Category Archives: Economic development

Could Amazon Fixation Cost Virginia $1 Billion Micron Expansion?

Nyah! Nyah! Come and get us!

Will a fixation with winning’s massive HQ2 project cost Virginia a $1 billion expansion of the Micron Technology, Inc., plant in Manassas? It could, says a Wall Street Journal article today:

When semiconductor-maker Micron Technology Inc. approached economic-development officials in Virginia about a tax-incentive package for a $1 billion expansion of its Manassas site, it got the cold shoulder.

The state was too busy preparing its bid for Inc.’s second headquarters project, according to a person involved in the discussions. Now, the company is negotiating with officials in New York about taking the project—and the 500 new employees it would require—there, said the person. …

With 1,800 employees, Micron’s Manassas, Va., microprocessor plant is one of the area’s largest employers. The plant is expanding to meet increased demand—particularly in the automotive industry, for which the company produces memory-storage devices, said a person familiar with the matter.

Stephen Moret, CEO of the Virginia Economic Development Partnership, which is mostly publicly funded, declined to comment on the specific negotiations with Micron.

In an email, he said the group heavily relied on consultants to aid it in its Amazon proposal. “Consequently, we don’t think there has been an opportunity cost to our HQ2 efforts, other than the financial investment we made in third-party support,” he wrote. He declined to say how much the state authority spent on its HQ2 bid.

Bacon’s bottom line: I have long been ambivalent about Amazon HQ2. Admittedly, a major Amazon presence in Northern Virginia would be transformative, spurring a much-needed diversification of the economy away from the federal government. But the sheer magnitude of a $5 billion investment and hiring of 50,000 employees would disrupt regional labor markets and create enormous population and development pressures which state and local governments would be hard-pressed to pay for, especially if tax breaks and subsidies were needed to clinch the deal. Better to aim for projects that are big by any non-Amazon measure such as a major facility expansion planned by Apple, I have argued.

Better yet to win projects, such as Micron, which by all logic would locate in Virginia with only a modest effort. Hopefully, Virginia’s economic developers can rescue the Micron expansion, as I am confident they will. A loss to New York, a state from whom Virginia has been draining investment from for decades, would be humiliating.

While Northern Virginia arguably has as good a shot as any competing region at winning Amazon, let’s face it, snagging HQ2 is a long shot. NoVa is one of 20 regions competing for the business. To re-tread an old metaphor, we can take the bird in our hand or go for two in the bush. With the economy at full employment, I’d happily settle for the bird in hand.

Update: There’s more to the story than reported by the WSJ. Regarding the implication that the Commonwealth has given Micron the cold shoulder, Stephen Moret can say this:

Because Micron is one of our largest traded-sector employers, they interact regularly with VEDP staff members and other state officials.

Including a plant tour back in February, several in-person meetings with Manassas and/or headquarters officials of Micron, and many phone calls, I’ve personally talked with Micron at least 15 times since late last year. I’ve interacted more with Micron than with nearly any other company that has operations in Virginia.

Also, in regard to Amazon HQ2 incentives, Moret said in an email response to the Journal: “We would be thrilled for HQ2 to locate in Virginia, but our efforts to date relative to HQ2 will produce a positive ROI for Virginia whether or not we secure HQ2.” Read the full text of that email here.

CyberX Not Just an Subsidy

Virginia economic development officials have kept their lips tight about the incentive package Virginia is extending to, Inc., to induce the e-commerce giant to locate its second headquarters in Northern Virginia. My concern has been that the Commonwealth might attempt to outbid other states in dangling obscene tax breaks and subsidies to attract the project, which could  generate $5 billion in investment and hire 50,000 employees. But as it turns out, it looks like Virginia might be taking the right approach.

Del. Chris Jones, R-Suffolk, chairman of the House Appropriations Committee, made some reassuring statements to Michael Martz in the Richmond Times-Dispatch reporter’s article today about the CyberX initiative.

