3. Core Regional Analysis

3.1 Introduction

3.1 This chapter presents a number of main findings from the final balanced SAM, comparing them with results from other regions and highlighting changes that have taken place in the Western Isles since the previous 1988/89 input-output study. In addition to standard performance indicators such as Gross Regional Product in the base year (1997), the SAM provides a basis for analysing the relative importance of different sectors in the economy, as well as the pattern of trade, household income and expenditure patterns, and transfer payments.

3.2 Gross Regional Domestic Product and Expenditure

3.2.1 Gross Regional Domestic Product (GRDP) is a measure of the total economic activity within a region, and corresponds to GDP at national level. It represents the sum of all value added earned by the production of goods and services within a certain territory over a certain period of time, where value added is defined as income less intermediate costs. Per capita GRDP is often used as an indicator of economic welfare of a region, with comparisons of GRDP across regions indicating different living standards. Over time, changes in GRDP will indicate the extent to which an economy has been either growing or declining although, unless expressed in constant prices, changes also reflect the effects of inflation.

3.2.2 Table 3.1 presents the estimation of the Western Isles GRDP derived from the 1997 regional SAM. Two approaches to measuring GRDP are given: the expenditure measure and the income measure. In accordance with the accounting identities inherent to the economy, both approaches produce the same value for GRDP, i.e. £221 million (£221m). Since the total resident population of the Western Isles in 1997 was 28,240 (General Register Office for Scotland, 1998), GDRP per head in that year is estimated at £7,827.

Table 3.1 Western Isles Gross Regional Domestic Product, 1997

Expenditure Approach	Source in SAM	£'000
Household expenditure	Note 1	167,770
+ Local government expenditure	Note 2	68,149
+ Central government expenditure	Note 3	50,152
+ Gross fixed capital formation	column sum	23,187
+ Change in the value of stocks	column sum	-67
+ Tourist expenditure	column sum	31,715
+ Exports	Note 4	122,222
- Imports	sum of row totals	220,211
- Net taxes & subsidies on expenditure (indirect taxes)		21,893
= GRDP at factor cost		221,023
Income Approach		£'000
Income from employment	row sum	177,502
+ gross profits and other trading income	row sum	43,521
= GRDP at factor cost		221,023
GRDP per head	(population 28, 240)	£7,827

Notes:

1. Household expenditure on Western Isles goods and services (£80,669,000) plus expenditure on imports (£71,294,000) plus indirect (expenditure) taxes (£15,802,000).

2. Local government account (£70,308,000) less internal transfers (£879,000) and surplus (in capital account) (£1,280,000).

3. Expenditure on Western Isles goods and services (£40,269,830) plus expenditure on imports (£3,252,000) plus sum of central government transfers for public services (£6,630,128).

4. Sum of column totals for (all) exports (£126,046,000) plus transfers to sectors from abroad (£1,174,000) less transfers to households from "abroad" (£4,998,286)

3.2.3 Table 3.2 compares the estimate of GRDP derived from the SAM with estimates from other studies, i.e. the recent Mackay Consultants and ERM studies, and as estimated from the Office of National Statistics regional accounts. The SAM-based estimate is 9% lower than that of the 1997 estimate by Mackay Consultants but substantially higher than the estimate based on the ERM study of the Western Isles carried out in 1996, even after allowing for the effects of price inflation.

Table 3.2 Alternative estimates of Western Isles GRDP and GRDP per head

Source	Year of data	GRDP (£m)	GDP per head (£)
MLURI (1999) Regional SAM (this report)	1997	221	7,827
Mackay Consultants (1998) District Economic Output	1997	242	8,566
ERM (1998) Incomes study	1996	206	7,142
ONS (1998c) Regional Accounts	1996	233	8,702

3.2.4 Table 3.3 shows how the total and per head estimates of Western Isles GRDP compares with those found in other regions. Western Isles GRDP per head is only 65% of the equivalent UK GDP per head of £12054. It is also substantially lower than the recent estimates of GRDP per head for the Shetland Islands, the Orkney Islands and Scotland as a whole⁹ and slightly lower than that estimated for the whole Highlands and Islands area from ONS (1998d) statistics.

