Bermuda Economy and Industries

People in Bermuda get one of the highest pay scales in the world. Yes that's true. Bermuda economy still enjoys one of the highest per capita earning in the world. 

In 2009, the average annual salary of a serviceman in Bermuda was over $56,000. And many earn much much more than that. So happy to know this? Thinking of a job in Bermuda?

Now hear this out. Bermudians have world's one of the highest cost of living. Yes, they have to spend a lot to survive.
That's because virtually everything in Bermuda is imported. Bermuda has no natural resources like oil, gas, gold or anything. Due to lack of adequate farming land, agriculture in Bermuda is also very limited. Almost 80% of the food has to be imported. And there is heavy import duty levied on all goods that are imported. So prices are often quite scary. 

In spite of that, Bermudians earn enough to have a healthier life style compared to people in many other countries.

Living Standards in Bermuda 
Although there is no sales or income tax in Bermuda, the cost of goods including food is pretty high. It forces Bermudians to earn a minimum pay which is far higher than anywhere in the world. Although there is hardly any poverty in Bermuda, the low income line is around $27,000 per year. If one is below this earning line, one is said to be poor in Bermuda and will struggle to survive without an aid. Check out cost of living to know what it takes to be living in Bermuda. 

In 2007, only 11% of the Bermudians were below the low income line. This band mainly consist of single parents with no full time job, senior citizens or the disabled persons. By the way, Bermuda unlike other countries in the world, makes no concession for the disabled or the senior citizens, and life is quite hard for them. UPDATE June 2011: Senior Citizens to get a three per cent pension increase from August 2011.

Many of the Bermudians hold more than one jobs in the island to maintain their living standards and to pay off their home loans. See Life in Bermuda to know what one of my friends in Bermuda had to say on her own life. She by the way runs a well known boating tours in Bermuda along with her husband. 

Real estate in Bermuda 
If you hear the average price of a house in Bermuda, you will think that they are only meant for the millionaires. While that's largely true, many average Bermudians still make it by slogging out their initial life with more than one jobs. An average house costs close to a million dollar in Bermuda. 

While there is no sales or income tax in Bermuda, there does exist a fairly heavy property or real estate tax. So if you look at an average Bermudian life style, a couple would typically take up two jobs each. They will save every penny they can to buy a land over a period of few years. Once they have the land, they will get good loans by mortgaging their land property and start building their own house while still living in a rented apartment.

Finally when the house is built, they will rent that out so that the loan liabilities can be paid off from the rentals itself. In about 15 years or so, they will clear out all their loans and shift into their own proud home. Looks simple? No, it's a lot of hard work!! 

Bermuda Industries 

So what are the main industries in Bermuda? The two top industries that continue to control economy of Bermuda are the International Business and the Tourism Industry. 

While the international business in Bermuda has been on the rise with over 15,000 international companies having set up their operations in Bermuda, the tourism industry has been going through some rough patches over the last few years. Tourism had always remained the second most important industry in Bermuda. Between International business and Tourism, Bermuda receives over 70% of its total foreign currency earnings.

The international business is mainly around insurance, re-insurance (i.e. insuring another insurance company), captive insurance, and fund and trust management. Bermuda runs the third largest re-insurance in the world and second largest captive insurance domicile. To know more about the this sector, checkout Bermuda's Insurance Industry. 

This sector has spent an estimated $2 billion in Bermuda and provided large number of jobs. International business contributes 24% of the total GDP of Bermuda as per 2009 reports.

Over the years, prudent financial management of Bermuda has made it a global magnet for the international business. An independent body called the Bermuda Monitory Authority (BMA) has gained control of all the supervisory and regulatory rights from the Bermuda Government. BMA oversees the international business with complete transparency, coordinates with US and international community, and ensures that there is no money laundering, fraud or other financial crimes. 

A recent report from KPMG has stated that the island's legislative framework is almost fully compliant with international standards. Bermuda has recently received a Sovereign rating of AA+ from Fitch which a global credit rating agency. Check out Bermuda Sovereign Ratings for details.

Coming to Tourism in Bermuda, it has shown some declining trends, mostly compounded by the global recession. A little over 550,000 tourists arrived in 2009, a decline of over 100,000 people compared to 2007. Hotel occupancy rates have also decreased in 2009 to close to 51%, down from 59% in 2008. See Bermuda Hotel Occupancy Rate in 2009/2010 for more updates. 

Visitors contributed an estimated $330 million to the economy of Bermuda in 2009, down from $402 million in 2008.


