Barnett: Bermuda’s Economic Big Chill

Bermuda’s economy is stuck in the winter doldrums both literally and metaphorically, says a past Bermuda Chamber of Commerce president, and the island needs to commit to being open for business year round.

In a recent speech to the Sandys Rotary Club, restaurateur Phil Barnett — whose IRG Ltd. operates the Pickled Onion, Hog Penny and other venues — said while the mid-winter months have traditionally marked the off-season of Bermuda’s tourism industry, some of the island’s “restrictions”  have now created a big freeze in the off-shore financial services sector as well.

Mr. Barnett said both the ongoing decline in visitor arrival numbers and increasing attrition in international business — underscored by the number of global firms either redomiciling or bypassing Bermuda entirely in favour of competing domiciles — had been particularly marked in recent months.

And he said the only way to reverse this steady erosion of Bermuda’s economic mainstays was for the island to take urgent remedial steps which would help to lure back both high-end visitors and blue chip international businesses and investors.

“We have to create a 365 day demand for ourselves as an International Business domicile of choice, and as an ‘off season’ vacation destination suitable to certain segments of the travelling public,” said Mr. Barnett. “But, we can’t just willy nilly try to attract just any old tourist, or business, because that is destined to fail, especially considering how narrow our appeal is.

“I am not sure that continually chasing endless Bronx Barge patrons (hospitality jargon for cruise passengers) who have jumped at the sweet deal of transportation, accommodation and all you can eat food for under $1000 for a week’s vacation; nor business having to go further and further afield for non-first world country workers willing to accept all the limitations of Bermuda and its restrictive worker immigration policies (because at the end of the-work-day, $50,000 a year is a whole heap of dough, especially in light of the fact that it is over 10 times what they could reasonably earn in their country of origin), are in Bermuda’s best interest.

“We have to hyper-focus on a very specific tourist and business person, and you know what? Chances are they are most probably first world movers and shakers that don’t cotton to ‘restrictions’ so much. We must mitigate the downside and boost the upside by making it easier for these huge ‘economy creators’ to choose to visit regularly, or remain here once factoring in all deciding variables.”

The full text of Mr. Barnett’s speech appears below:

We have a problem currently in Bermuda. It’s the winter. You see, in Hospitality, we fear and
despise the winter. And that isn’t because it is somewhat cold, or we may get wet on our
scooter ride home, or the fact that our flight off island may get cancelled because of a bit of a
Nor’ Easter blowing through. No, the reason we are no friend of the winter is because for the
majority of us in the hospitality industry, it creates a huge crater in our sales due to low
seasonal demand. And unfortunately with Tourism’s seeming inexorable spiral in a downward
fashion, that crater threatens to get bigger and bigger with each passing year. If we truly want
to make strides to fix what ails us, we have to shorten, and even totally mitigate “the winter
effect”.

The obvious challenge that we face, is that it is incredibly difficult to run an effective and
efficient business when spending so much of your time focusing on cost cutting and controls for
the low demand periods, rather than being able to grow and drive your business through
innovation and consistent execution when business flows regularly. For some hospitality
establishments, particularly in Hamilton, the winter effect has been mitigated in the past 20
years or so by International Business. This has allowed restaurants to become more specialized
and innovative with their products offered, as their clientele has demanded unique and quality
experiences to have their broker luncheons, underwriting dinners, or hedge fund late night
drinks. Correct me if I am wrong, but I believe that on the whole, Bermuda’s dining scene has
changed significantly for the better, with many different cuisines now represented, instead of
the 20 year ago preponderance of Italian or English pub restaurants (full disclosure, my group
owns a English pub).

A statistic was recently released that detailed that hospitality now only represents 5% of the
total Gross Domestic Product of the island. This number is slightly misleading as it is true that
many hotels have shuttered in the past 20 years, but disproportionally has hospitality shrunk to
International Business’ growth. So whilst hospitality may have declined in the past 20 years
from approximately $400,000,000 (33% GDP) in 1990, to $250,000,000 in 2010, International
Business and other non hospitality businesses such as trust management, banking etc. have
grown from 1.2 billion (67% GDP) in 1990 to over 5.1 billion (95% GDP) in 2010.

This growth was amazing for many beneficiaries in the Bermuda economy and led to Bermudians
having a world leading per capita income of close to $90,000 per year. Yes it may have come with
some problems, but boy, practically every country would love to have our problems.

And therein lies the rub; they are stealing our problems, but with all the good stuff that goes along with it.

