09 November 2010
Good afternoon ladies and gentlemen.
My appointment as Minister for Economic Development in 2008 coincided with the beginning of the worst global financial crisis in a generation. Clearly timing is everything – in politics as in business!
Today Stephen Platt has asked me to address the topic: “Does Jersey have a strategy for economic growth?”
Fiscal Stimulus
Over the last two years we have focused on protecting our economy from the effect of the global downturn. Like many jurisdictions we have used fiscal stimulus to support business and help protect jobs.
Now before I tackle the question of a growth strategy directly, like any good politician I’ll answer another question – hopefully, in this instance, a relevant one.
Is economic growth important? The answer perhaps not surprisingly is an emphatic YES!
Global recession
Jersey has more than £560m in its strategic reserve, a £150m stabilisation fund, no debt, and - compared to most places - strong public finances. The £150m stabilisation fund, set up to deal with a downturn, has allowed us to deploy a £44m economic stimulus package without needing to borrow.
But, and there is a BIG but, the downturn has left us with a projected fiscal deficit for 2012 and 2013 of at least £100m per year, which must be tackled. We are facing this deficit for two reasons.
Firstly - the global recession has reduced our tax revenues, particularly those from the financial services sector, mainly due to low interest rates which reduce banks’ profits and therefore our tax revenue.
Secondly - the effects of the recession have been exacerbated by the year on year increase in Government spending.
Government strategy
In March this year the Council of Ministers set out a clear strategy to deal with the gap between income and expenditure.
Firstly - a comprehensive spending review: a Government-wide cost reduction programme, which seeks to protect key frontline services. Central to this review is a drive to change the culture of financial management and reduce public sector costs by at least £65 m.
Secondly – a review of our existing tax regime and, where appropriate, increased taxes to fund investment in a way that is both fair and supportive of economic growth. I should add, for the avoidance of doubt, that proposed tax increases are largely indirect to ensure we maintain competitiveness.
And finally, but most importantly, economic growth - to create good jobs for islanders, to increase business productivity and profitability and therefore generate more tax revenue.
Ladies and gentlemen, we cannot, indeed must not, try to tax our way out of deficit. And while there are very significant savings that can and will be made, we cannot simply slash and burn public services.
Importance of economic growth
If we are to recover and prosper we must place even greater emphasis on the contribution economic growth makes to balancing our public finances. So, growth is critical – but do we have a strategy?
Given the topic of today’s address, I’m pleased to say that we do. The existing economic growth strategy, formulated in 2005, has served us well. With its clear focus on increasing profitability and productivity and, in the process, providing high quality job opportunities for Jersey residents.
The strategy delivered consistent real growth across a broad range of sectors. With this economic growth came growth in employment and employment prospects for Jersey residents and those who wish to do business both in and with the Island.
This strategy was founded on 5 pillars of productivity growth:
- enterprise
- investment
- innovation
- skills
- competition
To encourage greater enterprise activity we created Jersey Enterprise which supports growth and diversification in the non-finance sectors. We continue to stimulate investment through increasing support for Jersey Finance Limited (the PPP between govt and industry).
Jersey Finance promotes our finance industry internationally and leads the development of new products and new markets.
For local businesses we offer grants to encourage innovation in all sectors, as we have moved firmly from a philosophy of “hand out” to one of “hand up” to target public sector investment. And I emphasise the word 'investment' that is targeted to deliver growth and productivity gains.
We set up the Skills Executive, assisted the creation of the Jersey Law School and - thanks to Stephen and his colleagues - we’ve seen private sector investment in the Jersey International Business School (JIBS).
And we have further developed the Jersey Competition Regulatory Authority (JCRA) to encourage and oversee the development of a competitive market place.
I couldn’t leave the subject of the JCRA without mentioning recent developments - with the appointment of a single CEO for the JCRA and Guernsey’s Office for Utility Regulation (OUR).
Working together
This is a clear example of how Jersey and Guernsey can work together to deliver an efficient and cost effective solution to benefit tax payers in both Islands. I should add that from the first phone call to signing the contract, took just 3 weeks – you see, miracles can happen even in the public sector.
As I speak, a new growth strategy is being finalised to guide government policy in 2011 and beyond. This strategy will update the current 2005 version. And while this will be a new strategy, we will not be throwing the baby out with the bath water, so increasing productivity will still be the key driver.
Economic Growth Strategy
The new 2011 Economic Growth Strategy will have 4 components:
- macro economic policy to deliver low and stable inflation and certainty about future regulatory and tax burdens in well functioning markets
- a skills strategy developed with, and delivered through, the Skills Executive and Skills Jersey
- a competition policy
- a new enterprise and business development strategy - which I’d like to concentrate on today
Enterprise strategy
In the new enterprise strategy, the emphasis will be on a more targeted approach to enterprise and business development support. However, government is not an entrepreneur. It is not the role of government to identify or exploit new ideas or opportunities, or try to ‘pick winners’. Instead the role of government should be as facilitator.
If there are obstacles, for example ‘market failures’, government should intervene. One example must be an aim to reduce and simplify excessive red tape and bureaucracy which has a disproportionate impact on small businesses.
Therefore a new strategy will give prominence to identifying and addressing barriers to businesses achieving their full potential.
Small businesses
Jersey’s economic base is dominated by small businesses. This suggests that to be effective as part of an economic growth strategy, an enterprise strategy should be targeted at those firms who seek to innovate and have the highest growth potential.
Success will be achieved through creating the environment and delivering support to allow existing companies to grow across a range of sectors.
Success will be through encouraging business start-ups and inward investment, and yes, Jersey is open for inward investment business.