Jobs in Bermuda 
Bermuda had always followed the trend of US economy as well as the global economy.

For example, in early 1990s due to economic downturn, about 2000 people lost their jobs in Bermuda because many work permits were not renewed. There was a similar impact in 2001-02 as well, although to a far lesser degree.

Although International Business used to be the top employment provider in Bermuda, it's no longer so.
Estimated jobs in 2009 in International Business has been about 4,400, down from about 4,750 in 2008. Whereas wholesale, retail and repair services provided about 4,750 jobs and Hotels & Restaurants about 4,700 jobs in 2009. Bermuda Government is the largest employer in the island. As per 2009 estimates, average job salary in Bermuda was $56,000 per year and an annual pay of less than $27,000 means that one is below the poverty line. 

2012 Update on Bermuda Jobs: Department of Statistics in Bermuda released the Labor Market Index (LMI) report. As per the report, in 2011 there were a total of 37,399 job holders compared to 40,213 in 2008. The average annual gross earning in 2011 is $59,364 which shows an increasing trend over the previous years.

2011 Update on Bermuda Jobs: The economy has been harsh on the People of Bermuda. A study showed that around 3,000 jobs have been lost between 2009 and January 2011. The most affected sectors are telecommunications, construction, international business and retail. The age bracket between 55-64 have been most impacted. Despite such figures, the insurance and reinsurance sectors are offering average annual salaries ranging to $200,000 per annum even in such economic conditions. Additionally the 22 major companies in the insurance/reinsurance sector have pumped in close to $1 billion into Bermuda's local economy. This sector employs about 1,700 people out of which 34% are non-Bermudians or expats. 

Bermuda Import and Export of goods 
Bermuda virtually has no natural resources. Almost all the manufactured goods and foodstuff are imported. In 2009, import was to the tune of $1 billion. Items that Bermuda imports includes food, clothing, household goods, machinery, transport, chemicals, live animals and miscellaneous items. 

Much of the import is from US (about $800 million). The other major supplying countries to Bermuda includes UK, Canada and some parts of the Caribbean Islands.

Import in Bermuda has been rising over the years. Duties on import has been a major source of revenue for Bermuda. In financial year 2009-2010, the import duty constituted 24% of the revenue amounting to about $225 million.

Such heavy import duty has its impact on the prices of the goods in the island. Although there is no additional sales tax, you will still find the prices fairly high in Bermuda compared to the other countries like US or even UK. 

Bermuda's exports has been quite limited and has been shrinking over the years. In 2009, only $25 million worth of exports has been done. One of the major items of Bermuda export is the fragrance from Easter Lilies that are used in making perfumes. Other items of export includes pharmaceuticals, semitropical produce and light manufactures.

Other areas of economy in Bermuda 

Bermuda Agriculture products 
Agriculture, which was a major industry in 1920s, was given up slowly. Fertile land for cultivation in this already tiny little island was becoming rare to get. However, agriculture does exist in Bermuda in a small form and includes mainly bananas, vegetables, citrus, flowers, dairy products and honey.

Bermuda GDP 
Know about the Gross Domestic Product (GDP) of Bermuda, the sectors that contributed to the economy, the major economic trends and more: Bermuda GDP

Immigrants to Bermuda 
Over the years, many people from different countries have migrated to Bermuda to take advantage of best of both the worlds - great economy and fabulous place to stay. As per the 2000 census, 79% of the population are Bermuda born. Here is the breakup for the rest:
28% U.K. immigrants
20% from US
15% Canada,
12% Caribbean, and
10% Portugal/Azores
15% from various other countries

Bermuda Budget 2011 
In February 2011, Premier Paula Cox announced the 2011 financial budget of Bermuda. Here is a snapshot with the salient points: 2011 Bermuda Budget

Others 
Annual inflation rate (January 2010): 3.2%.
Natural resource: Limestone, used mainly for building.

Regeneration of Bermuda’s economy

KEY ISSUE — GOVERNMENT’S FINANCIAL POSITION


Government’s current and near-term financial position has a strong and direct impact on Bermuda’s national economy. Government certainly must continue acquiring revenue. However Government’s need for revenue must be very carefully balanced against the more pressing need to avoid further damage and to regenerate Bermuda’s national economy. Wrong handling of Government finances can push the economy to the third hourglass consequence. Bermuda needs the fourth hourglass outcome.


