Post on 16-Jan-2017
Bermuda’s Economy and Business Outlook
Chamber of Commerce December 2011
ChamberThe Bermuda
Of Commerce
Agenda
A little history: the Chamber’s 2010 findings
Current developments and emerging issues
Solutions
Bermuda’s Economy
Relies on foreign exchange revenue
International Business and Tourism are the main sources of this revenue
Local business depends on these sectors to ensure our quality of life
State of the Economy
In decline since 2008
Our two economic pillars are shrinking
Local businesses face uncertainty in planning
Government debt levels prevent it from “jump-starting” or stimulating recovery
Employment: down to 2003 levels
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Real Estate Sales in decline
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Average Residential Rental Prices: Lowest in a decade
Commercial Real Estate Market: Squeezed
Inventory at a historic high
Four years supply of space available/under construction at historic absorption rates
Prices for office space down about 15%
Landlords offering incentives to fill newly-built space
Source: Bermuda Realty Company Limited
Retail Sales at record lows
Last year’s action points: Goals
Reduce Government debt
Regain international competitiveness
Create new businesses (international and domestic)
Last year’s action points: Suggestions to Government
Remove term limits for international and local
companies Create a Tourism Authority Privatize some Government services Implement existing legislation to make
Government services more efficient
Action point results
Term limits only relaxed and for IB only
Tourism Authority – maybe in 2012
No privatization of Government services
Tourism arrivals rose but IB shrank
Government is now creating “task forces” to study business ideas
Current developments and emerging issues
Bermudian population is rapidly ageing
Health costs rising faster than incomes
Decline in the number of expatriate workers
Rapidly ageing population…
0
5,000
10,000
15,000
20,000
25,000
2000 2005 2010 2015 2020 2025 2030
Number of Bermudians aged 65 or older
Number of Bermudians aged 15 or under
Data source: Bermuda population projections 2000 - 2030
...results in fewer working taxpayers
Data source: Bermuda population projections 2000 - 2030
…which will impact Government services such as pensions
0
10
20
30
40
50
60
70
80
2000 2005 2010 2015 2020 2025 2030
Total Dependency ratio
Data source: Bermuda population projections 2000 - 2030
Health costs are rising faster than incomes
Year Index of Index of Increase Gross increasesended Healthcare Median in in median
31st March Costs Earnings healthcare earnings Guest2004 100.0 100.02005 112.0 103.0 12.0 0.1 2.9 3.02006 130.0 108.4 16.1 3.8 5.8 5.22007 153.3 114.0 17.9 5.8 4.1 5.12008 166.0 117.3 8.3 3.9 1.7 2.92009 178.8 120.6 7.7 3.7 -1.4 2.82010 200.1 123.8
Notes1 Index of Healthcare costs compiled from 2009 Actuarial Report for the BHeC, page 6 (increases in Standard Premium Rate).2 Index of Median Earnings compiled from Labour Market Indicators published by Department of Statistics.3 Index 1 is based on the year ending 31st March in each year whilst index 2 is based on data reported at the end of August in each year.
Thus whilst not directly related in any one year the cumulative trend is clear during this 6 year period. Data was not located for earlier years.
100.0
120.0
140.0
160.0
180.0
200.0
220.0
2004 2005 2006 2007 2008 2009 2010
Index of Healthcare Costs
Index of Median Earnings
The number of expatriate workers is declining
August 2008: 10,367 expatriate workers August 2010: 9,065 expatriate workers
o A loss of 1,302 people in two years (12.6%)
Since that time the pace has increasedo More losses in IB
o Unemployed Bermudians led to some job categories being closed or restricted for foreigners
Work permit losses impact the economy
Work permit holders create jobs
From 1990 – 2008, one extra job was created for every 5 work permits issued
This correlation is now working against us
Every 500 work permits that lapse or are cancelled = 100 additional jobs lost
Expatriate workers are youngerthan Bermudians….
