Opinion: ‘Financial Centre Is The Future’
[Written by Larry Burchall & Sir John Swan] Bermuda’s future lies in establishing itself as a Mid-Atlantic Financial Centre. This means that Bermuda and Bermudians must forever abandon the idea of reviving Tourism to the state and status that Tourism occupied between 1920 and 1990. Following is a comparison between the contribution made by Tourism and the Financial Services (FS) sector to our overall economy.
TOURISM IS OF THE PAST
Since tourism was such a large part of the Bermudian way of life for such an extended period of time, we have endeavoured to show where it now finds itself and why we can no longer be reliant on it.
In 2010, the Department of Statistics reported that Tourism made up only 4.7% of GDP. This was vastly different to the pre-1980’s when Tourism made up around 70% of GDP.
For Bermuda Tourism, 1980 represents Bermuda’s ‘golden peak’ with 609,000 tourists delivering an income from Tourism that hit $317m. In 1980, Tourism was bringing in $317m while Government was spending $120m in that year. In 2010, Tourism was bringing in $384m while Government was spending $1.2b (ten times more) in that year.
TOURIST NUMBERS STAY UP BUT INCOME DROPS
By 1987, Tourism Income had risen to $468m from 635,000 total arrivals. However, in spending power, this was only worth about $250m in 1980 dollars. In 2007, Tourism brought in $513m from an all time high of 659,000 Tourists. But this $513m was worth only about $114m in 1980 dollars. In 2010, Tourism Income was $384m from 585,000 total arrivals but in terms of spending power and compared to 1980 dollars, was equivalent to only $77m, about 75% less than 1980’s Tourist income.
Overall, between 1980 and 2010, Tourist numbers fell only 4% (from 609,000 to 585,000) but the value of Income from Tourism plummeted 75%.
SWITCH FROM AIR ARRIVALS TO CRUISE ARRIVALS
In 2003, the balance between Air Arrivals and Cruise Arrivals shifted. Bermuda was no longer a ‘landstay’ or Air Arrivals Destination. Bermuda had switched into a Cruise destination.
Year Air Cruise
1980 81% 19%
2010 34% 66%
TOURISM INCOMES
Year Arrivals Contribution
2010 347,931 (Cruise) $61m
187,000 (Air – Leisure) $260m
45,393 (Air – Business) $63.0m
So Bermuda’s real National Income from Leisure Tourism is $321m ($260m Air + $61m Cruise). It should be specially, even alarmingly noted, that in 2010, those 45,393 Business Visitors provided more National Income ($63.0m) than did 347,931 Cruise Visitors ($61m). This business to cruise visitor comparison holds for all other years as well. One Air Arrival or one Business Visitor is worth the same as seven Cruise Visitors. For every $1.00 received from an air arrival or business visitor equates to $0.15 from one cruise visitor.
What would happen if we could maximize tourism? Assuming Bermuda’s infrastructure can support the numbers, if cruise visitors double to 700,000, cruise arrivals income should also double to $125m. If air arrivals rise so that each of Bermuda’s 5,870 hotel beds have a 365 day-a-year 100% occupancy with an average five nights stay, Bermuda could possibly host 425,000 air arrivals. Air Tourism Income should generate around $590m.
Practically, however, that 1,125,000 high is absolutely unattainable. Bermuda’s maximum carrying capacity for Cruise Visitors is set by the current and likely future capabilities of Bermuda’s physical and social infrastructure. Bermuda’s real upper limit for Cruise Visitors is closer to 500,000. Increasing Cruise Visitors to 500,000 would produce $90m maximum income ($61m + $29m). Similarly, Bermuda’s maximum for air arrivals would be about 380,000. That would take air arrivals income to $536m ($322m + $214m).
By 2010, this is what has happened in Bermuda’s Tourism Industry:
- Value of National Income from Tourism had fallen from being $317m Government annual revenue in 1980 to $77m Government annual revenue in 2010.
- The arrival balance has shifted from 81% Air and 19% Cruise in 1980, to 34% Air and 66% Cruise in 2010.
- Spending pattern analysis showed that Air Arrivals, whether Business or Leisure, were spending $1.00 for every $0.15 spent by Cruise Visitors. [This ratio had held since the 1980’s.]
- 45,393 air arriving Business Visitors brought in $63.1m [DoT rpt on 2010 and DoS rpt on 2010.]
- 347,931 Cruise Visitors brought in $61.0m [DoT rpt on 2010 and DoS rpt on 2010.]
- Total Tourist arrivals were down only 4% from 609,000 in 1980 to 585,000 in 2010; but the value of total National Tourism income was down 75%.
