By Shurna Robbins - Analysis
GEORGE TOWN, Cayman Islands (Reuters) - The Cayman Islands are promising immigration incentives to keep foreign firms from quitting the Caribbean hedge fund hub, but locals want a bigger share of jobs in the lucrative financial sector.
The British overseas territory, a beach-lined island group south of Cuba that is legal home to most of the world’s hedge funds, has seen a drop during the global credit crisis in the number of companies located there, industry experts say.
Caymans Prime Minister McKeeva Bush and other local policy makers want to prevent any exodus of companies in the strategic financial industry, that accounts for more than half of the national economy, by offering more attractive, flexible immigration regulations in the islands.
“First, you have to stabilize the companies that are already here and stop the hemorrhaging,” said Sherri Bodden-Cowan, who heads an Immigration Review Team that is trying to improve immigration procedures.
“Then we can talk about new business. We are looking at attracting fund managers, brokers, deal-makers who have a lot to say on where capital goes on creating funds,” she added.
But the proposed immigration policies to attract more investors do not sit well with disgruntled locals, who see most financial firms as dominated by imported workers.
“I would encourage the policymakers to travel around this country with us for a week or so and go into business establishments, just to look around and see who has all those jobs .. and ask ourselves why are Cayman people out of work?” said a caller to a talk show on Rooster 101 local radio.
On a trip in November to the United States, Britain, Hong Kong and Singapore, Bush sought to lure investors with a pitch that his administration was ready to help them get up and running quickly in the Caymans.
On the table are fast-tracked three- to five-year work permits, and assurances that senior positions in investing companies will get immigration status that bypasses the seven-year time limit on foreigners working in the islands.
Also in the works is draft legislation giving wealthy individuals the right to live and work in the Caymans for 25 years if they make a business investment of $2.6 million.
Some of the foreign companies that have moved part or all of their operations from the Caymans to other jurisdictions cite the global economic downturn and operating efficiencies.
But privately, foreign businesses complain that it takes six months to get work permits approved, permit renewals are denied, and there is a growing insistence that Caymanians replace expatriate workers in senior jobs.
Roger Hanson, former regional manager for Fortis Prime Fund Solutions, a unit of Fortis Bank Nederland FORTH.UL, said the company moved part of its operations to Curacao and downsized its staff from 150 to about 80 people after failing to obtain the immigration flexibility it sought for employees.
Hanson said following Hurricane Ivan in 2004 which devastated the Caymans, the company wanted to spread its risk.
“We asked for two-to-three year permits for our staff to lower our risk. But we were not given them. So we said, fine. We can’t continue to build back our infrastructure and not have any certainty after making all that investment,” Hanson added.
Cayman is already considered a high cost jurisdiction for business, particularly in salaries, and the costs could rise.
Facing a budget shortfall, the administration is considering increasing work permit fees by an average of $3,700 for all professional jobs, boosting annual permit fees to $12,800 per year for accountants, bankers and lawyers.
“As a jurisdiction, we cannot run the risk of making it too difficult to do business or increase costs,” says John Lewis of the local Fund Administrators Association. “Once these companies have gone, they will never come back.”
There is a lot at stake. The financial services sector accounts for about 55 percent of the Cayman economy, according to an Oxford Economics report.
It also brings in 40 percent of government revenue, income the country can ill afford to lose as it comes under increasing pressure from Britain to rely less on its tax haven image.
London, which this year refused to provide a loan without revenue policy reforms, has suggested Cayman should consider some form of direct taxation on payroll or property.
But Bush has stood firm by the “no direct taxation” model that transformed the islands from a Caribbean fishing outpost into a wealthy offshore finance center.
Foreigners make up about 50 percent of the Caymans work force and of the population of some 55,000 people.
According to the Economics and Statistics Office, the islands’ unemployment rate is 6.6 percent for Caymanians and less than 2 percent for non-Caymanians.
Independent legislator Ezzard Miller has advocated caps on work permit numbers and the appointment of a job czar with the authority to walk into companies and demand a work permit be canceled when a qualified Caymanian is available for the job.
But Bush called for “common sense nationalism.”
Experts warn that other financial jurisdictions such as Dublin are already changing legislation to compete with the Caymans for a bigger share of the industry.
“We are not the only girl at the ball,” said Bush.
Editing by Jane Sutton, Pascal Fletcher and Vicki Allen