The Chamber of Commerce’s recent Be Informed series on immigration drew hot debate among small business owners who say they have felt the pinch so greatly in recent months that they are seriously considering shutting their doors for good. Business Editor Lindsey Turnbull investigates how and why businesses are finding the going so tough right now and reports.
Eddie Thompson, owner of CAD Plus architectural design firm, has seen his staff numbers dwindle from five to two in a year.
“Unfortunately, when the economic downturn hit in the construction industry, ours was the first type of business to be hit.”
Thompson says. “Without a doubt the downturn has hit businesses in the construction industry such as ours hard, but government’s increases in fees in the 2009/2010 budget have exacerbated the problem to no end.”
Thompson says that his company is finding it difficult to cope with the downturn coupled with the irrational increase in fees imposed by government. Nobody could have budgeted for these increases, he says.
“We budget for around a 10 to 15 per cent fee increase annually; however, the recent work permit fee increases far exceed those percentages and have been hard to absorb,” he confirms.
“How could the immigration team or the government appointed consultants think that by allowing for a pension holiday (which is optional) that it would somehow offset the cost of the permit fees? My kids don’t need a calculator to figure out that it would never work. I thought the pension holiday was to ease the pressure on business owners and employees rather than to have it replaced by another entity,” he states.
The more things change, the more they stay the same
Thompson said the public consultation that was organised last year by the Immigration Review Team did little to involve the grass roots small business owners into the discussion and that even though they are now the recipient of considerably higher fees, the Immigration Department itself still has a good deal of room for improvement.
“The application of work permits is still taking far too long and the granting of work permits is still far too subjective and personal. Nothing has really changed,” he says.
Thompson says the hiring of ex-patriots to work within his firm has been integral to his business over the years and explains: “I would love to hire Caymanians but those Caymanians who are equipped to do the job already have their own businesses and do not necessarily want to work for somebody else.”
He concedes that there are young Caymanians who want to come and work in the business and are completing their university degrees; however he says that in most cases, they have not set foot on a construction site and as such know very little about construction details and or the process.
“Producing attractive rendering does not make an architect. One needs to be able to produce construction documents and I cannot afford to train someone when I work 12 to 14 hours a day to service my clientele and run my company,” he says.
Martin Richter, manager at the Grand Old House restaurant is of the same opinion: “It is getting increasingly difficult to find qualified candidates, particularly in the hospitality industry and this even in a down turned market. As there are very few Caymanians taking up the opportunities offered, qualified labour has to be imported from overseas.”
Richter says the impact of the direct increase of work permit fees on hotels and restaurants means increased operating expenses.
These increased costs cannot be passed on to the customers, as prices then become much too expensive.
“Just place a phone call to any supplier to find out how many businesses are operating on a cash on delivery basis,” he says.
“The seven year rollover policy has not been effective. The general result is a disruption of business. The period of absence from the Islands should be three months. This would help to facilitate the process of rehiring these people back into the workforce.”
Morgan da Costa, owner of Maedac Supply, employs 12 staff on work permits. These positions range from petrol pump attendants to van drivers, counter clerks to sales people.
Da Costa’s wife Jocelyn runs Maedac Supplies’ human resources division and she says the increases in work permit fees have been astronomical.
“Work permit fees for counter clerks used to be CI$550, as did pump attendants, while sales staff permits have always been slightly higher. Now there has been a blanket increase taking all such permits up to CI$2,000 across the board,” she said.
As suppliers of consumer goods such as potato chips, candy and soft drinks, Maedac Supply cannot pass these increases on to their customers, says da Costa. “If we did, a packet of potato chips would now cost around CI$2.50 and nobody would buy them,” he confirms.
As with Eddie Thompson’s business, Maedac Supply has not only been hit with immigration fee hikes but other government fees are also putting the squeeze on profits.
“The Port Authority has increased its fees, and shipping prices have also increased. Couple this with the 2 per cent increase in duty and small businesses are really hurting,” da Costa says.
