Address to the Fidelity CEO Conference By Premier Hon. Alden McLaughlin 9 a.m., 1 February, 2018 Seafire Kimpton Good Morning, It is good to be back at the Fidelity Cayman Economic Outlook conference. A warm Caymanian welcome to all, especially to our guest speakers who have come to share their views with us. I look forward to your perspectives on this year’s theme. I mentioned today’s theme to a friend from the UK, and he asked me if it was about Trump and Brexit. Maybe I said, and asked his views on both. “I don’t mind Trump, I think he is
funny. But I hate Brexit” he said. I asked, why? “I voted ‘Remain’ he said firmly. Not for political reasons but because my wife’s mum moved to Spain - and I wanted her to stay there. Now she’s moving back in with us”. In that weird way of mine, I quietly wondered whether this was an example of a family life integration or disintegration. The theme of this year’s conference - ‘Global Integration or DisIntegration? Surviving the Challenge’ - is an interesting one. The CEO of Fidelity, Brett Hill, is reported as having said, and I quote, “Our global foundation has shifted and political unrest continues to cause organizations to question their role in today’s global economy and how they can adapt. From currency and financial structures to environmental and social impacts, change is on the horizon.” Brett, I entirely agree. Political disruption is a change agent - as is technology - and the pace of change is increasing year on 2
year. I suspect that most of us do not fully appreciate how much change is actually occurring. Most people rarely move outside their own circles and unless they have a specific interest in technology, or attend conferences such as this, change can take them by surprise. So yes businesses, as well as governments, must pay attention to changing circumstances and should constantly question their roles in changing environments. They cannot afford to be surprised by change. If you doubt me, just ask Kodak. Business must learn to adapt in order to survive and remain relevant. So must those of us who govern. The competition will not stand by and wait. If you do not remain relevant then clients, or indeed voters, will look elsewhere. Consider this, the first iPhone was introduced in 2007 and the first iPad in 2010. Blockchain technology was conceptualized in 2008 and implemented in 2009. These smart devices and the 3
technology that continues to change the way we work and live have been in existence for ten years or less. To be trite – the only constant is change and when the environment changes an organism has three options – adapt, flee, or die. In the political sphere the rise in populism throughout the world is an exciting or worrying trend depending on your perspective. But we ignore the people seeking solutions to their grievances through populist causes at our peril. Their reasons are complex and cannot be put down to merely xenophobia or racism – though undoubtedly these are partly to blame. There are nationals in some countries, including these Islands, that feel overwhelmed by the pace of change, including the effect of rising immigration. But there are also many communities, whether in the American Rust Belt or the UK’s Industrial North, where factories, mills, 4
mines or shipyards have closed; and where working people who were once able to make a good living and raise their families, are struggling to survive. A working class that traditionally voted either left of centre, or right of centre, is now drawn to extreme right wing or left wing political groups – many with anti-immigrant or anti-business sentiments. To quote the Director of the London School of Economics, Ms. Shafik, – “It’s no accident that the people who voted for populist parties around the world are people with by-and-large low levels of education. It’s not because they’re stupid, it’s because they’re smart. They’ve figured out that the current system will not be in their favour.” Feeling let down and forgotten by traditional and more moderate politicians and political parties, the alienated seek an alternative that promises radical change and improved circumstances. Much of their feelings of disenfranchisement 5
have not happened overnight. Instead it has festered over decades and is now finally being given voice. If you live anywhere long enough you will hear and see people who feel disenfranchised. Even with an economy as strong as Germany’s, Chancellor Angela Merkel at Davos recently pointed to concerns when she noted – "Frankly speaking, the country I have the honour to represent and where I am Chancellor has difficulties. And polarization is something that we see in our country as well, which we haven't had for decades". You will also find evidence of this disquiet in the Cayman Islands. It is not rampant by any means, but it is most definitely here. So I can commiserate with Chancellor Merkel. Cayman’s economy has been described by renowned Caribbean Economist Marla Dukharan as the best run economy in the Caribbean, with a Government that is committed to reducing 6
debt rather than borrowing and to producing surplus budgets without raising taxes. With GDP growth in 2017 at a respectable 2.4%, in line with growth in the USA, and expected to rise to 2.8% this year, and an economy that has seen falling rates of Caymanian unemployment, 6.2% at the last survey and low inflation, this is indeed an economy worth celebrating. But even in an economy as robust as ours, there are Caymanians who feel left behind. And we must not ignore them. Indeed neither Government nor business can afford to ignore them. Government must play its part to equip Caymanians for the jobs of today and must also work with the business sector to understand the needs for the jobs of the future; and to determine how best to equip our education system to prepare Caymanians for those jobs. My Government will continue to work with the private sector to create an environment that enables business growth and that 7
attracts investment. But in a growing economy it is the role of the business sector to create those jobs and to provide Caymanians with opportunities for employment. And not just employment, but opportunities for training and advancement as well. This has been the partnership and formulae that has for over six decades built this unique Caymanian environment where our families and our businesses can flourish. It has been the private sector and the Government, working together, that transformed a Cayman Islands with a population of less than 8,000 people in 1960, from a village economy based on farming and fishing, and remittances from seamen to one where world class tourism and financial services provide a strong foundation for a diverse modern economy that is the best in the region. Today we have a high standard of living coupled with a business friendly environment, excellent infrastructure, a cosmopolitan atmosphere and a population
8
that has grown to some 65,000 people – including people from over 130 countries all living in relative harmony. It is up to us, Government and business leaders, to ensure that we keep it that way so that investors and expatriate workers continue to feel welcome and no Caymanian feels marginalised. It is important that we get this right today so that we have a better chance of coping with the disruptions of the future as the pace of change increases. As you will no doubt hear throughout this conference, advances in technology continue to disrupt businesses, economies and impact social norms. Artificial intelligence, driverless cars, renewable energy, automation & robotics, 3D printing, the Fintech movement, blockchain technology, and much more bring with them both excitement and worry about our future.
