There is no question that the offshore sector benefits the respective jurisdictions, it is a matter of whether policymakers fully appreciate what they are getting out of the deal argues Paul Byles.
To even the most casual observer, the Cayman Islands financial services industry offers clear benefits: these come in the form of employment, fees to the government, expenditure and investment of all employees into the local economy, charitable donations by the various firms and an international reputation as a financial centre (negative connotations aside).
On the one hand, there seems to be no doubt that the financial services sector is one of the two key pillars of the Cayman Islands economy, (the other being tourism). For example, it is estimated that the financial services industry contributes approximately anywhere from 40 to 60% of the country’s GDP and employs around 40 per cent the total work force. But there remain critics who argue that the sector does not contribute sufficiently to the local economy or employment of Caymanians.
One area that draws criticism is the way in which the offshore industry impacts employment and wages in the Cayman economy. The first observation of such critics is that the offshore financial industry hires many highly qualified professionals but a large proportion of these are not Caymanian as the fast paced growth in the sector is met largely by importing additional foreign labour. Secondly, the high salaries of these individuals compared to many local employees contributes to further income differences between the so called ‘haves’ and ‘have nots’. The underlying assumption (whether true or not) is that a large number of the ‘have nots’ are actually Caymanians because they are simply lower skilled on average or being treated unfairly in the work place.
As for the first point, it is an inevitable fact that many of the professionals who have traditionally worked in the sector have not been Caymanian and this result holds true today. But this is as a result of numerous factors including a small population compared to the fast pace of growth in the sector, lack of qualified Caymanians and yes, unfair treatment of Caymanians among some firms as well.
A challenge exists because while offshore firms may educate and train Caymanians to fill the posts eventually, these firms must also be flexible enough to react immediately where expansion is needed to remain internationally competitive or fill demand for their services. This often requires recruiting now, not in four or five years. And the situation is reinforced continuously by the need for firms to remain competitive and recruit at a much faster pace than the growth of trained Caymanians.
It is therefore sometimes argued incorrectly that the pace of the growth is actually the root of the problem and needs to be slowed so that Caymanians could benefit relatively more from the sector’s success. Ironically, this proposed solution provides us with insight into the value of the offshore economy in terms of employment and wages, i.e. what would happen if this sector was not experiencing the current high growth rates?
An offshore financial sector that is not growing, is more than likely, not internationally competitive. If this is the case it is most certainly shrinking, not standing still. And that means workers are laid off, including Caymanians.
The key issue is for community leaders and politician alike particularly as we head into the political silly season is to better understand and appreciate the value added by the offshore financial sector. This requires appreciating that a majority employment of Caymanians in terms of percentage, is not likely to exist in the short term for a variety of reasons.
It also requires a realisation that focusing on the “trillions of dollars” recorded as being a part of our system does not actually reside here and is not for our domestic use.
And finally it requires an appreciation that government fees, employment of as many Caymanians as possible given the rapid growth rate, and benefiting from the expenditures and investment of locals and expatriate wage earners who work in the industry towards the local economy are significant benefits.
This is not to say that there is not more that the sector as a whole can improve. For example a more organised and significant (i.e. properly funded) effort to train Caymanians on various aspects of the services and the industry in general could be implemented.
There is a tendency for some to try to squeeze more out of the sector beyond its sustainability. But the financial services sector cannot take on the overall burden of the country’s issues or be expected to be the magical source to solve all of them simply because it has been commercially successful. If such a balanced perspective is not taken, we simple risk the chance that we will eventually lose the already immense benefits that it provides to the jurisdiction as firms are driven away to establish the bulk of their operations in lower cost centres, while continuing to be domiciled here.