Servers are the future

ATTEMPTING to predict the future can be a dangerous game.

But it is one that is vital if the island's policies are going to lead to a prosperous and sustainable future.

There are some big-picture issues churning along in the background – future tax strategy, population management, talk of economic diversity.

And some varying outlooks on where we could be in 10, 20 or 50 years' time.

An overpopulated take on Hong Kong or Singapore? A self-sufficient eco-community? Or a desolate wasteland abandoned by finance? All extreme examples, granted.

Treasury minister Charles Parkinson is one of the best-placed to see the bigger picture, not only from his seat on the department, but also heading the States Strategic Plan and the Energy Policy Group.

There are signs that our directions might all be converging on a nice fit, but the States may have a larger role to play than it has in the past to ensure success.

'In an ideal world, we would develop our economy to add the most value to the output from our finite resources, particularly of land and labour,' said Deputy Parkinson.

'However, in practice the States is mainly concerned with creating a fertile economic environment, and allowing entrepreneurs to choose the direction of our economic development.

'Over the years this policy has stood us in good stead, as one industry has grown, matured and then withered away to be replaced by another, but Guernsey has remained busy.'

That had seen growing then tourism and now finance becoming dominant players.

'While financial services has been our main breadwinner since the end of the 1970s, there has been a steady evolution in the type of services which we offer,' he said.

'Banking, insurance and fiduciary services have been core activities throughout, but in recent years we have seen the development of a strong investment fund management sector. And encouragingly, while Guernsey was initially used mainly to provide administrative services to the funds industry, we are now increasingly seeing the brains behind the investment management moving to Guernsey.'

He cites the example of two high-profile recent arrivals in Terra Firma and BlueCrest.

'This means that the value added in Guernsey is increasing.'

Financial services now provide about 40% of Guernsey's GDP, but the economy is more diversified than some commentators realise.

'In recent years we have seen the development of a thriving e-commerce sector, including companies like HMV and Healthspan in the fulfilment industry and the e-gaming companies like Sportingbet. It is encouraging to see the development of companies like Moonpig, who actually produce their products in Guernsey, again increasing the value added on the island. And the largest employer on the island is, of course, Specsavers, which is a more traditional commercial business and franchising operation.'

One factor behind the development of the e-commerce sector has been the establishment of excellent fibre-optic communication links with the UK and mainland Europe, he said.

This has resulted in Guernsey having five times as much bandwidth as Jersey.

'The e-gaming companies in particular are voracious users of bandwidth – one Guernsey e-gaming company uses more bandwidth than the entire Jersey finance industry – so Guernsey has an outstanding offering among offshore centres,' said Deputy Parkinson.

The development of the Guernsey Technology Park will create further opportunities to develop this industry. But although the industry requires some land, and a great deal of electric power and telecommunications capacity, it will not employ a lot of people.

The entire Guernsey e-gaming industry employs only 150 people. The business is mainly conducted on racks of computer servers standing in air-conditioned rooms.'

A rack is like a five-drawer filing cabinet full of computer servers – there are more than 800 such racks in Guernsey.

'As such, this industry is an example of the way in which Guernsey may be able to leverage our relatively small labour force to produce a very high output,' said Deputy Parkinson.

'The power demands of e-commerce are phenomenal, and we are told that the Saltpans development could on its own increase power consumption in Guernsey by 30%. This raises another important issue, the dependence of the island on imported fuels and electricity, against a background of rising oil prices, and of sterling which is weak against both the dollar and the euro.'

Fortunately the solution may be literally on our doorstep, he said.

'The sea around our Bailiwick constitutes one of the best potential sources of tidal energy in Europe. And of the areas which have the most potential, other candidates include the north of Scotland and Anglesey, Guernsey is closest to the large population centres where the power is required.

'Our local environment also offers potential for the development of wind power and wave energy plants. While the difficulties of exploiting this potential should not be underestimated, and the technology in tidal energy exploitation is in its infancy, there is a real prospect that Guernsey could one day be a producer of renewable energy.'

This opportunity will be realised only if local production is scaled up to the level at which Guernsey can export into the UK and European grids, and take advantage of the buy-in tariffs that are being offered by EU countries for renewable energy, he said.

'Generating for purely local consumption will never be an economic proposition. So the development of this industry will require a massive investment, which will have to come almost entirely from the private sector.'

Deputy Parkinson believes that the States can play a more proactive role in developing this opportunity than it has with the development of other industries in Guernsey.

'Clearly we must establish the commercial and legal framework for the exploitation of the resources around us, in conjunction with the authorities in Sark. But also, in the early stages at least, we will probably be providing, through Guernsey Electricity, the links into the European grid.'

The development of a renewable energy industry in Guernsey could be expected to result in a great deal of work on-island for service and maintenance businesses to keep the kit in working order.

'But in the interests of trying to increase the value-added in Guernsey, I propose that we should consider a concerted programme to attract research and development work – the brains of the business – to the island.

Why not redevelop the Castel Hospital site to form a research centre, in conjunction with a UK university, with a view to making Guernsey a world-leader in the design and management of offshore renewable energy plant?

'The tax on the royalties from the exploitation of patents developed in Guernsey could one day be an important source of income to the island, independent of the licence fees for the production of energy.'