Bryan challenges report on low value of Cayman tourism

(CNS): Tourism Minister Kenneth Bryan has criticised a report by regional economist Marla Dukharan on the Cayman Islands’ economic fortunes in which she found that the tourism sector contributes a relatively small amount to the economy. Challenging the narrative that tourism is a twin pillar alongside financial services, Dukharan said that Cayman is almost entirely reliant on the finance sector while tourism and the associated construction industry contribute very little and may even be undermining the wider economy.

However, Bryan has questioned whether the report was commissioned by someone here with an ulterior motive and disputed its findings. He said that Dukharan hadn’t factored in some important elements in her assessment of the local economy and the weaknesses of tourism, such as work permit revenue for the Cayman Islands Government or the fact that many of the small businesses that depend on visitors are owned by locals.

Bryan also challenged the political observations made by Dukharan, who is urging voters to understand how the economy works here and why it could be at risk before they go to the polls next year.

Dukharan, a well known and respected regional economist with a particular interest in the Cayman Islands, published the report, Unleashing Cayman’s Potential: A Journey Towards Prosperity, on her website. She said she had spent the last year closely studying the structure and potential of Cayman’s economy.

She told CNS that she compiled the report out of her own academic interest in this jurisdiction. It was not commissioned by the CIG, and she received no money for it.

While she has repeatedly stated in recent years that the Cayman Islands has the best-run economy in the region, in her latest work she warned that there are still weaknesses that need to be addressed. She pointed out that Cayman’s economic success is not felt equally, and the government is not measuring or addressing the growing inequality gap.

In this report, she took a broad look at how the economy works, the failure of governments to spread wealth and opportunity evenly, the poor results of education for the money spent on it, and the challenges Cayman has growing its GDP when such a huge part of all local spending is on imported goods — a problem not just for the tourism sector but also for the financial services industry.

Import dependency is one of the reasons why Dukharan questioned the sustainability of tourism and the long-term support that financial services will provide. She suggested that Cayman needs to change its economic model and explained why the economy is not based on two solid pillars.

Tourism is heavily import-dependent, not just because of the goods needed to feed, water, and pamper visitors but also because of the significant percentage of foreign workers that keep the sector going. This means that any growth in tourism “just grows the countries where the imported ‘ingredients’ of these exports are from”.

Dukharan challenged the fundamental principles that successive governments have been peddling for years, namely that Cayman needs tourism and construction to build accommodation and second homes for visitors to fuel the economy.

“But has anyone ever looked at the data to analyze whether there is any truth to these widely held beliefs that tourism and financial services are the twin pillars driving the Cayman economy and that construction is needed to create growth? And if not, why not?” she asked.

Dukharan added that these widely-held narratives shape policymaking, government spending priorities and, ultimately, shape the way the country is governed — who the people of Cayman elect and why.

“It is especially important in the year ahead of an election to make sure Caymanians understand how
the economy works and what actually are the problems you need to resolve, so you can make the best decisions possible when you head to the polls,” she said in the report.

The economist explained that, unlike the rest of the region, which relies heavily on tourism to create jobs, around 75% of those employed in Cayman’s tourism sector are now on work permits. It’s the only country in the Caribbean that consistently shows a net outflow of remittances, as foreign workers send part of their pay home.

All of the goods needed to sustain Cayman’s tourism are imported, while the only things that are not — the culture and the environment — are under threat. Dukharan sets out in academic and economic terms the arguments that people here have been making for several years when they question who Cayman is developing for.

For some time, local people have been pointing to the vicious circle created by importing foreign workers to build hotels and then importing more to provide the services for guests, and highlighting how Cayman’s natural resources and infrastructure are being strained to breaking point while no longer benefiting the wider community.

“[A]ll the hotel construction material is imported, almost all the food is imported, all the furnishings
and linens, almost all the electricity and most of the labour, etc is imported for tourism to function,” she wrote in the report. “What isn’t imported for Cayman’s tourism sector? Cayman’s culture and natural
environment! But if Cayman continues growing the tourism sector, which requires more and more physical space, more hotels, bringing in more and more people, and generating more and more waste and pollution, we risk jeopardizing the very culture and natural environment which are the only major domestic input into the tourism sector.”

The natural environment is a big part of the quality of life here, but successive governments have done a poor job of preserving our natural resources. Everything, from ancient dry forests containing endemic and critically endangered species to life-saving mangroves, has been sacrificed for concrete buildings and roads.

Dukharan estimated that tourism only generates around 3% of government revenue from accommodation and passenger tax, not including work permits for its workers. She said that she could not find data showing how much of the annual work permit revenue comes from the tourism sector.

The government publishes work-permit revenue collectively in its quarterly financial reports. According to the latest figures supplied by the finance ministry, the CIG collected $94.4 million (around 9% of its earnings in the whole of 2023) from work permits. While tourism is heavily dependent on permit workers, unlike the financial services sector, where fees tend to be extremely high, the permits are generally at the lowest end of the fee scale.

Therefore, although the CIG financial reports do not break down work permit revenue by sector, it’s unlikely that fees generated by tourism work permits account for much of CIG revenue, and without the fees from the financial services sector, the government would have a fiscal deficit every year.

“I believe that the financial services sector also subsidizes the tourism and other import-dependent sectors from a foreign exchange standpoint,” Dukharan stated. “Because the tourism sector imports everything including labour and generates a net outflow of remittances, and the level of leakage is so high, it is safe to assume that the amount of foreign currency earnings remaining in Cayman from the tourism sector is very likely to be a fraction of tourism’s overall earnings, while the reverse is true for financial services.”

She added that tourism isn’t the goose laying the golden egg. “[W]hile financial services is producing a bounty of golden eggs, these are really the only solid eggs in Cayman’s basket. This makes Cayman fiscally and economically vulnerable,” she warned.

Dukharan advises Cayman to turn its attention to building a knowledge-based economy, which has lower physical and ecological footprints and higher wages than tourism. But the key to such an economy is education.

“Cayman already has the fundamentals and foundation for a thriving Intellectual Property and knowledge-based ecosystem. Cayman already has a world-class legislative framework and judicial system. Cayman already has technologically advanced sectors and knowledge-based industries that Cayman Enterprise City, for example, has been able to attract. What Cayman needs now is to deliberately accelerate the shift towards more highly educated and, therefore, more highly paid Caymanians,” she added.

Appearing on Radio Cayman earlier this month, Minister Bryan challenged Dukharan’s findings and said she had “drawn some unfair conclusions”. He said he planned to respond fully to the report and the economist’s conclusions when parliament next meets but maintained that she hadn’t considered the visitor spending and the additional duty the government collects on the goods imported for the tourists.

He said he considered Dukharan’s comments to be an unfounded attack on a very important industry that still provides the easiest route for local people to become entrepreneurs and where generational Caymanians still own the businesses that support the sector.

Given the respect the Dukharan commands around the region, Bryan raised his concerns that she had drawn damning conclusions without having access to all of the information or data relating to the industry to support them.

He also noted the interaction between financial services and tourism and how the infrastructure that has grown up around tourism has made the Cayman Islands more attractive to people working in financial services, which he said was something that Dukharan had not taken into account.

Dukharan is due to appear on TalkToday, Radio Cayman’s lunchtime call-in show with Sterling Dwayne Ebanks, on Friday.

See the full report in the CNS Library.

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