Table 3.3 Western Isles GRDP compared with estimates for other regions

Region	Source	Year of data	GRDP (£m)	GDP per head (£)	% of UK GDP per head
Western Isles	MLURI (1999) Regional SAM	1997	221	7,827	65
UK	ONS (1998b) UK National Accounts	1997	711,270	12,054	100
Shetlands	Gillespie et al. (1999) I-O	1996/97	290	12,583	98
Orkney	McGregor et al. (1998) I-O	1995	211	10,618	81
HIE Area	ONS (1998) Regional accounts	1996	3,093	8,308	-
Scotland	ONS (1998) Regional accounts	1996	54,430	10,614	-

Note: The UK estimate is valued at current basic prices. The percentage figures for Shetlands and Orkney have been calculated on the basis of the GDP estimates closest in definition to that estimated in each study.

3.2.5 In relation to changes over time, the estimate of GRDP from the SAM is much higher than that from the 1988/89 input-output study of the region (Scottish Office Industry Department, 1991), as shown in Table 3.4. Allowing for both price inflation and a rate of growth in economic activity equal to that experienced in the UK as a whole¹⁰, the updated input-output study would estimate a Western Isles GRDP of only £187.6m, compared to the £221m figure found in the current study. The findings thus suggest that the Western Isles has experienced economic growth since 1988/89 at a rate considerably higher than that experienced in the UK as a whole. Despite this recovery, there is still a major shortfall in productive economic activity. In comparison with other Scottish island groups, a recent study (Fraser of Allander Institute, 1999) found that GDRP in the Shetlands Islands shrank by 35% between 1987/88 and 1996/97, being severely affected by decline in oil-related activity. The two sets of islands clearly have quite different levels and paths of economic development.

Table 3.4 Composition of Western Isles GRDP, 1988/89 and 1997

	1988/89 (£'000)	Updated to 1997 at UK rates* (£'000)	Shares of GRDP (%)	1997 regional accounts (£'000)	Shares of GRDP (%)
Household expenditure	82840	140394	74.8	167770	75.9
Local government expenditure	36474	61814	32.9	68149	30.8
Central government expenditure	19070	32320	17.2	50152	22.7
Gross fixed capital formation	25789	43706	23.3	23187	10.5
Change in the value of stocks	1842	3121	1.7	-67	0.0
Tourist expenditure	4480	7593	4.0	31715	14.3
Exports	34792	58964	31.4	122222	55.3
Imports	94571	160275	85.4	220211	99.6
Net taxes on expenditure	-	-	-	21893	9.9
GRDP	110715	187636	100.0	221023	100.0
					(% diff.)
GRDP per head (£)		6640		7827	(+17.9)

Note: The 1988/89 input-output estimates (Scottish Office Industry Department, 1990) have been updated to 1997 to allow for the effects of price inflation and a rate of economic growth equal to that for the UK as a whole. The 1988/89 study valued transactions at producer prices as opposed to basic prices and thus did not estimate the value of net taxes on expenditure.

3.2.6 Table 3.4 also shows how the components of GRDP have changed over time. The comparison provides useful insights into the types of changes in the economy that have taken place over the last decade. In particular, whilst the relative importance of household and local government final consumption in the Western Isles have stayed roughly constant, central government expenditure has increased. Most significant has been the increase in trade-related flows with imports, exports and tourism both increasing in importance, the latter contributing 14.3% to GRDP as compared to 4% in 1988/89. The economy appears to have become more reliant on trade and more open to economic influences outside its territory. This is discussed further in Section 3.5 below.

