For more than a decade now, politicians have talked about the need to create a third pillar of Cayman’s economy to go with the financial services and tourism industries.
One of the action plans of Vision 2008, Cayman’s 10-year national strategic plan released in 1999, called for economic diversification through new IT-based businesses and the promotion of Cayman as an international centre for electronic business.
An E-Business Advisory Board was established in 2000 and private sector consultations were conducted, but a significant third pillar of the economy failed to materialise.
This year, however, Hon Development Company has proposed the establishment of a special economic zone called Cayman Enterprise City that will incorporate information technology as part of its knowledge-based business focus.
Hon Development Company is led by Chairman Barry Hon and Vice President Darrell Hon. The senior Hon has been developing for 50 years and has the 2,800-acre Foothill Ranch in Orange County, California, as well as the HSBC building here in Cayman, on his long list of successful projects.
The Hons recently travelled to United Arab Emirates, from where the model for Cayman Enterprise City comes, along with Premier McKeeva Bush and project CEO Jason Blick, on what was basically a trip to recruit companies to establish a presence in Cayman.
The trip has been called highly successful.
“I am extremely encouraged by the very positive response we received at every juncture of our trip,” says Blick. “We met with global giants including Xerox, Johnson & Johnson, Oracle, Cisco and Hewlett Packard and I am excited that representatives of these groups were keen to discuss opportunities in Cayman Enterprise City. We are truly building a third pillar for the economy of the Cayman Islands.”
Blick, who spent 10 years in the United Arab Emirates before coming to Cayman, spoke about the concept of the project.
“Special economic zones are a proven economic driver,” he says. “They are proven to work.”
Indeed, special economic zones are located all around the world. According to a 2010 report by The University of Iowa Center for International Finance and Development, there a more than 3,000 special economic zones in 135 countries, with China, India and various Middle East countries leading the way.
Some special economic zones focus on international trade of various products like the Colon Free Zone in Panama, and what is being proposed as part of the East End Seaport project on Grand Cayman. Other SEZs, as they are usually called, focus on manufacturing or human capital services like call centres.
Special economic zones
What all special economic zones have in common is that they offer various trade and tax incentives to the companies that choose to locate inside the zone.
Some of the incentives that Cayman Enterprise City will offer companies to register there include things that are already currently offered to all companies in the Cayman Islands, such as no income tax, no corporate tax, no capital gains tax, the ability of full repatriation of capital and profits and no currency restrictions. Other incentives that will be unique to the special economic zone include reduced, flat-rate work permit fees, and possible import duty concessions on some items. In addition, companies registered in Cayman Enterprise City will be able to be 100 per cent foreign owned, similar to Cayman’s already existing offshore companies, except they will be allowed to operate onshore. These companies, however, will not be able to sell goods or services on the island.
The protected registration of intellectual property – like patents and copyrights – is something else Cayman Enterprise City proposes to offer.
“We want Cayman to be seen as the global intellectual property capital,” Blick says.
Although it is understood that companies occupy SEZs for tax reasons,they don’t run afoul of international regulators because companies registered in them are not just shell entities, but have physical, purposeful presence in the zone.
“They are an approved OECD model and address the long-standing problem Cayman has faced of not having enough substance over form,” Blick says.
Despite the extensive competition, Cayman Enterprise City will have an edge because only one per cent of the special economic zones in the world focus on technology and knowledge and none of those are in the Caribbean, Blick says, adding that Grand Cayman is attractive for a number of reasons, including its time zone.
Most of the technology/knowledge-based special economic zones are in the Middle East in places like Dubai or in Asia or Eastern Europe. American companies with branches in these places have difficulties with voice communications because of the time differences. Cayman, which is on the same time as New York during part of the year and then on the same time zone as Chicago during the US Daylight Saving Time, doesn’t have those issues.
In addition, Cayman is much easier to get to than the Middle East, Asia and Eastern Europe for people in North America, and for people in emerging markets like Brazil in South America.
Blick says Cayman also offers modern infrastructure and a Western-style culture that is more comfortable for North Americans and Europeans.
“Cayman is a much easier sell [than places like Dubai],” he says.
Still, in spite of Dubai’s many restrictions and cultural differences for Westerners, it has more than 20 million square feet of office space in its various special economic zones and more than 25,000 people work in Dubai Internet City alone. What’s more, most of the world’s leading technological and media companies have a presence in Dubai.
Blick says Cayman Enterprise City, which plans 500,000 square feet of office space and 5,000 employees, isn’t trying to compete with Dubai in terms of scale.
“This is a tiny project in comparison,” he says. “What it means though is we’re going to get the best of the best.”
Cayman Enterprise City will comprise five components, some of which are separate special economic zones unto themselves in other places. Cayman Internet Park, Cayman Media Park and Cayman Biotech Park are all like similar entities elsewhere in the world.
The Internet Park aims to be the largest information and communications technology cluster in the region and will target Fortune 500 companies that trade in goods and services like software, Internet and multimedia, telecommunications and networks and IT Services. Blick says tech-giant Oracle Corporation already tried to establish offices in Cayman several years ago, but abandoned the idea because of all the bureaucratic red tape. Cayman Enterprise City proposes to remove that red tape.
The Media Park will target all branches of media, publishing, entertainment and leisure companies in effort to become the media hub in the Americas.
CayBiotech, Biotechnology Park aims to become a major life sciences industrial cluster in the Americas and will target major pharmaceutical firms as well as companies specialized in activities like biotechnology, research and development and pharmacology. The park will feature world-class infrastructure, including laboratory space and research and development operations.
Other components of Cayman Enterprise City will explore new ground. The Cayman Global Commodities Park aims to create the Caribbean’s first commodities exchange.
