It has taken a little longer than expected, but Cayman Enterprise City is finally starting to take off and it still expects a 2012 ground-breaking for its permanent home.
Cayman Enterprise City has been out of the spotlight most of the summer, but that doesn’t mean there wasn’t a lot happening.
Their offices in the HSBC House in Baytown Plaza have been a beehive of activity the last couple of months with contracts signed, companies licensed and construction on interior fit-outs for new tenants. By mid-August, the company had 28 tenants signed or signed and licensed, with several other companies on the cusp of signing.
Then, of course, there was the installation of a 150,000-pound vault that was recently delivered to the island. The state-of-the-art vault, which would take several days to break into, is capable of storing US$4 billion of gold bars, said Hilary McKenzie-Cahill, Cayman Enterprise City’s vice president marketing and business development.
“It is the highest rated vault in the CARICOM Region utilizing all of the latest technology available in its composite materials and security design,” she said.
The vault is being installed to store the gold that a new Cayman Enterprise City tenant – Argentum SEZC – will produce with a precious metals processor. Argentum, which will have a 10-person staff here in Cayman, will operate out of Cayman Enterprise City’s Commodities Park, one of six industry clusters that make up the special economic zone.
Argentum will process, melt and cast both gold and silver here in Cayman in a self-contained unit that has a capacity to melt 30,000 troy ounces of gold or 17,000 troy ounces of silver per hour. It could pour and cast nine 400-ounce gold bars and 35 100-ounce silver bars per hour.
David Clark, the principal of Argentum, said the unit will be the first precious metals processor and bullion storage operation in the CARICOM Region.
“Located strategically in the Cayman Islands because of the synergies available due to the Islands’ robust financial infrastructure and related industry participants, coupled with the island’s firmly established existing banking, insurance, accounting, advisory, fund and legal structures, made the Cayman Islands the clear logical choice for this necessary new industry in today’s volatile economic climate,” he said.
Cayman Enterprise City CEO Jason Blick said there’s been a lot of interest in the zone’s Commodities Park and that about 40 per cent of the tenants so far will work out of that cluster. Another 40 per cent of the tenants have been from the United States or Canada technology sector and will work out of the Cayman Internet & Technology Park.
“The rest [of the tenants] are split almost equally between the other parks,” he said.
Blick admits, however, that the take-up on the project by tenants, while progressing much better now, was slower than anticipated.
It takes a lot of sales work to get a special economic zone off the ground, but once the get going, they can start generating their own momentum.
Blick said Cayman Enterprise City was not only a new business model for the Cayman Islands, it was a new business proposition to potential clients. It has taken longer than he initially expected to sell the new business proposition to clients.
“To be honest, it was about two or three months slower than I thought it would be,” he said in reference to the take-up rate by new tenants.
“What we’ve found is that we were having a one-in-six closing rate to everyone we touched, which is phenomenal,” he said, adding that the company simply wasn’t engaging enough companies. “We needed to develop more leads.”
Although special economic zones in places like Dubai now almost sell themselves because of the known advantages of the zones to the companies established there, Cayman Enterprise City is operating in a region where the business model isn’t as well understood, Blick said.
“We thought a lot of people understood it and it turned out they didn’t, including some people on the Island, surprisingly,” he said.
As a result, Cayman Enterprise City’s marketing arm has had to step up its effort to generate new leads. McKenzie-Cahill said the company has been doing everything from sending out press releases to industry-specific publications and attending various conferences and trade shows, to picking up the phone and pitching Cayman Enterprise City to companies in specific industries. Although almost all of the tenants have come from North America so far, McKenzie-Cahill said the company is producing material in Spanish now to target Latin American companies and that she was having discussions with a Chinese company as well.
Beyond the delay in sales, it has also taken more time to get tenants licensed and moved in because of the various paperwork and KYC requirements, which are the same for every company, large or small.
McKenzie-Cahill said the process has many steps, all of which may not take a lot of time individually, but cumulatively it does.
All Cayman Enterprise City tenants must form a exempt company through a local service provider before they can get be licensed to operate in the zone.
