|
|
|
Business Review 2006 from
|
|
The omens look good - at last
Senator Terry Le Sueur
Treasury Minister
WHEN I was asked to write an article about the indications of an economic upturn, my precise nature urged me to look for positive indications, rather than a 'feel-good' factor.
Perhaps I should begin by putting the subject into the context in which I am especially interested. On assuming the presidency of the Finance and Economics Committee - as it then was - some three and a half years ago, I set about addressing the problem caused by States spending rising faster than States income, leading to imminent deficits. Although a few tax rises were initially inevitable, the longer term message was to get States spending under control. Indeed many urged that it should not just be controlled, but actually be reduced.
Adjusted for inflation, spending has actually reduced in the past couple of years, but we are faced with two ongoing problems. One is a deteriorating infrastructure of public assets, and the other is the infamous 'black hole' caused by the need to move to a zero-ten corporate tax structure.
It would be impossible to reduce States spending by £100 million per annum without serious repercussions, and the States agreed that as well as the need to raise more taxes we should also plan to stimulate economic growth at a net rate of two per cent per annum in excess of inflation, for the next five years, in order ultimately to contribute £20 million a year towards filling the deficit. The problem was that this growth had to be achieved without unduly increasing the Island's population, and also, as far as possible, without stoking up inflationary pressures.
It is still early days, and facts are not yet too numerous, but there are enough straws blowing in the wind to begin to make a tidy pile.
It was always recognised that the financial services industry, although employing only about a quarter of the Island's workforce, would be the major contributor to this growth.
Barometer
That industry already makes up about two thirds of the Island's tax revenue, and enables us to have an impressive Gross National Income, second in Europe only to Luxembourg. If economic growth was to appear, then the financial services industry would be a good barometer.
Well, there is never any difficulty obtaining statistics from the banking industry. Funds on deposit, funds under management, sterling deposits, dollar deposits, euro deposits - you name it, they've got it. And the news is that deposits are up - significantly. Funds under management are up - significantly. And profits? Well, we shall have to wait and see a little bit longer for that one, because there is a delay between increased business and before increased profits.
Nor can one necessarily hope to match the percentage increase in business with a similar percentage increase in profits.
Furthermore, while banking is undoubtedly a major player in the local financial services sector, it is by no means the only one. Funds management and trust and corporate administration are two others which readily spring to mind.
Then there are new and emerging products - and some not-so new - such as employee share option schemes, property funds, and hedge fund management. Is there evidence of growth in these areas ? The short answer is that I am sure that there is, even if the indicators are not so readily available.
One source of information is the much-maligned Regulation of Undertakings and Development Law, and all the evidence from this quarter suggests a rising market, especially in specialist areas.
Then there is the pressure for experienced and qualified staff. There are clear signs now that demand for such staff is outstripping supply, with a clear danger of wage inflation becoming a threat, as it has been on occasion in the past.
Finally there is the demand for newer and better quality office accommodation. Again, the word from property agents is that there is significant demand for substantial areas of floor space.
Perhaps all these signs of growth simply reflect an upswing in the economic cycle. I do not doubt that there is some element of that; the rise or fall in stock markets is reflected to a considerable extent in the rise or fall in local financial sector activity and confidence. But I believe that there is more to it than that. I believe that in the past couple of years the States has demonstrated that it is developing clear and consistent interlinking policies - on fiscal strategy, on economic growth, on migration, and so on. That has led to a tremendous surge in business confidence, and this can be seen and felt not just in the financial services sector but throughout the business community.
A shining example of this has been in the hospitality sector. For several years now this industry had been doing little more than ticking over, with a gradual decline in tourist numbers, and with some hotels upgrading and others going out of business. Even in recent years there have been a few hoteliers who have bucked the trend, and they have seen their confidence in suitably directed investment justified in increased and increasing business.
That confidence is now spreading, spurred on by a new hotel on the St Helier waterfront and ambitious plans for Centre Parcs to launch a new product there also, as well as other hotels having the confidence to see a rosier future. Their growth may take longer to reach fruition, and it will also require the support of the States and the public all working together for the good of the Island.
Nor is hospitality an isolated instance. In recent times we have seen the agricultural industry finally coming together to deal successfully with the threats posed by external markets. Here too there has been diversity, both in Jersey and Guernsey, with niche market products such as daffodils in Jersey and clematis in Guernsey.
One requirement for success in a changing marketplace such as we have seen in recent years - and which I have no doubt we shall continue to face - is the need to react quickly. This has sometimes been a failure of business in the past; it has certainly been a failing of government in recent years.
Advantage
Jersey has a tremendous advantage in being compact enough to understand and take quick decisions. Getting in early always gives a tremendous competitive advantage, even if sometimes one does not get it absolutely right the first time around.
I share the frustration felt by many in the financial services industry, not so much that we are over-regulated and over-legislated, but that we have been too slow in the past in bringing in new and up-to-date legislation on new financial products for which the marketplace has shown a clear need. It is to be hoped that the States have learned from the experience, and, hopefully, that the new system of government can further speed up this process.
If all this sounds very promising, the reader may ask whether there are any potential pitfalls or difficulties ahead. In my view there are several such pitfalls, but provided we are aware of them, and we are not taken by surprise, we ought to be able to avoid them.
I have mentioned one of these, and that is inflation. Price inflation will make us uncompetitive, while wage inflation, if it cannot be absorbed through higher performance, will undoubtedly feed through into prices, with similarly damaging effect.
The second danger is that of the States losing their way. In recent years we have built up a clear and cohesive set of policies linked to a central strategic plan. We have a new intake of members, and a new - and most would say improved - system of government, so all the signs should be favourable.
But change breeds uncertainty, and if that uncertainty is translated in a reluctance to take decisions then the result will be a deterioration of confidence in the States which will soon feed into a loss of confidence throughout the Island.
A prime example of this is in respect of the St Helier waterfront. A clear strategic direction, backed by an Island Plan and an Economic Growth Plan, enables a great development to take place on this site for the good of the whole community.
Quality
More fundamentally, without that development taking place, we will almost certainly fail to deliver the required level of economic growth; that will lead to higher taxation and the whole Island will be the ultimate loser.
The precise shape in which that development occurs is a matter of negotiation between the developers and the planning authorities, but one should not make an unjustified presumption that what is good for business is bad from an aesthetic point of view. On the contrary, businesses, whether they be bankers, hoteliers or retailers, will all wish to see an attractive environment which can only enhance their own products. Quality of design, quality of material and finishes are equally important as height or mass, but delaying, or doing nothing, benefits nobody.
That perhaps leads me neatly to my summary.
We get nowhere by doing nothing - if you will pardon the double negative. In fact, we go backwards by that route. We can deliver business growth by being confident, by not being afraid to make decisions and by getting on with it. The world does not stand still, and we cannot afford to.
|
|
|
|
