Whoever forms the new government will face the challenge of creating new jobs for Caymanians and enhancing the economy. But the issues cannot be solved in isolation. Budget concerns, the cost of doing business, education and immigration rules are all related to the economy and ultimately employment. Neither the government nor the business community can address these issues on their own, Cayman’s business and industry associations say.
Gonzalo Jalles, the chief executive officer of Cayman Finance, believes the core objective of any government should be the well-being of its people, through addressing issues such as security, education and employment. But it is almost impossible to set specific priorities and ignore the underlying conditions.
“We have gone through one of the biggest global economic downturns of our lifetime, and while Cayman has fared relatively well, many people are suffering. Government should attempt to alleviate some of these symptoms, but you cannot cure everything with aspirin and Band-Aids. We need to tackle the root problems, re-invigorate growth, ensure immigration is not a deterrent to investment, have a competitive education system, control government spending, etc.,” says Jalles.
The Chamber of Commerce sees an equally long list of overlapping areas on which the new government will need to focus. “It is essential that the new government work with the private sector to create jobs, to reduce unemployment, to spur economic activity and to restore investor confidence,” says Chamber President Chris Duggan.
The Chamber will urge the new government to actively adopt the five drivers that were identified by Chamber members, business associations and the past government, as part of the Future of Cayman economic development initiative. These drivers, which the Chamber says impact all aspects of Cayman’s economy and community, are the development of talent, building a smarter infrastructure, enhancing the quality of life, diversifying the economy and creating a business friendly climate.
The need for collaboration
“We must work together to address each of these drivers,” Duggan says, emphasising the need for a collaborative process, which the Chamber fully intends to assist in.
Duggan says the new government will be faced with ongoing budget challenges. There will be a need to work with the private sector to agree on a strategy to control costs, to reduce wasteful spending and to privatise non-essential services.
“We intend to work with government to develop a national infrastructure plan that prioritises spending and identifies funding sources for much needed major projects such as the airport, the port, the George Town landfill and roads. There must be a real commitment and a concerted effort by the public sector to introduce systems that make it easier for business to interact with government, reduce bureaucracy and rationalise the operations of the public sector,” Duggan says.
Business thrives when there is political stability and confidence and when there is a shared vision for the future, he adds. The Chamber intends to work with the new government to develop a new vision for the Cayman Islands economy.
“We need to evaluate our business model and determine what existing and new areas we need to develop,” Duggan says. “Are there any quick wins we can introduce to jump start the economy and create jobs? Are there incentives that can be introduced to encourage businesses to invest locally? What pieces of legislation need to be prioritised for action that could be easy wins to spur economic activity?”
The Cayman Islands Tourism Association has also, in consultation with its membership, identified six main areas of focus where a strategic partnership between the public and private sector can deeply impact the tourism industry. While some issues are tourism specific, others such as immigration or the cost of doing business impact other industries as well, says Ken Hydes, the new director of the Cayman Islands Tourism Association.
Government finances and the cost of doing business
He says “it is imperative for the next government to make the fiscal management of these islands priority number one”. While cutting costs is part of the equation, it alone “will not move the needle”. Hydes says, “Positive revenue generation measure will be required as part of the overall solution.”
In recent years government measures appeared to be most concerned with rectifying the budget situation through fee increases. Now revenue growth can only come from an expanding economy, as fee increases, from fuel and import duties to licence fees and work permits, have raised the cost of doing business across the different industry sectors.
“[It] has impacted the ability of our industry to grow the local economy and [it] is impacting our product in our competitive set,” says Hydes. Efforts should be made to reduce the cost of doing business as part of a broader strategy of the fiscal management of the Cayman Islands. The key elements of this are “fiscal responsibility” and a “sustainable revenue base” while allowing business to grow the local economy. This will be no simple task, he says, but CITA is committed to play a role in working with the new government to get it right, not least because tourism has a key role to play in driving economic growth.
Cayman Finance’s Jalles notes that in 2004 government expenditure was $12,000 per working person; by 2009, in the middle of the financial crisis, it escalated to $15,000, a 25 per cent increase. “Since then this figure has remained flat. Unless we are prepared to undertake a complete rebuild of the economy and as long as we continue to rely on two industries that are by definition internationally competitive – financial services and tourism – we cannot afford this level of expenditure.”
Jalles says fee increases for the financial industry were the main means used to close the fiscal gap. “This cannot continue. In certain sectors, we are seeing signs that indicate we may have priced ourselves out of certain markets. If these are markets we want, we need to ensure we are not too expensive.”
Chamber President Duggan calls on government to consult with the private sector to identify and reduce duties and fees that are discouraging local and international businesses from expanding and investing. “All business fees should be reviewed. Nothing should be considered sacred. Addressing the high cost of doing business is one of our top priorities.”
The existing budget and the framework for fiscal responsibility provide an outline for action, but government will need to demonstrate the resolve and leadership to follow it and rationalise the public sector, Duggan states, adding that “the deputy governor [Franz Manderson] will require additional support”.
During the election campaign the economy and unemployment were the main issues debated at the candidate forums hosted by the Chamber of Commerce.