Therefore we have to ensure we are either doing whatever it takes to keep the base we
have, or make concrete plans to attract new business, or grow other areas of our economy to
make up for the possible International Business attrition and re-domiciling that will
unfortunately happen to our existing base. This is simply because other jurisdictions, seeing our
success, and having the capacity to chase our success, can upgrade their infrastructure, and
make legislative amendments to become an eye catching prospect, since they also come with a
whole passel of other benefits that Bermuda just can’t offer; one of the biggest being cost.
Now what, you ask, does the lifecycle of International Business in the Bermuda economy have
to do with winter and hospitality?

Well the fact is, we will never be able to change the inalienable passage of the seasons; winter
does and will come to Bermuda ever year, and similarly we will never be able to change some of
the factors that International Business look at when either setting up or re-domiciling to us or
competing jurisdictions. Bermuda will always be a high cost jurisdiction to set up in; that is fact,
we can’t change that. Bermuda will always have winter where it gets a bit cold and blowy, and
unless you are a crazy Canadian, not really nice for beaching and swimming.

And that is where things start to go hand in hand. Because International Business people that
are working and living on the island consume services year round, and that steady trade they
provide allows us lot, as service providers, to offer a more consistent, better and hopefully
more unique product.

And that has resulted in a broader base of support businesses, that just
happen to also be very well suited to the fine dollars spent by our summer air arriving touristas,
perhaps even encouraging them to come in the (gasp) winter. Because you know
what? Bermuda offers a lot of benefits, both as a business domicile, and as a vacation paradise
that make many people willing to overlook the fact that in January we aren’t Cancun with bikini
clad hot tamales padding up and down the beach, or Ireland where a three bedroom “Executive
Rental” doesn’t cost the equivalent of a late model compact car every single month.

We have to create a 365 day demand for ourselves as an International Business domicile of
choice, and as an “off season” vacation destination suitable to certain segments of the
travelling public. But, we can’t just willy nilly try to attract just any old tourist, or business,
because that is destined to fail, especially considering how narrow our appeal is. I am not sure
that continually chasing endless Bronx Barge patrons (hospitality jargon for cruise passengers)
who have jumped at the sweet deal of transportation, accommodation and all you can eat food
for under $1000 for a week’s vacation; nor business having to go further and further afield for
non-first world country workers willing to accept all the limitations of Bermuda and its
restrictive worker immigration policies (because at the end of the -work- day, $50,000 a year is
a whole heap of dough, especially in light of the fact that it is over 10 times what they could
reasonably earn in their country of origin), are in Bermuda’s best interest. We have to hyper
focus on a very specific tourist and business person, and you know what? Chances are they are
most probably first world movers and shakers that don’t cotton to “restrictions” so much.
We must mitigate the downside and boost the upside by making it easier for these huge
“economy creators” to choose to visit regularly, or remain here once factoring in all deciding
variables.

So as follows are a few recommendations I see to alleviate the negative aspect of both the
actual winter to increase off season tourism, and the metaphorical winter we could experience
without the continued warm financial winds of International Business.

Tourism:
• Following the successes of World Rugby Classic and International Race Week (just held),
establish similar events that attract both singles and families, and that really don’t
matter if it is not “beach weather”. We have a pretty nifty brand new national sports
facility that is relatively underutilized, not to mention the tricked out new gyms at
Berkley and Cedar Bridge. The overwhelming success of the Rugby Classic and its
crossover appeal to the IB sector is testament enough to the potential. Let’s not ignore
existing events either: the judicious priming of the prize pump for various golf, tennis, or
soccer tournaments could be the little tip needed to get hundreds of ageing “I coulda
been a contender” types here to relive all their glory on the pitch, courts or greens as a
“playcation”. Offer the majority of them in our winter (beautiful sporting weather most
of the time) and make sure we focus pulling people from markets that have horrible
winters. Like gateway cities such as Boston, New York, Toronto, and well, all of Great
Britain. If Government chucked 10 million (1/3 of the tourism budget, or what the
cricket byes got) into a prize pool with the mandate to create at least 100 tournaments
with prize pots of $50,000 EACH, I think it would be quite easy to get at least 200 people
competing in each tournament, and with most if not all bringing a spouse or family and
a possible total of 400 unique visitors per tournament, that could be 400 tourists x 100
tournaments x $1,200 average spend (2009 stats) = $48,000,000 in the local economy.
• Gambling (I am not going to play around with the semantics of the softer sounding
“gaming”), the bottom line is MOST jurisdictions offer gambling as an amenity to their
tourists. If we do it right, and in a fashion that augments what Bermuda has perennially
stood for it can be an excellent diversion for those winter visitors when the weather is
iffy. If you want to see how a casino can be tasteful, high class and balanced, check out
Fairmont’ Le Manoir Richlieu resort with its adjoining Charlesvoix Casino in Quebec,
Canada. Magnificent.
• Build a multi-use Fine Arts Centre on one of Hamilton’s incredibly underutilized car
parks on the waterfront. Then regularly offer both world class and local shows giving
another option of things to do in the winter when it may not be perfect
weather. International touring ensembles and community groups are always looking to
have a “busman’s holiday” and for many of them, performing is not their main source of
income, and time spent participating is often utilized as vacation time from their paying
jobs. People on vacation spend money, and after trying to get tickets to some of the
various Bermuda Festival shows over the past few weeks, we Bermudians and residents
obviously sure love our culture!

