‘Island needs to pull together’
An international business leader yesterday made a call for public and private sector collaboration to address the Island's economic difficulties.The combination of the threat of potentially harmful changes in US tax rules and a rising cost of doing business in Bermuda are among the factors behind the departures.
George Hutchings, chairman of the Association of Bermuda International Companies, spoke yesterday after new figures revealed that the Island's economic output plummeted by 8.1 percent in real terms last year.
“The reduction in economic activity for 2009 clearly indicates that the Island needs to pull together to tackle its economic issues,” Mr Hutchings said.
“Now more than ever, the Government, ABIC and other industry groups should jointly develop solutions to stabilise growth and attract quality organisations to conduct their business in Bermuda.”
The international business sector accounted for more than a quarter of the Island's GDP in 2009, but its output fell by more than $57 million.
Several of the Island's insurers have downsized their operations on the Island or moved their domicile to European countries over the past two years.
Mr. Hutchings, who succeeded David Ezekiel at the helm of ABIC last month, added that he saw positive signs from new Premier Paula Cox's administration.
“The Premier recognises that competition for choice of domicile is fierce, and has stated that she will do everything in her power to protect our leadership in this area,” he said.
“Already we have heard the Government's commitment to extend tax protection for IB to 2035, along with a strong commitment to public safety, reform of public education, streamlined government services and prudent fiscal management.
“A further measure of the Government's renewed commitment to the business sector is the formation of the Ministry of Business Development and Tourism and the Ministry of Economy, Trade and Industry.”
Local businesses have suffered badly during the recession, a statement from the Economic Committee of the Bermuda Chamber of Commerce yesterday made clear.
The dismal GDP figures had come as no surprise to Chamber members, who were “all too painfully aware of the individual hardships and difficult decisions that underlie these numbers”, the statement read.
“All of the drivers that led to this decline in 2009 remain today and thus our concern is that we are in the midst of a downhill spiral that is difficult to break.”
The Chamber added that Ace Ltd's recent decision to relocate finance staff from Bermuda to Philadelphia was “a clear signal that the cost base of ‘Bermuda Inc' is too high and that we are not currently competitive with other jurisdictions.
“This is an issue for Bermuda alone, it is not linked to the global recession in financial services.”
Government's forecast of 2.5 percent decline in GDP last year and one percent growth this year, made in February's Budget, had seemed “overly optimistic when compared to the information provided by our members and anecdotal reports of business activity levels”, the Chamber added.
“The real rate of decline of 8.1 percent clearly demonstrates that our economy is fragile and under enormous stress.”
In response to calls for leadership and advice from members, the Chamber said it plans to unveil its own key recommendations for both public and private sectors at a press briefing soon.
Shadow Finance Minister and United Bermuda Party MP Bob Richards said the lack of diversification in the Bermuda economy made it especially vulnerable, with its heavy dependence on international business, something he believes Government has failed to appreciate.
Government had to do more to attract and retain businesses that brought jobs and injected money into the economy, he said. And he referred to recent comments by Ace Ltd chairman and chief executive officer Evan Greenberg, who told this newspaper that it was important that business was not viewed “as a source of evil”.
“Bermudians have to understand that foreign workers bring in money,” Mr Richards said. “That is how Bermuda has prospered over the centuries.
“Government has displayed a total lack of understanding of the basis of our economy.
“We need to be finding reasons for them to come here, so that the minds of Mr. Greenberg and all international business people are changed. That is overwhelmingly the most important thing.”
Bermuda Democractic Alliance finance spokesman Michael Fahy said Government had run out of excuses for the state of the economy.
“It's not good enough for them to say that it's all due to the global economic recession,” Mr Fahy said. “We acknowledge there is a lag, but that gave them a six-month window to plan for this. Their answer seems to be to raise taxes. We should be lowering taxes to increase investment.”
Ms Cox would need to reverse the expansion of the Civil Service if she wanted to achieve her promised public spending cut of $150 million, he added.
“Is she going to cut the Civil Service?” he said. “Is she going to roll back the number of hours? There are some tough decisions to be made, if we are to stop this downward spiral.”
Amid yesterday's gloomy assessments, Premier and Finance Minister Paula Cox said Bermuda still had some key economic strengths.
“Our revised GDP per capita of $86,975 per person is still one of the highest in the world and the revised net debt to GDP ratio of 16.6 percent is more than 40 percent below the median for the Fitch rated ‘AA' category median, which includes sovereigns rated ‘AA-', ‘AA' and ‘AA+',” she said.