20 September 2012
The Chief Minister, Senator Ian Gorst, made the following speech on Wednesday 19 September 2012 at the Hotel de France.
It is a great pleasure to address you today and I would like to thank Jersey Finance and the Jersey Financial Services Commission for jointly organising such an impressive programme.
In all aspects of the continued development of Jersey’s financial services sector, the industry, regulator and government each have their distinct roles. It is only by achieving greater alignment between these three facets of the sector that we will differentiate ourselves in an increasingly competitive market place.
Differentiation is absolutely key and there is nowhere that this is more evident than in the rapidly emerging markets represented by BRIC countries.
BRIC countries
The term “BRIC” is of course not new, having been first coined by Jim O’Neil of Goldman Sachs in a 2001 paper called “The World Needs Better Economic BRICs.” The BRIC countries have since gone on to seek out opportunities for cooperation in trade, investment and infrastructure development.
It is interesting to note that BRIC countries are still described as ‘emerging’. This may well be true, relative to the mature economies of the west. But they are emerging very quickly and are assuming a dominant role in the global economy.
Let me briefly look at the BRIC’s performance in this millennium...
From 2000 to 2008, the BRIC countries’ combined share of total world economic output rose from 16 to 22%.
Together, the BRIC countries accounted for 30% of the increase in global output during the period. They also saw robust growth in 2010 and 2011.
Recently they have seen a slowdown, which has raised concerns over their ability to support a weak global economy, something many had been hoping they could maintain.
Challenges
BRIC economies are facing challenges from a deteriorating global economy, particularly in Europe. They face a loss of confidence at home, and a reversal of investors’ appetite for risk. They are seeing capital move from emerging markets to safe havens.
As a result, most commentators expect a moderation of growth in 2012. It is clear that the BRICs have not been immune from the impact of the global economic turmoil. But it is also clear that they started from a strong position.
And through changes in monetary and fiscal policy, governments in the BRICs have space to support their economies. For example, after a long period of interest rate tightening, there are signs of a reversal in the interest rate cycle, with Brazil and China leading the way.
In addition, moderating growth and easing inflation are expected to create room for interest rate cuts in Russia and India this year, which will have a positive impact on economic growth.
While the effects of the financial crisis in the west have had some impact since 2008, growth across the BRICs has remained strong. The economic growth and demographics, particularly in China and India, is expected to give rise to a large middle class whose consumption will help drive the BRICs’ economic development and expansion of the global economy.
Indeed the increase in the middle class population of the BRIC countries is forecast to more than double that of the developed G7 economies. This economic and demographic change is creating great wealth and global investment capacity.
Research and development
It is also being used to deliver a sustainable future through investment, particularly in research and development.
From 2002 to 2007, China, India and Brazil more than doubled their spending on science research. China’s development planning has targeted a number of scientific fields and related industries, including clean energy, green transportation and rare earths.
Since 1999, China’s spending on science R&D has grown 20 percent annually to more than $100 billion. By 2020, China plans to invest 2.5 percent of GDP in science research.
This research creates significant amounts of commercially exploitable intellectual property, which has a global market place.
This successful commercialisation creates wealth - and the management of wealth is at the heart of Jersey’s economic prosperity.
Jersey is open for business for investors and for inward investment in financial services and other high value, technology driven sectors. And there is no doubt that in the years to come our attention will become increasingly focused on further increasing our market share in the BRICs.
A recent London Business School report, entitled “The Future of Finance 2015” summarised the position –
“London continues to remain the most important strategic relationship for Jersey – however, markets in the Far East, Middle East, and South East Asia will play a much more prominent role than today in Jersey’s future growth and success”
Government action
We have responded to this in three key areas:
- We have effected a step change in international relations in recent years, with a particular emphasis on emerging markets. We have signed tax information exchange agreements with 29 nations, and we have an expanding list of double taxation agreements, most notably with Hong Kong China. This activity has been complemented by an increase in diplomatic visits to China and India. In the UK, the Assistant Chief Minister with responsibility for International Affairs, Senator Sir Philip Bailhache, is in regular dialogue with Ambassadors to the Court of St James to increase their understanding of Jersey, in particular of our financial services sector. In many cases, including Russia and China, this contact has resulted in a visit by ambassadors to Jersey.
- We have bolstered our resources by appointing a Jersey-based Director of International Finance - a single point of responsibility within government for our most important sector.One of the tasks I will be asking the new director to undertake is the coordination of the process of developing new laws. I say this because I have no doubt that, as we seek to increase market share in the BRICs, we will need to respond quickly with new products, some of which may require legislation before they can be brought to market. I see no reason why the pace of legislation cannot support “early mover advantage” in new markets and I am determined that all parts of government that can improve performance in this area, play their part.
- Through the Medium Term Financial Plan, which will be debated by the States at the end of the year, we are proposing to increase the resources available to Jersey Finance from £2.7 million in 2012 to £4.6 million by 2015. This additional investment will fund increased levels of promotional and inward investment activity in traditional and emerging markets, with the emphasis on the latter.
Our existing offices in India, Hong Kong, China and the GCC will see higher levels of activity and expenditure; and new offices will be opened in South America and the Middle East.
This investment is vital if we are to realise the potential of the BRICs to Jersey. Increasing investment in promoting this key sector will help diversify and stimulate our economy and create employment opportunities for Jersey residents.
We have a world class reputation for financial services which has been built and sustained over the last 5 decades.
Our reputation as a jurisdiction for excellence in financial services and regulation sustains our internationally competitive proposition and we in government are determined to support efforts to diversify into new regions of the world.
We want to bring lasting benefits to our economy and ultimately to people living in the Island.
We are building on our strengths and will pursue opportunities to foster success in existing businesses and attract more financial services institutions to the Island.
We must do this if we are to inspire confidence in Jersey’s future through a strong and sustainable economy, and government will do everything in its power to ensure we succeed.
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