3.2.7 An alternative indicator of economic welfare (or standard of living) in a region is the Gross Regional Domestic Expenditure (GRDE) measure. Whilst GRDP focuses on the value of economic activity within the region, GRDE is a measure of the value of expenditure of domestic residents, regardless of the source of goods and services. Table 3.5 indicates that the 1997 regional accounts estimate of total GRDE at £287.3m or £10,173 per capita. The fact that this is substantially higher than per capita GRDP means that the Western Isles absorbed more resources than it produced, and this is reflected in the fact that, despite high exports and tourism, there is a substantial trade deficit.

Table 3.5 Western Isles Gross Regional Domestic Expenditure, 1997

	£'000
GDRP	221,023
+ Imports	220,211
- Exports	122,222
- Tourist expenditure	31,715
GDRE	287,297
GDRE per head	£10,173

3.2.8 The UK figure for Gross Domestic Expenditure for 1996/97 is £12,947 per head, compared to which the Western Isles figure comes out at 78.6%. Thus the 65% performance in productive economic activity, as measured by the GRDP figures previously presented, is significantly but by no means wholly improved when residents' expenditure is measured by the GRDE figures. Equivalent figures are not easily available for Scotland or the HIE area.

3.3 Sectoral Analysis

3.3.1 Table 3.6 shows the sectoral contributions to Western Isles employment, value-added and output in 1997. In terms of employment¹¹, the five most important sectors were: Distribution (i.e. retailing and most wholesaling), "Other Public Services" (i.e. housing, social work, environmental services, police, fire, transportation, arts and leisure), Construction (which includes oil), Agriculture, and Other Services. Together, these five sectors accounted for 44.1% of total Western Isles employment in terms of FTE jobs. The five most important sectors in terms of value added (i.e. earnings in terms of wages, profits, etc.) were: Other Public Services, Distribution, Education (schools and colleges), Fish Farming and Construction, which in aggregate contributed 56.5% to Western Isles value added.

3.3.2 The importance of the public sector (education, health, public administration and other public services) in the Western Isles is striking. On aggregate, these sectors account for 28% of employment, 36% of value added and 35% of the total value of output. The higher percentage of value added compared to employment is due to the relatively high average wages and salaries earned by public sector employees. Other important sectors are the distribution, construction and fishing sectors. Two of the other "traditional" Western Isles sectors, agriculture and textiles, contribute far more to employment than value added or output levels. Given the importance of tourism to the Western Isles economy, the contribution of the hotels, other accommodation and catering sectors is perhaps less than might have been anticipated. In the case of value-added earnings, this is partly due to low wages and salaries earned by employees in these sectors.

Table 3.6 Sectoral contributions to employment, value added and output, Western Isles 1997

	Sector	Employment (FTE jobs)	%	Value Added (£'000)	%	Output (£'000)	%
1	Agriculture	690	7.1	1104	0.5	9241	2.1
2,3,5	Sea fishing	640	6.5	5509	2.6	16838	3.9
4	Fish farming	314	3.2	20129	9.4	32681	7.5
6	Electricity, gas, water	120	1.2	2037	1.0	5471	1.3
7	Extraction of ores, etc.	130	1.3	3789	1.8	4063	0.9
8	Textiles	427	4.4	3389	1.6	11132	2.6
9	Pottery and jewellery	26	0.3	429	0.2	843	0.2
10	Food and drink manufacturing	14	0.1	102	0.0	421	0.1
11	Fish processing, wholesaling, etc.	273	2.8	7610	3.6	19062	4.4
12	Other manufacturing	334	3.4	4212	2.0	8057	1.8
13	Construction	870	8.9	17509	8.2	42819	9.8
14	Distribution	1130	11.6	25045	11.7	52358	12.0
15	Hotels	302	3.1	4128	1.9	7990	1.8
16	Other accommodation	44	0.5	276	0.1	1454	0.3
17	Catering	284	2.9	3692	1.7	4130	0.9
18	Land transport	232	2.4	12245	5.7	17276	4.0
19	Air transport	37	0.4	1471	0.7	6580	1.5
20	Sea transport	77	0.8	2195	1.0	3249	0.7
21	IT services & telecommunications	161	1.6	7001	3.3	9818	2.3
22	Banking and insurance	177	1.8	3450	1.6	13914	3.2
23	Media	44	0.5	943	0.4	2213	0.5
24	Education	601	6.1	21635	10.1	34555	7.9
25	Health	608	6.2	12936	6.1	17921	4.1
27	Other public services	930	9.5	36578	17.1	97372	22.3
28	Other services	688	7.0	11005	5.2	11214	2.6
29	Public administration	629	6.4	5344	2.5	5344	1.2
	Total	9777	100.0	221024*	100.0	436015	100.0