- A maximized Tourist Industry might result in Tourism making up possibly eight (8) percent of an increased GDP
Tourism in Bermuda cannot be revived to its heyday numbers and incomes. Tourism cannot support Bermuda and Bermudians in the way that it once did. Tourism has now become a supporting pillar to our real income earner, financial services.
In order to keep Tourism active going forward we should concentrate on increasing our air arrivals and not our cruise arrivals. Air arrivals of 315 visitors bring in as much money as one cruise ship carrying 2,500 passengers. We cheapen our tourism product with these cruise ships. We put a strain on our infrastructure for very little return and now we look like we are being blackmailed by their demands to open their casinos while in port. If cruise passengers are only spending $0.15 for every dollar spent by air arrivals now, what will they spend if we give them that concession?
A MID ATLANTIC FINANCIAL CENTRE IS THE FUTURE
When we compare the two industries the following simple arithmetic speaks volumes:
Out of every dollar ($1.00) of Foreign Currency Earnings earned by these two sectors:
- FS and Business Visitors deliver $0.86
- Air Arriving Leisure Tourists deliver $0.11
- Cruise Visitors deliver $0.03
Financial Services has, is, and perhaps will always bring in over five times as much as Tourism.
As long as FS remains successful, FS’s foreign exchange earnings will always be a multiple of Tourism’s earnings. Tourism’s earning capacity can never match successful FS’s earning capacity.
Tourism cannot be revived to its relative heyday earnings. Tourism’s maximal earnings are well below FS’s current earnings and future earnings potential. We must therefore concentrate on the FS industry which is clearly contributing much more to our economy.
If a larger portion of the effort, budget and manpower was dedicated to building FS and rebuilding Tourism, Bermuda would prosper and continue to grow well into the future reducing the stress on our society by creating additional employment opportunities for Bermudians, rental income for Bermudians and revenue for social programs and infrastructure improvements.
Get involved and send us your thoughts. This continues to be a collective effort by all Bermudians and we need your continued support, comments and ideas. For further information or to express your comments email us at economy@challengerbanks.bm or visit us on Facebook Regeneration of Bermuda’s Economy.
- Larry Burchall & Sir John Swan
It makes sense from those who are able to benefit from IB, however I don’t feel that everyone will be able to benefit equitably in terms of employment. Yes there will be additional jobs created in other areas of the economy which we will benefit from but I am staunch believer the tourism is a better way to employ our society, it will allow for us totruly be proud of our country and instill a national pride that we are currently lacking.
Tourism has huge potential in Bermuda. The ONLY reason why it is failing is because govt is involved. I have travelled to dumps which are NOT cheap, and they are doing much better than Bermuda. Bermuda NEEDS an independent Tourism Authority to ensure the industry is managed by independent professionals and not amateur politicians who don’t know what they are doing!
In essence this is a rehash of the UBP/Business Bermuda “its about all of us” socio-economic policy of the 1990s albeit now with the added twist of a tourism sector in irreversible and possibly terminal decline – largely due to factors beyond our control.
As stated above, what this socio-economic policy and its current iteration didn’t address is the degree to which Bermudians will be able to truly participate in this economic model.
Specifically this policy skates over the fact that in order to work Bermudians need to accept that certain jobs/roles are for “them” and not for “us”. “Them” being the the owners of capital and expertise while “us” being Bermudians who have neither – relatively speaking.
Consequently, as in the case of other jurisdictions, there will need to be two Bermuda’s a principle which – on the whole – the public currently finds unacceptable.
Frank
“… now with the added twist of a tourism sector in irreversible and possibly terminal decline – largely due to factors beyond our control.”
That is blatantly NOT TRUE. The PLP have done NOTHING for the Island by way of planned, sustained, creative, multi-media PROMOTION in our Primary Markets of the Northeast Atlantic Gateway Cities. No, they have been wasting our tourism budget, first with Brown’s self-serving, off-the-wall, idiotic marketing ideas like the Red Sox promotion. Then the DoT spends big bucks in Toronto and Great Britain which represent less than 10% of our market. Now they’re thinking about planning to write a plan. What a bunch of idiots. Doing more harm than good. Thank god for our repeat visitors!
I would suggest that to a large extent it doesn’t matter how much we spend (and on whom).
The fact that Bermuda is an expensive, niche destination competing against destinations which are more accessible, with a wider range of amenities, “better” year round weather and a lower cost of doing business; includes a number of factors beyond our control.
Bermuda tourism and the income we derive from it is/was going to fall to lower level in any event. Has the PLP down the best possible job to manage this process of realignment? Probably not.
At the same time the fact us none us know what our long term sustainable level of air and sea arrivals and (relative income) is or a sure fire way to get there and maintain these levels.
Frank
this is all designed to fill up sir johns empty office space?
Actually his new building is over 80% full. He’s a good landlord, I’m told.