Let's go offshore!
by Anthony A.R Gunn, Managing Director of IMT Offshore; since 1969, helping
international business water its own green pastures
Thursday, November 3, 2005
And so it came to pass that that the OECD and FATF black-listed much of the
Caribbean region's offshore financial services sector as "a bad egg",
traditionally robust banana and sugar exports were "dead", tourism was
growing but in some markets reaching saturation or stifled by poor
infrastructural facilities, telecoms deregulation has failed to deliver call
centre jobs (or much else), "foreign aid" to the region is flat or down,
whilst the "brain drain" of locals to the "developed" world is alive and
well.
To top it all off, we are now going into only the middle of a 10 year cycle
of increased hurricane and storm seasons and so vulnerable to impact.
Which community can sustain such shocks?
How will the OECS sustain and manage such shocks since most of the economy
runs on these key industries, and can be brought to its knees by a
devastating storm?
To my mind, there are four major industries that we now or will soon be
depending on to offer jobs to the thousands of kids annually coming onto the
job market, for the foreseeable future.
There are also two sub-sectors: agriculture (excluding bananas and sugar
which I do not consider "dead") and manufacturing, both light and
medium/heavy, which I think will never produce much more than that required
for local consumption, if anything at all, with a few exceptions.
Local (by "local" I mean regional) consumption of local agriculture and
manufactured goods by rising standards of living and populations, influxes
of "ex-pats" and foreign investors and by the growing tourism sectors will
keep efficient suppliers and producers happily in business.
Since we can now buy Turkish soaps and powders, South African, Eastern
European and Latin American milks and juices and Chinese and other Asian
manufactured, plastic and other goods and other such things from half way
around the world at a fraction of the price that we can make it for here, do
not expect these things to survive or grow, as even a local supplier far
less be an export earner or job creator.
This salient fact has serious implications for our FTAA and even CSME
futures and capabilities, although the CSME is not only critical to our
future success as a region, its overdue. Ironically, the implementation of
VAT in the OECS, whist a very necessary and inevitable thing, will increase
the price of locally produced goods and services, naturally, whilst lowering
the price of imported goods; a tough world ahead that we are going to have
to depend on a strong private sector for to pull us through.
Meanwhile, a lot of folks still do not look at the critical linkage of the
offshore sector and the tourism sector.
It's simple: The tourism sector needs serious investment, local, regional
and international, and the offshore sector has lot of money.
Foreign Direct Investment is critical to growth and stability throughout the
OECS and Barbados, and Prime Minister Owen Arthur preaches this again and
again to Barbadians who ever had any thoughts to the contrary, or who had
not given it any thought at all.
Like Cayman, Bermuda, Bahamas and Barbados, St. Lucia is now heading down a
sensible private/public sector led investment road that brings this
investment growth in to the island via the Offshore sector, among others;
the rest of the OECS I think can only ignore doing the same at its own
peril.
The OECS needs, I think, to take the bona fide offshore industry seriously
for a change and formally make the industry attractive and workable; it is
being done elsewhere and can be done here.
Telecoms / ICT (information & communications technology)
Despite some flicker of hope in the cellular/mobile telecoms sector (due
mainly to Digicel's regional refusal to take "no" for an answer, plus their
deep pockets to invest and bulldoze a lazy process into action; so to
speak), the Caribbean ICT revolution that was promised along with telecom
reform and deregulation back in 1998 has yet to happen, and is not likely to
happen anytime soon due to a series of fundamental blunders being happily
repeated to this day.
Its official; the region has missed the ICT boat, and until the good folks
at ECTEL and the five NTRC's are merged into one efficient body with teeth,
and enabled to do what they are supposed to do, a la the EC Central Bank, we
will never catch up. The present structure of the regulatory process in
Barbados and the OECS is classic divide and conquer, and has failed the
taxpayers of the region and of the donor countries who support(ed) the
effort.
Quality "inbound" call center jobs which could create 2000+ jobs per island
per year, never materialized and will never materialize until true
competition and true sustainable pricing arrives to the region which will
not happen until new players are allowed to land undersea fiber optic cables
on each island, a process frustratingly delayed for reasons yet to be
articulated in any meaningful way; ask just about anyone in the business of
attracting investment to the region or ask the potential large-scale
employers; they will tell you the same thing.
Tourists are people too
"Discover the Caribbean┘"
"Re-discover the Caribbean┘"
There is no question that the Caribbean is a unique tapestry of peoples and
places, a beautiful string of islands, cultures and natural wonders and
diversity.
But, others boast of the same, similar or different attractions too.
US cities, counties, states, Canada, all of Europe, Latin America,
powerhouse tourist destinations Britain, Italy and Spain, along with Greece,
Turkey, Africa, Asia, Australia and New Zealand lure the traveler and their
dollar, with endlessly larger promotional budgets, each.
September 11's terrible terrorist attacks and other similar attacks, war and
disturbances have proven how fragile we are not only as a global community
but the travel industry was shocked to such an extent that it is only just
now recovering. Fortunately Barbados and the OECS suffered the least from
these impacts and are growing their markets nicely right now, but who knows
what evil lurks just around the corner.
