2. Agenda
A little history: the Chamber’s 2010 findings
Current developments and emerging issues
Solutions
3. Bermuda’s Economy
Relies on foreign exchange revenue
International Business and Tourism are the
main sources of this revenue
Local business depends on these sectors to
ensure our quality of life
4. State of the Economy
In decline since 2008
Our two economic pillars are shrinking
Local businesses face uncertainty in
planning
Government debt levels prevent it from
“jump-starting” or stimulating recovery
8. Commercial Real Estate Market:
Squeezed
Inventory at a historic high
Four years supply of space available/under
construction at historic absorption rates
Prices for office space down about 15%
Landlords offering incentives to fill newly-built
space
Source: Bermuda Realty Company Limited
10. Last year’s action points: Goals
Reduce Government debt
Regain international competitiveness
Create new businesses (international and
domestic)
11. Last year’s action points:
Suggestions to Government
Remove term limits for international and local
companies
Create a Tourism Authority
Privatize some Government services
Implement existing legislation to make
Government services more efficient
12. Action point results
Term limits only relaxed and for IB only
Tourism Authority – maybe in 2012
No privatization of Government services
Tourism arrivals rose but IB shrank
Government is now creating “task forces” to
study business ideas
13. Current developments and
emerging issues
Bermudian population is rapidly ageing
Health costs rising faster than incomes
Decline in the number of expatriate workers
15. ...results in fewer working taxpayers
Data source: Bermuda population projections 2000 - 2030
16. …which will impact Government
services such as pensions
0
10
20
30
40
50
60
70
80
2000 2005 2010 2015 2020 2025 2030
Total Dependency ratio
Data source: Bermuda population projections 2000 - 2030
17. Health costs are rising faster than
incomes
Year Index of Index of Increase Gross increases
ended Healthcare Median in in median
31st March Costs Earnings healthcare earnings Guest
2004 100.0 100.0
2005 112.0 103.0 12.0 0.1 2.9 3.0
2006 130.0 108.4 16.1 3.8 5.8 5.2
2007 153.3 114.0 17.9 5.8 4.1 5.1
2008 166.0 117.3 8.3 3.9 1.7 2.9
2009 178.8 120.6 7.7 3.7 -1.4 2.8
2010 200.1 123.8
Notes
1 Index of Healthcare costs compiled from 2009Actuarial Report forthe BHeC, page 6(increases in Standard Premium Rate).
2 Index of MedianEarnings compiled from LabourMarket Indicators published by Department of Statistics.
3 Index 1is based on the yearending 31st March in each yearwhilst index 2is based on datareported at the end of Augustin each year.
Thus whilst not directly related in any one yearthe cumulative trend is clearduringthis 6yearperiod. Datawas notlocated forearlieryears.
100.0
120.0
140.0
160.0
180.0
200.0
220.0
2004 2005 2006 2007 2008 2009 2010
Index of Healthcare Costs
Index of Median Earnings
18. The number of expatriate workers
is declining
August 2008: 10,367 expatriate workers
August 2010: 9,065 expatriate workers
o A loss of 1,302 people in two years (12.6%)
Since that time the pace has increased
o More losses in IB
o Unemployed Bermudians led to some job categories being closed or
restricted for foreigners
19. Work permit losses impact the
economy
Work permit holders create jobs
From 1990 – 2008, one extra job was created for
every 5 work permits issued
This correlation is now working against us
Every 500 work permits that lapse or are
cancelled = 100 additional jobs lost
20. Expatriate workers are younger
than Bermudians….
Average age of an expatriate worker: 38.7 years
Average age of a Bermudian worker: 46.0 years
(Source: Government of Bermuda August 2010 Employment Survey)
21. …and use fewer social services
Loss of younger workers, who use less
health care, increases the per head costs to
the rest of us
Rapidly ageing local population accentuates
the problem
22. Impact on Government finances (1)
Government is borrowing to fund daily
expenses as well as capital projects
Shrinking economy reduces revenues as the
tax base shrinks (fewer taxpayers)
Unemployment and reduced incomes leads
to higher demands for Government social
assistance
23. Impact on Government finances (2)
Government faces increased debt service
costs as national debt climbs (now $1,230M)
Government faces increased employment
costs as cost of health care and pensions
climbs
Without growth in the private sector there is
no escape from this
24. Summary
We are in a difficult position
The choices that we make now will have a
material impact on the living standards of our
children
We need to move with speed but we must
ensure we include all perspectives and reach
a consensus that works for Bermuda
25. Are we alone? Views from outside
“ ….. voters expressed discontent over the rising cost of
living and competition with foreigners for jobs and
housing…….While we have always put Singaporeans
first, let us not turn negative on foreigners. Singapore has
prospered because we have been open to the world and
alive to economic competition and change.