9
From taxi and truck drivers to healthcare professionals; from construction workers to bankers, technology will increasingly put more jobs at risk. As was discussed at Davos recently, a World Economic Forum report on the future of jobs estimates that by 2026 some 1.4 million jobs in the United States alone are vulnerable because of disruption from technology and other factors. And of these jobs some 57% will likely be held by women. Complicating things, the speed of change will make it unlikely that sufficient numbers of people will be retrained or reskilled quickly enough to find employment. And for some, when they do re-join the job market, they may find that their new income does not match what they previously earned. We have seen some of this in the aftermath of the 2008 recession when companies closed, downsized or cut wages and benefits, including employee training. As the economy 10
expanded again, and people found jobs, many re-entered the workplace, earning less. All of this has exacerbated a middle class crisis with wages stagnating and cost of living increasing. We have certainly seen this phenomenon here in the Cayman Islands following the recession – with unemployment amongst Caymanians rising to 11% by 2011. Whilst unemployment has been almost halved over the last six years, there are still qualified and experienced Caymanians unable to find employment. This in an economy as robust as ours that includes over 25,000 persons on work permits, about 45 per cent of the workforce. The increasing level of work permits is not only a further indication of a growing economy, but it is also an indication that Government has been willing to work with the business sector to enable them to hire overseas personnel, provided suitable Caymanians are not available.
11
After all, Cayman’s economy is founded on the strong entrepreneurial spirit of Caymanians and our willingness to embrace the economic and social contributions of the expatriate community. Our continued success as a country requires the continuation of both these factors. But we, Government and private sector, must ensure that Caymanians are given opportunities to fully participate, at all levels, in the economic success of our country. This includes opportunities for training to allow Caymanians to advance within organisations. To do otherwise is to fail to understand the lessons of our history, and to risk undermining our future prosperity and the future of the Caymanian middle class. Most businesses understand this and do what is right regarding the training and advancement of Caymanians. But frankly there are some businesses that do not. Some may claim this does not happen, but it does; we see it on many levels – we hear the stories from our constituents, our family members and often 12
from those who sit on Immigration boards. We also see it in the manner in which jobs are advertised. So as I have indicated previously Government is moving to close loopholes in the regulations concerning the advertising of jobs to ensure that there is a fair playing field for Caymanians and residents alike. This includes insisting that jobs must be advertised locally before being advertised overseas. And that overseas job advertisements must mirror those published locally. We cannot continue to allow a low salary with few benefits to be advertised in Cayman whilst a more advantageous salary and benefits package for the same post is advertised overseas. Additionally, there are few reasons why advertised jobs should not state the name of the actual business that will serve as the employer. So we will look to make this change as well. And we will also look again at the role of employment agencies and their negative impact on the employment of Caymanians. 13
Finally, to ensure that qualified and experienced Caymanians are not being wrongly overlooked for promotion we will strengthen the business-staffing plan regime to ensure that commitments given by employers with respect to the hiring, training and promotion of Caymanian employees are being fulfilled. As I recently stated at the Chamber of Commerce Legislative Lunch, the Caymanian success story has been built on the implicit understanding that Caymanians must have a real opportunity to participate in, and benefit from, our economic growth. This is the Cayman “economic contract� that created the success from which we now all benefit. And for us to continue to benefit, it must mean that we continue to accept both sides of that contract - the opportunities and the obligations that exist between wealth creators and our people. This is why at the Chamber luncheon I committed, on behalf of 14
my Government, that by the end of this term we seek to have full Caymanian employment. The Chamber president has recently said we cannot have zero unemployment as there’s no such thing on any planet and that anyone promising zero per cent unemployment is simply playing politics. I wish to reassure the Chamber president I am not playing politics or playing at all. I am very serious about my Government’s determination to give every Caymanian who is willing, able and qualified to work the opportunity to do so. I trust we can rely on the Chamber to help us achieve that goal! In this new era of disruption both Government and the private sector need to ensure that the workforce is geared up and ready to operate in these new paradigms. This is not a responsibility to be carried by Government or the private sector alone. It must be in partnership for us to have a chance of succeeding.
