Global Reinsurance co-editor Lee Coppack interviews Bermuda Premier Jennifer Smith and looks at wider developments affecting the island.
The United Bermuda Party (UBP) had been in power for 30 years and though, like any party in power so long, it may have become stale, it was still a known quantity. The Progressive Labour Party (PLP), which swept to power on 9 November 1998, was not, but has taken great pains to show itself business friendly.The new Premier Jennifer Smith and her government, particularly finance minister Eugene Cox in his first budget, have been anxious to reassure the business community. What they want is greater equilibrium in the economic development of the island so that the benefits are widely shared. In particular, says Ms Smith, the government wants to boost the importance of tourism, which she says the previous government “neglected”.
She set out her philosophy in her address to the the annual general meeting of The Bermuda Chamber of Commerce on 27 April 1999: “My government do not see that it is the primary role of the business community to assist government, nor is it the primary role of government to assist business. Rather, the partnership between government and the business community, embodies a spirit of mutual co-operation that reflects the common goal of protecting the long term prosperity and well being of all Bermudians.”
Bermuda, the Premier believes, greatly needs to raise its profile internationally, partly to encourage tourism, particularly from Europe. Tourism provides a wider range of employment for Bermudians than international business with its need almost exclusively for white collar workers.
At a time of worldwide growth in tourism, the industry in Bermuda has continued to show signs of decline. “It is no longer the largest single component of our foreign exchange earnings and has not been for some five years. This has impacted on the jobs of Bermudians who have seen establishments close and employment they counted on throughout their lives simply fade away,” Mr Cox said in his budget statement 1999/2000. The government allocated an additional $4.0 million in the budget to the Ministry of Tourism in its “rescue mission for tourism”.
Says the Premier: “We need to increase awareness as to where and what Bermuda is.” She does not see a boost to tourism working in any way to the detriment of business. Tourism and business feed on each other. “If people who come on business like what they see, then they make plans to return on vacation.”
It is also becoming increasingly imperative to dispel the notion of Bermuda as a tax haven, a view which the Premier admits persists in some quarters as a result of Bermuda being confused with other offshore jurisdictions. Bermuda, she says, will remain a zero tax jurisdiction, which means that the government has work to do on the international front.
As well as ensuring that the island is not classified by the Organisation for Economic Cooperation and Developments (OECD) as a harmful tax jurisdiction, Bermuda is also concerned about the possibility of a European Union directive which would require member states to impose a withholding tax on cross border income from savings by individuals, which could adversely affect the island's trust business.
The UK government has made it clear that it expects Bermuda and other overseas territories to comply with Britain's own obligations in terms of financial regulation, including those imposed on the UK as a member of the European Union and the OECD. Announcing the publication of Partnership for Progress, a white paper on overseas (formerly called dependent) territories, UK foreign secretary Robin Cook told the House of Commons on 16 March 1999: “The United Kingdom accepts its responsibility for the defence of the overseas territories and for their international representation. In return, we have to insist on the governments of the overseas territories fulfilling their obligations to meet the standards of international organisations in which the United Kingdom represents them.”
Having taken part in consultations with the UK government ahead of the white paper, the Bermuda Premier responded in a statement from her office to the white paper: “The UK government has clearly indicated that it expects high standards from its overseas territories and we share this sentiment. However, Bermuda is not a tax haven and our reputation and standards can withstand close scrutiny.” She also welcomes the proposal of UK citizenship and the non-reciprocal right of abode in the UK for Bermuda nationals contained in the white paper.
Bermuda was due to sent two representatives to a technical meeting of experts and officials planned by the UK's Foreign & Commonwealth Office as we went to press. Ms Smith had met representatives from the OECD and from the UK Foreign Office earlier this year and came away from her discussions feeling positive that they could establish common goals in terms of tax. The approach of OECD, says the Premier, was almost an abstract one of wanting to make sure they had structures in place for the future, particularly against the backdrop of technological development and globalisation. “They wondered why they were being portrayed as the big, bad wolf.”
The OECD, she says, had grouped Bermuda with a number of other countries based on press reports and some overly general comments had led to misunderstanding. “They did not understand why we were so concerned,” says the Premier, “but perception, even if mistaken, can hurt as much as reality.” She feels she was able to dispel misunderstandings. “Face to face meetings are very important,” she says. “We discovered that the OECD thought that when we said exempt company, it meant exempt from tax, but we use it to mean exempt from local ownership.”
There was now a much greater level of understanding. “Even if we cannot agree on everything, if we can agree on the goal, then we may be able to work out compromises to reach that goal.” After all, says the Premier, as a financial services society, Bermuda is very aware of the need to maintain its good reputation internationally.
With the help of the three largest insurance operations on the island, ACE, XL Capital and American International Group (AIG), the government has set up a high level advisory committee, chaired by the chairman of the International Business Forum, to deal with the matter. The government has also hired Charles Barker BSMG Worldwide to represent Bermuda's public relations interests at a national level in the United Kingdom and Europe, and KPMG tax consulting in Washington D.C.
One of the reasons for appointing a public relations agency has been to have someone who can keep Bermuda's name to the fore and correct mistakes when the island is confused with other domiciles. Says Ms Smith: “As a financial services society, we are also concerned and recognise that we do have to retain very good standards. Our reputation speaks for itself.”
International business spent $743 million in Bermuda in 1997 and it employed nearly 2,700 people of whom just under 60% were Bermudian. Only a tiny proportion - about 3.3% - of the international companies on the Bermuda register have a physical presence on the island but even the comparatively small numbers of non-Bermudians, some of whom are very highly paid, has had an effect on the island's economy.
The right of abode offered to Bermuda residents in the UK under the white paper will not work both ways, as UK foreign secretary Robin Cook explained: “The offer of right of abode (to residents of overseas territories) will be on a non-reciprocal basis. The unanimous view in consultations with the overseas territories was that they were anxious that their small communities did not have the capacity to absorb uncontrolled numbers of new residents.”
Should, however, any current UK citizens feel anxious about an influx of Bermudians or Cayman Islanders, Mr Cook pointed out: “Seventy percent of the citizens of the overseas territories have a higher per capita income than the United Kingdom and their residents have no incentive to leave on a permanent basis.”The Premier comments: “There are pluses and minuses from the success of international business, and one impact has been on rents and property prices. We recognise housing as a major problem and we plan to build and keep as public housing 100 houses.” The previous government's policy of selling houses in public stock had meant they ended up on the private market and not available as social housing. “However, Ms Smith also says: “Bermudians have also benefited from the increase in property prices as they have been able to rent out their properties.”
The government's immediate emphasis is on sharing prosperity by restoring the island's tourist industry. In the longer term, the Premier believes Bermuda will evolve in a way that does not require landscape. “Technology offers other opportunities than would otherwise be the case.”
She says that the Bermuda workforce is a sophisticated one and the general level of education high. At the same time, she says people need to retrain to meet the requirements of more technologically demanding work - “Even trucks and cars involve computers today,” and she wants to see that every family in Bermuda has access to a computer. “Everyone is going to have to redefine the fundamentals of education.”
As Eugene Cox said in his budget speech: “International business is a success story in Bermuda. This government promised to implement policies to ensure that international companies can compete effectively in the global market. We want to see those companies succeed and we want to see Bermudians succeed in their careers with them. Investment in education and training by government will provide an equipped and prepared population ready to take its place in the international business world.”
Lee Coppack is editor of the Bermuda edition of Global Reinsurance. E-mail: email@example.com