Inward investment, for so long the poor relation of our activity, will have greater emphasis in the future
Watching the competition
This is a highly competitive market place and our competition, Guernsey, the Isle of Man, BVI, Cayman, to name but a few, are following our lead by opening representative offices in London, Hong Kong and other key markets. We plan to respond. We will continue to invest in supporting business development to stay ahead of the game.
Ladies and gentlemen, before I outline further elements of our strategy, let me make one thing clear. For the avoidance of any doubt, government policy is not, and will never be, to diversify away from financial services.
Indeed continued market and product diversification of Jersey’s financial services sector, is the vital component of the future of the Jersey economy.
Jersey's finance industry
Finance is the bedrock of the island economy and much of the prosperity and the level of public services we enjoy is derived from the depth and quality of the expertise in the sector.
Jersey’s finance industry is built on the banking, funds and trusts sectors, supported by the legal, accountancy and compliance professions. All are global in nature and constantly subject to consolidation and innovation by organisations fighting the effects of competition and, more recently, the economic crisis.
Competition, legislative and regulatory change, represent an intoxicating mix of threat and opportunity to Jersey’s finance sector. What we must do is innovate and legislate to capture opportunity and regulate appropriately to maintain and bolster our reputation.
Of course, speed to market is vital, even in the atmosphere of cuts and service reductions. We must leave no stone unturned as we look to develop a process that allows us to fast-track any necessary legislative changes that will open up these markets for exploitation by both local & offshore businesses.
Interestingly in a recent visit, the Maltese High Commissioner mentioned that Malta, where they are diversifying into financial services, have solved the problem of speed to market by outsourcing financial services law drafting – now there’s a thought!
Tourism
There is no doubt that within Jersey’s economic growth strategy finance is vital, but a growth strategy should never be a one trick pony. With this in mind, let me address our traditional sectors, which include tourism and agriculture.
There is much comment on the extent to which government supports tourism and the level of emphasis placed on its future success. I would like to say publicly today that I remain fully committed to ensuring the future contribution that tourism can make to the Jersey economy.
In the balance of 2010, we will be working with the Jersey Hospitality Association, Chamber, the IoD and others to develop a new tourism strategy to create a framework for future success. To deliver this secure future we must look at how we deliver support for the tourism sector.
Should that remain a role of govt, or is there a better delivery model?
The answer will be confirmed in early 2011 but is probably yes as we move to what I believe is a more effective, more efficient and more sustainable model for government.
a model where more government functions are outsourced to the private sector, helping to create growth and jobs
a model of ‘smaller’ govt
Agriculture
Turning to the rural economy, I would like to express my thanks to all those who provided for the development of a new Rural Economy Strategy which defines the foundations of a diversified and valuable future.
The recent opening of the new Jersey Dairy, combined with large scale investment in new infrastructure for processing and packaging Jersey Royals, are visible signs of a renewed confidence in both the dairy and agricultural sectors.
Programmes such as the Rural Initiative Scheme can provide appropriate applicants with genuine plans for innovation & diversification plus access to grant funding: a programme that will encourage them to research, develop and make critical new investment in new areas of land-based economic activity.
Preserving these sectors and driving them further up the value chain is a key element of the strategy; but so is the emergence of new sectors and new businesses to compliment our existing economic base.
Diversification
Contrary to what many seem to believe, diversification is hard work. There is no magic bullet, no single emergent sector to bring economic salvation and this facet of growth will be delivered by a diverse range of small businesses and not the big corporate players.
That being said, key elements of new legislation can unlock economic potential. Let me give you 2 examples:
earlier this year the States approved the creation of the Jersey Gambling Commission and with it gave the green light to establishing a full e-gaming regulatory regime in the Island. All indications are that this is a rapidly growing element of the e-commerce sector which has the potential to generate significant direct licence revenue. e-gaming is characterised by low footprint, high productivity businesses which drive the development of telecommunications infrastructure: a perfect fit for Jersey and one which has the potential to increase the Islands broadband capacity and, in the process reduce the unit cost for all businesses and residents
in December the States will debate, and I hope approve, a major modernisation of Jersey’s intellectual property law covering unregistered rights. Intellectual property, or IP, lies at the heart of all commercial activity and this new legislation is specifically designed for a world where IP needs to be protected in an e-commerce market place. It is also designed to unlock the potential for Jersey to develop a new, high value, high productivity sector to compliment financial services
Of course there are some who question whether Jersey’s economic growth strategy should encompass diversification
Environmental pressures
This is because they believe that the very diversification could put increased pressure on limited land and labour resources and risk the current, successful, high-productivity economic base. Theoretically they are correct, but any economic growth strategy must have a socio-economic consideration.
In my opinion, there is far more to be gained for government, business and the island community from a sustainable diversified economy.
Government’s primary role is to deliver the economic environment to sustain and facilitate economic growth. We will do this through setting policy and strategy, introducing new legislation that enables growth, ensuring regulation of all sectors is at an appropriate level.
To put it bluntly by delivering smaller government we will effectively “get out of the way” and to a far greater extent than at present, allow the private sector to play a role in the delivery of services.
Reform
To put it in plain English, to preserve public services and a low tax regime we must reduce the costs of the public sector through reform:
- reform of the way we work
- reform of the way we lead and manage
- reform of financial controls
- reform of the structure of delivery of public services
In an Island where labour and land are in shorter supply, low footprint, high value businesses are a key target.
The future is productivity-led growth.
That will be delivered in a challenging environment by businesses who are confident that Jersey’s government has a clear strategy to support that growth, remove barriers and let private enterprise be just that – enterprising.
Thank you.
gov.je