* Total Value Added includes an estimated £6,969,000 paid to central government employees residing in the Western Isles.

3.3.3 Figure 3.1 gives an indication of how the structure of the Western Isles economy differs from that of Scottish economy as a whole. Concentrating on contributions to the regions total GRDP, the figure shows in the form of a salience chart the importance of a sector in the Western Isles as compared to Scotland. In cases where the percentage contribution to GDP is identical, the salience value is zero. In cases where a sector contributes more to Western Isles GRDP than Scottish GDP, the salience index is positive; in cases where it contributes less, it is negative.

Figure 3.1 Salience Chart showing the relative importance of sectoral contributions to GRDP

3.3.4 All three of the fishing sectors (sea fishing, fish farming and fish processing) are shown to be far more important to the Western Isles than Scotland as a whole. Education and transport-related activities are also relatively more important. In contrast, general manufacturing activity, agriculture and food and drink processing are all less important than they are at the Scottish level. In general, Figure 3.1 confirms that the Western Isles economy has a very different structure from that of Scotland and is thus likely to fare differently from changes in the general economic climate.

3.3.5 The changing production structure of the economy is illustrated in Table 3.7 which compares the contribution of each sector in 1988/89 with that found in 1997. To facilitate comparison, the 1997 sectors are reclassified into the 19 sectors included in the 1988/89 input-output study. Employment in this table (unlike previous tables, which include self-employment) relates solely to employees and is based on data collected in the 1989 Census of Employment and 1997 Annual Employment Survey.

Table 3.7 Sectoral contribution employment and value-added, Western Isles, 1988/89 and 1997

	% employment		% value added
Sector	1988/89	1997	1988/89	1997
Agriculture	1.8	0.4	2.5	0.3
Fish catching and farming	2.2	3.8	9.2	12.0
Utilities	1.5	0.8	3.3	1.0
Extraction/construction	13.4	9.4	9.2	10.0
Fish processing	1.8	3.6	1.8	3.6
Textiles	3.4	3.4	6.8	1.6
Pottery/jewellery	0.2	0.1	0.1	0.2
Other energy/manufactur'g	2.9	2.5	5.3	2.0
Distribution	13.6	13.3	14.9	11.7
Hotels/catering	4.4	7.7	3.5	3.8
Transport/communications	6.4	6.1	7.5	10.7
Banking/insurance	1.8	2.5	1.5	1.6
Health board	5.8	8.7	6.9	6.1
Local govt. services	24.9	30.8	20.2	29.8
Other services	15.9	8.6	7.3	5.6
Total	100.0	100.0	100.0	100.0

3.3.5 In general terms, the changes are consistent with patterns of VAT registrations and de-registrations in each sector during the 1990s (see Table 3.8). The growth of the service-related employment in the Western Isles is clear from the table. Hotels and catering, and public-sector services have substantially increased the proportion of the workforce they employ. Changes in the relative contributions to value added are broadly in line with the changes in the level of employees, with the exception of the traditional sectors of agriculture and textiles, which are much less important sources of income than in the previous study, though their economic linkages are strong (see Chapter 4).

