According to the latest ESO report, the Financial Services industry directly contributes 41.9% of the economy of the Cayman Islands, followed by Professional, Scientific & Technical Activities at 13.8% (which includes the accounting and legal professions) and Real Estate at 8.8%. Hotels and Restaurants directly account for only 5.6%.
Now, imagine for a moment that most of the financial sector disappears – leaving only one or two banks and insurers that service the local population as is the case in many of our neighbour islands. How many restaurants and professional services companies would still be in business? Would we need more hotels? Would there be a sizeable real estate industry?
The truth is that the lifeline of the Cayman economy is the Financial Services industry, and while efforts to diversify the economy are needed and welcomed, we need to ensure that we keep the heart of our economy strong. Are we currently doing enough?
Between 2007 and 2011 our economy has lost 221 million dollars. It is the impact of the global financial crisis on the direct output of our core industry that explains this decline in our economy.
While the industry has contracted, the fiscal constrains of the Government have lead to increased fees, not only increasing the average "tax" levied on the industry, but its total amount and its contribution to overall revenues on an industry that already contributes well above its GDP share. According to the ESO report for the first quarter of 2013, financial services direct fees have increased 25% vs. the same period in 2012 despite a flat level of business.
So if we have no option but to continue to squeeze our "goose that lays the golden egg" – because there is no room for running fiscal deficits as imposed by the PMFL law – are there other things we can do to promote the health of our special "goose"?
A quick look at our key competitors may give us a clue.
Jersey, Bahamas and Bermuda have all institutionalized a true public/private partnership to ensure there is open dialogue and effective promotion of the industry as a whole, instead of the promotion of individual interests through informal advice or company marketing efforts.
All these jurisdictions have recognized the need for these efforts and have concluded that the private or public sector alone cannot perform these functions – instead combining significant financial resources from both sectors to achieve these objectives.
While we continue to spend significant resources on promoting our tourism industry, we only dedicate a tiny fraction of these public resources to the financial services industry and those activities have failed to achieve significant results, as coordination with the private sector has proved ineffective.
Concrete action is needed now.
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