[Jones] and other state officials would not comment on the contents of a state incentive package to land the coveted headquarters, but Jones confirmed the state would rely heavily on indirect incentives, such as investments in higher education and transportation improvements that Amazon has made priorities in the high-profile search it began in September.

Prominent among those investments, apparently, is CyberX, a $50 million initiative cooked up by Jones and Virginia Tech President Timothy Sands during the General Assembly’s extended budget deliberations earlier this year. Here’s the thing: CyberX, which aims to address the unfilled 30,000 positions in cyber-security and related jobs in Northern Virginia, represents a workforce-related investment that Virginia needs to make whether Amazon decides to locate in Virginia or not. The severe cyber-security skills shortage is throttling on growth in Virginia’s most economically dynamic region. If we could solve this issue, we’d get plenty of economic growth with or without

As described in the budget amendment, modest sums will be allocated to the initiative in the upcoming fiscal year, with a bonanza scheduled for FY 2020. The initiative will consist of a “primary hub” located in Northern Virginia with a network of “spokes” linking to other universities around Virginia for the purpose of building “an ecosystem of cyber-related research, education, and engagement that positions the Commonwealth as a world leader of cybersecurity.” Virginia Tech will serve as the “anchoring institution” and coordinator of the Hub.

Funding includes:

  • $15 million to the Virginia Research Investment Fund (VRIF), which will do two things: (1) certify public institutions of higher education to participate as “spokes,” and (2) provide matching funds for faculty recruitment.
  • $10 million for Virginia Tech to lease space and establish the Northern Virginia Hub.
  • $15 million for Virginia Tech to provide research faculty, entrepreneurship programs, student internships and educational programming at the Hub.
  • $3 million for a cyber-physical systems security lab at the Hub.
  • $3 million to support cyber-physical systems security labs at spoke sites across the Commonwealth.
  • $3 million to establish a machine learning lab at the Hub.
  • $1 million for classroom and distributed learning infrastructure improvements at the Hub.

Increasing the capacity of Virginia’s higher-ed system to train cyber-security employees may be a necessary condition for addressing the yawning IT skills gap, but it may not be a sufficient condition. Several questions arise.

First, how much of this money is going to workforce training and how much going to academic R&D? Martz’s article focuses on the fact that Virginia Tech and George Mason University are getting $250,000 each to hire a top cyber-security researcher. How does more research impact the skill shortage?

Second, is there a sufficient supply of high school graduates with the academic preparation and aptitude to enter these programs — or will Virginia Tech have to recruit aggressively from outside the state to find students?

Third, given the high cost of housing and the horrendous, soul-draining traffic congestion in Northern Virginia, will graduates of these programs even want to seek employment in the region — or will Virginia spend money to develop the human capital that other metros end up hiring?

Fourth, Jones’ comment to Martz implies that the General Assembly might be willing to make additional transportation “investments” in Northern Virginia, which are sorely needed. But what magnitude of such investments will be required to diminish NoVa traffic congestion to a degree that anyone can notice?

Despite those questions, CyberX strikes me as sound strategic thinking. The initiative serves an indisputable need, and the funds invested don’t put money in the pockets of a company with the world’s largest market capitalization. The investment builds Virginia’s capacity for cyber-security innovation.

Fairfax Snags Bechtel Headquarters

It aint’ Amazon HQ2, but it’s still a pretty big deal. Bechtel Corp., the global engineering and construction firm, announced its intention yesterday to move its headquarters from San Francisco to Reston.

The Reston office, which had relocated from Frederick, Md., in 2011, has functioned as the de facto “operational headquarters, with CEO Brendan Bechtel based there along with 1,300 other employees. But the move has big symbolic value because the the company had claimed San Francisco as its HQ for more than a century.

The company has asked about 150 employees to relocate to Reston from San Francisco and Houston. Executives are hoping that consolidation in Reston will enable more streamlined decision-making, reports the Washington Post. Even in the Internet era, it seems, there is value to keeping key employees in close proximity to one another.

