Change of course needed on state of economy
Recent news of redundancies at Butterfield Bank and at Bermuda Security Group, and the recent announcements of retail store closures, must raise grave concerns about the state of the economy.
This may seem alarmist, given the most recent government statistics. After all they suggest the Bermuda economy is growing, albeit slowly.
But it is not alarmist. Business confidence remains exceptionally low and there is little suggestion that growth is likely to increase; indeed, it is more likely to contract as the big capital projects at the airport and at the St Regis Hotel in St George’s move towards completion.
Recent statistics should not be dismissed, of course. Gross domestic product in the first quarter of 2019 was 3.5 per cent after inflation, the strongest in some time, and that was the fourth consecutive quarter of real growth.
The balance of payments surplus also grew by 3.8 per cent in the same period, also suggesting that the economy was on the upswing in the first part of the year.
The Employment Survey, based on reporting from employers in August 2018, showed that the number of filled jobs increased by 155, or less than 0.5 per cent. Similarly, according to the November jobs survey, unemployment fell to 4.5 per cent from 5.2 per cent in May.
All of those numbers suggest that the Bermuda economy was growing in 2018 and that the growth continued into the early part of 2019.
Other statistics are less positive, especially retail sales, which have been consistently down and dropped 4.4 per cent in May in real terms. At the same time, imports by consumers from overseas increased, although these numbers tend to go up and down.
Bermuda’s retail sector is undoubtedly shrinking, both for structural, internally generated reasons such as customs duties and for global reasons like competition from online and bricks and mortar retailers such as Amazon.com and Walmart. The internet makes Bermuda’s attempts to protect its industries irrelevant.
International business, which is directly responsible for 3,900 jobs — the largest sector — and indirectly responsible for thousands more, has been essentially flat for the past five years or more.
And while hotel employment and tourism-related sectors have experienced growth, that increase has tapered off in 2019, and is unlikely to increase dramatically until more hotels such as the St Regis come online.
The reality is that much of the positive growth of the past two years has been driven by the construction of the St Regis, which will not open until 2021 but has carried out much of the heavy construction in terms of the foundation and steel erection, and the airport, scheduled to open next year.
Unless the beleaguered Caroline Bay project finds new financing and stages an unlikely comeback, what must concern policymakers and business leaders alike is that there is nothing on the horizon that will inject life into the economy. International business may well continue at its existing level, as will tourism, but there are few other signs of growth.
The Premier, David Burt, has pinned most of his hopes and his credibility on fintech and Bermuda becoming a centre for cryptocurrencies. And while this may still happen, so far new jobs have been few and far between.
Against this backdrop, a decade of little or no growth, mushrooming government debt — now increased further by the payment of the government guarantee on Morgan’s Point — and now the prospect of what little growth there has been in the past 18 months petering out, the Bermuda First report is timely.
Commissioned by the Premier, it again pushes him to square the circle between the Progressive Labour Party’s populist rhetoric in the 2017 election and the harsh economic realities his government now faces.
As with most other recommendations of recent years, the Bermuda First committee calls for a relaxation of the island’s immigration and residency laws as a means of invigorating the economy. It also recommends the broadening of the Bermuda economy through the sale of commercial real estate to overseas buyers and easing of the remaining 60:40 company ownership restrictions.
Other recommendations will also clash with government priorities, including the establishment of an independent authority to oversee education and a profound disagreement with the present government plans to change healthcare.
Nonetheless, it is the central theme of opening the economy that is of both the highest necessity for Bermuda and will cause the Government the most difficulty.
It is hard to escape the irony that the PLP stood by when in Opposition as the People’s Campaign blockaded Parliament to oppose the previous government’s Pathways to Status but has now failed to produce its own plan to resolve the issue of long-term residency; nor that the airport construction, which the PLP so vehemently opposed, has produced much of what little economic growth there has been in the past two years.
But the protests that accompanied those two events not being repeated since July 2017 proves that the PLP government is in a position to do what proved to be impossible for the One Bermuda Alliance government.
Like Richard Nixon going to China, only the PLP can reform immigration because of its track record of putting Bermudians first and its concentration on protecting Bermudians in the past. It can say, with a credibility that the OBA had difficulty claiming, that it is easing immigration rules because there is no choice but to do so, and it has to do so because it is the only way to ensure a viable future for Bermudians.
To be sure, the recommendations of the Bermuda First Committee contain risks, and this newspaper has already expressed its doubts about the passing of flagship Bermudian businesses into overseas hands.
But the truth is that the Bermuda economy today is like a sailing ship on a lee shore: being pushed inexorably towards the rocks by the winds and the current. To survive, its tiny crew needs the help of others to come on board and row it to safety.
The Bermuda economy cannot recover if it continues with the status quo. The stagnation of the past decade proves this, as does the success of the Cayman Islands in the same period. Bermuda refused to change and has declined. Cayman opened its doors and is thriving, creating opportunities for newcomers and Caymanians alike.
Another newspaper, talking about an entirely different matter, said this recently: “There is a fine line between repeating an experiment until you reach perfection, and continuing it out of stubborn stupidity when the ingredients are clearly wrong.”
For more than two years, the Government has tried to make the ingredients of Bermudians First and Bermudian protectionism work. As with many experiments, there may have been some indications of success — slight improvements in GDP and jobs, for example. But it must also be obvious that the successes have been limited, while the problems — stasis in Bermuda’s main industry, the ageing population, unaffordable healthcare, crushing private and public debt — continue to grow.
Great leaders recognise when it’s time to change course. The time is now.
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