A financial analysis study conducted by Deloitte has concluded the ForCayman Investment Alliance plans known as the West Bay Corridor Project would significantly stimulate growth in Cayman’s gross domestic product, employment and government revenue.
Dart Realty (Cayman) Ltd. engaged Deloitte to conduct the study “in order to provide additional information to the Cayman Islands’ public and various sectors of the government regarding the ForCayman Alliance”, the executive summary of the report read.
The study analysed the current state of the Cayman economy, the need for an economic stimulus programme, the government’s current fiscal operation and its ability to fund programmes needed to effectively stimulate the local economy. The study also examined the contribution the ForCayman Investment Alliance’s projects, in particular the West Bay Corridor Project, would make in increasing GDP, employment and government revenue.
- The West Bay Corridor Project is part of the government’s “mega deal” with the Dart Group. That project consists of a number of elements including:
- The redevelopment of what was known as the Courtyard Marriott Hotel, which has been closed since the passing of Hurricane Paloma in November 2008, into a larger four- to five-star hotel;
- The redevelopment, enlargement and enhancement of the Public Beach on West Bay Road;
- The creation of another small public beach on West Bay Road near Yacht Drive;
- The closure of a section of West Bay Road and the completion of the Esterley Tibbetts Highway from its current end to Batabano Road in West Bay;
- The conveyance of approximately 20 acres of Dart-owned land on Batabano Road to the government to be used for parks and educational facilities.
Current economic state
The study notes Cayman’s economy remains weak and there are limited immediate prospects for significant economic growth.
“An economic stimulus would be needed to return the economy to pre-recession levels of real GDP per capita in the short term,” the study reads. “The results of this analysis indicate that current economic trends and conditions do not support the Cayman Islands’ economy returning to pre-recession levels of activity on its own over the next three years. As such, an intervention by way of an economic stimulus would be required to reverse the decline in the economy since 2006-2007 and set the scene for health and sustainable economic growth.”
To return to Cayman’s pre-recession economic state, the study calculates Cayman’s GDP per capita growth rate is required to be 3.35 per cent per year through the next three years.
“The difference between the expected GDP rate and the required GDP rate, or each year’s GDP gap, can be closed by an appropriately scaled stimulus programme.”
Although the study states the stimulus programme could come from direct spending from either the public or private sector, Deloitte’s analysis indicates the government would not be able to undertake borrowings “of the nature required to effectively stimulate the Cayman Islands’ economy and return real GDP per capita to 2006-2007 levels by 2014”.
“Based on this analysis, the only foreseeable scenario for significant economic stimulus in the near term is through private sector participation projects, of which the ForCayman Alliance, including the West Bay Corridor Project, is a leading example.”
The study looks at the economic impact of the West Bay Corridor Project in both the short, stimulus period, term and longer term.
For the short term, it looks at the years 2011-2014, apparently assuming an earlier finalisation to the definitive agreement and commencement of significant works than has actually occurred.
In total, the study estimates $95 million of direct spending and $33 million of indirect spending on the West Bay Corridor Project alone through 2014.
“For 2011-2014 … total spending, both through direct spending by the ForCayman Alliance on the West Bay Corridor Project and indirect (induced) consumption, closes a large percentage of the GDP gap,” the study reads. “On average, 26 per cent of the GDP gap is closed over the period as a whole. Further, for the years 2011 and 2012, 51 per cent and 61 per cent of the annual gaps respectively are closed, providing a greater stimulus when it is most needed.”
During the initial 2011 to 2014 period, the Deloitte study also estimates average annual increases of employment of 410 jobs and of government revenues of $1.9 million.
Looking longer term at the period between 2015 and 2019, the study concludes that the West Bay Corridor Project alone would continue to close the GDP gap.
“While the impacts are of a smaller scale than during the short term stimulus period, they are more enduring as the operation of the new facilities will generate long-term employment in the hotel and restaurant sector and throughout the economy as additional consumption spending occurs and additional income is created.”
The study concludes that the contributions of the West Bay Corridor Project “are significant in both the stimulus period and the longer-term, with respect GDP, employment and government revenue.”
“Although they do not eliminate the GDP gap on their own, and thus do not fully restore real per capita GDP to 2006-2007 levels by 2014, they do show the importance of private sector participations as significant stimulus programmes that create long-term benefits for the Cayman Islands economy.”
In addition to the benefits of the West Bay Corridor Project, the study states “other indirect but tangible positive impacts” will occur in the longer term from the ForCayman Investment Alliance projects. These benefits would derive from the modernisation of Cayman’s waste disposal processes; an increase in available schooling space; the increased availability and quality of recreation and other lands available for public use; and from improved tourism infrastructure.
“That will better position the Cayman Islands for increasing its share of the tourism market when growth resumes in that industry globally,” the report read.