Proximity to the federal government doesn’t hurt either. “Today a large portion of Bechtel’s revenue comes from government contracts for major infrastructure projects,” writes the Post. “It was the eighth-largest recipient of federal contract dollars last year, taking in $5.5 billion from the U.S. government, most of it from the Defense Department and the Energy Department.”

Bacon’s bottom line: As the national center of political power, the Washington metropolitan area is rapidly becoming a national center of business power. Corporations gravitate to Washington to be closer to the nation’s largest buyer of goods and services, the federal government, as well as to the center of lawmaking and regulatory rule making.

The governor’s office normally issues a press release for every economic development deal consummated by the Virginia Economic Development Partnership, along with details of state and local grants, tax breaks and incentives, but none was forthcoming for Bechtel. There was none from the Fairfax Economic Development Authority either. The allure of doing business near Washington is so great, it appears, that there was no need to bribe Bechtel to move its headquarters.

From a prestige perspective, snagging Bechtel confers considerable bragging rights upon Fairfax County, which is home to eight Fortune 500 companies. Bechtel is one of the largest privately owned corporations in the United States, generating 2016 revenue of $33 billion.

Coming to a Military Near You: Robots, Drones and Artificial Intelligence

Paul Scharre, director of the Technology and National Security Program at the Center for a New American Security.

On Sept. 26, 1983, Lieutenant Colonel Stanislav Petrov was on duty in bunker Serpukhov-15 outside Moscow when sirens began blaring and a red backlit screen flashed a warning. The Soviet Union’s new Oko satellite-early warning system had detected what appeared to be an intercontinental ballistic missile launch from the United States. Then another. Then three more. It appeared that the Soviet Union was under nuclear attack. But Petrov was uncertain. A surprise attack by only five ICBMs made no sense. He called ground-based radar operators for confirmation. The ground radars detected nothing. Going with his gut, Petrov concluded that the new system had malfunctioned. He now didn’t launch a counter strike.

As it turned out, Petrov was right. Sunlight reflecting off cloud tops had triggered a false alarm. Thanks to one man’s intuition, nuclear war was averted, said Paul Scharre, author of “Army of None: Autonomous Weapons and the Future of War,” in a speech at Saint Stephen’s Episcopal church last night.

What would a machine have done in his place, Scharre asked. It would have done whatever it was programmed to do — even if it meant the destruction of the world.

Robots enhanced by artificial intelligence are coming on fast. We can see the technology in driverless cars, in the algorithms that drive stock market trading, and in weapons deployed by armed forces around the world. Some 16 countries now have armed drones. The Islamic State has weaponized machines that cost $300 retail. On a grander scale, the United States recently launched its first robotic submarine killer, which at $30 million a pop are a lot cheaper to build and operate than $2 billion destroyers.

There doesn’t seem to be any halting the rush toward using robots and AI to enhance our military, said Scharre. In the long run, they’re cheaper. Robots don’t need health care, they don’t ask for pensions, and their morale doesn’t suffer from continual overseas deployments. Also in war, as in finance, speed is crucial. Machines working on a faster decision-making curve will beat slower machines — and humans.

Computers can pound grand masters at chess and even beat humans at the infinitely more complex game of Go. Designers know how to program robots to abide by strict rules so they always obey the law. That’s great when situations are clear and predictable. But no one has figured out how to imbue technology with the kind of intuition that Stanislav Petrov displayed when he questioned the Oko system, Scharre said. No one has figured out how to imbue robots with the ability to make moral decisions in situations of conflict and ambiguity.

These moral issues are of more than remote interest to Virginians. Elected representatives such as U.S. Senator Mark Warner and former Governor Terry McAuliffe are enthusiastic proponents of developing autonomous vehicles and drones as an economic development strategy. The Old Dominion also is home to armed forces that will deploy AI-enhanced technologies — and home to some of the tech companies that write the code for Artificial Intelligence.

