Hew: “Investors are facing uncertainty and losing confidence” Loop Cayman Islands

The content originally appeared on: Cayman Compass

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By Joey Hew; Deputy Leader Of The Opposition

Achieving Sustainable Growth

“Only Private Sector led growth is sustainable in the Caribbean.” … Marla Dukharan (Economist)

Let’s start by stating some simple truths. It is the private sector that generates growth and creates jobs. The private sector provides the bulk of government revenues to fund vital public services. We all need Cayman’s business community to be successful because we all depend on their success.

In short, the Cayman economy depends on the private sector.

However, Government Ministers cannot sit back, fingers crossed, hoping for the best. Government must play its part by supporting our business community and creating the conditions in which enterprise can thrive.

In increasingly troubled economic times, the government must be more active and enterprising if our economy is to grow.

The last two Progressives-led Administrations demonstrated how to support and grow a troubled economy.

The 2008- 2010 financial crash left our economy in tatters. Our people suffered, with more than 1 in every 10 Caymanians out of work.

Following the 2013 election, up until the pandemic hit, the two Progressives-led governments:

restored and strengthened public finances, invested in national infrastructure, defended the financial services sector internationally, implemented legislation at home to sustain financial services, supported the tourism sector to achieve record tourism numbers, sought ways to diversify the economy,cut fees and regulatory burdens on small businesses. created the Small Business Development Centre to help small and micro business grow.

Growth rates peaked at 3.8% in 2019 as we oversaw five years of consecutive growth, averaging 3% to the end of 2019. That success meant nearly 3,000 more Caymanians obtained jobs under the Progressives. Caymanian unemployment fell to under 5% before the pandemic hit.

We supported businesses and families through the worst of the pandemic. Our objective was to help those in immediate need and to position our economy to take advantage of the opportunities that would come once the worst was over. We succeeded in those objectives.

Yet from the very start, the PACT government has underestimated what it takes to capitalise on the solid position we left behind. The government either do not understand the economic situation Cayman faces, or they do not have the experience to identify the actions they need to take. Just consider the government’s lacklustre performance, and a lack of cohesion, over the past year, with little being achieved. We need more from our government.

There are risks that increasingly threaten Cayman’s economic future. Post-pandemic supply chain disruption is driving up the cost of doing business. The ongoing war in Ukraine is compounding those problems. Action by central banks to use interest rate rises to choke off inflation is also holding back growth across the world’s major economies, including the United States. And we face the double threat of high inflation and a looming recession.

Against that background, Cayman’s two pillar industries face challenges.

Cayman’s pre-eminence as a global financial services centre continues to come under attack, Including the from the European Union. Cayman also remains on the FATF grey list. The progress made by the last government to get us delisted later this year was considerable. This effort needs completing.

What has been the government’s response to these threats? In part, and for purely political reasons, they delayed opening new overseas offices, including a Cayman Islands office in Brussels, at the heart of the European Union. Overseas Offices that have the backing of Cayman’s Financial Services sector. Playing politics with these important representative offices puts our financial services at risk.

Those offices in Europe, North America and Asia must now be opened urgently. We must have the necessary ‘boots on the ground’ to defend the tax-neutral status that is the foundation of our success and to continue making a case for future investment in Cayman.

There is also the delayed introduction of the Legal Services Act, passed in Parliament in late 2020 and gazetted in early January 2021. This long-awaited legislation enhances and protects our legal services and financial services sectors, but without it, we are in danger of remaining listed by the EU. This is unacceptable and this Act must be brought into force.

On tourism, we are yet to see visitors returning in the numbers that the government confidently forecasted. It appears increasingly unlikely that projected tourism numbers will return even in the coming tourist season; particularly given the prospects of a recession. Only last month, US surveys found that Americans intend to travel less frequently. Worryingly, the number of high earners planning to travel multiple times fell by more than a quarter. If high-earning Americans plan to travel less, that is bound to impact Cayman.

Looking at flights to Cayman by US-based carriers shows no significant increase since the lifting of the Covid mandates. This further indicates that tourism numbers will likely remain low this year. Tourism businesses also acknowledge that they do not expect a tourism bounce until 2023, depending on whether the USA is in a recession. The new Cayman Airways route to LAX may assist in boosting our numbers, but it is far too soon to tell.

