WEDNESDAY, NOVEMBER 23: Bermuda’s laid-back attitude has become more of a hindrance than an asset in certain areas.  A prime example of this is the inability to act on ideas and policies within a reasonable time period that will better position Bermuda to cope with issues that may arise in the future.

An article that I published in 2000 laid out some of the issues of the day and consequences that could occur if action was not taken. Items that were not addressed in the article are coming back to haunt us in the current economic environment. We all have a responsibility to spur our policy makers into action to keep Bermuda ready and well positioned for anything that may come our way.

Bermuda’s economy exclusively depends on external revenues – tourism and international business.

Whilst every Bermudian understands the need to compete in both areas, and tremendous efforts are being made to attract new tourist business or to bring new international companies to Bermuda, little attention is paid to making sure that the businesses already established in Bermuda are served in such a manner that they can prosper and expand.

Growth from within, using an already established base, is always the fastest way to grow. Bermuda’s efforts to attract new business such as e-commerce are rapidly becoming inconsistent with the conditions new businesses find when they come to Bermuda.

Bermuda is at a dangerous crossroad. Our tourist industry is in a deep recession and international business is being attacked from within and from without. Either we have policies and attitudes to welcome international business, or it will go elsewhere. By our own actions, we are beginning to make other jurisdictions look very attractive. As a result of the internet, fax machines, overnight package delivery, and modern transportation international business can settle virtually anywhere they want.

Standard of living

We do not really have any choice but to embrace international business and tourism in a positive way. There is no alternative unless we want to go backwards.  If we think we can retreat inwardly, be non-inclusive and still enjoy all of the rising standards of living, which we take for granted without any effect on our people, we are really fooling ourselves. 

International business and tourism have given us an unprecedented level of prosperity, and through our own actions we are in danger of destroying it.  We have all of the organic competitive advantages at this moment in our history to do well but, if we stifle international business by putting bureaucratic roadblocks, together with making them feel they are responsible for all our social ills, we will self-destruct our economy.

We must make tourists and international business feel welcome in order to maintain anything like our current standard of living.  Some Bermudians take our standard of living for granted, but if several international businesses were to leave we would have major social and economic problems leading to widespread unemployment which would increase crime, drug and alcohol abuse, violence and many other social ills.

Bermudians, like people all over the world, are driven both by enormously powerful human aspirations for higher standards of living and by a basic desire to make themselves and their families happy.

The economy

Our political and social policies appear to be more and more driven by race and perception and are seen to have less and less regard for economic consequences. This is a recipe for disaster because without a strong economy there is very little a country can do for its citizenry:

Without a strong economy it would be virtually impossible to correct the real or perceived wrongs.

Without a strong economy the financial aid that supports the less fortunate would not be available.

Without a strong economy fewer Bermudians would have the money to send their children overseas to college or university.

Without a strong economy our travel would be severely restricted.

Without a strong economy many of our able Bermudians might elect to seek employment overseas.

Without a strong economy our young people would not be afforded the opportunity to apply and develop their skills in the work place.

Without a strong economy our physical infrastructure would deteriorate.

Without a strong economy our dollar would likely be devalued against the U.S. dollar.

In the last 35 years our economy has raised living standards higher, faster and for far more people than any other country in the world. It has also brought more people into the middle class more quickly than any country in the world. We have created a social services system, an educational system, a physical and technological infrastructure that can be compared with the best in the world. We could not have done it without a strong economy built on tourism and international business.

Bermudians’ standard of living is being critically threatened by events both inside and outside of Bermuda. If some of our policies are not seen to be fairly applied to this new global economy, there will be economic erosion with all of its negative consequences. If our economy is dislocated it would be difficult to reverse based on the experience of other countries. 

It would take decades, if ever for Bermuda to return to the standard of living which we now take for granted. In fact, chances are that future generations would not enjoy the level of prosperity that our generation has enjoyed.

We have now reached the crossroad on how we deal with international business. The external conditions are elusive and not within our control. The internal conditions are within our control. Our internal feuding with international business makes it easier for those who seek to externally affect us, to do so with greater ease.

Some of the internal issues that affect international business and the resulting consequences need to be addressed:

Bermuda’s image and reputation abroad
Over the past 35 years, Bermuda has gradually developed a very positive image abroad as the world’s premier offshore financial centre and the world’s second largest insurance centre. It takes a long time to create such a reputation. It takes no time at all to destroy it. Once destroyed it will take decades, if ever, to build our reputation again.

The cost of doing business in Bermuda
The cost of doing business in Bermuda is almost twice the cost of doing business in most other jurisdictions. International companies are contrasting the higher cost with the tax benefits of being offshore.