Now some thoughts to keep Business humming:
• Term Limits is a business buster, no matter how you shake it. It is self-defeatist and can
be construed by outsiders as xenophobic. Supposedly Term Limits was originally put in
place to inhibit long term residency claims. However, now it is often discussed in the
same breath as “we have to protect Bermudians legitimate aspirations and access to
jobs”. Isn’t that what the whole Work Permit Process is for, to ensure any Bermudian
who is suitably qualified for a job, and is willing to do said job, at said compensation
package, get the job? It is also not really smart for a business to have to send away (in
the absence of any qualified or more often than not, interested Bermudian), an honest
to goodness “keeper of the corporate culture” just because they were banging up
against the term ceiling, and then replacing them with an entirely unknown, corporately
un-indoctrinated, uninspired replacement? Utter silliness and again self-defeating.
• Open sectors of the real estate market to non-Bermudian purchasers to make it easier
for rich folk to buy either vacation properties, or qualifying primary homes. Now before
everyone gets up in arms, let’s be clear, this needs to be done carefully and judiciously
and should be at a level that is far beyond what the average Bermudian needs or could
afford. Take the Reefs for example and the fractionals it has, but which sit empty and
unsold. If those vacant properties were sold as vacation homes and permanent homes
to working non Bermudian residents, not only would that “free up” property the non-
Bermudian executive currently lives in thus returning it to the rental or sale market for
Bermudians. Secondly, those people who can afford to buy a vacation property here,
can also afford to spend on various support services when on island. And we must
lower the amount of stamp duty charged, to a more reasonable and palatable
6.5%. And, when they are not here, the vacation home owners may be willing to return
it to the bespoke hotel (such as the Reefs) to add to its hotel stock, of course earning a
few pennies back on their investment.

Undoubtedly most of the people buying these vacation properties will probably winter here
(as perhaps older and not so much into high heat and humidity), and then with a bit of luck
return the property to the hotel for use in the summer season when demand is hopefully higher,
and they are back in Martha’s Vineyard, Maine or the Hamptons. If we can create enough demand, I
guarantee that we will finally see shovels start to turn soil at all the derelict hotel sites
we have littered around our 21 square miles. I understand a lot of Bermudian
construction workers and companies are suffering through a whole lot of hurt right
now, and spurring activity could be just what the doctor ordered. Demand has this
wonderful opposite action called supply.

Truthfully, there are many other recommendations from smarter people than me that are
currently being bandied about in order to get the Bermudian economy back on track and firing
on all cylinders. Make no mistake that some of the recommendations will be controversial and
may get the radio talk shows telephone lines burning up. However at issue is that unless we
make clear and pointed changes to our status quo, we will be in serious danger of losing what
we have. It happened before when we got complacent about our Tourism in the 80’s and look
where we are now after 30 years. Less beds combined in all properties throughout Bermuda
than a single hotel in Las Vegas.

I have often talked about our problems with entitlement, and I have posited that refocusing on
meritocratic ideals, awarding people for what they bring both in work ethic, skills, and
knowledge, is far better in the long run than pandering to some individuals that feel they
should just get it, even though they haven’t done much to deserve it. Harsh words? Perhaps.
But when the very future of our country may require all of us to stand up and be willing to
(pardon the mangled Shakespeare quote) “suffer the slings and arrows of outraged missed
fortunes” (unearned), I truly hope for the future of my children, that we make the right choices.

#BermudaBusiness #BermudaInsurance #BermudaTourism #ChamberOfCommerce

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