Cayman
Economic Outlook 2019

Address
from the Premier of the Cayman Islands

Hon.
Alden McLaughlin MBE, JP, MLA

28
February 2019

Good
morning.

My thanks to our hosts, Royal
Fidelity, for this invitation to speak at what has become an
important annual conference in the Cayman business calendar.

I too wish to pay tribute to
Anwer Sunderji, former Chairman and CEO of Fidelity. For many years
he was the driving force of this conference and those who have been
here before will understand how much he brought to this event and how
we all looked forward to his political and economic insights and his
wry humour, as he addressed the conference each year.

Governor.. I thank you for your kind words and as you will hear shortly from my presentation – I very much agree that our economy is in great shape. But let’s also get the viewpoint of leading regional economist, Marla Dukharan, when she presented her annual January online video economic report on the state of Caribbean economies in 2019.

VIDEO SHOWN

I thank Ms. Dukharan for continuing to acknowledge the hard work done by this Government to create not only a strong fiscal climate but also one that is conducive to growth and investment and that brings benefits to Caymanians. Ms. Dukharan also mentioned some challenges for us and I will speak to these later. I will also later on provide a few statistics updated from those shown in the video.

As we gather to think about the
global future economic outlook, perhaps it is appropriate that you
hear this morning from a politician. After all, it was a politician
I greatly admire, Winston Churchill, Britain’s great war time Prime
Minister who said, “Politics is the ability to foretell what is
going to happen tomorrow, next week, next month and next year………And
then to have the ability afterwards to explain why it didn't happen.”

He may have made these remarks
tongue in cheek, but Churchill certainly understood that in his time,
with changing world forces, it was becoming more and more difficult
to know with any degree of assurance what the future might bring.
The same holds even more true today.

This conference’s organisers
have captured that sentiment well by titling today’s conference -
Dynamic New World: Braving the Turmoil.

I am not planning to dust off a
crystal ball and look into the future with you today. That is always
a dangerous idea at an economic conference. After all – economists
have correctly forecast at least nine
of the last five
recessions!

But neither am I planning to
play it safe – instead I will provide my thoughts on not only what
we in the Cayman Islands need to keep
doing to avoid the
turmoil; but also, the things that we could consider
doing to prepare
ourselves for an increasingly dynamic world.

I will start with this
observation: in times of dynamic and profound change we should expect
that there will be turmoil.

Great change and turmoil are but
different sides of the same coin. Whether the change is political,
economic, or technological – where there is great change we can
expect turmoil; turmoil defined not just as total disorder - but also
as upheaval, agitation, disruption or uncertainty.

The economic growth that the
world has seen over the past 100 years has lifted millions out of
poverty globally, but it has also made the very rich even richer –
and highlighted a widening income disparity. This has caused
agitation and uncertainty in many countries – consider the ‘gilets
jaunes’ protestors in France. A new fuel tax has seemingly been
the proverbial ‘last straw that broke the camel’s back’ and
created an organic movement without a leader or a focus on any one
particular cause, but a movement that has certainly created economic,
social and political upheaval across France.

We have experienced great change
in our Islands over the past 50 years, with the pace of change
increasing at an ever faster rate. And this has inevitably brought
with it some agitation and uncertainty as Caymanians have experienced
tremendous economic growth but also significant and sustained levels
of immigration and development that have not just brought ‘new
faces’ to Cayman but are also changing the very face of our
Islands.

It is testament to the nature of
our people that despite these immense changes, Cayman remains one of
the most peaceful places on earth, largely free from the racial,
ethnic, and social tensions that plague much of the world.

Consider just for a moment the
political turmoil that is also impacting much larger countries and
compare it to what we see in our small Islands.

In the world’s largest
economy, we’ve seen political squabbling, principally over a
border wall and immigration, shut down the very business of
government for well over a month, causing real problems to both those
who receive public services and the civil servants who provide them.
In the result, some 800,000 public servants were left furloughed or
required to work without pay.

