HOW WILL THE OVERSEAS TERRITORIES RESPOND TO A SLOWING WORLD ECONOMY?

By BENITO WHEATLEY Policy Fellow at the Centre for Science and Policy University of Cambridge

As the UK’s Overseas Territories (OTs) look ahead to the rest of 2020 and beyond, they face the challenge of navigating a slowing global economy beset by trade and political tensions among the world’s major economic powers. This will be compounded further by the predicted global recession brought on by the COVID-19 global pandemic.

The US-China Trade War and economic slowdown of two key nations has put a drag on global growth, which has been further dampened by political, social and economic instability in other parts of the world.

According to the IMF, the economic trends of greatest concern to OT financial centres such as Bermuda, the British Virgin Islands and the Cayman Islands, are the weakening of financial services trade and the global fall in investment as a consequence of declining demand and recession fears.

A prolonged global economic slowdown could negatively impact the incorporation, funds and reinsurance sectors that are the mainstays of these jurisdictions.

While the US, China and other global players have taken stimulus measures to stem their respective economic shocks and sustain growth, the OTs – as providers of the corporate services which facilitate international trade and global investment – have little sway over the direction of the global economy which is unpredictable at this stage.

MAINTAINING A POSITIVE EDGE

Instead, the OTs must simply weather deteriorating global economic conditions until things improve. In the meantime, however, their focus must remain on maintaining their competitive edge.

This will require them taking additional steps to make their business climates more friendly by streamlining government processes, adopting IT solutions to improve administrative efficiency and developing digital infrastructure for new services. They must also set themselves the goal of rising in the ranking on the World Bank’s Ease of Doing Business Index.

A strong focus should also be placed on product innovation to meet the new demands of international business under the emerging regulatory landscape and changing global economic environment. Fintech (i.e. block chain), digital assets (i.e. cryptocurrencies and digital currencies) and special services in relation to the Internet of Things are but three dimensions of this, and it is key that other areas are explored.

The OTs must position their financial services industries for sustained growth in the medium and long-term by anchoring themselves in new markets, particularly the fast-growing economies in South East Asia, Latin America and Africa whose high growth potential will drive demand for years to come. The OTs cannot afford to ignore large emerging markets such as Indonesia, Nigeria or Brazil.

At the same time, they must hold their positions in more traditional markets such as the United States, China and the European Union whose economies are amongst the major drivers of the global economy.

BASTIONS OF STABILITY

Perhaps most importantly, the OTs must ensure they continue to be bastions of stability as the world drifts toward increasing economic, social and political instability.

This stability is underpinned by their strong rule of law and legal systems based on English Common law, as well as long-term proven track records as financial centers.

These attributes, coupled with their adherence to global standards and ability to adapt to new regulatory conditions, make the OTs the jurisdictions of choice for international business.

Even as storm clouds hover over the global economy, OT financial centres can sustain their success by strengthening their competitiveness as jurisdictions and tapping new markets for future growth.