15
I am happy therefore that the important issue of the future of work was recognised and discussed at the World Economic Summit in Davos recently; and that tech companies specifically, and businesses generally, understand what is at stake and have committed to work towards solutions. Solutions that must take into consideration changing needs of our education and skills training models. I look forward to similar conversations continuing on our shores – you will certainly continue to hear my voice on this issue. With those cautionary words, the fact is that the impact brought about by changing technology is relentless, so we must grasp the opportunities they bring while seeking to avoid the pitfalls. Cayman is adapting and not just surviving but thriving in this new era of wide-spread disruption. Changes in healthcare technology, for example, provide tremendous opportunities for better diagnoses and improved 16
health outcomes. They also present new opportunities for skilled jobs. Here in Grand Cayman we are blessed to have a medical robot at the George Town Hospital that can assist local doctors to connect with overseas specialists to treat serious medical conditions and save lives. And I am happy to report that it is helping save lives. Health City Cayman Islands in East End is another local example where experienced professional medical staff utilize some of the most modern technology to not only get sick people well, but to reduce the cost of medical care. They are the first hospital in the English-speaking Caribbean to use robotic navigation for joint replacements; the first to install two artificial hearts; and much more. And Health City is also making a significant difference to healthcare provided in our region.
17
While advances in technology are making a real difference to healthcare in the Cayman Islands, it is also starting to reshape the face of financial services and creating new business opportunities for our jurisdiction. This past Monday I welcomed attendees and visitors at a conference on the decentralization of market segments, particularly regarding financial technology and blockchain. The Financial Technology sector is rapidly growing and is set to change the face of finance and business. So much so that traditional financial services firms are already getting involved. According to KPMG, investment in the Fintech space has exploded and global Fintech investment in the first three quarters of last year alone was an impressive 21 billion US dollars. At the individual level, Bitcoin, and other decentralized currencies, are being embraced by millions of people across 18
the world. And cryptocurrency is being used for commerce as well as investment. This is an indication that consumers in large numbers, despite some challenges, are increasingly willing to adopt these non-traditional currencies for value exchange. The presenters and business owners at Monday’s conference certainly provided food for thought; from a business that used blockchain technology to connect home and appliance repairmen with consumers, to a company that utilized blockchain to enable individuals to monetize the knowledge and experiences that they share on social platforms. These examples will hopefully give those of you, who like me, are new to this technology, a small idea of the possibilities for Caymanians to become a new breed of entrepreneur. In conversations following the conference, I was pleased to learn that several of the presenters and entrepreneurs have 19
already incorporated their businesses in the Cayman Islands. And the Cayman Islands is said to be amongst the top three jurisdictions for blockchain entrepreneurs to form their companies. Not only is our experience in financial services a plus, but our cadre of professional people serving the financial services sector is second to none. In addition, our use of English common law, modern intellectual property laws, tax neutrality and a business friendly Government are all attractive assets. Of course when you mix in our excellent weather, relaxed cosmopolitan lifestyle and warm people, then in my view we have an unbeatable combination. In summary, all of the things that make us an attractive jurisdiction for conventional financial services businesses also serve us well in attracting Financial Technology businesses, and other types of business in the tech space. I am told that there are as many as 60 blockchain related businesses that have incorporated in Cayman over the course of the last year. 20
And after Monday’s conference several others were planning to join in. There is very good potential then for this type of business to blossom and help further diversify our economy, and provide future opportunities for Caymanian employment and entrepreneurship. I see from your agenda that blockchain and cryptocurrencies will be one of your interesting topics later today. I hope to have an opportunity to hear the presentation and learn more. Conventional Financial Services in this jurisdiction continue to do well with Cayman remaining the jurisdiction of choice for hedge fund registration. Our main challenge going forward is to protect the businesses that we now have, and to prepare ourselves to take advantage of emerging trends. Every one of you in this room will know that for many years the Cayman Islands has had to contend with the Hollywood image of a jurisdiction of numbered bank accounts and bank secrecy. 21
But nothing could be further from the truth. We have signed over 30 tax treaties and participate in various automatic exchanges of information regarding tax matters, including US and UK FATCA. But despite this, as we pass each test, the game is changed - and we so we fight on. Despite the fact that reputable organisations such as the OECD have confirmed that the Cayman Islands is highly compliant with international regulations, putting us in the league of countries such as Germany, Canada and the United Kingdom, we continue to be wrongly attacked by NGOs such as the Tax Justice Network. In its most recent report published just this past Tuesday, it has amazingly ranked the Cayman Islands as the third most secretive jurisdiction in the world with the USA at No. 2 and Switzerland at No. 1. Yet China is ranked 28 and Russia 29. Really? Go figure! Surely no report with these rankings can be credible.
