Premier and Minister of Finance Paula Cox. *File photo
UCCI/UWI/ICCI Caribbean Conference: 50/50 –
21-23 March, 2012, Cayman Islands
‘Surveying the past, mapping the future’
Thank you Mrs. Rodriquez and good morning Hon. Ministers, Distinguished Attendees, Conference hosts, ladies and gentlemen.
I would like to start by complimenting the far-sighted organisers of this event. The University College of the Cayman Islands has succeeded in assembling an impressive array of speakers. They have also structured a highly provocative and visionary conference. Its content, context and timing reflect much careful thought. What a powerful and completely appropriate theme: 'Surveying the past, mapping the future'.
Given the diverse interests and historical backgrounds represented here today, this theme will stimulate much engagement and dialogue, as we have already seen from some of the earlier speakers.
Talking of history and historical backgrounds, it is most appropriate that the conference organisers are academics and professional educators. Otherwise, left to the politicians to survey the past, we could be in for some revisionist history.
It's been said that God alone knows the future but only politicians can alter the past.
Today I assume the role of truth teller to tell the story about one of the most successful jurisdictions in this region. I have been asked to describe the Bermuda model and the challenges it faces. Before doing that, let me give you a status update on Bermuda economically, socially, and politically.
Then l will retrace our steps and examine the route we took, the lessons learned and how we will tackle both the challenges and opportunities that lie ahead.
Essentially, I will be talking about progress, but I'd like to invite you to adopt a certain perspective on this. I'd like you to view what I'm going to say through the lens of Martin Luther King Jr. who said, and I quote: "All progress is precarious and the solution of one problem brings us face to face with another problem." I also want to reference another quote about progress which I will share with you in a moment.
First let's set the context. The political backdrop is that the Bermuda Progressive Labour Party has been in power since 1998. That year marked our historic victory as Government, when we won our first general election. This was a game-changer that marked the first change of Government since the establishment of party politics in Bermuda.
Some doubted the ability of our Party given its limited experience in Government. Yet the PLP did not blink in its follow-through and delivery on election promises.
What does that mean? It means that this pivotal change of Government in November 1998 initiated a process that allowed the country to move from being under the control of a ruling business class elite to an administration which was committed to broadening the base of political participation for all Bermudians.
This was a powerful, radical shift. After three decades of leadership by another political party, the Bermuda Progressive Labour Party was elected as the people's Government. We were excited at the prospect, at what now seemed possible. At what President Obama called not long ago: the audacity of hope.
Progress indeed. However, remember Dr. King's warning: The solution to one problem brings us face to face with another.
In our case, the challenge was to maintain economic momentum and stability while bringing about the social change we had promised the country. We couldn’t afford to drop the ball. Couldn’t allow our critics an opportunity to say we told you so.
These were lofty, ambitious goals but we believed that building a better Bermuda for Bermudians was not incompatible with maintaining a business friendly environment.
Of course, any change of policy carries an element of risk.
Our focus was to marry economic empowerment with economic development. We knew that there would be no safe options and that our chosen path would indeed involve a precarious progress.
Precarious or not, we were determined to tackle inequities in the area of jobs, property ownership, affordable housing, social assistance, healthcare, education, infrastructure programmes, small business empowerment, Government services and public sector borrowing.
How have we fared? If the proof of the pudding is in the eating, Bermuda's voters clearly liked what we were serving up. Having given us a mandate in 1998, they re-elected a PLP Government in 2003 and again in 2007, when the Party maintained its Parliamentary majority and increased its share of the popular vote to 52.5%.
Encouraged by this strong show of support, the Government followed through on its election promises and in its third term in office delivered free daycare for eligible Bermuda families, free tuition at our Bermuda College, free bus and ferry transport and enhanced health insurance options.
We also launched Economic Empowerment Zones with the aim of stimulating entrepreneurs. More recently, tax roll backs were unveiled to bolster businesses, hotels and restaurants, and legislation was developed to create job maker incentives for good corporate citizens who promote economic advancement for Bermudians.
At the same time, with job creation consistently among our top priorities,
we have continued to actively support our international business sector and our tourism industry, the key drivers of employment in our economy.