This is how we have attracted investment, created jobs for
ourselves and made Singapore a vibrant city.”
Singapore Prime Minister Lee Hsieng Loong 8th
August 2011.
26. Are we alone? Views from outside
“ The wealth of nations comes not from what we
spend but what we sow: what we set aside to be
invested in productive capacity.
If spending created wealth, Greece would be rich.
Neither consumers nor governments can spend
their way to prosperity.”
Caroline Baum, Bloomberg columnist (December 2011)
27. Before we start to chart our way
forward we should review our past.
“We can’t solve problems by using the
same kind of thinking we used when we
created them.”
Albert Einstein
28. Before we start to chart our way
forward we should review our past
“In the extremely competitive global environment
in which we now live, we must constantly remind
ourselves, as a bank and as a service
community, the only thing we have to sell is
ourselves.
Success is solely dependent on providing
excellent service at reasonable prices in a
friendly way.”
Letter to shareholders 15th
April 1988, the Bank of Bermuda Limited.
30. Policy choices (1)
Much of our domestic economic and business
architecture dates from the 1950’s and 1960’s
The Companies Act 1969 defined exempted
companies and introduced 60/40
The Bermuda dollar was created by the Bermuda
Monetary Authority Act 1969
The Immigration and Protection Act (1956)
controlled foreign labor and land sales
31. Policy choices (2)
Since that time we have mainly built upon,
updated and refined those fundamental policies
Much of the subsequent policy direction has been
to deal with the issues created by economic
growth
In other words: we have mainly focused on
slowing growth
32. Policy choices (3)
We now need to carefully examine these policies
We should abandon those that impede progress
Those that promote progress
o Should become priorities
o Should be made relevant for today’s situation
33. 2012 Agenda items
Infrastructure projects
Gambling and other tourism ideas
Real estate ownership rules
60 /40 ownership rule
Privatization of some Government functions
New jobs
34. Infrastructure
Bermuda needs appropriate infrastructure in
order to compete internationally
We need a 20-year strategy
We must pay for it – no one from overseas will,
as ostensibly we are richer than them
Could be funded by domestic bond market
35. Gambling and Tourism
Those who support gambling need to establish
what it would look like:
o How many casinos; who owns them; who are the
gamblers; social support for addicts etc.
Those who oppose need to articulate their vision
of how the tourism industry is to prosper in 2015
36. Real estate
We currently have a myriad of rules for different
people; paying different taxes and allowed to
buy different assets
We have 1,500 empty residential units
We have a large volume of debt and a dwindling
supply of income
We need a strategy that works for all of
Bermuda
37. 60 / 40 ownership rule
Relaxing the rule could supply new capital for
local business
Government needs input from business owners
before a meaningful discussion can take place
The Chamber includes many business owners
You need to make your views known
38. Privatization
Post Office revenue in current year is
$5.4m; costs are $15.0m
Ferry service revenue in current year is
$1.3m; costs are $7.6m
Bus service revenue in current year is
$7.9m; costs are $18.4m
In each case there are substantial employee
benefit costs not included in Budget numbers
39. New Jobs
Bermudian unemployment now at 6%
Lower tax revenues mean Government
cannot support 4,000 civil servants
Need to attract 4,000 new work permit
holders in order to pay National Debt; fund
Government; meet pension and health costs
40. New Jobs (2)
Current private sector workforce: 30,000
Perhaps as many as 10,000 new jobs needed in
next five years
This is the size of the task facing the private
sector
41. Conclusion
Private sector must provide the solutions
The Chamber represents your interests to
Government
We have divisions representing all areas of
the Bermuda economy
Give us your ideas
Get involved and create the future
Editor's Notes
Peak in 2008 included 35 Loughland units and 44 fractional units
There is no central reporting for rentals islandwide. This is CBBR data which would be representative of what conditions mirror on the island.