The long term strategy for leading International Finance Centres (IFCs) such as Jersey is to develop their financial services offering to meet the dramatic events that are unfolding.
Growth in trade and population are the megatrends of our times and commentators tells us that their impact will be bigger and their development faster than anything experienced before, even during the industrial revolution.
Evidence from forecasts and analysis of future trends point to how these changes around the globe will have a transformational effect on the demand for infrastructure investment and in the pattern of where wealth is located around the globe. It was a topic on the agenda at our annual meeting for Jersey Finance members and a number of startling statistics* emerged from the event, highlighting how the scale and speed of industrialisation and urbanisation in emerging economies is unprecedented.
For example, India and China are doubling their per capita GDP at a rate ten times faster than Britain did when we led the industrial revolution in the 18th century. In Asia within ten years, nearly 2.5 billion people will live in cities in the Continent – one in every two city dwellers in the entire world. A quarter of the top 200 cities will all be in China.
Technological change is accelerating at an astonishing rate also. It took 115 years between the first phone call and first website but only 16 years from the first website to the first Iphone. The roll out of technology is also unprecedented. It took 38 years for the radio to reach 50 million users. Television took 13 years to reach the same number, the Ipod four years and Facebook only one.
Alongside these disruptive changes, all our societies face the reality of an ageing population and again the figures are thought provoking. On current trends, developed economies will have twice as many older persons as children by 2050. By 2040 China could have more people suffering from dementia than the rest of the developed world combined.
Naturally these trends take on added relevance for the global finance industry when the scale of growth in new markets is taken into account. India and China will, for example, soon resume their place as the largest economies in the world, while figures reveal that seven of the ten fastest growing economies of the last few years have been African. Over the next decade the growth in ultra-high net worth individuals will be highest in the Middle East and Latin America, with the biggest rise of all in Africa, albeit from a lower base.**
These trends will see global demand for infrastructure investment increase by over $50 trn by 2030 and capital investment will reach new all-time highs. Its estimated the global asset management industry will grow from $65trn to in excess of $100 trn within the next five years and that alternative investments will grow from $6.5trn to over $13trn
From the perspective of IFCS such as Jersey, the increasing cross border trade flows resulting from the acceleration in wealth accumulation in new markets, generates cross border transactions which in turn lead to demands for cross border financing and capital management.
Those who make significant wealth in this volatile world will want to ensure they manage and protect it. This is not an issue to do with tax, but stems from a determination to protect capital assets and pass them on safely to the next generation. Meanwhile, for institutional investors, there is a demand to find suitable locations where they can establish structures efficiently in order to meet their global investment ambitions.
With the trend for globalisation persisting and new found wealth emerging all over the world, the demand for high quality cross border services will certainly increase, bringing into sharp focus the role of IFCs. Are jurisdictions such as Jersey well positioned to play an effective role in global finance within this evolving international environment of changing demographics, massive urban expansion and widespread wealth accumulation?
It is abundantly clear that business in overseas markets is becoming increasingly driven by a need for a quality service, by a need for expertise, knowledge, the availability of a range of structures, and strong legislation in one easily accessible jurisdiction. Centres that will thrive will be those that can package, administer and invest international capital at a competitive cost, without dislocating domestic tax systems.
Jersey can benefit because it has the competitive environment that investors are looking for. Some of our capabilities, such as diversity of skills, reputation for probity, appropriate regulation and legislature, financial market infrastructure and the available network of experienced professionals, take decades to build and are difficult to replicate.
The global trends that are forecast fit with the strategy which we have adopted which is to ensure we remain a high quality jurisdiction with the appropriate regulatory and legislative armoury, while shifting our focus to create greater jurisdictional awareness in these new markets. We will continue to invest in a skilled workforce, focus primarily on banking, fund services and wealth management, including specialist markets such as Islamic finance and capital markets, reinforce our partnership with the City of London which enables us to act as a gateway to western markets and ensure that our service offering meets the needs of this rapidly changing global landscape.
*Figures from McKinsey
**The Knight Frank Wealth Report 2014