Figure 3.2 Sectoral employment contributions, Western Isles 1997

Figure 3.3 Sectoral value added contributions, Western Isles 1997

Table 3.8 VAT Registered Enterprises by SIC Code, Western Isles, 1994 and 1998

Industry	At start 1994	At start 1998	Change
Agriculture & Fishing	300	295	-5
Mines, Quarrying, Energy, Water	5	5	-
Manufacturing	70	170	+100
Construction	110	100	-10
Wholesale, Retail	215	195	-20
Hotels, Catering	55	65	+10
Transport	40	45	+5
Finance	-	0	-
Business Services	65	75	+10
Public Admin., Other Services	30	60	+30
Education & Health	10	10	-
Total	900	1015	+215

Source: DTI (November 1997) printed as Table 30 in: Comhairle nan Eilean Siar (1999) The Western Isles Economy: Prospects for Renewal. Stornoway. Figures have rounded to nearest 5 for confidentiality. For various reasons, VAT registrations do not equate to businesses. The large number of registered businesses in Agriculture & Fishing is due to fishing vessels.

3.3.6 In terms of specialisation, the figures in Table 3.7 suggest that employment in the economy has become slightly more evenly distributed between the production sectors since 1988/89. In 1988/89, the five most significant sectors in terms of employment (local government, other services, distribution, extraction/construction and transport/communications) provided jobs for 74.2% of the Western Isles workforce. By 1997, the relative importance of sectors had changed: local government services, distribution, construction and other services remained in the top five, being joined by the health board, while the transport/communications sector became a relatively less important source of employment. Together, they accounted for 70.8%.

3.3.7 However, this picture of a more even sectoral distribution is reversed when value added contributions as opposed to employment are considered. In 1988/89, the five most significant contributors to regional value added (local government, distribution, fishing and fish farming, extraction/construction, and transport/communications) provided 61.0% of total value added (wages, profits, etc.) in the region, compared to 74.2% in 1997¹². Thus the Western Isles economy has become more specialised or reliant on the performance of a few particular sectors. The extent to which these same sectors are good at generating economic benefits for the wider Western Isles economy will be explored in the next stage of the study through multiplier analysis.

3.3.8 Finally, based on the balanced 1997 employment matrix, Figure 3.4 shows how the occupational structure of employment in each sector varies. Appendix 5 provides a detailed breakdown of each Standard Occupational Classification (SOC) category used in the analysis. The figure indicates that there are marked differences between sectors in their reliance on particular segments of the workforce. In particular, the public sectors all have high proportions of employees in SOC classes 1 to 3 (managers, professionals and associated professional). In contrast, four other key sectors in terms of absolute levels of employment, the construction, hotels, textiles and fish processing sectors, all have very low levels of SOC classes 1-3, high levels of classes 4, 6,7 and 8.

Figure 3.4 Employment type by sector

Key: Standard Occupational Classification (SOC) Classes:

1. Managers and administrators	6. Personal and protective service occupations
2. Professional occupations	7. Sales occupations
3. Associate professional and technical occupations	8. Plant and machine operatives
4. Clerical and secretarial occupations	9. Other occupations
5. Craft and related occupations

3.4 The Household Sector

Income

3.4.1 As described in the previous chapter, three household groups represent the Household sector in the Western Isles SAM. The total per capita income of these three groups is estimated in 1997 to be £265.42m or £9,398 per capita. The value of total household income differs from the total value-added payments from local businesses for two reasons. Firstly, the recipients of factor earnings from production activity are not necessarily households who reside in the area. For example, some earnings from employment are paid to non-Western Isles residents, gross profits may flow from the region, and employers' contributions to National Insurance are paid to central government. Secondly, many households receive income from sources other than local industries, for example investment income, social security payments and pensions. In the case of the Western Isles, the value of income earned from sources other than local production activities substantially exceeds the value-added payments flowing from the region. As a result the average per capita income in the Western Isles compares more favourably with UK and Scottish levels than per capita GRDP. The equivalent per capita values in 1996 for Scotland and the UK were £10,614 and £12,054 respectively (ONS, 1998d).