Despite misgivings, the U.S. has little choice but to pursue the technologies behind autonomous vehicles and weapons systems. Other countries are working on them, Scharre warns. China aspires to becoming the world leader in AI. If we fall behind in the race, we risk losing our military primacy.

Preserving the global balance of power, averting nuclear catastrophe, and probing the existential angst of robots are fine and dandy, but what about us? I mean, what’s the impact on Virginia? I asked Scharre, who resides in Northern Virginia, what an “Army of None” would mean for the military presence in the Old Dominion.

It turns out that “Army of None” makes a clever title for a book but is a bit of a misnomer. If there’s one thing that the U.S. Army and the Marines have learned from their long campaigns in Afghanistan and Iraq, it’s that they need manpower to fight insurgencies. While technology can make American soldiers more effective, they can’t substitute for boots on the ground.

Conversely, Scharre said, the Navy and Air Force are the branches of the armed services that have the most to gain from automation. The Navy doesn’t care how many men and women it takes to run a warship. Actually, the fewer the better — highly automated vessels mean less payroll, less pension cost, less deployment fatigue and more money for new weapons systems. By this logic, if the Navy aggressively adopts autonomous systems, the long-run outlook could be a much smaller (though higher tech) Navy payroll in Hampton Roads.

How about the tooth-to-tail ratio? The U.S. Defense Department famously has as many civilian employees today as combatants, the consequence of massive bureaucratization. Is there any hope, I asked, of replacing administrative drones with AI-enhanced drones? Scharre was noncommittal. It might be possible to use AI to improve the efficiency of business processes, just as it is in the private sector, he suggested. But don’t look for a massive displacement of excess admirals and generals, much less a wholesale riffing of mid-level functionaries.

Robots, it seems, do not yet constitute a constituency that can lobby for the advancement and preservation of their interests. Career employees in Northern Virginia’s defense bureaucracy are safe for now.

Rolls-Royce Revs Its Engine (Factory)

Rolls Royce Crosspointe

The Rolls-Royce Crosspointe facility outside Petersburg is growing, demonstrating once again that economic development projects are hard to predict but can reward patience. A story posted at the Times-Dispatch reports another batch of new jobs may bring the total close to 400 this year.

When it was announced in 2007, the first plant built from the ground up by Rolls-Royce in the United States was to be the centerpiece of an economic cluster around aerospace manufacturing. The 2008 General Assembly adopted special legislation creating an Aerospace Engineering Manufacturing Performance Grant Program aimed not just at Rolls-Royce but at suppliers it was expected to attract.

The worldwide recession tempered expectations but ground was broken and the first assembly line created in 2009. Investment and employment flattened out, however. A second product line was added in 2014 keeping alive hopes of further investments. The most recent VEDP report on the incentive program showed 250 jobs (of the promised 642) and $267 million of capital expenditure (out of $501 million set as a target.)

As a consequence, out of about $50 million in possible grants, only $5 million had been paid out, VEDP reported in 2017. Now that activity is finally accelerating it may be possible for the company to qualify for more grants.

The Rolls-Royce deal was unusually creative for Virginia. The company asked that the University of Virginia and Virginia Tech add faculty and programs tied to their product lines. It asked Virginia to create an industry-driven research consortium, the Commonwealth Center for Advanced Manufacturing, and build a home for that on the same property. Done, but in reality CCAM has been struggling.

So Virginia’s total investment for what may now be 400 manufacturing jobs would take some time to calculate. What always attracted me to this deal was that all the individual elements added value beyond the target company. What Rolls-Royce asked Virginia to do was make investments that were smart on their own – in fact the kind of things Virginia should focus on if it is serious about economic development. I have long worried that the failure of Rolls-Royce to meet its targets weakened the legislature’s interest in further innovations.

Awkward Questions for Roanoke’s Health Sciences Campus

The Virginia Tech Carilion health sciences campus is emerging as the new economic growth engine for Roanoke. The impact of the campus on the state’s economy will grow from $214 million today to $465.2 million within eight years, according to a study issued by the University of Virginia’s Weldon Cooper Center for Public Service.

