A report by KPMG has outlined skill shortages, cost of living and A-Level performance lagging behind nearby jurisdictions as challenges to the island’s economic future.
The report commissioned by gov, seen by Gef, is the second of the five phases of developing the island’s five to ten-year economic strategy.
Looking at the challenges faced by the island, this report follows what has been a macroeconomic research and review phase. It has looked at areas across the island including industry, education, technology, skills shortages and geopolitical conditions.
KPMG’s report shows that the island’s GDP grew steadily in the decade up to 2019/20, reaching £5.53bn and says it is more diverse than comparative jurisdictions. However, it also notes that employment is not proportionately driving economic output and said GDP as a measure of prosperity ‘may not be the right for the island’.
It adds: ‘Low levels of unemployment and a skills shortage is a key constraint on growth for businesses and the economy. Combined with an ageing population results in a drag of the economy.’
Cost of Living and Housing
Looking at the challenges identified, KPMG notes that ‘while on average wages are higher in comparison to the UK, a higher cost of living erodes this’. It further notes that the ‘quality, mix and price’ of the island’s housing stock is ‘not a good fit for the current needs, particularly those of younger economically active people’.
Education and Skills
The report also notes that while there is a ‘good range of schools’ on the island, ‘pupil-teacher ratios are higher, and the performance of students at A-Level grade is lagging in comparison to the UK and Jersey’. KPMG has also identified skills shortages ‘across most sectors on island’ including technical skills, interpersonal/customer service skills, leadership/management skills. It adds: ‘Challenges faced by businesses in recruiting people with the right skills – particularly among school leavers, graduates and young professionals – were among the most consistent messages received throughout our engagement with the business community.’
The report also looked at population issues on the island, including that we lag behind other jurisdictions in regards to the proportion of economically active islanders. KPMG said this is ‘resulting in a drag on the economy. It adds that there are circa 10,000 people of working age not employed and that the dependency ratio is ‘higher than the UK and Jersey by 8% and 14% respectively.
Health and Safety
No, not red tape and hard hats, the report says ‘Significant pressure on the healthcare is evident with a 15% increase in patients per GPs between 2017-2020 and missing targets’. However, a big plus is that the island’s crime rate is very low and is said by KPMG to be ‘one of the lowest across the EU’ (which we were never a member of).
Macro Positives and Challenges
The report is far from entirely negative, and KPMG has highlighted that the island has a more diverse economy than peer tax-neutral islands, the gov has strong reserves, there is high 4G coverage and good fibre coverage (which is expanding), visitor spending was up over the decade and the island has a wealth of natural resources. Other positives include the island being ‘well respected internationally’, that 96% of those surveyed saw the island as a safe place to do business and that there is a ‘large level of untapped economic value-driving opportunities’ and ‘Proven ability to regulate and grow niche or new sectors’.
However, this is tempered by the fact that KPMG has acknowledged there is ‘growing wealth disparity across households’, that the cost of living is ‘not fully offset by higher average wages’ that ‘consistent excess levels of vacancies (through either skills or resource gaps) are inhibiting economic growth’. Other issues raised include that the GDP growth is being driven by ‘only two sectors’ (insurance and eGaming), that sustainability and energy policies are unclear, yet important to the business community, that ‘business confidence surveys show relatively low satisfaction with quality and cost of business-related services’, that there is a low volume of high-quality commercial facilities and that the gov is ‘not perceived to be digitally enabled and is suboptimal in its use of data’.
KPMG says that the island needs to attract and retain younger economically active residents and that being ‘an attractive place to live and work is crucial’. It adds that the island needs to ‘support and protect existing sectors that generate economic value in a focused way’ and simultaneously, identify the sectors that support diversification and economic benefit’. Interestingly the report also calls on the gov to ‘pursue and fund policies/investments that don’t apply undue pressure on infrastructure’ and ‘seek opportunities that match the island’s vision’.
The report also lists potential opportunities for the island across a range of categories. Examples of these include improving the skills shortage with an island campus and reskilling and redeploying the workforce. Other areas recommend improving financial services, getting into high tech industries such as space data analysis, sustainable finance and games and eSports, as well as a range of digital opportunities such as E-residency, digital currency and sustainable data centres, amongst others.
For the green economy, KPMG says offshore wind production for neighbouring jurisdictions, marine energy innovation and development and decarbonisation innovation acceleration provide additional opportunities for the island. The report also recommends enhancing the visitor economy and being a leader in life sciences including areas such as medicinal cannabis exports and, very interestingly, recreational cannabis tourism.
What Will it Take?
These things won’t just happen, so KPMG’s report says to make this a success, the island needs to improve its infrastructure, sustainability, modernise the regulations, tax and legal systems, have a sandbox mindset, diversify sectors, collaborate better, invest in talent, retain/attract/re-engage talent and improve the tech/digital capabilities.
The next stage of this review is to develop policy levels and present policy level options. This will include further reports looking at what needs to be done.
For economic success, KPMG says there are a ‘number of elements of the economy that need to be unlocked’ to reach the island’s future potential, achieve the aims of the Island Plan (secure, vibrant, sustainable) and recognise that the key findings are deeply interlinked and that a ‘full understanding is essential’. To achieve this, the key challenges identified above will need to be resolved.
But, the opportunities identified include 50+ unqualified sector development opportunities, potentially relevant for the coming decade, consideration among agency and sector representatives to inform strategy and policy, to prioritise opportunities for economic development contribution and to create the environment and catalyst to work towards common goals.
The gov was asked to comment on this report, but a spokeswoman said it would not comment at this time. However, we can say that the gov expects to bring the full report to the July sitting of Tynwald.