3.4.2 Based on findings from the household survey, Table 3.9 indicates the relative importance of different types of income for Western Isles households. In this case, total income relates to that of the household as a whole. On average, Western Isles households are shown to derive a higher proportion of their income from self-employment, and a lower proportion from wages and salaries than households in either Scotland or the UK. The importance of social security payments, including child benefit, is surprisingly low, whilst income from annuities and pensions is much more important in the Western Isles than in Scotland or the UK as a whole. The latter findings reflects the ageing population structure of the region whilst the low level of social security income may have been under-reported due to the sensitivity of such payments.¹³

Table 3.9 Sources of income by household type, Western Isles 1997

	Household Type
	Adult(s), no dependants	Adult(s), with dependants	Retired households	All Western Isles	Scotland	UK
	Percentage of weekly income
Wages and salaries	60	63	0	54	65	67
Self employment	15	25	1	18	6	8
Investments	3	2	4	3	3	4
Annuities and pensions	13	2	89	17	8	7
Social security benefits	9	7	3	7	17	13
Other sources	1	1	4	1	1	1
Total	100	100	100	100	100	100

Source: Western Isles Household Survey and Family Spending, 1997-98 (ONS, 1998a)

Figure 3.5 Sources of income by household type, Western Isles 1997

3.4.3 The differing sources of household income according to household composition are marked. As expected, by far the most important source of income for retired household is pension income. Wages and salaries constitute the most important income source for both of the other household types with households with children more likely on average to rely on income from self-employment than households with no dependants.

3.4.4 The survey also revealed that secondary (and in some cases tertiary) employment was widespread in the Western Isles with 16% of economically active household members having more than one job. Despite explicitly asking about other types of income such as payments in kind, no significant levels of non-monetary income were found by the survey.

Expenditure

3.4.5 Again based on the findings of the household survey, Table 3.10 contrasts the level and pattern of weekly expenditure of Western Isles households with that of average Scottish and UK household expenditure patterns. Total weekly household expenditure is estimated to be £287.79, slightly less than that in Scotland and significantly less than that in the UK. A much higher percentage of expenditure is spent on necessities, in particular food and drink, heating, fuel and light, although this is compensated to some extent by lower motoring and travel expenditures¹⁴. Considerable evidence exists to suggest that the pattern of relative prices faced by households in the Western Isles varies from that faced by their mainland counterparts (Mackay Consultants, 1998, Clark et al., 1995). This may go some way towards explaining the differential patterns of expenditure in the table although different consumption preferences may also be an important factor.

3.4.6 Table 3.10 also indicates how expenditure patterns vary according to household income levels. As would be expected, the low-income group spends a higher proportion of their total expenditure on food and drink, the highest income group a higher proportion on more luxury goods.

Table 3.10 Level and pattern of weekly expenditure (£) by household income level, Western Isles 1997

	Household Income Group			All Western Isles		Scotland		UK
Expenditure group	low	medium	high
Sample size	32	33	32	97
					%		%		%
Food, drink, tobacco	67.59	92.67	97.84	86.03	30	75.4	25	75.3	23
Heating, fuel & light	15.38	19.56	19.25	18.06	6	13.9	5	12.7	4
Clothing & footwear	7.50	13.48	17.54	12.84	4	18.4	6	20.0	6
Motoring & travel	20.73	31.38	55.70	35.94	12	47.2	16	54.7	17
Housing	24.48	41.55	77.48	47.84	17	45.1	15	51.5	16
Other	58.03	83.77	119.44	87.08	30	97.6	33	114.4	35
Total	193.70	282.40	387.26	287.79	100	297.6	100	328.6	100

Source: Western Isles Household Survey and Family Spending, 1997-98 (ONS)

3.4.7 Figure 3.6 again contrasts differing patterns of expenditure but in this case concentrates on the importance of household composition, adopting the categories of households used in the SAM. Whilst less than the differences associated with income, each household type has its own distinct expenditure pattern, providing a further justification for treating them separately within the database. The full implications of both the differing sources of income and differing expenditure patterns will become clear in the multiplier and impact analysis stages of the study.

