Opinion Column: “There Is No Fairy Longtail”

July 9, 2015

[Opinion column written by Larry Burchall]

I’m finding that the America’s Cup, AC17, has much in common with belief in a Fairy Longtail.

Seems to me that, led by the Government, most of Bermuda has begun believing that AC17 will end the recession and rescue us from the clutches of those evil Foreign lenders.

If all the $930 million of Direct Inward Investment that the Minister for Finance spoke of in February 2015 materializes between now and mid-2018, that would be akin to seeing the graceful flight of a nearby Fairy Longtail.

However, we must factor out the money, around 40% of any new project, which will stay overseas because it will be expended on materials. So the $655 million of new construction will only see 60%, some $400 million, actually get spent and circulated in Bermuda – if the workforce is entirely Bermudian.

If we assume that us Bermudians are far smarter than those San Franciscans who are reported to have only got 27% of what the America’s Cup promised to bring to their city; and that us Bermudians will do far better and will get 80% of the $275 million promised; then Bermuda should see [$220 million - $77 million from Government] about $143 million of outside money being spent with 100% circulating in Bermuda.

Together, that’s [$400m + $143m] about $543 million that should arrive in, be spent in, and circulate in these Islands.

But that is spread over three years. So that’s around $180 million a year, in each of three years – starting in 2015 to 2016; and going to 2016 to 2017 and 2017 to 2018.

Nathan Kowalski [CPA, CA, CFA, CIM] has written of the ‘multiplier’ effect. Nathan has looked at Bermuda and the ‘multiplier’ for Bermuda. He reckons that it is about 1.5.

If we generously assume an even higher multiplier of 2, then the impact of that annual $180 million would create a $360m addition to GDP. Assuming that in our unique economy, there were other paralleling economic events associated with that new construction and AC17, the final impact on our GDP might be $400 million in each year.

So it is possible that Bermuda’s nominal GDP [GDP[n]] will float from its anaemic 2013 low of $5.6bn to a new and higher level of $6.0bn [the level reached in 2008] to perhaps even $6.3bn [higher than in 2008].

I believe that in or by 2017, GDP[n] can and will rise to or above a nominal [i.e before inflation] $6.0bn.

That rise in GDP[n] should result in Government taking in an additional $70m – $80m in tax revenues.

So Government’s real income should and could reach $1,020m – $1,070m and stay up there through to 2018.

Now that looks like the Fairy Longtail actually being seen as a speck on the horizon.

Then reality strikes!

With $1,070m in hand, Government must still priority feed Nanci[*]. Right away, $170 million [rising to $184 million] will disappear into that spider’s maw. So that $1,070 million instantly depreciates to $900 [$886] million. [* = annual Debt Service Costs]

And $900 [$886] million in 2016 or 2017 or 2018 is and will be insufficient to sustain Government spending at current 2015/16 rates; because in 2015/16, Government is planning to spend $981 million on all non-Nanci Personnel, Operations, and Capital costs.

Even with GDP[n] above $6.0bn, even with Bermuda’s ‘Bermuda Recession’ actually over, Bermuda still needs even more growth – if Bermuda is to avoid the need for more and continued spending cuts by Government.

Suddenly, that speck on the horizon stops moving.

Suddenly, we appreciate that Government’s tax revenue needs to go way past $1,070 million. In fact, Bermuda does not begin to get out of trouble until GDP[n] goes past a nominal $8.0bn with Government tax revenue reaching $1,350. At $1,350 Government tax revenue, Government can priority pay Nanci [minus $170m or $184m] and still have $1,180 [$1,166] million left.

With $1,180 [$1,166] left over, Government can easily spend, at today’s planned rates, on Personnel, Operations, and Capital. And Government can do so without having to borrow as Government will still be borrowing in 2015/16 – and has been borrowing since 2004/05.

If Bermuda is to get out of its Debt hole and not follow Greece and Puerto Rico, then, this deep into our problem, Bermuda needs to add the equivalent of five and six times the economic ‘buzz’ that AC17 will likely bring. And Bermuda needs to do that quickly because Bermuda is facing a 20th July 2020 deadline.

As I end this tale, I regret that I must tell you: “There is no Fairy Longtail.”

- Larry Burchall


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Comments (9)

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  1. Real Talk says:

    legalize marijuana and the tourist will come. They fly to Amsterdam and colorado and they will certainly fly here to smoke on the beautiful beaches. We can have one beach that you can smoke on in each end of the island.

    • Really, Really, Bettty says:

      NO, NO, NO I Never believed that Burchall, I think the OBA convinced its OBAers of that only……..I like you believe that ……”I’m finding that the America’s Cup, AC17, has much in common with belief in a Fairy Longtail.”

      “Seems to me that, led by the Government, most of Bermuda has begun believing that AC17 will end the recession and rescue us from the clutches of those evil Foreign lenders.”……………While I seldom agree with you.,…I do on this one……continue on…

  2. Triangle Drifter says:

    No, the AC will not be some magical savior. Like a fireworks display it will lead up to a Grand Finally, then with a great BOOM, it will be all over.

    It is what we do & how we do it leading up to that BOOM that will determine long-term effects after the AC.

    Bemuda, don’t screw up.

    • what... says:

      Agreed TD…

      Larry… I don’t believe Government has ever said or believed that AC would be a golden egg for Bermuda. What has been said is that if we work together and make this an event of the higest caliber it could get Bermuda well on the right track to recovery…

      • Um Um Like says:

        Exactly. It’s a step in the right direction, and having it is better than not having it!

        If we are successful with this, perhaps future AC’s will be held here.

  3. Miguelito says:

    AC is at least a start, Larry. Slicing some fat outta the civil service work force might be a better one.

  4. Alvin Williams says:

    It will do no more than the golf tour that was suppose to put Bermuda on the map. We don’t hear much about that today even though it was more than a one time event. It will be another scramble to explain how much Bermuda got back from the millions spent on it. By 2017 I am sure the Cuban factor will be effecting Bermuda; something the much vaunted Tourism Authority has little or no answer for.

  5. Bermuda123 says:

    Larry is right that AC is not the end of all problems, however it is a big step in the right direction. If we can build on, use the spotlight to our advantage and NOT screw it up with crazy industrial action, it can be a great trampoline to the next step. Keep pushing Bermuda and don’t let negativity pull you down.

  6. NorthGate says:

    Truthfully, fiat money produced out of thin air as an electronic entry devoid of real value but attached with usury is criminal and unlawful.
    Ask Iceland. Repudiate the debt.

    Hardships placed upon à populace at the behest of international bankers are evil. Worldwide debt forgiveness is in order.That would be a remarkable gift from the international Khazarian banksters to
    “We the People” of the world.