In contrast, Cayman continues to
value the huge contribution that civil servants make in our society.
While we expect ever higher levels of efficiency and performance, we
recognize and reward their service. And whilst we have some tensions
around increasing immigration we also understand the need to welcome
people here to help us drive our economy and build a nation. And
because of that our population has grown by over 700% in my lifetime
– with over 130 nationalities living amongst us in relative
harmony. We are a veritable little United Nations.

In the UK, Brexit is revealing
what has long been disguised – fundamental fault lines that run
right through the core of the political establishment. Again, it is
not simply within the political sphere that the impact is felt, the
British people feel it as well. One of Britain’s most influential
think tanks, the Institute for Government, in its annual report on
the performance of the UK government concluded that all the time and
effort that has gone into the political wrangling over Brexit has,
“squeezed government’s capacity to manage public services and
major projects, and to bring about improvement in them.”

In Cayman, by comparison,
political differences have been put aside in the creation of a unity
government that I have the privilege to lead – a coalition of the
two main political parties and a number of independents. The result
has been a strong government that generates good decisions and is
able to focus its attention on improving public services and
delivering major projects.

In Venezuela we see a once proud
country, with some of the largest oil reserves in the world, become
crippled under the weight of economic and political mismanagement.
Its people face a humanitarian crisis - suffering from a shortage in
food supplies and medicines, and skyrocketing inflation making their
currency useless as a store of value. The impact is also being felt
by its neighbors, including those in the Caribbean, as many thousands
of Venezuelans leave the country in desperation.

In Cayman we have had successive
Governments that for 60 years have generally managed our economy and
finances well and, despite the many changes here, there is political
and social stability. We are no Utopia – as I mentioned at last
year’s conference, we face our own challenges. But by and large we
have done exceedingly well for a small nation with little in the way
of natural resources.

I mention these things to
illustrate the fact that in the present day context the political and
social stability we are enjoying in Cayman is more the exception than
the norm.

There are two important lessons
in this.

The first is that stability
cannot be taken for granted. We as politicians, particularly those
within the unity government, need to continue to work tirelessly to
maintain stability for the good of our country and our people.

The second is that political
instability, should we ever allow it to creep in, has real world
consequences that none of us want to see in our Islands. And so, we
must be vigilant. And by we, I mean Government as well as private
citizens, and business.

We must not only appreciate the
jewel that we have created here but we must jealously guard and
protect it.

Cayman’s political stability
is bearing fruit. You can see that in our headline economic
indicators.

Annualised real terms GDP growth
for the whole of 2018 is expected to close at 3.4%. – This is on
par with our largest trading partner, the USA. So we have closed
out the old year and started the new with continuing strong economic
performance.

We have a strong economy that
continues to generate jobs and opportunities for Caymanians. The
fall 2018 Labour Force Survey will be completed and released soon,
but preliminary results indicate that overall unemployment, taking
into consideration everyone legally resident here, has dropped from
4.9% in Fall 2017 to 2.9% in Fall 2018. As significant as that number
may be, to me as Premier the more important number is that of
Caymanian unemployment – which has dropped from 7.3% in Fall 2017
to 4.6% in Fall 2018.

This is the lowest level of
Caymanian unemployment in more than a decade and is far lower than
the peak Caymanian unemployment level of 10.5% that we saw in 2012.

Political stability then has
assisted in creating strong economic performance. That in turn is
sustaining confidence among businesses and investors about our future
and their confidence is the foundation for maintaining growth and
creating further opportunities for Caymanians.

Perhaps the most tangible and
visible expression of confidence in the long term prospects of our
economy is the growth that is going on in our development and
construction sector. This was one of the key factors driving the
high level of overall GDP growth in our economy that I mentioned
earlier. Annualised growth in the construction sector reached 8.9%
for the first half of 2018. This growth in development is also
driving an increase in imports with more than one billion dollars’
worth of goods having been imported into the Cayman Islands last
year.

In large part so far I have been
focusing on what we are doing, and must keep doing, to secure and
underpin our success.

This conference though is about
looking to the future and in keeping with the theme I will consider
what else we can do to prepare ourselves for the new dynamic world we
face. In considering the future we should not just look at the most
careful and predictable of scenarios, but at what exciting
possibilities may be available to us if we are only more ambitious
and innovative in our approach.