This dedication to understanding and nurturing the main elements of the economy while at the same time keeping the promises we made to the people of Bermuda,has undoubtedly been critical to the continued success of our jurisdiction.
The statistics speak for themselves. International business maintained its status as the biggest contributor to our GDP and continued to strengthen sharply following the election of the PLP in 1998. So much for those who had predicted an exodus of business under a PLP Government. In fact, far from triggering an exodus, this sector's contribution to GDP surpassed the $1 billion mark in 2005 aided by a particularly active natural catastrophe season, which spawned Hurricanes Katrina, Rita and Wilma and, in turn, directed more business to our thriving risk industry. In that same year, this international sector also became the largest employer on the Island.
The GDP derived from the international businesses nearly tripled for the ten years from 1996 to 2006. For the first time, the IB sector overtook construction as the leading contributor to job growth. By 2007, international companies were generating approximately 4,700 jobs in Bermuda and had become the major driver of demand, not just for professional services such as accounting, banking and legal support, but for almost all sectors of our economy.
By then, the insurance industry had become the undisputed jewel in Bermuda's international business crown. Yes, there was growth in the funds sector and in trust business and in other areas, but not growth of the meteoric proportions seen in the risk industry. Initially, this was due to the rapid influx of captive insurance entities. But in the mid-1980s, the formation of ACE and XL, two of the largest insurance companies established in Bermuda, marked the dawn of a new era and the birth of what would eventually become the largest commercial insurance market of its kind.
Today, Bermuda's combined risk management, insurance and reinsurance marketplace is huge by any standard. It is no wonder that Bermuda has been dubbed 'the risk capital of the world’. With capital and surplus of more than $182 billion and gross premiums of close to $108 billion in 2010, this industry and its widely-acclaimed expertise commands massive respect all over the world.
Let me give you an example. When the European Union decided to draw up a list of non EU jurisdictions that were to be assessed last year for equivalence with Solvency II regulations, Bermuda was one of only three domiciles invited to be in the first wave of assessments. That tells you something about the global standing of the Bermuda market.
I think it would be useful to pause here for a moment to consider the reasons why this commercial insurance business, as distinct from the captive business, came and continues to come to Bermuda. Fiscal advantages clearly played a part. So too did our well respected regulatory environment. Close proximity to the gateway cities of the US east coast has also been a contributing factor.
But the most commonly-stated reason given by many of these companies as to why they chose Bermuda, is speed to market. Why? Because it is mission-critical for any new insurance company to get its underwriters underwriting as soon as possible. For many commercial start ups, timing is everything. Lengthy licensing procedures and unnecessary bureaucracy can be deadly.
However, not as deadly as what has become known as the Great Recession of 2008 to 2009 and the ensuing financial slowdown. Indeed, it is difficult (and I quote) "to survey the past and map the future" without taking into account the more severe recessionary ravages.
It was Rahm Emanuel, the current Mayor of Chicago and former White House Chief of Staff under President Obama, who said that you never want to let a good crisis go to waste. He believed that a crisis allowed you to do important things that you would otherwise avoid doing. How right he was. While I don't know many people who actually enjoyed the painful experience of enduring the Recession, it certainly gave everyone anopportunity to review their chosen path.
Economies are usually most robust when fully diversified. Ideally, for optimum results, this should involve reliance on non-correlated contributions to GDP. However, the recession soon put paid to nice notions of non-correlation. The inconvenient truth that quickly emerged was that in a joined-up universe of business relationships, precious little could escape such a meltdown unharmed.
Bermuda was no exception. With international business growth beginning to slow, due mainly to softening premium rates and reduced investment income, Bermuda's GDP had peaked in 2008, topping $6 billion in current dollars.
By 2011, the total number of jobs generated by the international business sector had fallen to 4,077, reflecting a 4.9% decrease year over year. The actual number of companies on the Bermuda register has also declined. By the end of last year, they numbered 14,838 international companies, 253 fewer than the number for 2010.
Not surprisingly for a travel destination which draws the bulk of its business from North America, our tourism sector was also severely impacted in 2008 and 2009. Double digit percentage reductions were recorded in the number of visitors arriving by air. However, in 2010 the decline was arrested and in 2011 air visitor figures rose for the first time since 2007. Cruise visitors alsoincreased in 2011, rising to 415,711, an increase of 19.5% and the highest number we have ever recorded. Consequently, total visitor expenditure for the first three quarters of 2011 increased 12.6% year over year.