Reducing unemployment must be a collaborative effort between government and the private sector, says Duggan. “Neither can do it on their own. It is our collective responsibility to ensure that all Caymanians and legal residents are gainfully employed.” Duggan says the country must move beyond paying lip service and make job creation and skills development a national priority.
Hydes agrees, stating that the tourism sector offers many opportunities for employment which with the correct partnership with government and a better understanding of the opportunities available by the general public could go a long way to reducing unemployment.
Long term, he says, education and training will provide the best way to address the employment issues facing the country.
The financial services industry can also play its part. Nearly 50 per cent of government revenues and about 25 per cent of employment rely on the industry. Jalles points to the different causes of unemployment, which each require different solutions.
Frictional unemployment is largely the result of a mismatch in the skills needed by businesses as they evolve and those of the workforce. Old businesses may shut down and new ones emerge. People need to be re-trained and accept it may take some time to recover the level of income they once enjoyed, Jalles says. “We should look at better ways for UCCI/ICCI and the private sector to create avenues for people to re-skill themselves to re-enter the work force faster.”
Cyclical unemployment follows an economic downturn as the number of available jobs decreases. “Cayman is very fortunate in this regard as work permits should act as a buffer to minimise the impact of this type of unemployment. To a certain extent this happened,” Jalles says.
A loss of 6,000 work permit holders after the financial crisis and Cayman’s unemployment statistics, which at 10.5 per cent are much lower than in many other industrialised countries, confirm this view.
Still, some argue Caymanians are not given a fair opportunity in the job market.
Jalles says the cost of work permits is high enough that any reasonable businessman should prefer to employ local workers over expats if the abilities are comparable. “If that is not happening, government needs to act; if it is happening, then we need to do a better job at explaining to unsuccessful local applicants why they were unsuccessful and what they need to do to improve their employment prospects.”
He believes the main reason for long term unemployment is the structural gap between the requirements of the available jobs and the abilities of the working population. “It is the main reason why we continue to employ work permit holders while we have unemployment,” Jalles notes.
In contrast to the frictional unemployment, this issue cannot be fixed with a quick retraining. “The new government should seriously tackle this issue through diversification of the economy and reform of our education system to be better aligned with the demand our industry will have.”
In addition to better matching the skill set of the working population with what is required by businesses, new jobs can only be created in a growing economy.
Because talent drives business success and given the intense competition globally to attract top talent, particularly in the financial services sector, immigration reform must become a top priority, says Duggan. “The Cayman Islands depends on the service sector and requires top talent to remain competitive.”
CITA has highlighted a similar situation in tourism, calling for immigration policies and procedures to be aligned with the unique talents and abilities required by the tourism Industry in Cayman. The term limit review recommendations should be reviewed and implemented as a matter of urgency, says Hydes, and support for improvement in the operational process within the immigration department should also be a high priority.
Duggan goes further, arguing that controlling labour through “an immigration system and politically appointed boards is an inefficient system that must be changed”. He points to an alternative raised by government’s strategy paper Vision 2008 which called for the establishment of a Human Resources Authority. “It is time to consider a proper system that serves the purpose it is intended to and not one that promotes personal political gain.”
Jalles in turn emphasises that it is important that the immigration regime achieves its objectives without discouraging investment. “We need to ensure population growth is controlled in a way that it does not put further strain on social services, but at the same time, we need to ensure it does not discourage those that can help our economy grow.”
In Jalles opinion, constant discussion of the issues, continuous change and the level of discretion and uncertainty that still exist in the current system are likely to discourage investment both from outside and within Cayman.
One example for the lack of investment is in construction. To help the economy, Jalles suggests the re-activation of small building contractors is key, saying of all sectors in the economy, it is the one that suffered most and recovered the least. “One of the key issues regarding the activity of this sector is the number of professionals working on Island with the economic ability to invest in property but unwilling to do it due to the uncertainties surrounding our immigration system.”
Jalles encourages any reform to be done in a way that reduces as much as possible discretion in the system and ensures future changes cannot affect investments made based on current rules.
In addition to general economic needs, each association identified specific issues for their membership that should be addressed by the new government.
Duggan notes that the needs of small businesses featured prominently during the election campaign and says the Chamber intends to work with the new government to develop real and tangible incentives to assist them.
He also thinks a foreign direct inward investment policy should be developed that provides clear guidelines for international investors. CITA sees an overall enhancement of the cruise visitor experience, including the development of a cruise berthing facility and downtown local businesses as critical. In terms of stay-over tourism CITA believes it is necessary to reach more destinations through new gateways and new partnerships with airlines. In addition, airport renovations need to continue to expand to handle the future capacity as room stock and new projects come to the islands, notes Hydes. CITA has also raised the legalisation of gaming as another potential avenue for enhancing the tourism experience and driving revenue to the Islands that should be investigated.
Finally the environment is a key issue for the tourism industry and immediate attention is needed with regard to the National Conservation Law, the expansion of marine parks expansion and the protection of endangered species to assure that the biodiversity for future Cayman generations is protected, he adds.
Cayman Finance meanwhile states that a number of regulatory updates for its industry will be needed as regulation changes constantly around the world. “There are things we need to do to simply stay in line with international standards and opportunities created all the time. [The government and the private sector] need to institutionalise a way of really working together,” Jalles says.