If we are to maintain, and
indeed improve, our place in the world far into the future then we
will need to be bold and to think big. In my view, it only makes
sense to think about bigger and bolder steps if we are confident in
the foundations that are needed to support them. If the economic
fundamentals are sound then risk is more manageable and the
confidence will be there to fund the investments that will be
required.

Equally, it also only makes
sense to think of such steps if they will bring real and tangible
benefits to the Caymanian people. Ours is a proud history of
willingness to innovate and to support inward investment but it has
always been done on the basis that there is a meaningful return for
our people. You don’t grow an economy for the sake of business –
you do it to provide opportunities for your people.

In terms of Cayman’s future
prospects for growth and development, the fundamentals remain solid.
The factors that have fueled the success of Cayman’s economy
continue to do so, despite challenges.

For Financial Services, the
bedrock foundation of our status as a UK overseas territory and our
legal system based on English common law combined with the choice we
have made to remain a tax-neutral jurisdiction with no direct
taxation remains a fundamentally attractive proposition for
businesses and investors alike. The ability of the industry to
innovate and the willingness of government to combine a
business-friendly environment with appropriate but proportionate
regulation will continue to maintain our competitive advantage so
long as there is a level playing field.

Despite the challenges that our
financial services industry is facing I am of the view that we can
withstand these and continue to grow from strength to strength. Ms
Dukharan noted one such challenge in her video when she referred to
initiatives by the European Union and their concern, justified or
not, with countries that have ‘no tax or low tax regimes’.

For those of you unaware, the
Cayman Islands, along with over 20 other countries, are currently
undergoing yet another review, at the end of which the EU will either
give us their good housekeeping badge of approval or ‘black list’
us as having a harmful tax regime. The concern presumably is
that low or no tax regimes are harmful whilst, presumably, high tax
regimes are not.

This is never, though, simply a
technical exercise. In the end, the EU makes political judgments.
My government has therefore played its part in trying to influence
those judgments by engaging with the EU. This engagement continues
and we, along with the 20 other jurisdictions undergoing the EU
review process, await the decision of the EU Economic and Financial
Affairs Council (Ecofin) meeting on March 12th.

I repeat here what I have said
elsewhere - I remain confident that if the EU review process is fair,
and not overtly political, we will not end up on any blacklist. But
we know that this is but one challenge – there are more to come.

I
remain confident, however, that we can manage that future uncertainty
and that by working together, government and the industry, we can
keep pace with changing global standards while preserving the special
characteristics of this jurisdiction that make it an attractive place
to do business in the first place.

At the same time, our tourism
industry continues to flourish with record numbers of tourists
arriving at our newly renovated airport and at our seaport. This
growth will continue because we will continue to develop our world
class tourism product.

This Government has already been
bold in not only modernising and tripling the size of our
international airport but also in thinking of the future and
committing to building the much-needed cruise piers that will serve
us today but also protect our key cruise tourism business into the
future.

The immediate economic prospects
for Cayman are indeed therefore strong. While there are
uncertainties and threats, I believe that both our financial services
industry and tourism have a positive outlook and we can continue to
deliver sustainable levels of growth.

However, we do need to think
longer term about what will drive future growth in the Cayman
economy. The more diverse the Cayman economy, the more resilient it
becomes. Diversifying our economic base also creates new kinds of
opportunities for our people, both as entrepreneurs and in the labour
market. And so we have attracted and continue to attract new types
of technology and knowledge based businesses.

Cayman Enterprise City, our
well-established special economic zone, continues to attract new
kinds of businesses to our Islands, notably internet and technology
businesses, including FinTech and BioTech.

Newcomer Tech Cayman brings
together Caymanian business acumen with established US technology
entrepreneurship and is gearing up to create new forms of digital and
knowledge-based business here.

Health
City Cayman Islands utilises some of the most modern technology
available anywhere. It is the first hospital in the English-speaking
Caribbean to use robotic navigation for joint replacements; the first
to install artificial hearts; and much more. This is a key part of
our medical tourism platform.