Figure 3.6 Pattern of expenditure by household composition

3.4.8 Apart from expenditures on goods and services, the household survey found significant levels of transfer payments by households. In particular, donations to charities and church were high with households with dependants and those with no dependants donating an average £6.20 and £6.90 respectively to charities and/or church per week.

3.5 Trade and Tourism

Trade

3.5.1 Flows of goods and services to and from the Western Isles are a key component of the region's economy. Section 3.1 above suggested that, in 1997, the value of imports into the region, at £220.2m, was almost equal in value to total GDRP. The value of exports from the Western Isles, whilst substantially larger than that estimated for 1988/89, came to only £122.2m, resulting in an external trade deficit of £98.0m. Table 3.11 shows each sector's contribution to the Western Isles balance of trade.

3.5.2 The greatest positive contribution to the trade balance is shown to be from the fish farming sector which imports £6.3m inputs but is estimated to export output to the value of £32.1m and thus contributing £25.8m to the overall trade balance. Fish processing follows, with exports of £18.4m and imports at £2.0m, i.e. a positive trade balance contribution of £16.4m. The construction and land transport sectors (including road haulage) have positive contributions of £8.7m and £8.1m respectively, with the latter in particular earning a substantial proportion of their income from mainland activities.

Table 3.11 Sectoral contributions to Western Isles balance of trade, 1997

	Sector	Exports (£'000)	%	Imports (£'000)	%	Trade Balance (£'000)
4	Fish farming	32132.0	26.3	6324.9	2.9	25807.2
11	Fish processing, etc.	18396.6	15.1	2028.8	0.9	16367.8
13	Construction	24210.9	19.8	15503.4	7.0	8707.5
18	Land transport	10924.6	8.9	2861.7	1.3	8062.8
8	Textiles	7950.6	6.5	3351.3	1.5	4599.3
28	Other services	2181.6	1.8	1.3	0.0	2180.3
12	Other manufacturing	4208.0	3.4	2818.2	1.3	1389.7
21	IT services & telecoms	1446.4	1.2	430.1	0.2	1016.3
23	Media	1148.9	0.9	194.5	0.1	954.4
2,3,5	Sea fishing	2525.6	2.1	2386.3	1.1	139.3
9	Pottery and jewellery	319.2	0.3	294.3	0.1	25.0
10	Food and drink man.	52.9	0.0	50.1	0.0	2.7
29	Public administration	0.0	0.0	0.0	0.0	0.0
20	Sea transport	0.0	0.0	1.2	0.0	-1.2
7	Extraction of ores etc.	0.0	0.0	76.6	0.0	-76.6
16	Other accommodation	0.0	0.0	81.0	0.0	-81.0
17	Catering	0.0	0.0	359.1	0.2	-359.1
19	Air transport	1765.6	1.4	3046.7	1.4	-1281.1
15	Hotels	0.0	0.0	1457.4	0.7	-1457.4
6	Electricity, gas, water	0.0	0.0	1467.9	0.7	-1467.9
25	Health	0.0	0.0	2583.7	1.2	-2583.7
1	Agriculture	1433.7	1.2	5043.4	2.3	-3609.7
14	Distribution	12348.2	10.1	18568.7	8.4	-6220.6
24	Education	307.9	0.3	7291.0	3.3	-6983.1
22	Banking and insurance	0.0	0.0	9580.9	4.4	-9580.9
27	Other public services	869.0	0.7	35815.6	16.3	-34946.6
	Other final demand	-	0.0	27297.4	12.4	-27297.4
	Households	-	0.0	71295.5	32.4	-71295.5
	Total	122221.6	100.0	220211.0	100.0	-97989.4

3.5.3 Usually, the construction industry is assumed to produce non-tradable goods. However, in the case of the Western Isles, the industry includes companies providing goods to the offshore oil industry, and this sector is actually the largest contributor to the total value of exports from the region. It is also the second most important net contributor to the trade balance. The textile sector, although declining, still makes an important contribution to trade. In general, the service-related sectors have negative trade balances, with the exception of IT and telecommunications, which export services to non-Western Isles businesses and residents.