Blick isn’t shy about the goal.
“We want to leverage the experiences of the [Dubai Multi Commodities Centre] and create a commodities exchange that will literally rival Chicago and New York,” he says.
To do this, Cayman Enterprise City will have to lure a big operator – like the Chicago Mercantile Exchange, which already works in Dubai – to Cayman to operate the exchange.
Blick says American brokers are finding it increasingly difficult to do business in the US, and Cayman is a viable option.
“We want to be the bridge between the dominant market and the emerging markets,” he says.
The Commodities Park will require traders to relocate to the Cayman Islands, Blick says.
Because so few hedge fund administrators work out of Cayman, Blick says some people are sceptical about the prospects of commodities brokers coming here. But he says there is a big difference.
“Fund managers need to be close to their distribution channels and their investors,” he says. “Commodity managers don’t.
A fifth element of the special economic zone will be Cayman International Academic Park, which will license universities, junior colleges, online universities and management development centres, and will be established to complement the needs of the companies located in Cayman Enterprise City.
“This is truly a way for the developers to ensure the success of the Cayman youth,” Blick says. Based on the proven model of Dubai Knowledge Village, the Academic Park will feature four institutions that will provide very specialised education to both Caymanians and non-Caymanians.
“St. Matthew’s [University in Cayman] demonstrated it’s a viable model,” Blick says, adding that it is hopes the universities can partner with the University College of the Cayman Islands.
“It complements what UCCI is doing already,” he says.
Benefits to Cayman
Cayman Enterprise City is planned to be built in three phases, with the first phase creating 150,000 square feet of class A office space within 18 months of commencement. Two other phases by 2016 would create the total of 500,000 of office space. The developer would invest $25 million into the project this year and more than $300 million during the construction phase. It requires no investment from the Cayman Islands Government.
Beside the construction activity, developers say a KPMG economic impact study estimates Cayman Enterprise City will create 800 jobs in its first year of operation and 9,800 jobs – 5,000 inside the zone and 4,800 outside – in eight years. It is expected that 20 per cent of the jobs will be filled by Caymanians, who will get access to technical jobs in the Cayman Islands they wouldn’t have otherwise.
Although there will be some fee incentives for the companies that eventually operate in Enterprise City, the developer will pay full stamp duty on the purchase of the property and full import duties on imported construction materials.
In addition, Blick says Cayman Enterprise City plans to lease 100,000 square feet of office space elsewhere on the island for between five and seven years, some of it starting this year.
“That will help get [new companies] here sooner rather than later,” he says, noting that the same model is used for companies that eventually move into one of Dubai’s special economic zones.
Since the project will not involve any manufacturing or engineering, and no applied biotechnology research, it will have low environmental impact.
Project architect Cindy O’Hara says the outdoor design of the project is as important as the indoor design, and that will have a feel of a university campus, complete with lush landscaping.
“The developer wants to create a space where you could take your laptop and go outside and work and you don’t have to be glued to your desk,” she says
Another big benefit will result from the influx of people, many who will have high disposable incomes, as they create sales for existing and possibly new local businesses, without bringing any competition.
“What they really are is a client base for Cayman businesses,” Blick says.
He also notes that the professionals who come to Cayman Enterprise City won’t want to live here long-term.
“What you’ll have is a revolving cycle of highly-qualified professionals who won’t be seeking [Caymanian] Status,” he says.
Cayman Islands Chamber of Commerce President James O’Neill says that based on the presentations, meetings with the developer and other information received to date, the Chamber considers this Cayman Enterprise City “to be a positive endeavour” that “has the potential to truly diversify the Cayman economy.”
“It will create local jobs, fill empty leasing space in the initial stages, stimulate the construction industry and generate much needed demand for products and services sold by member merchants and businesses,” he says. “Special economic zones have proven to be incredible engines of growth and opportunity around the world.”
Governor Duncan Taylor, who attended a briefing on the project on 8 April, says he found the proposed Cayman Enterprise City very interesting.
“A project like this is quite exciting and in the long term can be highly beneficial,” he says.
Taylor says a project of the scale of Cayman Enterprise City was likely to have a significant impact on the Cayman Islands, so it was important to weigh the pros and cons.
“I think like any major project, however exciting or interesting the project is, you’ve got to ask a lot of tough and searching questions about whether this is what we want and need in the Cayman Islands,” he says, noting that things like the broad economic impact had to be weighed against things like the impact on the environment and infrastructure.
He notes that the proposed project envisages the creation of several thousand jobs in a relatively short time frame, something that could cause additional expense in the short term.
“It’s going to create additional opportunities for Caymanians in the longer term, which I think is very interesting.”
Taylor says Cayman needed to find some new business activity to help diversify its economy, and he didn’t anticipate any philosophical problems with establishing a special economic zone in the Cayman Islands, since they exist in so many other places.
“As long as they’re open and transparent and well run, I don’t think the British Government would have any difficulties with them at all and the OECD… has guidance and guidelines on them and sees them as a very much legitimate type of economic activity.”
Premier Bush says he came away from his recent tours of the special economic zones in Dubai excited about the prospects for Cayman.
“The diversification of our economy is vital to future generations of Caymanians,” he said at a public meeting on 11 April. “The two long standing pillars of our economy — financial services and tourism – are maturing. We won’t see the kind of growth in those industries that we seen in decades past. That is why it is so important that we create new areas of employment and business opportunity.” Bush said Cayman Enterprise City was “one of the best proposals to come forth to create economic diversification in the Cayman Islands”.
“This development… has tremendous potential for introducing new industries to our economy and opening up a new realm of possibilities for jobs, careers and businesses for Caymanians.”