“Before they can set one of those up, the have to sign a lease with CEC,” McKenzie-Cahill said. “We then issue a letter inviting them to establish in the zone.”
When the local service provider forms the company, it has certain due diligence procedures it has to follow.
“There are no shortcuts in that regard,” she said. “It’s exactly the same as it is for a nonresident exempt company.”
Once the company is established and a lease signed, it can apply for zone trade certificate, which takes an average of four working days. When the trade certificate is issued, the company can apply for zone employment certificates for its employees, something that takes another four working days on average. Those applications also require various paperwork and documents to be submitted by the employee first.
Then after all the paperwork is completed and all the necessary certificates are granted, the company has to move in, sometimes from abroad, leading to various other kinds of time-consuming challenges.
This summer was filled with these kinds of process activities, but the point has been reached where offices are being fitted out for real people to occupy desks in the HSBC House and at Grand Pavilion, another approved temporary Cayman Enterprise City gateway location where two companies will take up 5,000 square feet of office this fall.
By the end of September, Blick said he conservatively estimated there would be 70 people working for companies licensed by the Special Economic Zone Authority.
In addition to Argentum, some of the other companies that have established in the zone include Meridian SEZC; Latitude19 Technology; O2Micro International; Conscious SEZC and Tiggit Software.
Latitude19 Technology is a start-up e-commerce and payment gateway solution provider. Its president, Tim Moore, said excessive regulation, immigration and taxation policies in the United States inhibit business growth, making that country less competitive.
“That situation does not exist here in the Cayman Islands,” he said. “CEC enables small-to-medium entrepreneurs like us to succeed.”
O2Micro, which has offices worldwide, develops and markets innovative power management and e-commerce products for the computer, consumer, industrial, automotive and communications markets. Jim Keim, a director of the company, said Cayman Enterprise City enabled O2Mirco to more proficiently manage its global operations by being able to rapidly expand its business and staffing in the Cayman Islands.
“As an industry leader in power management, it also enables us to effectively manage and protect our intellectual property,” he said.
Dave Dorr, a director of Meridian SEZC, said his company conducted an intense multi-jurisdictional review of where to establish a headquarters and ultimately chose the Cayman Islands.
“CEC was the best place to head-quarter our business,” he said. “CEC offers a 21st century business trifecta: world class service providers, a legal framework that is unambiguous and a Government that supports global business.”
Conscious Asset is a specialized consulting firm from Canada that wants to expand globally, said its Managing Director James Reyes-Picknell.
“We are expanding outside of North America… and wanted a head office location with access to other global companies, state-of-the-art communications infrastructure, good international travel connections, a business friendly tax environment and close to our legacy markets in the US and Canada,” he said. “CEC provides all of that in location that is well developed, attractive for its globally minded residents, [has] amazing networking opportunities and its climate [is] free of the snow, cold and the dark of our Canadian winters.
“It’s head and shoulders above any of the other locations we considered.”
Robert Powell of Tiggit Software, a smart-phone app development firm, said his company believed in got the best from its employees by providing excellent facilities and a good work/life balance in great locations.
“Cayman Enterprise City allows us to have world-class facilities and provide employees with a unique location,” he said. “Tax saving is a big motivator, but for a small company we are more interested in top-line growth combined with high quality lifestyle. We are able to use CEC to take time to develop product whilst not being too far from our clients. We see the tax advantages as an enabler rather than a sole motivator.”
Blick acknowledged that some people will remain sceptical about Cayman Enterprise City’s success until it starts construction of its planned one million square feet of Class A office space project in Savannah.
He had hoped construction on the first phase – 150,000 square feet of office space in five 30,000-square foot buildings – would start by the end of the second quarter, but that didn’t happen.
“We made a decision to pre-let 60 per cent of each building before we start construction,” he said.
As a result of slower uptake of tenants, the construction project has been delayed four or five months, Blick said.
“We’ll be OK to kick-off construction this year as long as we continue to get [new companies at the rate] that we are now.”