And we continue to look to
diversify financial services, more recently by attracting more
reinsurance companies into Cayman – taking advantage of disruption
in other jurisdictions to create new opportunities for us.

But growth too brings its own
set of challenges that we must manage. If we are to continue to grow,
it is my view that we need to make really creative use of the scarce
space we have. And despite the huge strides we have made in recent
years we must improve our future infrastructure, particularly our
road network. The Government is currently consulting on a draft
national planning framework that begins to look at some of the
crucial land use choices that will face us in the years ahead. I
support that consultation process and I hope everyone will want to
take part in the debate.

However, the planning framework
considers a relatively short time horizon and inevitably therefore
this causes participants to focus on marginal or incremental change.

This has traditionally been the
Caymanian way. We have taken a pragmatic approach and looked to make
relatively small changes over time as circumstances have changed.

Over a period of decades, we
have gradually allowed taller buildings as the demand for property
for development increased. This demand continues and indeed
strengthens and with the growth we are now experiencing there is
already pressure to go beyond the current maximum of 10 stories above
ground level.

I pose this as a series of
questions that we as a nation should now consider, do we want to
continue with the approach of incremental change? Or is now the time
for us to think bigger and act more boldly when it comes to our land
use and building heights? If so, how high and where do we want
future development to be allowed?

Last week, speaking to the
Chamber of Commerce I discussed the work Government is doing in
partnership with business and the wider community to revitalize our
capital, George Town. I encouraged all involved to think creatively
about how we might best use the space in George Town and the uses to
which it might be put. While I personally favour mixed-use
development across the redevelopment area, this is a genuinely
inclusive process and the Government is willing to listen positively
to the ideas people will bring forward.

The Government has already
removed many of the constraints that have prevented innovative
planning approaches in George Town in the past. We would be willing
to look further and remove other obstacles such as restrictions on
building heights in order to see the kind of positive redevelopment
we want in our Capital.

The other obvious example of the
potential for taller buildings is along the Seven Mile Beach
corridor. All the messages about the strength of the tourism market
and the luxury housing market suggest that there may be no obvious
limit to building height in terms of what the market will bear. The
question becomes then, what is our community willing to see happen?

The answer to that crucially
will depend upon the benefits that any such development brings. I
said earlier that if we are to take bold steps then there must be
clear and tangible benefits for Caymanians. If development is seen
to be just about luxury hotels and accommodation for rich foreigners
then our community will rightly reject it. If on the other hand, it
is not just seen to be, but actually is about, the delivery of
improvements in infrastructure and in the economic and employment
opportunities and the social conditions of Caymanians then I believe
this is a debate we should be willing to engage in.

By way of a kick start to that
debate, I can say today that representatives from Dart Enterprises
have recently spoken to Government regarding plans for a landmark
development within Camana Bay that includes an iconic tower that
would greatly exceed the current development height limits - creating
a new skyline that would be recognizable the world over. With this
development they will commit to investing in excess of an additional
$1 ½ billion into the Cayman Islands economy, not just in the
development itself but in critical infrastructure improvements and
supporting workforce development.

We know that future development
along Seven Mile Beach is inevitable. In fact the new wave of
redevelopment started some years ago and is now accelerating with the
demolition of condominium complexes built in the 70’s and 80’s
and the construction of new 10 story luxury residences in their
stead. The question is whether we wish to continue to limit the type
of development in the seven mile beach corridor in line with the
status quo, gradually ratcheting up building heights and redeveloping
existing sites to take advantage of changing regulations. If so, the
result will be more of the same in terms of what Seven Mile Beach is
slowly becoming – just a higher wall of glass and concrete than we
have at present and which continues to take over the whole beach.

Perhaps we can be content with
this and the economic activity this incremental and ad hoc approach
will create over the next ten or so years. But what about the next
decade and the ones after that? This approach is unlikely to ensure
that as a country we maximize the full economic benefits of the Seven
Mile Beach Corridor.

