"To achieve economic security, the BVI must adapt to the new realities of the global economy."
By Benito Wheatley
CEO of The Wheatley Consulting Group
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The global financial crisis (crisis) did considerable damage to the British Virgin Islands economy. It weakened global demand for both the territory’s tourism product and financial services, which resulted in sharp declines in tourist arrivals and international business incorporations in 2009. While the economy improved in 2010, growth remains weak on sluggish economic recoveries in the United States (US) and Europe; and stronger financial regulation at the global level. Realizing a full economic recovery will require the territory to adapt to the new economic realities of the post-crisis world.
The two most notable outcomes of the crisis are the economic weakening of the US and Europe and the robust economic recoveries of China, India, Brazil and other emerging markets that were largely insulated from the worst of the financial turmoil. Following negative growth in 2009 and anemic growth in 2010, the US and Europe in 2011 are forecast to grow at rates of about 2.5 percent and 1.5, respectively. Their fragile recoveries are characterized by large budget-deficits, high national debts and high unemployment that are expected to be a drag on economic growth in the coming years. A growth rate of four to five percent is expected by the end of the decade.
By contrast, China and India, who registered strong economic growth in 2009 and 2010, are forecast to grow between 8 and 9 percent in 2011. In addition, Brazil and other large emerging markets are forecast to grow at about five percent and higher. Extended forecasts estimate emerging market countries as a whole sustaining high economic growth through 2020.
This shift in the global balance of economic power has serious implications for the BVI economy. Namely, the sustainability of the tourism and financial services sectors in the face of weak demand from the US and Europe. If global economic trends hold, the recovery of tourism and financial services will be constrained by low economic growth in the US and Europe over the coming years. In order to ensure the sustainability of these sectors and the economy as a whole, the BVI must adjust its economic growth strategy to fit the new global economic landscape. This will require diversifying the economy to tap new global markets and strengthening the global competitiveness of the tourism and financial services sectors.
Diversifying the Economy
The development of new economic sectors is needed in large part to broaden the territory’s economic base and to help insulate it from global economic shocks like the financial crisis.
One potential new sector is outsourcing. Economic trends in the global outsourcing market indicate that new business opportunities are emerging in North America and Europe. In their private sectors, the financial industry has come under intense regulatory and financial pressures that are driving firms to outsource their mid- and back-office functions. In their public sectors, fiscal pressure is building to reduce budget deficits at a time when governments are faced with the challenge of providing unemployment benefits to the masses of newly unemployed, social security to retirees, and healthcare benefits to senior citizens, children, military veterans and the disabled. These developments are also pushing governments at every level to outsource back-office functions and some frontline services to lower cost providers.
These developments represent business opportunities for the BVI. The territory has the corporate infrastructure to take advantage of outsourcing needs in areas such as accounting, administration, finance, records management etc. Its competitive edge lies in its ability to deliver high quality services at a lower cost than onshore. The BVI also has the distinct advantage of native English speakers and close proximity to the US and Canadian markets and somewhat farther away European markets.
Improving our Tourism Product
In the tourism sector, improving the BVI’s tourism product will require a number of measures including the implementation of customer service standards for the hospitality industry, investing in state of the art accommodations, developing alternative tourism industries, and establishing direct international flights from major tourism markets.
As the foundation of hospitality, customer service in the territory must be improved. Improving the quality of customer service will require the hospitality industry to adopt a set of minimum-- internationally recognized (e.g., The Customer Service Institute of America’s charter) --customer service standards that are supported and reinforced by training and certification of customer service professionals working in the industry. Research indicates that there is a strong correlation between high-quality customer service and return visits by travelers.
The BVI must also upgrade its accommodations to include state of the art convention, conference, wedding and entertainment facilities and services. These needs can be met in part by the development of another luxury hotel. Adding these amenities to the territory’s tourism product and putting them, and existing facilities and services, to optimal use will help the BVI to capture a greater share of the international conference, convention and wedding markets in North America, Europe and the Caribbean.
Upgrades to the BVI’s tourism infrastructure should be complemented by the availability of direct flights from North America (i.e., US and Canada), Latin America (i.e., Mexico, Brazil, Argentina and Chile) and Europe (i.e., UK, France, Germany, Italy and Spain) to the territory. However, this will only become a reality when the runway at the Terrence B. Lettsome International Airport is extended to accommodate wide-body jetliners.
Improvement of the basic fundamentals of the tourism industry should be followed by the opening up of the tourism sector for investment in emerging industries such as eco-tourism, medical tourism, health and wellness tourism and sports tourism. Special care should be given to rationally spreading tourism development across the archipelago to make the most productive use of the territory’s 40 islands, cays and islets.
Finally, the BVI’s tourism product must be aggressively marketed to the rest of the world. Marketing campaigns should not only target traditional tourism markets in the US and Europe, but also nearby emerging markets in Latin America and those far away in Asia. Ease of travel from Latin America and the availability of Spanish/English translation make the region attractive for tourism expansion. In terms of future tourism business, Asia is forecast to become the largest source of outbound tourists in two decades; a fact that cannot be ignored by the BVI.
Promoting Financial Services
In the financial services sector, incorporations have picked up since the crisis, but greater promotional efforts are needed to further raise the BVI’s profile. Current efforts would be greatly boosted by the establishment of International Finance Centre branch offices in strategic foreign locations (e.g., Brazil, Singapore, London, New York etc.). A permanent presence is necessary to achieve the level of engagement with the global financial industry needed to drive more financial services business to the territory.
The financial services sector must also strengthen its corporate infrastructure to improve its competitiveness as an offshore financial center. This in real terms means recruiting the needed accountants, insolvency practitioners, fund administrators, lawyers and other professionals that can efficiently deliver the high-quality corporate services desired by clients. The industry must also expand its range of services where possible to offer clients value added services (e.g., banking, trading etc.) in addition to fund domiciliation and international business incorporation.
Finally, in the area of shipping registration, an aggressive marketing campaign is needed to promote the BVI. In 2010, the global yachting industry improved upon its poor performance in 2009 and is expected to see an upswing in 2011. With regulatory authorities in popular Mediterranean countries like Greece and Italy cracking down on the owners of locally registered luxury vessels (e.g., megayachts/superyacht), the BVI can take advantage of the demand in these markets for shipping registration services.
Tapping Emerging Markets
In revising its economic growth strategy, the BVI must give special attention to emerging markets. Two-dozen fast growing countries, including Brazil, Russia, India and China (BRIC), are rapidly expanding their middle and upper classes. Combined, their middle classes number almost two-billion consumers who spent $6.9 trillion in 2009. By 2020, this number will rise to $20 trillion when emerging markets will account for two-thirds of the global consumer market. With respect to the new upper classes, emerging markets are experiencing the fastest increase in high net worth individuals (i.e., persons with $1 million in assets) in the world. These new consumer groups represent vast markets for the BVI and should be opened up to the territory’s tourism and financial services sectors.
Since the global financial crisis, the economic landscape of the world has changed. To achieve economic security, the BVI must adapt to the new realities of the global economy. This will require diversifying the economy to tap outsourcing markets in North America and Europe and strengthening the global competitiveness of tourism and financial services. It will also require tapping emerging markets in Asia, Latin America, Africa and the Middle East for business opportunities presented by their rapid growth. It is only by making these necessary adjustments to the territory’s economic growth strategy that the BVI will thrive in the 21st century.