‘Putting Bermudians first’ betrayed by relaxation of 60:40
I have said it in a previous opinion (“Strong opposition to PLP is needed”) and I will say it again, that when all is said and done, the Government's primary role is “to allocate resources”. I will also add “to set the ground rules to determine opportunities to access resources, and who will access those opportunities”.
Therefore, as mundane and as boring as the Budget Statement may be to most of us, nothing the Government does is more important than for it to outline how it will earn and spend money.
In this year's Budget, nothing captures the contradiction more than in what the Government says versus what it does. The altering of the “60:40 Rule” to the “40:60 Rule” is that contradiction. It says in essence that new local businesses could now be at least 40 per cent owned by Bermudians instead of 60 per cent Bermudian ownership. The belief is that by allowing foreigners to own up to 60 per cent of a local company, they will be more enticed to invest in Bermuda. This, the Government assumes, is the best hope of growing our economy.
It was said in the Premier's speech that the longstanding, mandatory 60 per cent Bermudian ownership rule was “the ultimate in protectionism”. He also mentioned that “wealth is concentrated in a few hands” in Bermuda and will “never invest in anything that competes with their vested interest”. He also added that the attitude of wealthy Bermudians is: “We've got ours; good luck getting yours.”
Therefore, the answer is to entice foreign investment by offering greater ownership.
It remains to be seen but it is highly questionable that this policy will increase foreign investment at all. But before we even get to that, why would foreign investors have a more favourable attitude than local investors? Who are these foreign investors who are likely to be this way? And why?
For starters, in the world of business, the percentage of corporate ownership speaks to control in making decisions about running the business. This control is achieved if a person owns more than 50 per cent. Whether it is 51 per cent or 60 per cent makes little difference, assuming that only one foreign person or entity is going to control the 60 per cent.
The truth of the matter is the only thing that will increase foreign investment is how profitable the Bermudian economy is. The prospect of owning 60 per cent of a business in a stagnant economy is not attractive to investors — Bermudian or foreign — so our efforts should be to stimulate the local economy first and foremost by incentivising the people in the local economy.
Bermudian business people operate on the same principle of business people everywhere: they will invest their money if they are sufficiently confident that they will get a profitable return on their investment. People will not invest if the risks are too high and profit margins are too low. It has nothing to do with whether you are a Bermudian or a foreign investor. It has to do with rational analysis based on local economic indicators.
The Government makes a tragic mistake in not understanding this. Instead of devising ways to incentivise our local business people, we are turning instead to enticing foreign investment as an alternative. This is not only a failing strategy, it runs contrary to the “Bermuda first” slogan. It is placing faith in foreign investors before turning to our own people.
Bermuda's economic heyday was achieved when local money was more dynamically circulated. Of course, our economy today is not as it was and what it takes to incentivise local entrepreneurship may be different, but that is why we should be focusing our attention on devising the means to do so and not look outward.
We relaxed the 60:40 Rule in 2000 and 2001 under the Progressive Labour Party government, as it relates to the banking industry. The result was that the Bank of Bermuda became owned by HSBC, which has drastically altered our economy. Lending restrictions have become tighter and local staffing has been significantly reduced. A foreign entity has recently become the majority owner of Clarien Bank. One is hard-pressed to see how this has grown the Bermudian economy or benefited Bermudians.
It is important to note that the 60:40 Rule does not apply to the exempt companies and international companies operating in Bermuda. These are wholly-owned foreign entities that dominate our economy with concessions made to significantly increase their incentive for foreign staffing over the years. And while this may be beneficial given Bermuda's arrangement with these companies, it makes it more important for us to work to energise our local business sector by stimulating local investment.
Our government should challenge itself to find ways to stimulate local investment. We should be using local majority ownership as a barometer for how well we are doing as a nation. We are steering away from that course precisely when we need it most.
Some protectionism is necessary in an economy such as ours, just as we need to have protectionist immigration policies. We can compete with the world, but we need partnership with our government to do so. To move in the direction of giving up on majority local entrepreneurship and to not stimulate local investment is flawed. When a nation is totally dominated by foreign capital, there is less and less regard for local conditions of life, especially local conditions of labour.
So I implore this government to engage Bermudian investment for the sake of the Bermudian people. Find the formula to incentivise them and to collaborate in revitalising the Bermudian economy. There is no reason why we cannot have an 80:20 Rule — predominantly Bermudian-owned, vibrant local economy benefiting Bermudians. Striving to achieve this should be what it also means to “put Bermudians first”.
• Vic Ball was a One Bermuda Alliance senator from November 2014 to July 2017