What can we learn from Cayman?
Last week’s series on the Cayman Islands’ growth story sparked considerable debate among readers about how Bermuda can reinvigorate its own economy and raised some fundamental questions.
Cayman and Bermuda have many similarities, as fellow British Overseas Territories, with small land areas and similar populations, whose prosperity depends largely on financial services. However, there are major differences too: Bermuda’s economy is more mature than that of Cayman and it has less room for additional development.
Quantitatively, Cayman outperforms on almost every metric. Cayman has seen a net gain of more than 12,000 jobs over the past decade, while Bermuda has logged a net loss of 4,300. Cayman’s population has climbed more than 23 per cent since 2010, while Bermuda’s headcount has shrunk. Real gross domestic product growth over the past five years has averaged 3 per cent in Cayman, versus 0.1 per cent in Bermuda.
The growth has generated hefty government surpluses that have allowed Cayman to whittle down its debt to a fraction of Bermuda’s $2.6 billion burden. The consequence is that Cayman has funds it can invest in public infrastructure, growing public services and generous pay rises for civil servants without increasing the tax burden on its community. Curtis Dickinson, who is preparing to present Bermuda’s 2020-21 Budget Statement on Friday, has no such luxury.
However, the series also made clear that Cayman is not all milk and honey. Some Caymanians feel they are being marginalised in their own country as a result of policies that allow foreigners to buy property without restriction. Some say too few locals have benefited from the development, partly because of a lack of planning. Poverty is clearly an issue, too, with the underprivileged and low paid falling further behind in an inflationary environment that has seen rents rise nearly 20 per cent in a year.
Cayman’s public education system appears to face challenges similar to Bermuda. Tasked with preparing young people to participate in a knowledge-based economy, the vast majority of its schools are not meeting expected standards, according to the territory’s own Office of Education Standards.
So can Bermuda learn anything from Cayman? Perhaps, first we should be asking what we want for Bermuda.
Do we want to grow the population by 23 per cent in ten years and open the doors to foreign property buyers to spur hundreds of millions of dollars worth of new development? No, thank you.
Do we want to achieve stronger economic growth, diversify our economy and strengthen our fragile public finances? Yes, absolutely.
Adopting the bold Caymanian approach in its entirety would not be politically palatable in Bermuda. However, some ingredients of their secret sauce would surely help us to spice up our economy.
If there is one underlying difference between the policy approach of the two jurisdictions, it’s that Cayman is more open to the world. More open to foreigners working and putting down roots in their country and more open to foreign investment.
A good example is its immigration policy. Cayman’s clearly defined pathway to citizenship allows workers who have proved their value to employers and the community over the long term to apply for permanent residency after nine years and then for Caymanian status after 15 years.
From a business standpoint, this makes it easier to attract and retain valuable employees, and in turn, makes Cayman more attractive to start-ups. Foreign workers can also feel that they “belong” in the community and so will be more likely to invest locally.
With no such pathway in Bermuda, expatriates are incentivised to send home every cent of their savings, contributing to the outflow of money earned here that leaves the economy — an outflow that totals between $3 billion and $8 billion over the past ten years, according to David Burt, the Premier, citing the Financial Policy Council.
There is plenty of evidence that the business-friendly environment in Cayman is creating opportunities for locals. Unemployment among locals is lower in Cayman than it is in Bermuda and underemployment — where people are working part-time when they would like to work full-time, for example — is significantly lower among Caymanians than Bermudians.
Cayman levies no payroll tax, but does charge employers with substantial, upfront work permit fees instead, providing a tangible benefit when hiring locally.
The Fiscal Responsibility Panel and BermudaFirst alike have stressed that immigration reform, based on bringing in the talent the island needs and maintaining the labour force within an ageing population, is key to stimulating growth. Cayman could be used as a case study to illustrate their point.
Furthermore, Cayman has other categories of permanent residency for wealthy individuals and for those who invest substantially in local businesses. The potential impact of even a single wealthy resident on a small economy can be extraordinary, as shown in Cayman by Kenneth Dart, who has invested more than $1.5 billion in development projects.
Openness to foreign investment is helping Cayman’s efforts to diversify its economy. An embodiment of that point is Health City Cayman Islands, owned and operated by Indian healthcare giant Narayana Health, which has created a whole new medical tourism industry, with 40 per cent of the 109-bed hospital’s patients coming from overseas. Devi Shetty, who heads HCCI, predicts Cayman “will emerge as the capital of medical tourism for the entire western hemisphere within the next five to seven years”.
Would Bermuda have been so accommodating to Dr Shetty, had he wanted to build the new hospital here? It’s a hypothetical question, but it’s worth considering in light of potential future opportunities.
It must also be said that Cayman could perhaps learn one or two things from us. It seems to be lacking a voice for labour, with no trade unions that we could find, although a law to accommodate the formation of unions does exist. Bermuda has a rich organised labour history, which has played a role in enshrining workers’ rights in law and preventing exploitation by unscrupulous employers.
Cayman does have a minimum wage of CI$6 ($7.20), equivalent to less than US$15,000 a year, based on a 40-hour week. However, it is set at such a low level — in a country where the cost of living is nearly as expensive as Bermuda — that it perhaps serves to make measly wages appear more acceptable, rather than to protect the interests of workers.
Cayman’s unchecked growth has led to accusations of a lack of planning, in terms of either development or future labour force needs. The aforementioned rocketing rents and high property prices in a market with no restrictions on foreign buyers, is pricing many locals out of buying their own “piece of the rock”, we were told.
It could be argued that Cayman had little alternative but to “open up”, as they’ve had a gun pointed at their head since 2011. It was then that Cayman agreed to strict controls on its public finances imposed by Britain, in return for permission to borrow more, so dire was their situation in the wake of the global financial crisis.
The gun to Bermuda’s head today is of a different nature: the combination of a rapidly ageing population and a $2.6 billion debt means that some serious policy changes have to occur and quickly, or our economic decline is all but assured. As Sir John Swan aptly put it: “Wake up, Bermuda”.
Copying the Cayman model in cookie-cutter fashion would not be feasible for Bermuda. But maybe a “Cayman-lite” solution would help us. We can learn from economic stimulants that have worked for them and use them in a planned way, for example with a maximum population target and a regularly updated assessment of skills the island needs to inform immigration policy.
Cayman has showed us how a small island economy can reverse its flagging fortunes in a short space of time. In our predicament, we would be wise to learn something from that.
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