The addition of a second building at the research institute will create 828 new jobs and generate $150 million in additional spending by 2026, reports the Roanoke Times. The figures measure only direct impact, not the effect of undergraduate students studying there or spin-off development in the surrounding area.

“I think that as a region we need to think big because this is an opportunity that comes our way once a century,” said Heywood Fralin, chairman of the VTC Academic Health Center Steering Committee. The last time anything this big happened in Roanoke was when the Norfolk & Western Railway moved its headquarters in 1882 to the area then known as Big Lick.

The Roanoke Times provides the history of the initiative:

Tech and Carilion formed a partnership a decade ago to build a medical school and research institute on the Riverside campus. The research institute is at capacity, and a new building is underway that will double its size and expand its reach in advancing medical discoveries through trials and to market. Tech intends to offer more undergraduate programs in Roanoke centered around its school of neuroscience, and the Virginia-Maryland College of Veterinary Medicine will move its cancer treatment center to Roanoke. Four companies have been spun off from research since 2010. At that pace, the economist expects 10 more companies will form by 2025.

Here’s the catch:

“Clearly, the more financial support we can give to this effort the better it will be,” Fralin said. “There is an enormous list of things that are needed. To date, the commonwealth of Virginia has funded the buildings. I don’t think it’s reasonable to assume that every building going forward will be built by the commonwealth.”

Bacon’s bottom line: Before I launch into a contrarian mode of thought, let me make it crystal clear that Roanoke desperately needs a new pillar to its economy. Its old industrial-era economy has been hollowed out. The region needs to look to a knowledge-economy model of development rather than vainly try to rehabilitate the old manufacturing model. The research-center initiative brings together two of western Virginia’s key players, Virginia Tech and the Carilion health system, who have the financial clout and know-how to make things happen.

But I do find myself compelled to ask, who’s paying for all this?

Clearly, the Commonwealth of Virginia will be paying for the buildings — through state-backed bond issues, I presume. That’s fine, the state pays for higher-ed buildings across the state, and it’s only fair that Roanoke get its piece of the action.

But who’s paying for all the faculty, researchers, graduate students, and support staff? Hopefully, some of the money will come from federal and private-sector research contracts. Great! But how much? How much is coming from Virginia Tech and how much from Carilion? Digging deeper, where does Virginia Tech get its money, and where does Carilion get its money? To what extent, if any, are these new programs being subsidized by undergraduate tuition payments? To what extent, if any, are they being underwritten by higher-than-needed profits generated by the “nonprofit” Carilion health system?

Another way of asking the question: To what extent are Virginia Tech students paying higher tuition and Carilion patients paying higher medical bills in order to build the campus? To what extent is wealth being extracted from taxpayers, students, patients, and even local philanthropists to fund this research complex? Perhaps most critically of all, to what extent will the health science campus require ongoing subsidies forever?

The buildings, contracts and jobs being created are highly visible, and their economic impact is easy to measure. The funding sources are highly dispersed and largely invisible. Their economic impact is impossible to measure. Does the health science campus represent the optimal investment of society’s resources? Who knows? Nobody is even asking the question.

I’ll Take Apple over Amazon Any Old Day Inc. isn’t the only West Coast technology giant shopping for a new community to build a large corporate campus. Apple Inc. is looking to make a big investment as well, although it hasn’t drawn nearly much attention to itself. As with the Amazon project, Northern Virginia appears to be in the running.

From a trophy hunting view, Amazon would be the big prize — $5 billion in investment plus 50,000 new employees. The Seattle company has narrowed the list of candidates to 20 localities, and only one can win. But Apple would make a nice consolation prize. Its history of expansion in Austin, Texas, suggests that a new corporate campus could well entail an investment of $1 billion or more and the hiring of 1,000 or more employees.

