[Written by Shadow Finance Minister Bob Richards]
There is a myth that all Bermuda’s economic troubles are the result of problems with the global economy. It is illustrated in the saying “when the US sneezes, Bermuda gets a cold.”
This myth is reinforced by the Government. In the recent Throne Speech, the Premier said the “simple truth is that there is no escape from the contagious and harmful effects of the economic downturn in those countries with which Bermuda does business.”
The facts on the ground completely disprove this statement and prove it is indeed a myth.
You don’t have to be an economist or a financial analyst to figure it out. Just read the news and it is clear that the entire world is not in trouble. There is economic growth in China, Australia, Singapore, Brazil and, closer to home, Canada. The problem areas are in Europe, UK and the US, though there are many sectors within that economy that are growing.
The United States is our major trading partner. What are the facts in this trading relationship?
In tourism, the relationship is indeed tied to the overall state of the US economy. US consumer confidence has a significant impact on whether Americans travel or not. Bermuda tourism benefits or suffers depending on how confident Americans feel about their economic situation. Holiday travel and therefore Bermuda tourism is closely connected to the American mood. But tourism, while we could do much to improve its performance, is not the main issue today. Incredibly, it now accounts for just 5% of our total economic output.
This is not to say that our management and promotion of our tourism product is irrelevant. Not at all, it is most relevant to our success in tourism, but Bermuda’s overall economic health is not going to be decided by tourism.
Our economic well-being is decided by international business; by far the most important sector of our economy, generating more than 60% of our gross domestic product.
Recently, the Stonebridge Group was retained by Business Bermuda (formerly BIBA) to analyse the trading relationship between Bermuda and the United States. It has produced three reports covering the years 2007 – 2010.
Stonebridge said, in its 2010 report, after reviewing data for 2009 – when most of the world was in the depths of the Great Recession – that in the last two years “overall growth in trade and investment remained at 2007 levels but did not decline.” At that time, Bermuda’s trade with the US was valued at $64 billion.
In Stonebridge’s 2011 update, Bermuda’s trade with the US grew to $80 billion. That’s a year-over-year increase of 25%. Stonebridge observed that in spite of the global economic crisis and difficulties in US financial markets “Bermuda-U.S. economic ties remained surprisingly strong.” Stonebridge also noted that Bermuda’s insurance sector was relatively “independent” from the economic crisis hurting larger financial centres and was “not correlated” with the global financial troubles.
So, contrary to the myth that many Bermudians have been led by this Government to believe, our business with America has been strong, not weak.
In Bermuda, the “Class 4″ reinsurers (the biggest companies) are the leaders in the insurance/reinsurance sector and comprise the nucleus around which Bermuda’s economy is centred. A sample of these Class 4 companies was selected: Ace, XL, Partner Re, Renre, Axis, Flagstone, Everest, and Endurance.
Data drawn from this sample shows that the 2010 profits of these companies totaled $7.9 billion, having increased 482% from 2008. Premiums rose marginally over the same period to $33.8 billion.
Ace and XL are marquee companies for Bermuda. Ace’s 2010 profits were up 136% to $3.6 billion, compared to 2008; while XL recovered from a disastrous loss of $595 million in 2008 to post a $633 million profit in 2010, a positive swing of more than $1.2 billion in two years.
Only one conclusion can be drawn from the information and it is this: Bermuda’s primary industry, reinsurance and insurance; the industry that earns Bermuda critical foreign currency, has not only resisted the recession it has prospered.
But there’s a problem here.
Economic growth is supposed to create jobs not destroy them, so what’s going on here? Why has Bermuda slumped into an employment crisis?
The answer is that the growth registered by the Bermuda domiciled insurance/reinsurance industry has created jobs outside of Bermuda, not here on the Island.
The reason the Government doesn’t want you to know this fact is because they want to hide the truth of what is going. And what is that truth? It is that Bermuda’s massive job losses, income losses and opportunity losses are not, in the main, imported from abroad, but instead have a ‘Made In Bermuda’ stamp all over them.
Due to Government policy, practice and attitudes, Bermuda companies have chosen to grow their businesses outside Bermuda. The specific policies causing these problems centre on the hassle, expense and disruptive nature of the Department of Immigration and the Term Limit policy.
In a 2011 Bermuda Business survey of international executives’ views of Bermuda as a place, “…to do business”, 55% said “it was a more difficult place to do business than in the past.” When asked why, 40% of those surveyed said that “uncertainty over work permits led to that perception.”
This issue is a ‘Made In Bermuda’ issue.
But there’s more: Let’s not forget the Finance Minister’s disastrous hike in payroll taxes in 2009, an out-of-the-blue decision that surely cost Bermuda many jobs. The reversal of this blunder the next year did not bring those jobs back. Also, let’s not forget the wave of violent crime that has hurt the Island’s attractiveness as a place to live for a prospective expatriate worker.
These issues have a ‘Made In Bermuda’ stamp on them.
The One Bermuda Alliance believes work permits are necessary. The advertising of jobs so that qualified Bermudians have first crack at them is a must. But we do oppose Immigration’s bureaucratic processes that work against job-creating growth in the economy. A proper and efficient work permit process will open opportunities for Bermudians.
It must be remembered that expatriate personnel spend money in our island for food, rent, transportation, entertainment, etc. All these activities support Bermudian jobs directly or indirectly, as well as government revenues.
The Government talks about there being “no escape” from the world’s financial problems. But that is false. The correlation between fewer expatriate workers in Bermuda and fewer jobs for Bermudians is direct and undeniable. These are the facts of life in today’s Bermuda from which there is no escape.
Many of us have heard international business executives say, repeatedly, that they are global businesses that have offices in Bermuda. But many of us, including the Government, haven’t got the message.
The message is that they don’t have to hire in Bermuda if it is too much trouble or too expensive or too disruptive. They have alternatives, and they have exercised their alternatives. That’s the reality of globalization, and that is the reality we have to do our best to live with.
The Government has taken measures to encourage small business. This is good. There are many members of the OBA who are successful entrepreneurs, so we identify strongly with that experience. But we also know that it is extremely difficult for local entrepreneurs to prosper if there is a lack of new money coming into the economy through our international business sector.
The money and jobs this sector generates creates business for local businesses. Growth in this sector is vital for all levels of our economy, even amongst those businesses that don’t sell directly to expatriates.
We at the OBA, unlike the Government, have recognized the sources of Bermuda’s economic problems and we will make Immigration reform one of our top priorities. We will suspend the term limit policy for two years in order to formulate a replacement policy. We have a plan to tackle gang crime.
We will make every effort to encourage new business formation in Bermuda and provide existing international business with an environment in which its people will feel comfortable creating jobs within Bermuda – an action that will also create jobs, prosperity and opportunity for all Bermudians.