Cayman’s growing economy masks the fact that earnings per person are dropping, says a report from consultancy Capital Economics.
The report, which was published on 3 Oct., warned the rapid growth of construction and tourism is driving down Cayman’s GDP per capita.
On the surface, Cayman’s economy has enjoyed strong growth, with an average annual expansion of 3.2% over the last decade. Yet “despite this seemingly positive picture, GDP per capita – a measure of individual prosperity and economic well-being – has been broadly stagnant over the last ten years, even declining in 2023 to reach its lowest level since 2006,” said the report, which was commissioned by Cayman Finance.
“Since 2007, GDP per capita has fallen by 18%, suggesting a deterioration in average living standards for residents”, continues the report, which follows the September publication of a preview that revealed financial services contribute more to the jurisdiction’s GDP than previously estimated.
Finance stagnates – tourism and construction boom
The overall growth in Cayman’s economy won’t surprise readers, with tangible signs of economic expansion, from new buildings and a growing population, clearly visible across the islands. But much of this economic growth is in business sectors that are less profitable than finance, which hits GDP per capita.
“Financial and insurance services subsector has seen its headcount grow by 11% over the last decade,” said the report. “This is in stark contrast to the construction sector, for example, which accounts for just under 4% of total economy output yet has seen employment grow by 114% over the same period.
“The stagnation of employment in financial services – where output per worker and multiplier effects are far higher – alongside rapid job growth in lower-productivity sectors such as construction, has created a mismatch that helps explain why rising GDP has not translated into higher GDP per capita,” said the report.
The boom in tourism and construction, plus the influx of workers needed to build and operate these projects, has kept overall economic growth strong. But it means earnings per person have fallen.
“Output per worker – or productivity – is meaningfully higher in the financial and insurances sector compared to construction and tourism. The sharp rise in population and employment across the Islands in recent years has primarily been attributed to the latter sectors. Yet each of these employees contributes just a fraction of the economic output of a single financial and insurance services employee.”
Finance future at risk?
The report outlines three scenarios for the future of Cayman’s finance industry and lists measures the government could take to help. Sceptical readers may question the independence of a report commissioned by a finance body that recommends increased support for the sector. Yet Capital Economics is a credible UK-based consultancy and the data presented raises important questions of the future of finance in the islands.
“Employment growth in Cayman’s financial services sector is stalling, even as firms report strong revenues driven by a wave of offshoring that boosts profits but hollows out local jobs,” said the report. “While revenues remain strong, companies are shifting back-office roles to competing hubs like Toronto, Halifax and Dublin eroding Cayman’s economic output and dampening local real estate and business spending.
“Industry consolidation and remote work fuel the trend, while local hurdles – costly work permits, and high living expenses – make relocation a simpler option,” said the report. “With firms becoming increasingly “jurisdiction neutral,” (a trend exacerbated by industry consolidation) the Islands risk becoming a revenue centre without the jobs, raising long-term concerns for the economy.”
“We can have a bright future, but Cayman Finance is right to say we can’t sit on our laurels,” said Richard Ellison, consultant at RF Bank & Trust (Cayman).
“We can’t assume Cayman’s dominance – it’s a competitive world,” said Ellison. “Areas like blockchain, tokenisation, and digital assets are opportunities. The government’s legislative work on tokenisation gives the industry something to build on.”
The 54-page report provides a wealth of data amid a national debate on immigration and ahead of the new government’s Strategic Policy Statement.
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The Cayman Islands’ Development Conundrum: Who Are We Developing For?
The Cayman Islands faces a pressing issue despite its growing economy: stagnant or declining GDP per capita over the past decade. A recent report by Capital Economics highlights the stark reality: the islands’ development model favors the financial sector and real estate industry, leaving many residents struggling to make ends meet.
The financial sector is a significant contributor to the Cayman Islands’ economy, accounting for a substantial portion of the islands’ GDP and the employment of approximately 60% of the middle class. However, the report reveals that employment growth in this sector is stagnant, while other sectors, such as construction and tourism, are booming with predominantly work permit holders. This has created a mismatch between the economic benefits and the cost of living, with many residents unable to afford the high cost of living in the Cayman Islands.
The real estate industry is another key driver of the economy, fueling a construction boom with new buildings and condos sprouting up across the islands. However, this has also led to a surge in housing prices, making it difficult for locals to afford homes or land to build a home. The report suggests that the benefits of this growth are largely limited to the financial sector and people selling real estate who are predominantly work permit holders.
The Cayman Islands’ development model has significant human costs. The report highlights that GDP per capita has fallen by 18% since 2007, suggesting a deterioration in average living standards for residents. The high cost of living, coupled with stagnant wages, has made it challenging for many residents to afford basic necessities. This raises questions about the sustainability of the islands’ development model and whether it benefits the Caymanian people.
The report’s findings are a wake-up call for the Cayman Islands’ government and stakeholders to reassess the development model and prioritize the needs of the local population. This could involve implementing policies to support affordable housing, promoting economic diversification, and ensuring that the financial sector and real estate industry contribute to the overall well-being of the islands’ residents. No one should be selling real estate in the Cayman Islands unless you are a Caymanian.
The Cayman Islands’ development conundrum is a complex issue that requires a multifaceted solution and brave political willpower. By prioritizing the needs of the Caymanian people and promoting sustainable development, the Cayman Islands can create a more prosperous and equitable society for all.
MDR
Why not raise our minimum wage? This will help the people on the lowest rung of our ladder while at the same time reducing the number of people employed at that level (due to demand reduction at the higher wage level).
Our minimum wage is almost $6/hr USD lower than California which has a very similar GDP per capita. I am happy to pay more for fast food and lawn services and all the other low wage services knowing it is helping support the poorest among us who are working very hard, long hours.