If Apple wants an East Coast location, North Carolina might have an edge in the fact that CEO Tim Cook graduated from Duke University’s business school and COO Jeff Williams grew up in Raleigh. Last week, reports the Wall Street Journal, North Carolina legislators changed the state’s incentives package targeting technology companies that pledge to invest at least $1 billion in the state and create at least 3,000 jobs. Could Apple be heading to the Research Triangle?

Definitely a possibility, but the company also is eyeing Northern Virginia. Apple representatives have spoken to Virginia officials about options near Washington, D.C., the Washington Post has reported. Says the Wall Street Journal: “Northern Virginia could be attractive to both Apple and Amazon given its deep pool of talent, strong fiber network, and proximity to political leaders, location experts said.”

Bacon’s bottom line: So far, there is no indication in published reports that Apple is seeking tax breaks and subsidies on the same massive scale that Amazon is. Assuming that incentives are not a decisive consideration in Amazon’s location decision — an assumption that needs to be confirmed — Apple would constitute a far more preferable corporate citizen. The Amazon project looks too big to digest comfortably: The company’s expectation of giant subsidies will strain the ability of state and local governments to build the infrastructure needed to accommodate the resulting surge in development. Apple’s campus, though large by any other standard and a plum in any metro’s cap, would be more modest in size and far less disruptive.

Grant Process Tightens at VEDP

Not His Best Day

Tomorrow Governor Ralph Northam travels to the coalfields for what is billed as a major economic development announcement, and steps have been taken so that four years from now he won’t cringe when shown the old photos.

For the past year the Virginia Economic Development Partnership (VEDP) has been doing additional due diligence on companies receiving discretionary incentives, and if there is a high enough level of perceived risk the incentives are paid only after performance.

The tighter policy was described by President and CEO Stephen Moret in a response to my earlier post about detailed performance measures on Virginia’s various incentive programs.  “With this new approach in place, Virginia may not win some projects that we previously would have won, but neither will we place taxpayer dollars at undue risk,” Moret wrote.

The agency and its practices were the subject of a scathing review by the Joint Legislative Audit and Review Commission after the embarrassing failure to launch of a major Chinese-owned project near Appomattox, announced with great fanfare by Governor Terrence McAuliffe.  The firm in that case had received $1.4 million from the state in advance, and two years later a newspaper reporter found obvious signs that should have warned the state it was possible fraud.   Apparently the same pitch was rejected by North Carolina.

Then Moret came in from Louisiana and the General Assembly weighed in with 2017 legislation.  Now Moret reports all applications are vetted by a Project Review and Credit Committee (PRACC).  Prior to the revelations there was no VEDP person assigned full time to administering incentive programs and now there are four – with the potential for more and the inclusion of somebody with commercial credit experience.  Somebody is held to account for each project’s compliance.  


“During my first year at VEDP (2017), I asked PRACC to begin producing both company risk ratings and incentive risk ratings for every project, as well as to shift substantially all incentive payments associated with moderate- or high-risk companies to occur after the Commonwealth has received at least as much new state tax revenue as the amount of a given incentive,” he wrote in providing details.  He stressed he is fully on board with the new system.

The early tax money from these projects often comes to the locality, which imposes property taxes on any new building, equipment or business personal property as soon as they enter service.

The state tax revenue tracked is basically two sources slower to kick in, the same two sources that Secretary Aubrey Layne recently complained are too dominant in the state budget – personal income taxes and sales tax.  So for the state to have received an amount equal to the grant, the company has to be well underway in meeting its hiring goals.  The state does add in a multiplier on the assumption that the new employees are spending money generating indirect taxes.  And the state does recognize the substantial sales and use taxes paid on construction materials and other assets.

“Sometimes this means an incentive will be provided only after a project is fully completed; other times it means that incentives are provided in tranches as milestones are achieved. Notably, for low-risk companies (e.g., a large, well-capitalized Fortune 500 firm), we typically propose to provide incentive funds early in the development of a project, as otherwise the impact of the proposed incentive on the company’s decision process would be substantially diluted by the company’s net present value discount rate that often is in the range of 8-10%.”