Average age of an expatriate worker: 38.7 years
Average age of a Bermudian worker: 46.0 years
(Source: Government of Bermuda August 2010 Employment Survey)
…and use fewer social services
Loss of younger workers, who use less health care, increases the per head costs to the rest of us
Rapidly ageing local population accentuates the problem
Impact on Government finances (1)
Government is borrowing to fund daily expenses as well as capital projects
Shrinking economy reduces revenues as the tax base shrinks (fewer taxpayers)
Unemployment and reduced incomes leads to higher demands for Government social assistance
Impact on Government finances (2)
Government faces increased debt service costs as national debt climbs (now $1,230M)
Government faces increased employment costs as cost of health care and pensions climbs
Without growth in the private sector there is no escape from this
Summary
We are in a difficult position
The choices that we make now will have a material impact on the living standards of our children
We need to move with speed but we must ensure we include all perspectives and reach a consensus that works for Bermuda
Are we alone? Views from outside
“ ….. voters expressed discontent over the rising cost of living and competition with foreigners for jobs and housing…….While we have always put Singaporeans first, let us not turn negative on foreigners. Singapore has prospered because we have been open to the world and alive to economic competition and change.
This is how we have attracted investment, created jobs for ourselves and made Singapore a vibrant city.”
Singapore Prime Minister Lee Hsieng Loong 8th August 2011.
Are we alone? Views from outside
“ The wealth of nations comes not from what we spend but what we sow: what we set aside to be invested in productive capacity.
If spending created wealth, Greece would be rich. Neither consumers nor governments can spend their way to prosperity.”
Caroline Baum, Bloomberg columnist (December 2011)
Before we start to chart our way forward we should review our past.
“We can’t solve problems by using the same kind of thinking we used when we created them.”
Albert Einstein
Before we start to chart our way forward we should review our past
“In the extremely competitive global environment in which we now live, we must constantly remind ourselves, as a bank and as a service community, the only thing we have to sell is ourselves.
Success is solely dependent on providing excellent service at reasonable prices in a friendly way.”
Letter to shareholders 15th April 1988, the Bank of Bermuda Limited.
How do we move forward?
Policy choices
Policy choices (1)
Much of our domestic economic and business architecture dates from the 1950’s and 1960’s
The Companies Act 1969 defined exempted companies and introduced 60/40
The Bermuda dollar was created by the Bermuda Monetary Authority Act 1969
The Immigration and Protection Act (1956) controlled foreign labor and land sales
Policy choices (2)
Since that time we have mainly built upon, updated and refined those fundamental policies
Much of the subsequent policy direction has been to deal with the issues created by economic growth
In other words: we have mainly focused on slowing growth
Policy choices (3)
We now need to carefully examine these policies
We should abandon those that impede progress
Those that promote progress o Should become priorities
o Should be made relevant for today’s situation
2012 Agenda items
Infrastructure projects
Gambling and other tourism ideas
Real estate ownership rules
60 /40 ownership rule
Privatization of some Government functions
New jobs
Infrastructure
Bermuda needs appropriate infrastructure in order to compete internationally
We need a 20-year strategy
We must pay for it – no one from overseas will, as ostensibly we are richer than them
Could be funded by domestic bond market
Gambling and Tourism
Those who support gambling need to establish what it would look like:o How many casinos; who owns them; who are the
gamblers; social support for addicts etc.
Those who oppose need to articulate their vision of how the tourism industry is to prosper in 2015
Real estate
We currently have a myriad of rules for different people; paying different taxes and allowed to buy different assets
We have 1,500 empty residential units
We have a large volume of debt and a dwindling supply of income
We need a strategy that works for all of Bermuda
60 / 40 ownership rule
Relaxing the rule could supply new capital for local business
Government needs input from business owners before a meaningful discussion can take place
The Chamber includes many business owners
You need to make your views known
Privatization
Post Office revenue in current year is $5.4m; costs are $15.0m
Ferry service revenue in current year is $1.3m; costs are $7.6m
Bus service revenue in current year is $7.9m; costs are $18.4m
In each case there are substantial employee benefit costs not included in Budget numbers
New Jobs
Bermudian unemployment now at 6%
Lower tax revenues mean Government cannot support 4,000 civil servants
Need to attract 4,000 new work permit holders in order to pay National Debt; fund Government; meet pension and health costs
New Jobs (2)
Current private sector workforce: 30,000
Perhaps as many as 10,000 new jobs needed in next five years
This is the size of the task facing the private sector
Conclusion
Private sector must provide the solutions
The Chamber represents your interests to Government
We have divisions representing all areas of the Bermuda economy
Give us your ideas
Get involved and create the future