Economic growth and immigration are key
In the final article in a five-part series examining the impact of the ageing of Bermuda’s population, we look at the potential solution: economic growth.
Facing an ageing and shrinking population, declining workforce, spiralling healthcare costs, unfunded pension liabilities and a national debt in excess of $2.4 billion, experts say there is only one sensible path for Bermuda to follow if we are to avoid a long period of economic decline.
“The only realistic counter to the island’s demographic challenge of a rapidly shrinking and ageing population is significant positive migration of people of working age,” the island’s Fiscal Responsibility Panel wrote in a report released in November. “Immigrants and returning Bermudians with the right skills will help to create jobs, not displace them.”
Bermuda’s demographic challenge is outlined in the recently released report, Bermuda’s Population Projections, 2016-2026. The report reveals that, based on current projections, by 2026 the island’s population will decline by 111 people — and the share of seniors in the population will climb from 16.9 per cent to 24.9 per cent. Elderly dependency rates will rise to 40 per cent, meaning there will be 40 seniors for every 100 working people. One in nine of us will be 75 or older; the median age will be 49.
“By the standards of most developed countries, this is an extraordinary rate of change,” the panel wrote. “And with a fertility rate of only 1.4, these trends will accelerate in subsequent decades, absent policy reforms that raise fertility or enhance net immigration.
“The threat this poses can hardly be overstated; this would be a downward spiral of demographic and economic decline. If these projections materialise, the Government will have no choice but to continue to raise taxes on the ever-shrinking proportion of the population in work — further encouraging emigration of the young and skilled — while at the same time reducing the quality or quantity of services provided to the growing number of elderly people. The political, economic and social consequences for all Bermudians — but especially those most dependent on government services — would be severe.”
Our ageing population, declining workforce, underfunded public sector pension funds and escalating healthcare costs are “a certainty, not just a risk, which will result in serious medium and longer-term pressures on public spending and challenges to growth”, the panel wrote. “It will also make it more difficult to deal with a large debt overhang. While demographic trends are, by their nature, slow-moving and may not be immediately visible to the public, this is perhaps the single most serious long-term issue Bermuda faces and one that now needs to be addressed with some urgency.”
The question, of course, is how to go about growing the economy in order to create more jobs. Government has identified growth through economic diversification as a priority. “In principle, it is clearly desirable to reduce Bermuda’s dependence on insurance and reinsurance,” the panel wrote. “This would reduce both the short-term risk to overall employment and tax revenues from cyclical conditions in that sector, and the longer-term risk that technological or market developments cause the sector to continue to consolidate. Diversification would also provide alternative employment opportunities for Bermudians.
“However, meaningful diversification will be easier said than done. Beyond tourism, Bermuda has few obvious sources of natural comparative advantage — it is small, remote, high-cost and its domestic skills base is insufficient at present to support new high-growth industries.
“Given these restraints, the obvious candidates for new sectors in Bermuda are in the [broadly defined] technology and financial services sectors, which are high-value, can be delivered remotely and where Bermuda’s world-class regulatory and legal infrastructure is a valuable asset.
“The Government’s focus on promoting fintech, while liberalising regulations that currently inhibit the growth of financial and related services beyond insurance (such as global law firms and banks) is therefore appropriate. We would caution, however, against excessive focus on particular niche products such as digital or cryptocurrencies where there are potentially significant financial and reputational risks.
“It would be very damaging for Bermuda, at a time when it is already under international scrutiny in relation to tax and transparency issues, to be perceived to be providing an excessively lax regulatory environment for products where there clearly are major issues with manipulation and fraud.
“Attracting and growing new sectors will, above all, require access to a skilled and flexible workforce. Obviously, the prospective shrinking of the labour force will limit future economic growth prospects (a challenge also recently underscored in the report of the Tax Reform Commission).
“As we noted last year, improving the quality of Bermuda’s education system at all levels should be a priority. The recent Census revealed the sensitivity of Bermuda’s growth model to the changing age and education composition of its citizenry.
“It also revealed the relatively weaker position of those in the younger age groups in terms of their low level of completed education and higher unemployment rate. Potential productivity growth will be further weakened by the propensity of those with higher education to emigrate.
