Welcome to the second BDA Update to keep you informed of the developments taking place at the Bermuda Business Development Agency (BDA).

In my last letter I touched on the decline in the number of international business jobs and while I believe it’s important for us to recognise the challenges we have faced and continue to face, it is more important that we learn from them. For many years Bermuda enjoyed a strong economy and booming international business sector. In many ways, we felt immune to the hardships that other countries were experiencing around the world; however, the world changed when the global financial crisis hit in 2008.

At a glance, in 2008, our GDP was $6.1 billion with 40,000 jobs of which 2,324 were work permit holders. Fast-forward to 2013, our GDP had shrunk by 10% ($600 million), total jobs had fallen by 12.5% (5,000) and work permit holders had decreased by 23% (547). Why did this happen? Bermuda’s economy was heavily weighted on two main industries, financial services and tourism. Both industries were the worst hit in the global financial crisis. As a result, businesses contracted shedding jobs and then, people tended to travel less because they tried to save money. Further contributing to our woes, was that Bermuda’s main trading partners, the US and the UK, both suffered greatly as a result of the financial crisis.

Analysis shows, on average, one international business work permit creates or supports up to eight Bermudian jobs either directly or indirectly. When international business work permits declined in Bermuda and people left the island (around 2,000 including their family members), two things happened almost immediately. Firstly, those international business salary dollars spent in the community, through rents, groceries, retail, etc, were significantly reduced and secondly, the cost of running Bermuda’s infrastructure and utilities is shared by less people, making those services much more expensive for the remaining residents. When we look at healthcare costs, the overhead in running the hospital is a fixed cost, meaning, if there are fewer people the cost does not change; it just means fewer people have to share the cost. Similarly, if we look at electricity, the cost of running BELCO’s infrastructure does not change if there are fewer people; it just means fewer people have to bear the cost. Ultimately, our income went down as we had less residents spending money in the community, and secondly, costs per head went up for those who stayed.

In Bermuda, it is important to realise the decisions we make directly impact businesses on the island which can have consequences for all of us. For example, in 2009, the payroll tax increased from 13.5% to 14% and then, in 2010 increased by a further 2% (subsequently it went back to 14% in 2011).

During that same period, work permit term limits started to be reached. The first made it much more expensive to employ people on island (both Bermudians and work permit holders), and the second made people unsure about the future of their careers on the island. Essentially, we gave competing domiciles an opportunity to win businesses that were looking to leave Bermuda. These two things, coupled with the global economic slowdown, triggered a ‘silent exodus’ of companies and a decline in work permit holders which equated to the loss of 8 Bermudian jobs for every work permit holder gone. As evidence by the figures above -4,500 Bermudian jobs were lost at the same time as 547 work permits were cancelled.

At the BDA, we have a lot of work ahead of us and are focusing on a few key lessons. Bermuda needs to diversify our international business sector, so that we are less reliant upon one segment and look to secure other markets for new business. We also need to work closely with the Government, the BMA, the business community and Bermuda as a whole to ensure that we keep our product competitive and attractive to new businesses.

Ultimately, we need more businesses on the island to create more jobs for Bermudians. Although these are difficult times, we must not forget that Bermuda has a world class reputation, great talent and a top class product to sell.

Over the coming months we will continue to share more information about what we’re doing to help Bermuda regain economic prosperity.

Yours sincerely,

DAVID CASH

Deputy Chairman

Bermuda Business

Development Agency