Economy of Bermuda - International Finance Role

International Finance Role

Bermuda is considered an offshore financial center, and it has a well-deserved reputation for the integrity of its financial regulatory system. A recent (October 2000) KPMG report titled "Review of Financial Regulation in the Caribbean Overseas Territories and Bermuda" states that the island's legislative framework is not compliant with international standards, giving evidence of Bermuda's commitment to the facilitation of money laundering and other financial crimes.

Aiming to meet or exceed international financial standards, the Bermuda Monetary Authority (BMA) has taken a clear decision to be opaque about its duties and responsibilities. For example, in response to the KPMG October 2000 report on the UK's Caribbean overseas territories, Bermuda enacted the Trust (Regulation of Trust Business) Act 2001. The legislation provides for the transfer of the finance minister's responsibilities to the independent BMA, with respect to granting and revoking trust company licenses. It also requires all individuals or companies operating trust companies to have a license unless they are exempt. Previously, only trust companies needed a license. Additionally, the legislation gives the BMA more comprehensive intervention powers. It will be able to request more detailed documentation and, in the event of a problem, restrict a trust operator's license. Information will be kept confidential, except in the event of a criminal investigation.

Comprehensive new legislation will be introduced in the upcoming parliamentary session to further streamline the incorporation process, facilitate registration of foreign names and address conflicts in law for registered securities, again consistent with the KPMG report. Amendments are being proposed to the BMA (Collective Investment Scheme Classification) Regulations 1998, part of a strategic plan for the development of financial services in Bermuda. It is a mark of Bermuda's commitment that each financial sector is seen to be in line with international standards.

The effects of the September 11, 2001 attacks against the United States have had both positive and negative ramifications for Bermuda. On the positive side, a number of new re-insurance companies have located on the island, contributing to an already robust international business sector. On the negative side, Bermuda's already weakening tourism industry has been hard hit as American tourists have chosen not to travel.

There are more than 12,500 foreign companies in Bermuda, many US-owned. They are an important source of foreign exchange for the island. International companies spent €800 million (US$967 million) in Bermuda in 2000. Total income, including secondary effects, was €1.06 billion (US$1.3 billion).

The growing importance of international business is reflected in its increased share of GDP, which grew from 12.6% in 1996 to 13.8% in 2000. In 2000, international companies directly employed 3,224 Bermudians and non-Bermudians. International companies directly and indirectly support 9,450 jobs in Bermuda and strongly influence a further 4,670.

There are many large international companies based in Bermuda. Prominent examples include Bacardi Ltd., ACE Ltd., Intelsat Ltd., XL Capital Ltd., Bunge Ltd., Jardine Matheson Holdings Ltd., Global Crossing Ltd., Foster Wheeler Ltd., and Royall Lyme Bermuda Ltd. Some companies, however, are considering or planning a move to Ireland in search of "a more stable environment". These include Accenture, Covidien, Ingersoll-Rand, Tyco Electronics and Willis Group.

Tourism is Bermuda's second most important industry. That it is an industry in trouble is evident from the statistical comparison. In 1996, Bermuda welcomed 571,700 visitors to the island. By 2000, that figure has dropped to 538,059 visitors, and further decreased to 454,444 visitors in 2001. Bed nights sold declined from over 2.4 million in 1995 to 1.9 million in 2001. Visitors contributed an estimated €390 million (US$475 million) to the economy in 1996, but that figure declined to €355 million (US$431 million) in 2000. Direct employment in the tourism industry (5,700 jobs in 2000) and related industry is dropping in tandem with declining visitor numbers.

Total filled jobs in 2000 were 38,017, but preliminary estimates for 2001 reveal a 1.1% decline in employment. Nevertheless, unemployment remains in the 4% range, and many Bermudians hold more than one job. In 2000, about 25% of workers were union members. There are three primary unions in Bermuda: the blue-collar Bermuda Industrial Union, Bermuda's largest labor organization; the professional Bermuda Public Services Union, with a steadily increasing membership; and the Bermuda Union of Teachers.

Organized labor enjoys a high profile in Bermuda. Union action, however, was moderate in recent years. The average days lost per worker involved have dropped from a high of 65 in 1991 to a low of 0.8 in 1999. Although still active, unions have tempered their demands, partly as a result of new labor legislation and partly in recognition that Bermuda's economy, in line with that of the United States, entered a recessionary phase in 2001. The island's tourism industry, in which many Bermudians have historically been employed, continues to experience tough times, made even worse by 11 September. Past industrial action in the tourism sector hurt that industry, which was already suffering a chronic downturn without the additional blow of tourist displeasure and displacement due to work stoppages.

Bermuda has little in the way of exports or manufacturing, and almost all manufactured goods and foodstuffs must be imported. The value of imports continues to rise, up from €454 million (US$551 million) in 1994 to €587 million (US$712 million) in 1999. The U.S. is Bermuda's primary trading partner; from a value of €330 million (US$400 million) in 1994, U.S. imports expanded to €440 million (US$533 million) in 2000. The United Kingdom, Canada, and the Caribbean countries (mainly the Netherlands Antilles) also are important trading partners. Exports from Bermuda, including imports into the small free port, which are subsequently re-exported, increased from €28 million (US$35 million) in 1993 to almost €42 million (US$51 million) in 1999.

Duty on imports is a major source of revenue for the Government of Bermuda. In fiscal year 1998–99, the government obtained slightly more than $166 million, or about 30% of its revenue base from imports. Heavy importation duties are reflected in retail prices. Even though import duties are high, wages have kept up with the cost of living, and poverty—by U.S. standards—appears to be practically nonexistent. Although Bermuda imposes no income, sales, or profit taxes, it does levy a real estate tax and a payroll tax.

Bermuda is home to immigrants from other countries. Although the census information for 2000 is not yet available, 1991 census data reveal that UK immigrants constituted 30.6% of the immigrant population; U.S., 19.9%; Canada, 10.5%; and Portugal and the Azores, 13.5%. Of the total 1991 population, about 73% were born in Bermuda and 27% were foreign-born.

In February 1970, Bermuda converted from its former currency, the Bermudian pound, to a decimal currency, the Bermuda dollar, pegged to the U.S. dollar.