“It is important to note that, in the context of growth and diversification, jobs for Bermudians and higher levels of skilled immigration are likely to be complements — that is, go together — rather than being substitutes or alternatives.”
“Bermuda has a strong value proposition,” said John Wight, president of the Bermuda Chamber of Commerce. “Our regulation is second to none globally. Our infrastructure is sound. Our proximity to the northeastern United States is an advantage, and we have a pristine reputation for doing business the right way. There are many reasons why businesses should operate in Bermuda.
“We just need to work collectively, Government and the business community, to seek these opportunities in the same way that we did to achieve Solvency II equivalence, which was such a critical issue for insurance and reinsurance companies in Bermuda.”
Other countries face similar challenges, Mr Wight said.
“Canada has recently announced they are going to bring in one million immigrants over the next three years in order to support and sustain their economy because they have an ageing population like we have,” Mr Wight said.
“They have recognised that they proactively need to bring in people with certain skill sets to maintain and grow their economy. We can’t turn a blind eye to what our ageing population means to our economy.”
Government, the panel wrote, must reform immigration practices and policies if Bermuda is to return to a sustainable economic and demographic trajectory.
“Modernising and liberalising Bermuda’s administrative immigration practices and policy might facilitate at least some net growth in the labour force, particularly if combined with measures to encourage the return of overseas Bermudians with marketable skills and some moves towards the provision of citizenship to the families of non-citizens that have been long resident in Bermuda.
“Recent actions to accelerate the processing time for work permit applications and to implement a reorganisation of the Immigration Department are very welcome indeed, and now need to be followed up with broader reforms of practices and policies. We welcome the new impetus behind reform in this area signalled by the Government, and were encouraged by our conversations with ministers, officials and other stakeholders.
“We hope that 2019 will indeed see fundamental changes to administrative practices and policy that will streamline and ease the process of acquiring work permits and, in the words of the Throne Speech, ‘simplify issues surrounding Bermudian status, the status of PRC holders and Bermudian status for mixed-status families’.”
Liberalisation of immigration policies could help Bermuda to become less prone to outside forces, said a leading financial analyst.
Nathan Kowalski, a columnist with The Royal Gazette, said: “One aspect that would attract investment and hopefully make immigration to Bermuda by future entrepreneurs and businesses more palatable would be an open and transparent immigration policy that has a path to citizenship.
“Otherwise, Bermuda could risk remaining a transitory nation subject at an ever-increasing rate to the whims of the global economy.”
Economic growth can also be generated through a form of economic immigration, says Don Mills, chairman and senior partner of Halifax-based Corporate Research Associates and a partner in local firm, Total Marketing & Communications.
In 2015, Mills — speaking at a conference in Bermuda — proposed the sale of citizenship to a limited number of individuals willing to make a $5 million investment in economic activity to create jobs on the island. If 100 people were granted citizenship on that basis, he said, it would create a $500 million investment in Bermuda. Personal spending, he said, could increase that number to $1 billion.
“There is an opportunity to open up citizenship to people who can bring economic benefits to the island,” Mills says now. “I am pretty sure you can find 100 people in the world who would be interested in having citizenship in Bermuda, and who would have no significant impact on Bermudian society but who would have a significant impact on the economy.
“My comments in 2015 were not received very favourably — and I understand that — but something has to be done.”
In light of the looming demographic shift, the fiscal responsibility panel said that Bermuda must take steps to ensure the viability and relevance of Bermuda’s social welfare framework. “Our two previous reports argued for a dialogue with all Bermudians on the challenges that will arise as the population ages and on the need for a revisiting of existing views on the work-retirement balance during the elderly years,” the panel wrote.
“And like other countries, Bermuda must now respond to demographic changes with policy reforms that encourage individuals to work longer, incentivise the retraining and employment of older workers as the work environment changes, liberalise immigration policies, and confront the challenge of an increasingly elderly population in need of additional caring services.
“Simply put, from the perspective of fiscal sustainability, the need for these changes is serious and urgent.”
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