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UK creative industries undermined by investor confidence

10/02/2004

"In the future NESTA will be looking to work with Government, investors and trade organisations to address the issues our research has raised."

It is estimated that almost two million people are employed in the UK creative industries including computer games, design, architecture, arts, music and fashion. The sector has grown by an average of 8% between 1997 and 2001, which compares to an average of 2.6% for the whole economy during this time.[i]

Opinion research conducted with venture capitalists and financiers backs up the findings of a report commissioned by NESTA, New solutions to old problems: investing in the creative industries. The report finds that action is required urgently to bring practitioners and the investment community together, to achieve improvements in sector intelligence and financial decision-making.

The poll of 100 investors, commissioned by NESTA and undertaken by independent researchers Continental Research, found that:

64% believe that the UK has the potential to be a world leader in the creative industries, yet only 22% would be likely to invest, compared to 42% who would be willing to lend to the pharmaceuticals sector.
Although 54% of investors recognise that the creative industries have grown faster than the UK economy as a whole, they ranked the sector bottom compared with pharmaceuticals, insurance and pensions, construction and renting property, for the contribution they make to the UK economy.

However, economic indicators show the reverse is true. The creative industries are an important growth sector for the UK economy, contributing £11.4 billion to the UK balance of trade in 2001, well ahead of the construction industry and the insurance and pensions sector and twice the contribution of the pharmaceuticals sector[ii]. It is estimated to account for 7.9% of UK GDP[iii], more than that recorded by any other country.

The UK also risks being eclipsed by other nations developing competitive investment strategies for their creative industries. The Taiwanese administration recently launched Challenge 2008, a six-year national development plan to raise the sector's annual production value, currently estimated at £8.67 billion by 2.5 times, and increase Gross Domestic Product from three to six per cent.[iv]

NESTA was set up in 1998 to pioneer ways of supporting and promoting talent, innovation and creativity in science, technology and the arts. It is now using the experience it has gained from working across these sectors to influence policy and remove barriers to creativity and innovation.

The NESTA report, New solutions to old problems: investing in the creative industries by industry specialist, Tom Fleming, emphasises that under-investment means the sector is failing to achieve its full potential. Traditional investment criteria are often unmeetable by creative businesses, whose products and services are based on intellectual property and geared towards new markets. As a result, investors and creative businesses need better to recognise each other's needs and capabilities and move towards a common middle ground.

The report highlights four key areas where urgent action is needed to ensure that development within the creative industries is sustained. They are:

The development of a "Creative Gateway" - a trade association for the sector to improve sector intelligence and identity.
Bespoke financial tools and support for creative industry businesses, most of which are innovative SMEs.
Encouragement of creative clusters, areas where creative businesses group together and spark the regeneration of communities, such as Hoxton in London and the Northern Quarter in Manchester.
Improved business and financial skills for people in the creative industries, aimed at graduates, who make up the majority of the workforce in the sector.

To help address this, NESTA will be working with experts and practitioners from throughout the creative industries and the investor community to draw up a detailed agenda for change in the near future. NESTA is also offering financial training to young entrepreneurs in the creative industries through its new Graduate Pioneer Programme. This offers recent graduates from art and design courses with innovative ideas for new products or businesses in the creative industries the chance develop entrepreneurship skills and win funding of up to £35,000 to get started.

Chris Powell, Chairman of NESTA, said:

"NESTA's Graduate Pioneer Programme is the first step in addressing some of the barriers to investing in the creative industries identified by our research. It will arm young creative entrepreneurs with the skills to thrive in business, but more still needs to be done to help others in the sector access appropriate finance.

In the future NESTA will be looking to work with Government, investors and trade organisations to address the issues our research has raised, which threaten the future growth of the UK Creative Industries and the potential they have to nourish our economy."

[i] Creative Industries Economic Estimates Statistical Bulletin July 2003, DCMS

[ii] See www.tradepartners.gov.uk

[iii] DCMS Creative Industries Fact File http://www.culture.gov.uk/PDF/ci_fact_file.pdf

[iv] http://publish.gio.gov.tw/FCJ/past/03031431.html and Symposium: Cabinet Council for Cultural Affairs, Taiwan