22
Another recent challenge was the initiative by EU Finance Ministers to review some 60 countries over a short period of time to determine which ones would be classed as noncooperative and placed on a blacklist. I was heartened when we travelled to Brussels to meet with several EU politicos and technocrats to hear everyone acknowledge where we are regarding cooperation on tax and other matters. They were all very complimentary. But they still had a hard time understanding how it is that we have no form of direct taxation yet are able to operate a modern economy and Government. For some this seemed to indicate that something must be wrong. As we indicated to them, we pay quite a bit of taxes here – albeit none that are direct. And so whilst we were not blacklisted I know that the fight continues to ensure that politicians in the EU better understand our business model. Whatever one may think of President Trump’s early morning tweets, there is one thing I believe he has gotten absolutely 23
right: excessive levels of taxation stifle economic growth. And despite the contrary views that prevail in the EU and leftleaning organisations such as the Tax Justice Network, no country will ever tax its way to prosperity. I also appreciate that small territories such as the Cayman Islands can seem easy scapegoats for failed politicians in larger countries whose tax policies have negatively impacted their economies and the prospects of their people. Despite these challenges our financial services sector continues to perform well, contributing about 55% of our GDP. And it will continue to be a major contributor to our economy for decades to come. Future success however will require our Financial Services Industry to continue to do what it does best – to innovate and develop new products to attract businesses and investments to these Islands. I know, for example, that industry will maintain its efforts to attract reinsurance business
24
here and as I have already mentioned things are very positive in the emerging Financial Technologies space. Our Tourism sector is strong with over 418,000 stay over visitors and 1.7 million cruise passengers in 2017. And 2018 is shaping up to be even better. So if you are visiting us for the first time we look forward to welcoming you back again next year. And when you return you will find a newly upgraded Owen Roberts International Airport. Hopefully the majority of the roadworks now under way will also be completed. These, along with other major infrastructure projects such as cruise and cargo ports, a modern waste management facility that includes a waste to energy plant, educational and medical facilities are all part of this Government’s plans that not only improve lives of citizens but support growth in our business sector. 25
An obvious indicator of a strong economy can be seen with a buoyant development sector. That sector has been performing extremely well, with 1,156 planning applications approved in 2017 with a value of $799 million, including three new hotel projects. This compares to 971 applications in 2016 with a value of $407 million. So, Brett, if the question is, will our three small Islands be able to adapt and maintain our relevance in a world of ever increasing change? My answer is a resounding yes. There will continue to be challenges but conferences like this not only highlight the opportunities but also shine a light on potential issues - hopefully starting a dialogue on the challenges and possible solutions. These Cayman Islands has met many challenges in the past and we have grown from strength to strength because we are agile and innovative and have been able to adapt our business model as needs require. In my view there is little that the Cayman private sector and the Cayman 26
Islands Government cannot achieve if we continue to work together as partners. In a world of ever-increasing disruptive forces, it is undeniable that there are events that we do not yet know how they will play out, or indeed how Cayman will be impacted. The election of President Trump and the Brexit referendum are just two. But we need only look back to other times of shifting global power and political change to appreciate that it was our ability to work together, private sector and government, that allowed us to adapt and chart our own way and to develop one of the most sophisticated economies in our region. I close by saying that it was heartening to hear from a group of tech businesspeople earlier this week, many the age of my sons, that what has made Cayman an attractive place to visit, do business and to live the over past six decades is still attractive to a new breed of entrepreneurs who are changing 27
the face of business. This coupled with the continued growth in our key pillars of financial services and tourism says much for our ability to continue to innovate and attract business and to grow. As I noted at the recent Chamber of Commerce Legislative Lunch – it is strong leadership, fiscal responsibility, and private sector-led growth that has underpinned Cayman’s success story. But it is people, all of you in this room who work or do business in Cayman, along with those in the public sector and the Caymanian people that ultimately are responsible for our success. I am immensely proud of what we have achieved together – I cannot wait to see how much more together we can accomplish. I thank Fidelity for inviting me to speak here and congratulate them on 15 years of a first class conference. And I thank you for listening to me today. Please enjoy the rest of the 28
conference and if you are visiting us I trust that you get out and experience more of the Cayman Islands. ###
29