All of this means it is vital that we make every effort to maximise visitor numbers and to promote our Islands strategically and sensibly. Yet what has been this government’s response? A general approach of wishing for the best on the basis that ‘if we open, they will come’ has been punctuated by bizarre investment decisions.

Rather than maintaining proven marketing strategies in key markets, the Minister has chosen to sponsor a football team in the third tier of English football and to launch a partnership with a fashion firm, Laudi Vidni, to produce bespoke custom leather goods. In response to our questions in Parliament, the Minister confessed that there is no business case for either of these investments to establish what return is expected for the total of well over $100,000 these follies are costing.

The government must take action to mitigate our tourism industry’s real risks.

The government must accelerate the plans for an updated tourism strategy for the Cayman Islands. They must work closely with the industry on all three Islands to ensure the Cayman product remains at the forefront of Caribbean destinations. And they must ensure that scarce resources are targeted to where they can make a real impact and not frittered away.

And, of course, the government must ensure that appropriate levels of support is provided to tourism workers and businesses. Not just to ensure that the families who rely on tourism survive financially but also that as tourism returns, the tourism firms and workers will be available to cater to returning tourists. It is about the tourism sector’s survival and supporting families.

Over the long term, it will be important to have sufficient hotel room stock to serve our market and to continue necessary growth. Hotels take years to build and so investors should be encouraged to start building as soon as practical. The rhetoric from the government is unmistakably anti-development and this has caused some projects to stop.

And it is not just financial services and tourism that are characterised by uncertainty.

Cayman has also benefited from considerable investment in construction and development activity. This created jobs and provided a platform for future growth. And it has brought a substantial amount of revenue to the treasury that the PACT Government has used to balance their budget.

There is a real risk now that the pipeline of future projects is drying up. Investors are facing uncertainty and losing confidence in the immediate prospects for our Islands. Much of that uncertainty is caused by the actions and inactions of the government.

For one, the government has delayed the Plan Cayman process, which could have helped both provide more certainty for investors and more reassurance to our communities that future development would be sustainable. We must now complete the development plan process and work with potential investors and our communities to ensure that future development is appropriate and delivers real benefits for Caymanians. Businesses need certainty.

As Progressives, we are committed to stimulating the sustainable levels of economic growth that our country needs.

We have set out how to better promote and defend our financial services industry. We have highlighted how we can better support our beleaguered tourism industry. We have set out how to maintain the pipeline of development projects that is key to future prosperity.

But one further action is required if we are to bring sustainable economic growth back to Cayman. We must accelerate the pace of diversification in our economy.

Speaking to the Chamber of Commerce recently, the Minister for Financial Services & Commerce proclaimed that the opportunities in technology and healthcare were ‘staring us in the face.’

I agree but find myself asking what the Minister and his colleagues are doing to realise those opportunities.

The last Progressives-led government passed the intellectual property legislation necessary to attract digital businesses. We supported the growth of Enterprise City and Tech Cayman. And we also supported the expansion of Health City. We facilitated the bringing of other major healthcare providers to our Islands. Regrettably, because of the government’s inaction, the $350 million Aster Cayman MedCity facility announced in December 2020 appears to have quietly gone away. If the project can be resurrected, then it should be a priority.

Despite talking a big game, there has been no action from PACT to build on what we achieved during our term.

A good example is the project for a third undersea communications cable which we need to enhance our offer to tech businesses. I know the Ministry had done much work on that project during the last Administration. Yet a year into this PACT government, it appears to have moved no further forward. This must progress at a quicker pace.

The opportunities that the Minister for Commerce recognises are currently staring us in the face will pass us by if we cannot deliver swift progress on this and other critical enabling projects.

We Progressives have a clear plan to ensure Cayman can return to economic growth and come out from the economic doldrums. A robust defence of our financial services industry combined with effective support for our tourism product are the bedrock of that plan. Sensible, sustainable future development and investment in the infrastructure to support digital industries are the other critical features of our strategy.

The actions I have set out will support private sector-led growth. In the following article in this series, my colleague, MP Barbara Conolly, will set out a strategy to accelerate the improvements we are seeing in Cayman’s public schools to ensure that Caymanian young people will benefit from the jobs and future business opportunities that growth creates.