouraging a stronger dialogue between local businesses and local training providers

and educational establishments to ensure the supply of young graduates with the

required skills; and

ensuring local infrastructure plans and investments are aligned with the needs of the key

growth sectors.


While attracting new businesses and generating new jobs is central to any economic strategy for the

area, a secondary consideration has to be how any growth impacts on the economic opportunities

for different areas and communities. The existence of pockets of high economic deprivation in

North Ayr and Girvan has dominated attempts to regenerate parts of the South Ayrshire economy.

More recently, the growing problem of town centre decline, especially in Ayr itself, has become an

issue, while a concern has developed about the emergence of a two-speed economy, with the

southern, rural part of the Local Authority experiencing the exodus of young people in response to

limited job opportunities and a poor transport infrastructure. Finally, there is increasing evidence

that young adults have been especially hard hit in terms of job opportunities by the recent recession

in South Ayrshire.

Documents

The South Ayrshire Economy and its Future Prospects: A Strategic