However, Bermuda is not the only offshore jurisdiction where international companies have choices and considerably less expensive options are available, particularly in a virtual world where domiciliation is facilitated electronically. Until recently the main factors contributing to higher costs were non-Bermudian allowances and the cost of non-Bermudian housing. Recently, however, land taxes and payroll taxes have been increased and are being interpreted as an emerging pattern of tax increases, adding to the cost of doing business in Bermuda.

There are serious concerns about fiscal disciplines and, if Government expenditures continue to unreasonably escalate, further taxes will be required to balance the current account in Government budgets. This is an extremely worrisome development and needs to be checked whilst it is still in its early stages.

Work permits
By any international standard there is virtually no unemployment in Bermuda and because of Bermuda’s success in attracting international company business, there are more jobs available in Bermuda than available Bermudians. To bring in non-Bermudian labour is a costly option which most international companies will avoid at almost all costs. As a result, if Bermudians are available who can do the job, then pure economics will drive international companies to employ Bermudians.

It is accepted that the requirement for Work Permits is designed to ensure that all Bermudians who are willing to work can work within the limits of their skills. Bermuda with a Bermudian population of 45,000 people can only produce so many middle management and top management employees. The tax sensitivities associated with the international business mandates employment of specific skills, which are scarce in Bermuda.

In Bermuda, as in every other country in the world, available talent becomes scarcer as skills become more specialized. For international businesses to successfully defend their offshore tax domiciliation, vis a vis Overseas Internal Revenue Agencies of Governments, they must be able to demonstrate that their business is effectively run from Bermuda. Senior decision-makers and most senior and middle managers must be domiciled in Bermuda. This explains the disproportionate percentage of managers in Bermuda relative to the total available work force.

To attract senior and middle managers there cannot be any limit on the number of years the newly recruited employees can work in Bermuda. No highly talented senior and middle manager will give up an overseas career to come to Bermuda for 3, or 6, or 9 years with the prospect of then having to relocate back overseas at an older age to try and find a new career. The standards that international companies have to meet are mandated by local and international regulations and by clients. 

If international companies cannot attract employees without any limitations or restrictions, they will not be able to run their business successfully.  And, if they can’t, they will decide to move their business elsewhere.

Work permit processing time
Given the cost of doing business in Bermuda, organizations tend to be lean. This presents problems when vacancies in the organization arise which need to be filled very quickly. The increasingly lengthy and cumbersome procedures and processing time result in extremely dysfunctional organizational gaps. Also once someone has decided to make a career change and come to work in Bermuda, prospective employees become increasingly worried about the significant time required to secure a Work Permit. The awareness of this being a lengthy and uncertain process raises questions in the potential employee’s mind about the renewal of the Work Permit after the initial period.

Understudies
It has been said that recently some Work Permits have been granted on the condition that the international company in question provides the Ministry of Labour with a plan for an understudy. This concept is fundamentally flawed for several reasons.

Firstly, having to appoint an understudy adds to the cost of doing business.

Secondly, it signals to the new employee that his years with the company are numbered, right from the start. This will impact the decision of making a career change, particularly of talented individuals.

Thirdly, whilst every corporate organization provides career development and training, no corporation will accept that the price of doing business in Bermuda will include mandatory Government requirements for training of Bermudians as a consideration for the granting of Work Permits. Education of Bermudians is a responsibility of the Government and parent, not of the Bermuda based corporations – international or local companies alike.

The digital world
Within the next five years, we will experience an explosive transformation from brick and mortar companies to digital companies. This will change the character and the nature of offshore businesses profoundly.

Broad band communications without interruptions will be essential and the need for skilled labour in the areas of software engineering, programming and hardware systems support will be critical in facilitating international companies to operate from a digital platform offshore. Currently in Bermuda, the vast majority of the information technician staff are non-Bermudians. This is both true for directly employed information technician personnel as well as information technician consultants working for the software consulting services established in Bermuda or the information technician experts brought in by the banks, insurance companies, accounting and legal firms for auditing and electronic services and digital platforms.

There is no way that Bermuda, given it’s 45,000 Bermudian population, can produce the numbers of information technician staff required to support Bermuda’s needs in these areas and many other areas. This is not an unusual phenomenon because Silicon Valley in the U.S.A. recruits able information technician staff from every corner of the earth.

Conclusion

The world today is more open and transparent then ever, both with respect to the advantages different offshore jurisdictions have to offer as well as experiences international companies have in each of the jurisdictions. If Bermuda diminishes its ability to compete for a reasonable share of the international company market, the number of companies seeking domiciliation in Bermuda will slow down whilst the number of international companies established in Bermuda will decrease.

Like in tourism, once the tide starts to ebb, it may be very difficult, or impossible, to reverse the process. To paraphrase Pogo, I have found the answer, the answer is within.