However, almost every other aspect of our economy was negatively affected by the global slowdown. Jobs growth had already begun to moderate in 2007. But in 2008, total employment throughout our economy peaked at 40,213 jobs, reflecting year over year growth of0.9%. Since then, the total number of jobs in Bermuda has declined each year by 1.7%, 3.6% and 1.9% for 2009, 2010 and 2011 respectively.
For the second year in a row, our construction industry recorded the highest number of job losses. Employment numbers fell from 3,042 in 2010 to 2,549 in 2011, a reduction equivalent to 16% of the workforce in that sector of the economy. Real estate and renting activities were also hit, with total jobs shrinking by 14.5% last year.
Our 2010 Census pegged the official unemployment rate at 6%. Additionally, preliminary data from our 2011 employment survey indicates that, for the third year in a row, the total number of jobs in the economy fell, dropping from 38,097 to 37,379. A decline of 718 jobs. Overall, since 2008, a total of 2,834 jobs have been lost representing 7% of the total workforce.
So what lessons have we learned from this recent bumpy journey and how are we applying them?
As indicated earlier, we are ever mindful of the unintended consequences that Dr. King highlighted.For this reason if no other, I think it is important to keep your powder dry. In other words, have a clear understanding of which problems can be addressed by actions taken in Bermuda and which must await developments elsewhere.
As mentioned in passing a little earlier, one of the first lessons to be learned was that as a participant in the global economy, there was no escape from the harmful effects of contagion. This was graphically demonstrated very early in the recession when two leading Bermuda hotel properties were directly impacted by the collapse of Lehman Brothers, which was to have been the source of development financing for these hotels. Contagion was also the root of problems for one of our banks, which was holding toxic assets on its balance sheet.
Additionally, during the darkest days of the recession, we learned the importance of effective communications. Throughout this difficult period, we maintained a commitment to transparency and staged regular town hall-style meetings in order to keep the community fully informed of what was happening with the economy.
More recently, we raised Bermuda's statutory debt ceiling and introduced a Medium Term Expenditure Framework. This will help us in planning multi-year financial targets which are impossible to achieve in a single budget. We also produced and distributed our first ever pre-Budget Report one month in advance of the National Budget Statement for 2012-2013. The aim of this initiative was to outline a multi-year strategy spelling out not just what was planned for the next year but where we think we are likely to be four years from now. This Report also had the effect of avoiding surprises in the actual budget.
We took care to explain that fiscal policy making in the current economic climate can be a challenge and that future revenues can be almost impossible to predict. Hence our fiscal strategy needs to allow for wide variations.
Job creation remains among our top priorities but we are also focused on job preservation. With this in mind we have introduced tax concessions and roll backs to protect thousands of jobs in international businesses, hotels, restaurants and retailers. Spearheading our national job stimulus plan is our Job Corps Programme and a new one-stop careers centre. Of equal importance is the drawing up of new workforce development legislation and modification of our existing employment laws. Additionally, we will provide work permit exemptions and permanent residence to eligible job creators.
Of course, we all know that the piper has to be paid and that programmes like these usually carry a high price. Inevitably, one of the financial consequences of this policy response for Government's fiscal position has been a widening of the budget deficit and an increase in debt. In effect, a significant segment of the revenue given up in new concessions to businesses and relief to seniors and families was replaced by borrowing.In other words, Government’s strategy was to act as an economic backstop to avoid systemic risk to exposed key sectors of our economy. The goal was to avoid a deepening of the recession that would take a more severe toll on families and businesses.
Ladies and gentlemen, we are promoting a culture of enterprise, leadership and self-reliance as a necessary condition for economic growth and development in Bermuda. For the time being, the objective is to help the economy do more with less. Help nurse it through this phase of the slowdown. Ultimately, the aim must be to help the private sector grow. This is where we need to understand what can be fixed by measures applied in Bermuda and what cannot. Help is on the way. The US economy is showing strong signs of resurgence. Jobless numbers are down. The stock market is up. Interest rates are flat. The signs are good but for satellite economies like ours, help cannot come too soon.