Continue reading

It Works for Georgia, Why Not for Virginia?

North Carolina has Asheville… but Virginia has Abingdon.

When former New Yorker Marty Stefanelli and his wife moved from West Palm Beach, Fla. to Blue Ridge, Ga., they went from paying about $20,000 a year in real estate taxes to $3,000. The couple still maintains a residence in New York, where they pay about $30,000 a year in taxes, but Stefanelli plans to make Georgia their main residence within a few years. “I bought a pickup to fit in,” he quips.

Southern Appalachia is emerging as a growing retirement destination for northern transplants who find Florida too expensive, reports the Wall Street Journal today. The so-called “halfbacks,” who move to Florida and then halfway back north cite lower cost housing, lower taxes and lower cost of living.

Net migration to retirement destination Appalachian counties in Georgia, North Carolina and Tennessee has risen steadily from about 10,000 in 2011 to more than 46,000 in 2017, according to census data.

The trend appears to be gaining momentum as local developers and real estate agents build housing product geared to the halfback market, and as local businesses provide products and services suitable for more affluent retirees. The newcomers are generating new tax revenue, creating new business opportunities and supporting more jobs for locals. The response is not universally positive. Some locals complain that the immigrants are driving up the price of housing and bringing in their brusque, big-city mannerisms. But overall the impact seems mostly beneficial.

Bacon’s bottom line: Apparently, this mini-migration to Appalachia hasn’t reached Virginia. But there is no reason Southwest Virginia shouldn’t be able to cash in. The terrain is just as beautiful as it is in North Carolina, the property and taxes are just as inexpensive, and there are urban areas like Roanoke and Bristol-Kingsport where retirees can avail themselves of comprehensive medical care. Aside from supporting new jobs, affluent retirees would bolster the tax base of hard-pressed local governments and support quality-of-life amenities that the communities could not otherwise afford.

This is not traditional economic development, but traditional economic development doesn’t seem to be working very well. Someone should research this market to ascertain what it takes to lure some of these halfbacks to Virginia.

Va Beach Snags Third Trans-Atlantic Cable

Route of proposed South Atlantic Express International data cable. Image credit: Virginian-Pilot

South Atlantic Express International Ltd. plans to build a high-speed data cable to connect South Africa with Virginia Beach. The third trans-Atlantic cable terminating in Hampton Road, it would provide yet another stimulus to Virginia’s burgeoning data center industry.

As a bonus, ACA International will relocate its headquarters from Northern Virginia to Virginia Beach. The project could bring 200 high-tech jobs to the city, including software engineers, data analysts, and cyber-security professionals, according to the cable company’s local partner, ACA International. Reports the Virginian-Pilot:

The announcement of a third cable comes on the heels of the completion of Marea – Microsoft and Facebook’s first subsea cable connecting Virginia Beach to Spain. Marea’s transmissions are “more than 16 million times faster than the average home internet connection, with the capability to stream 71 million high-definition videos simultaneously,” according to Microsoft.

A second cable, Brusa, is under construction, and will connect Virginia Beach to South America.

This is great news for Hampton Roads, which desperately needs to diversify its economy away the defense industry. I’m certainly no expert on the data center industry, but a third trans-Atlantic connection, which will also create high-speed data links to Nigeria and Brazil, could help other Virginia localities in their competition to lure new data centers. Virginia has one of the densest clusters in the country of high-capacity cable, but until recently it has not had direct connections overseas.

Let’s say I was a cloud provider wanting to serve the market in Brazil, Nigeria or South Africa. Would I rather locate my data center in Capetown, Lagos, Forteleza… or Virginia Beach, where (a) IT skills are abundant, (b) I could plug into one of the the premier land-line fiber-optic cable networks in the world, (c) there is a reliable, competitively priced and increasingly green source of electricity, and (d) the business climate is favorable and the political system stable?

Sounds like a no-brainer to me. Hopefully, Virginia Beach will see many more data centers coming its way.

(Hat tip: Paul Yoon)