A major problem plaguing the region though, is the average low standard of
services often offered throughout our societies and with our having a
higher-than-usual percentage of customer service personnel who do not know
how to look a customer in the eye and how to welcome them, but instead often
present surly behavior, an indifferent attitude and a "push-up" face, which
"tourists" and many locals will go elsewhere to avoid. The recent
CTO/British Commonwealth report warns that today's tourist is more
discerning, environmentally conscious and less likely to accept third world
standards and mentalities.
Some mature travel markets will saturate over the coming decade, and unless
Dominica and St Vincent each "gets" an "international airport/jet port"
soon, they will never experience the jump in their levels of travel growth
that is required to put more of our people to work; never.
In Dominica, I see a 5-star 18-hole championship golf course with marina
resort offering waterfront, golf-course-side and hillside villas and
townhouses as a key next step to moving Dominica up market. Such a project,
whilst helped by an international/jet airport, can also be started and grown
now, since a reasonably high number of customers coming into and out of the
island to enjoy such a facility will do so via their own private planes
which can land in Dominica today and/or via yachts.
Bananas and Sugar
For over 20 years now, we have been warned that the quality of our fruit
products arriving in the UK for example, was poor and had to be improved.
For more than 15 years now we have been told outright that preferential
pricing for our fruit and sugar was going to end as we know it to be and had
grown comfortable with.
Yet some folks are shocked to see what's happening today with the end of
subsidies and preferential treatments. Now that they have pulled their
collective heads out of the sand, they wonder how "poor little us" could be
treated so badly.
We were told to improve quality, output and efficiency and diversify anyway.
Some did exactly this and will survive nicely thank you, but as a national
industry, the good old days are over.
International Financial Services
The fourth leg of the major regional industries.
Its easy for some to brush off the "offshore" industry with visions of tax
evasion, money laundering, tax havens and other such nefarious activities
stuck in their heads, but like everything else, it is not that simple or
true.
In our small Caribbean islands, these bad things happen sometimes, though
relatively rarely, but the global clean-up of legislation and compliance has
put the modern regional offshore industry on a sound footing. Please note by
the way, that most of the "naughty" activity that went on and indeed
sometimes goes on, in fact does not go on in some small Caribbean island,
but in New York, Miami, Paris, Toronto, Hong Kong, Singapore, London and
other major cities.
Death and taxes are the two things "you cannot escape" they say; and it's
true. However, whilst there is not much we can do about death (outside of
diet and exercise, so to speak), there are a few things we can do about
taxes.
For example we can become elected officials and pass legislation to reduce
the size and cost of Global Government and all of its attendant waste and
inefficiencies; yeah, right!
Or we can lobby the global elected officials as many do, notably the US
flat-tax guru Steve Forbes, and whilst a noble long-term cause, how long
will that take? Death might work its magic before we can.
Or one can go offshore.
Not physically anymore. It does not matter where you live, work or play;
"offshore" is like the proverbial grass pasture being greener on the other
side, but like every patch of grass, its really only green where you water
it.
The OECD and FATF, however, are scared witless that the advent of the
Internet and its easy, full-service, brilliant offshore online services
offers just about anyone, anywhere the ability to "play" with what was
always considered "their domain".
WTO and other similar recent rulings, however, has clearly established that
individual countries and jurisdictions may set and maintain whatever local
tax rates they please, and that major money-guzzling high-tax jurisdictions
cannot and must not impose sanctions or any other pressure to impose their
own inefficiencies on others around the world.
The idea of a "synchronised global tax rate" is a non-starter. If
globalization and free trade is good for economies and business, so too is
tax competition.
Governments will have to compete for and not demand tax revenues.
Insurance, reinsurance and captive insurance business is one of the
backbones of the Caribbean's financial services sector, along with bona fide
offshore banking, personal trusts and foundations, real estate and charter
boat investments and international trading through Offshore Companies; all
bona fide and high finance businesses.
In fact, trillions of dollars invested in the USA, Canada, Europe, Latin
America and increasingly now, Asia, come from the English-speaking Caribbean
alone.
This statistic may surprise some who think of the Caribbean only as a "chuk
your waist and wine" rum-drinking, beach-party paradise (it is this too),
but serious business in the Caribbean is big business, whether run by locals
or non-locals from the Caribbean.
Since the 1100's and earlier, Europeans have used trusts to manage and
protect their assets; why not today?
Even the modern IBC (International Business Company) can help one manage
one's assets and other legitimate businesses. Just as one can log onto a
myriad of domestic online trading sites, more and more people from around
the world are keen to see what the Caribbean has to offer in this regard.
Whilst most modern compliance improvements are a welcome step, as usual,
overzealous activity to implement unnecessary and irrelevant rules and
regulations and other such negative pressure must be resisted so that the
baby is not thrown out with the bathwater.
OECS Governments and the private sector must collectively decide if
International Financial Services is what we want to grow around here, or
whether we should ignore it and add to the brain drain and move the industry
elsewhere.
The ball is in our court; lets play! Let's go Offshore!