We cannot control what happens elsewhere only how we respond to it. Driven by our proactive bias to action, we are working on ways to help the private sector help itself, especially in the area of international business where we are focused on reducing red tape. We think red carpet treatment is the way to go and we are setting up a new advisory group to explore ways to streamline international business formations.
Will these measures work? We believe they will but it is worth heeding Dr. King's warning about the precarious nature of economic progress. Our economy, like many of those represented here today, is directly impacted by decisions of policy makers in the United States and Europe, who are all too capable of the wrong decision at the worst possible time. Wrong and worst, in this case, being defined in entirely subjective terms, of course.
Do international relationships and trade links help? Yes of course they do. Bermuda is an Associate Member of CARICOM and cherishes the long-standing legacy of leadership, cultural ties and the common ground that bind us together on many fronts. Though each territory is unique, we draw strength from one another, especially on occasions like this when we sit together in open and honest dialogue, sharing challenges, offering solutions.
Which brings me to a longer term strategic challenge that we all face. How should we plan to compete in the future? Do we each harness our considerable national talents and concentrate on coming up with new concepts to attract tomorrow’s investors? Do we pool our efforts? Do we just plod on crafting Tax Information Exchange Agreements, now nearing 32 in all for Bermuda? Is this just all about innovation and the race to develop new products or programmes? We are already deep into the alternative capital phase in the financial services sector. Sidecars and cat bonds are no longer considered unusual vehicles. In Bermuda, Special Purpose Insurers or SPIs are almost de rigeur. We licensed 23 SPIs last year, almost three times the number we licensed in 2010. So what is the answer?
I said earlier that I would be referencing two insightful quotes about the nature of progress. You've heard the quote from Dr. King. Here's the second and it comes from the lips of President John F. Kennedy: "Our progress as a nation can be no swifter than our progress in education. The human mind is our fundamental resource."
We all have access to tremendous levels of intellectual power in our various jurisdictions. What are we doing to equip this human capital to support our various economies in financial services or tourism or in the skilled trades? After all, they won’t all want to be accountants or lawyers or bankers.
At the end of the day, it is the private sector that will generate the demand that will drive up employment. Our job, the Government’s job, is to be the enablers and help the private sector do what it does best.
Today, new ideas are quickly and easily replicated. In this age of electronic media and social networking, competitive advantages can be disappointingly short-lived. A well-trained, adaptive workforce, on the other hand, is a more durable competitive advantage and is much harder to copy.
Bermuda’s education focus in the upcoming school year will be the introduction of Career Academies or what we are calling, Career Pathways. There has long been a cry for the re-introduction of vocational education in schools and the introduction of the Career Pathways programme later this year offers a Bermudian solution to the need for students to be prepared for the workplace.
In conclusion, ladies and gentlemen, I hope I have given you a sense of the Bermuda journey and the challenges we have faced along the way. Our reputation has helped immensely. We try to always remember that we are a service-based economy. For us, that means a reputation for service excellence and a culture that underpins it must be at the core of Bermuda’s brand.
Finally, I’d like to say something about the human contribution to Bermuda’s progress. How could I not, right? Recessions and financial hardships teach you something about the human condition, your own and those around you. I’m talking now about the resilience of the Bermudian people as well as the way that our competitors have responded to us. It is said that the world loves winners. But in my experience, winners can also incur the jealous resentment of those who would like to have won. In terms of lessons learned, it was clear that the economic downturn brought out the best and the worst in all of us. While some of our competitors saw it as an opportunity to score points, the Bermudian people saw it as an opportunity to close ranks, re-examine priorities and demonstrate caring leadership. Indeed, the camaraderie we experienced in Bermuda was also felt among members of the OECD Global Forum, which Bermuda had the privilege of chairing last year.
My friends, Hon. Ministers, Conference hosts, ladies and gentlemen I hope my account of Bermuda’s recent progress has been of interest to you. I also hope that I have given you a meaningful peek inside Bermuda’s engine room and that you have concluded that our approach reflects the wisdom of that ancient Chinese proverb: Be not afraid of going slowly, be afraid only of standing still.