While the current focus on cutting civil service spending to balance the budget is certainly justified, it should not lead to the misperception that Cayman solely has an expenditure problem.
Budget forecasts released in March, based on revenue and expenditure data at the time, showed that government spending is actually expected to be CI$9 million lower for the year than forecasted in the budget in October.
Government revenue, however, will register a shortfall of CI$72 million in the budget, according to the estimates.
It is therefore difficult to argue that Cayman does not have a revenue problem and the current situation could be resolved by cutting public expenditure alone, irrespective of how important these cuts may be.
The economy is in a recession and this recession is expected to continue for some time. At the same time, even attempts to reduce government costs, whether through salary cuts or redundancies, may have significant repercussions for Cayman’s local economy.
There are more than 3,000 fewer work permit holders on the islands and unemployment among Caymanians has increased.
The cycle of people that are leaving the island, less spending, less economic activity and lower government revenue needs to be broken by enabling and attracting investment, both domestically and from abroad.
The Cayman Islands government has realised this and went on a number of road shows to Europe and Asia to entice new investors, especially fund managers, to settle in Cayman.
Wealthy individuals with a net worth of CI$5 million and willing to invest at least CI$2 million were wooed with a 25 year investment certificate, entitling the holder to work in the business and spouse and children to live as residents in Cayman.
The premier also promised longer work permits in the financial services sector, expedited work permit and other applications and support of incoming businesses in finding office accommodation, identifying staff and relocating family members.
Setting up shop
Lucy Georgakopoulos Tibbetts, managing director of Mail Boxes Etc, a new business in Cayman finds the whole business set-up process is not difficult.
“I think the key to not getting caught up to what is perceived as red tape is to know what you need to do.”
It helps to be meticulous, she says, and concedes that, “We had a project plan that covered half a wall” and included everything you need to set up a business and allow it to function properly from the IT system, to legal, insurance, staffing, training, marketing etc.
“Once we had established everything, what we needed to do then it was just a question of executing the plan and it actually went very smoothly.”
It is not always that easy, however, particularly when it is not quite clear which information is required by the various government departments.
Trinity Fund Administration experienced the setting up in Cayman as a lengthy process, sometimes wrought with frustration, when previously unknown information requirements emerged and delayed the application process, says Brad Cowdroy, Trinity’s general manager in Cayman.
It would be nice to have a complete overview of the information that is needed upfront in order to be proactive as opposed to reactive, he adds.
A structured approach
The recently created Department of Commerce and Investment, which replaced the Cayman Islands Investment Bureau, was specifically restructured to better facilitate both domestic and foreign investment.
The Department should be the first port of call for any new entrepreneurs or investors, says its Director Dax Basdeo.
“We are certainly not going to fill out any forms for businesses,” says Basdeo. “But we can point you in the right direction.”
Basdeo says that the international focus of the department has not changed. If anything there is a stronger focus on domestic business, in particular small businesses, which make up 80 per cent of the economy.
“To benefit from foreign investment you have to see the link to small business,” says Basdeo.
Explaining the strategy of his department he states that, “before you do investment promotion you really have to understand the product you are trying to sell.
And that product in this instance is our jurisdiction, the Cayman Islands, and specifically it is the business climate in the Cayman Islands”.
“The first job,” Basdeo explains, is to ensure “that your house is in order, making sure that your laws, policies and procedures are there to support appropriate businesses.”
Before the Department can start investment promotion it has to determine which businesses it wants to attract and what the Cayman Islands has to offer in terms of a value proposition.
This includes identifying the reasons for businesses to want to set up shop in Cayman or for existing businesses to want to reinvest.
“That is the fundamental base that you are trying to build in an investment promotion programme,” he says.
The Department is currently in the first stage of understanding who the potential investors are and what they might require.
The National Investment Council
To support the Department of Commerce and Investment the National Investment Council was formed.
“This is a small but very important board, in the sense that they look at what are the next steps for us in terms of investment and business development,” states Basdeo.
The NIC features members from private sector organisations such as the Chamber of Commerce, Cayman Finance or the Cayman Islands Investment Council to advise on business development strategies.
“We are pulling in the expertise from these other groups,” says Basdeo.
The Department has commissioned research on global trends and respective business resources and capacities available in Cayman.
The research identified nine key areas in which Cayman can be competitive globally in terms of attracting investment.
The National Investment Council’s task is to assess immediate opportunities.
The plan is to determine the types of businesses that are part of a targeted area, identify individual firms and then contact them directly with information on investment benefits in Cayman.
Initially the focus remains on Cayman’s key industries-financial services and tourism.
Over 55 per cent of Cayman’s GDP is derived from financial services, says Basdeo. “We need to ensure that we at least maintain the competitive position.”
Tourism is another big part of the economy, says Basdeo, but he concedes that at some point diversification will need to be sought, whether through logistics, transportation or medical tourism.
The third part in the Department’s strategy is to harness the potential for re-investment.
“Research has shown that more than 60 per cent of investment can come from existing investors,” says the Department’s Head of Marketing Lesley-Ann Thompson. “So we are working on an aftercare programme to help us better understand the people who are here.”
To find out what their challenges and requirements are in terms of the legal and regulatory framework will also help with business retention, she says.
As a result of the structured approach, government is thinking strategically about attracting investment, argues Basdeo. It is more proactive and with several products being in development the initiative will gain traction once all the pieces have come together.
Incentives and concessions
As the Cayman Islands does not have direct taxation, the mechanism used in many countries to attract specific businesses with tax breaks is limited.
However, the plans for the hospital development have shown that government can give incentives, such as concessions in the form of duty exemptions and lower work permit or licensing fees.
But these concessions are not meant to be the reason why businesses are coming to Cayman, argues Basdeo.
They have more the function of a sweetener to ensure that companies choose Cayman over another location.
Don’t try to pick winners
Not everybody believes that governments are best placed to attract investments.
Craig Wright, chief economist at Royal Bank of Canada criticised at the Cayman Captive Forum in 2009 governments that tried to create business clusters.
“Governments often focus and try to pick which clusters are winners and which clusters are losers,” he said.
“Our advice to governments is always be consistent: Don’t try to pick winners and losers, because historically governments have a poor track record of picking winners and losers, but losers have a great track record of picking governments.”
He recommended the Cayman Islands should “leverage” off the cluster that was already in place, in terms of the legal, administrative and financial structure.
Not surprisingly this is also where most of the efforts of the Department of Commerce and Investment have centred until now.