Richter says his business has also been hit hard by Port Authority and other fee increases: “The Port Authority increased its charges to recoup the shortfall in revenue due to the downturn in the economy according to the news. Does it mean we can increase our prices by 30 per cent as well in order to compensate for the shortfall? I don’t think so.”
He continues: “Other duties and charges have been increased in the financial industry making it more expensive to do business in the islands and also affecting our business in reduced spending.”
Richter says the rapid worldwide increase of food prices combined with the inflation and increase shipping and duties in the Islands make it extremely difficult for small and medium size business to survive.
“The new duty increase besides the increase of alcoholic beverages is counter-productive as it out prices the Cayman Islands compared to other similar destinations,” he states.
Fears for the future
Thompson is not only concerned with immigration fee increases and says stamp duty on rent, plus the costs of pensions and medical for staff along with never-ending increases in insurance costs are “gobbling up any profits”.
“I don’t think we’ve even begun to see the ramifications of the fee increases yet,” Thompson warns.
“I think they will have a bigger toll on the community than we currently realise. We are only just beginning to see the increase in vacant premises across the island.”
Richter believes that the end result is that small and medium businesses are suffering.
“The middle class of the society is shrinking,” he says,
“and these persons are reluctant and/or unable to spend money in the Islands as they did previously. The cost of living has increased dramatically and it appears that the official inflation rate is very much understated. The sample basket of goods and services used to determine the inflation rate is well outdated and does not reflect the goods and services used by the majority of the population. This should be reviewed.”
Sustainability for the future is needed
Da Costa believes that a sustainable development and economic plan for the Cayman Islands needs to be developed quickly. This plan ought to include how the government will tackle the education shortfall among young Caymanians and give young people a sense of ownership when it comes to their education and career prospects; how the issue of immigration will be dealt with moving forward and how the economy will be handled to promote growth. In this way businesses (small and large) will be able to plan for the future without being hammered by sudden unexpected and unplanned fee hikes.
Robert Wood, owner of Robert Wood Lighting & Interiors agrees wholeheartedly with da Costa’s call for a sustainable plan for the islands.
“We are in dire need of a long term economic plan for Cayman. We need to instigate a buy local ethos among residents and that includes the large scale developers such as hotels and condominiums who are under no obligation to purchase from local businesses,” he states. “We really have to ask ourselves whether local businesses are really benefiting from such developments.”
Wood says that he would like local businesses to be able to compete on a level playing field with overseas suppliers because internet purchasing as well as overseas shopping has crippled his business, with government fee increases making the situation even worse.
“I have lost around 50 per cent of my business this year, year on year and I have had to let four staff go,” he says. “Now I must factor in stamp duty on rent as well as Port Authority increases and duty increases.”
Wood would like the Trade and Business Licensing function of the Department of Commerce and Investment to properly investigate individuals and companies on Island who are not operating with a legitimate T&B licence.
“I pay my T&B licence fee; however there are many unscrupulous individuals who do not and they are affecting my legitimate business,” he says. “A case in point: I saw an ad in the newspaper recently: ‘Large red container on Crewe Road selling household appliances’. People will do anything to survive during tough economic times but this is to the detriment of legitimate businesses.”
Wood believes that the government could obtain more revenue by ensuring that all licences are properly collected.
Fees are stopping growth
Wood says he could not afford to expand his business, should the economy brighten in the coming year, because the work permit and other associated fees would be too costly for him to employ staff.
Pam Parsons is another small business owner feeling the pinch. She is a property manager and the owner of Property Pals, a property management company. Pam only employs herself and one domestic, while her husband helps her out when needed, but says she could not expand her business, even if she wanted to.
“I have been approached by a few prospective clients wishing to use my services,” she confirms. “However I have not been able to take them on because the associated fees would be too high to pay should I require more staff. Even though I do not have to pay all the fees that some small business owners do (such as stamp duty on rent), I share the concerns of many others in that I am prevented from growing my business any further.”