3.5.4 By far the largest proportion of the trade deficit is related to household expenditure on imported goods and services. Of the total £71.3m spent by households on imported goods, 23% was through direct purchases (for example, Western Isles households purchasing goods and services outside the Western Isles or by mail order etc). The remainder is due to the high import content of household expenditures made within the Western Isles. Despite appearing high, the proportion of direct household expenditure on imports compares favourably with the level of imports of Shetland households: the recent input-output study found that direct imports accounted for 39% of total household expenditure of Shetland households.

Tourism

3.5.5 From Table 3.4 above, the value of tourist expenditure in the Western Isles has increased substantially over the last decade, in 1997 contributing almost £32m towards GRDP. Although inherently unstable with large annual variations in visitor numbers, tourism is generally considered to have good potential for stimulating further economic growth in the region, through further exploiting the cultural and environmental distinctiveness of the islands.

3.5.6 The extent to which growth in tourism benefits the wider economy of the region depends on both the level and pattern of tourist expenditure. The tables in Appendix 6 present the expenditure patterns of visitors to the Western Isles. These values relate to the total spend per person over the course of the whole stay. The tables also indicate the average number of nights stayed in the Western Isles by each visitor category.

3.5.7 In common with the findings of other studies, the level of visitor spend is highly correlated with the type of accommodation being used. Tourists staying in hotels spend, on average, the highest amount, not only on accommodation itself but also on items such as crafts, other gifts and entertainment. Tourists staying in hotels spent, on average, the highest amount (£309.10 per person per trip), not only on accommodation itself but also on items such as gifts and entertainment. This figure compares with an average spend of £211.17 by visitors staying in other accommodation (guest houses and/or caravan sites), and £87.75 for those staying with friends and relations.

3.5.8 Of the £32m that visitors spent on goods and services produced in the Western Isles, £6.75m was spent on goods and services imported into the economy. The much lower ratio of imported to domestic goods purchased by tourists as compared to households can be traced back to the very different expenditure patterns of these two types of final demand. Tourist expenditure is dominated by payments to sectors where the import content of the goods and services is low, for example the transport, accommodation and catering sectors. On the other hand, Western Isles households spend far more on goods and services which are not produced locally. Given the relatively small leakage of tourist expenditure from the region, one might anticipate that growth in tourism would give rise to substantial benefits for the region as a whole. However the low level of wages, salaries and value added in the sectors directly involved in tourism will dampen the magnitude of multiplier effects. This will be explored further in Chapters 4 and 5 of the report.

9 Inevitably, each study derives and presents their estimates of GRDP on a slightly different basis. Even taking this into account, the Western Isles estimates are lower than those of the other island economies.

10 Based on the GDP deflators as given in August 1999, 1997/98 prices are 43.5% higher than 1988/89 prices, whilst cumulative real growth in the UK economy between these two periods was 18.12%.

11 The employment data takes into account part-time workers, outworkers and, in the case of agriculture, crofters as well as full-time employees.

12 In this case, the top five sectors were the same in both periods.

13 The unemployment rate in the Western Isles (10% in January 1998) is higher than that in Scotland as a whole (5.8%) and significantly higher than that in either of the other two island economies, Shetlands (3.6%) or Orkney (4%). Thus higher levels of dependence on social security benefits were expected, unless for example there were lower child benefit receipts in the Western Isles.

14 Lower expenditures on motoring and travel are not, of course, due to lower fuel prices and fares in (or to/from) the Western Isles, but rather to less travelling, due to (for example) people living closer to work and/or less frequent trips to shops and entertainment.