The alternative is to be bold
and look at something different. A more proactive approach that
considers taller buildings and that conserves ever scarcer beach land
on the important Seven Mile Beach strip. Taller buildings but in
particular hotel developments that generate much more income and
economic activity for our islands than other types of development do.
Taller buildings that will require developers to give back more of
the beach and to have farther setbacks - creating a large open space
between the building and the beach.

I believe we must at least take
a long, hard look at the potential for the kind of tower Dart is
proposing.

The development would
necessarily be mixed-use with hotel, residential, retail and
entertainment spaces.

The potential economic benefits
are considerable. More and different construction jobs during the
build phase. New business and job opportunities for Caymanians to
follow as new tourism and entertainment markets are developed to meet
the needs of a different kind of tourist and a different kind of
resident.

But we must also consider that
such a large scale development project would create hundreds of jobs
and economic opportunities and thus would also help to serve as a
much needed buffer over the next few years when the inevitable next
recession occurs.

As part of considering this or
any similar proposal, any developer will also need to bring forward a
significant programme of infrastructure investment. This would
necessarily include road improvements but also potentially social
infrastructure – improvements to Cayman’s schools or investment
in affordable housing for local people for example. And
so, as a Caymanian, I am excited about the idea. As Premier, I am
determined that we engage positively with Dart and with any other
developers who might want to bring forward such ideas to see what
might be possible.

There is an awfully long way to
go before such ideas might come to fruition but now is the time for a
national debate. The Plan Cayman process gives us a timely and
appropriate vehicle to have that national debate. The next phase of
consultation in that process will be on an area plan for the Seven
Mile Beach Corridor and the potential for a landmark development can
be addressed as part of that consultation. I will leave it to Dart
to outline their ideas in more detail and, as I have said, I would
welcome others coming forward with other proposals.

I wish to make it clear that
there has been no commitment from the Government to Dart or anyone
else at this stage but we do believe we must be willing at least to
consider the proposal.

The renowned architect Adrian
Smith noted in an article on tall buildings that the landmarks they
create often over time become a symbol of national pride and
identity. Such developments create new types of jobs and economic
benefit as well as serving as an iconic tourist attraction in their
own right.

Think for a minute the impact
that the Burj Khalifa, which was designed by Adrian Smith, has made
for Dubai. Or indeed the impact of the Eiffel Tower on Paris and
indeed France as a whole.

Hang on! Before people start
taking to social media to decry this idea, hear me out.

Many people here will know that
Gustave Eiffel was commissioned to design his iconic tower for the
1889 World’s Fair in Paris. What you may not know is that the
proposed tower was immediately controversial. Indeed 300 members of
the Paris artistic and cultural elite signed a petition to the Fair’s
organizing Committee asking for the project to be abandoned.

Yes – petitions against
progress were a thing even then.

But I digress. Describing
themselves as “passionate devotees of the hitherto untouched beauty
of Paris”, they protested with all their strength and indignation
against what they described as “this useless and monstrous Eiffel
Tower” that they claimed would be antithetical to the traditions of
the city and would overshadow existing cultural sites.

I can just imagine those in
Cayman who will make very similar – if not pretty much identical –
objections to any proposals for a major development here. Yet now,
the Eiffel Tower is not just part of the Paris skyline; it is the
very symbol of the city itself.

Could we in Cayman imagine a
similarly iconic structure here that would come not to threaten our
cultural heritage but to reimagine it and to symbolize the bold
future we want for our Islands and our people?

I have no doubt that this last
section of my speech this morning will be highly controversial and
will ignite considerable debate. If so, good! That is my intention
because this is a debate that the country needs to have. There is
much that is within our grasp if only we are bold and the decisions
we make will have profound impact on the long term economic outlook
of these Islands.

It comes down to a matter of
choice about the future we want for ourselves and these Islands.
Brutus, in Shakespeare’s Julius Caesar, put it this way:

There is a tide in the affairs
of men

Which, taken at the flood, leads
on to fortune;

Omitted, all the voyage of their
life

Is bound in shallows and in
miseries.

On such a full sea are we now
afloat,

And we must take the current
when it serves,

Or lose our ventures.