Cayman Enterprise City: Something we [Bermuda] should try?
From BDA Sun
An expat exodus wounded our economy. In Cayman they are rolling out the red carpet for guest workers.
PHOTO: Vision: Plans are afoot to create a new ‘campus’ for Enterprise City, in 2014 *Image: www.caymanenterprisecity.com
The Throne Speech underscored what many islanders — and notably, Bermuda Sun columnist Larry Burchall — have been saying for years; the loss of expatriates hurts our economy and takes money out of the pockets of Bermudians.
This week and last we have taken a look at enterprise zones, which cut red tape for businesses and encourage trade and entrepreneurship.
Here we focus on Enterprise City in the Cayman Islands, which works on the premise that more people equals more economic growth. Amid mounting debt and pressure to find new revenue streams in Bermuda, we ask — could it work here?
The basic philosophy behind Cayman’s Enterprise City is simple — more people equals more consumers equals economic growth.
Attracted by a range of incentives that cut red tape and substantially reduce the cost of setting up business in the territory, the companies operating within the zone contribute little direct income to the coffers of the Caymanian government.
They don’t pay work permit fees, they don’t pay trade and business licences and they receive generous duty concessions. Revenue from the fast track zone permits has so far barely covered the cost to the government of setting up the administrative infrastructure required to run the special economic zone.
The wider economic impact, pitched at around $12 million since inception in February, 2012, comes from the on-island spending of the firms and the 110 employees currently working within the zone.
So far it is hardly the ‘third pillar’ of the economy that politicians on all sides predicted when they unanimously approved legislation to create free trade zones in 2011.
But supporters point out that $12 million is better than nothing and predict that as Enterprise City expands the growth will be exponential.
A key element to the trade zone is that it is targeted specifically at industries that would not consider operating in the Cayman Islands without this package of incentives.
It is focused on bio-tech, new media and information technology business, with executives citing Silicon Valley start-ups as “low hanging fruit”.
The principal aim is to diversify Cayman’s economy, attract new types of foreign investment and bring more foreign workers to the island, which, like Bermuda has suffered the impact of population decline since the global economic recession.
Attracting more expats to Bermuda at a time when local unemployment is rife, might be controversial. But finance minister Bob Richards has previously acknowledged the value of such thinking, encouraging Bermudians to view expat workers as equivalent to “long stay tourists”.
The Chamber of Commerce’s economic advisor Peter Everson has also cited research suggesting that every four expats living and working on island, effectively creates one Bermudian job.
Charlie Kirkconnell, the CEO of Enterprise City, told the Caymanian Compass that employees in the zone are expected to spend around half their annual salary on island.
“They are here spending money in the economy. They are buying houses, they are buying cars, they are shopping in the stores, they are eating in the restaurants and that is happening already,” he told the newspaper.
Executives from Enterprise City declined to be interviewed for this article, citing the fact that Bermuda was a competitor jurisdiction.
They have been more forthcoming in the local media, however. Hilary McKenzie-Cahill, vice president of marketing and development, writing in the Cayman Financial Review, explained that some companies in the zone would essentially be enhanced versions of the “shell companies” that maintain offices offshore for tax reasons.
Zone companies of this type might be better described as “conch companies” – still essentially a shell, but with a living, breathing presence inside. They are required by law to have at least one employee.
“Given the growing international regulatory pressure to demonstrate substance over form, requiring more offshore companies to set up physical, fully resourced offices, Cayman Enterprise City meets a pressing need for exempted companies,” wrote Ms McKenzie-Cahill.
A key difference between Cayman and Bermuda is size. Still tiny in world terms, Cayman has more than twice the area of Bermuda and fewer people. There is room to grow and with no regulations on home ownership, car ownership and fewer barriers to permanent residency, it may be that Cayman represents a more attractive proposition for this type of project.
Similarly, Bermuda’s politicians would have to ask themselves if the required growth could be achieved without giving so much away in the form of concessions.
One of the dangers of establishing this kind of economic zone is that businesses that might have come to Bermuda anyway are now exempt from the usual taxes and licensing fees that form such a key part of Government’s revenue. That’s why Cayman’s Enterprise City is so narrowly and specifically focused on industries that would have no other reason to set up shop in the territory.
The idea of free trade zones is not new and was not invented in Cayman. In fact the concept of Enterprise City was borrowed from Dubai, though the more traditional model focuses on tax breaks for traders in goods.
Moody’s Investor Services took note of the emergence of Enterprise City in 2012, with a largely positive endorsement of the concept, pointing out that it would diversify the economy.
“The effect on fiscal revenues will mainly depend on local spending by the new companies and employees boosting the local economy and the revenue base,” Moody’s stated.
Michael Klein, the editor of the Cayman Financial Review, says there is no reason the concept couldn’t work elsewhere. But he cautioned it may involve a change in mindset.
“The problem for an offshore financial centre is that a special economic zone breaks with the traditional fee-based government revenue model of these jurisdictions,” he said. “The economic benefit is derived from bringing new companies and new employment opportunities to a jurisdiction. If most or all of the labour has to be imported, that benefit is largely derived from a growing population and the increase in money that is spent by zone companies and their staff on ancillary services — from rentals and food to legal services needed to set-up zone businesses.
“In places like Bermuda, of course, this increase of the expat population would be a contentious issue, and the lack of government revenue from the zone would be another.”
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