Government’s Financial Policy

In layman’s terms, and consistently using $100 as the typical revenue, this was the generic situation ten years ago in 2002/03:

Government ‘s revenue $100

Government spent this on personnel $46

Spent this on Debt Service Costs ($0.126b Debt) $2

Government had this left over for everything else $52 (actual spending out of what was available was $48, and Government was paying down Debt out of this)

No borrowing. Government was paying down Debt $0

Government actually spent $96 on everything while Government took in $100. Government ended that year with a generic $4 surplus.

That pattern of Government spending held until 2004. In 2004 it changed. This is what has been budgeted to happen in 2012/13. Take note of the major impact that the huge increases in Debt Service and Personnel costs have had:

Government ‘s revenue $100

Government plans to spend on personnel $57 (no pension payment)

Must spend more on Debt Service Costs ($1.4bn Debt) $13 (six times higher!)

So Government will have this left over for everything else $30

But this is not enough so Government will borrow $19 (total of $49 spent on everything else, but this is actually less than in 2002)

In 2012/13 Government plans to spend $119 even though it expects to take in only $100 in revenue. Government is planning to end the year with $19 more Debt.

This pattern of overspending and borrowing commenced in 2004. It is now in its ninth consecutive year. It must change. We have said and we have shown what will happen if this pattern of Government overspending does not change. What, exactly can and must change? For 2012/13, here is what we believe should have happened and still should happen immediately:

Government‘s revenue $100

Government spending on personnel (reduced 25%) $43 (real personnel cost cut)

Must still spend on Debt Service Costs ($1.4bn Debt) $13 (cannot be cut)

Cutting 18% here means this is left over for everything else $44 (total spent on everything else and still much less than in 2002)

No Government borrowing at all. $0

Meaning that this time Government will spend $100 after taking in only $100. Government will end with a ‘balanced budget’ where spending = revenue.

This is the “X” point that must be reached if the debt service cost is to stop steadily eating its way up into revenue as it has been doing every year in the nine years since 2004. After the “X” point, debt service cost can either be maintained at today’s level, and increased revenue can provide funding to pay down Debt, thereby allowing for an increase in spending on everything else.

The key issue? Government must cut spending. The first real cut should have been made sooner and could have been much smaller. Since a real cut has still not been made, the first cut must now be far deeper and much harsher.

If cuts are not made, and if Government revenue continues to flatline or decrease, the third hourglass consequence is inevitable.

Call to Action

What must be done? How can Government (and Quango) personnel costs be cut? Here are five options:

1. Cut all Government (and Quango) salaries/wages by 25 percent or cut all working hours by 25 percent, going from a 35hr/37.5hr paid work week to a 26.25hr/28.25hr paid work week

2. Cut all pay:

— persons paid over $120k a year get a 30 percent reduction

— persons between $70k — $119k take a 25 percent reduction

— persons paid under $70 receive a 20 percent reduction

3. All personnel work four days and take every fifth day off, unpaid or all personnel work four weeks and take the fifth week off, unpaid.

4. Every person who is eligible to retire must retire, thus coming off the Consolidated Fund and going onto the Public Service Superannuation Fund (PSSF)

5. For now, retain all Government employees who wish to stay. Once the economy regenerates, encourage Government employees to consider migrating to the private sector; thus reducing the overall size of the Civil Service, while getting the Civil Service/Quangos back to optimum size — probably around 6,000. This 6,000 will be about 24 percent down from the current 7,855. It will free 1,855 Bermudians to take jobs in an expanding private sector. It will take a lot of the pressure off the underfunded PSSF.

Personnel cost cuts of the magnitude recommended will result in taking at least $120m off the current need to spend. Cuts made in the ‘spending on everything else’ category should provide savings of another $70m — $75m making overall cuts up to approximately $190m of real cutbacks. These overall cuts of $190m will move spending down to the “X” point.

Many businesses and operations in the private sector have already made deep and harsh cuts of this magnitude, and the private sector began cutting back, and has been cutting back, since 2007. Several private sector operations have gone out of business.

Without a dramatic rise or regeneration in the economy, cuts of this kind — or harsher — will inevitably occur.

By not cutting now, and thereby delaying the first real cut, we believe that Government spending policy is actively pushing the national economy towards the third hourglass consequence.

If you disagree with this call for action, then just as clearly and just as precisely, dealing with this call, get involved and say what the alternative or different action should be. Let us know what you see as the alternative or action that will avoid the oncoming reality and that will move Bermuda forward.

Discuss this with your family, friends, workmates, and MPs until a clear national decision is reached and implemented; after which Bermuda can start moving forward again. Saying nothing or dissolving into a massive public shouting match is the same as taking no action. But to take no action will ensure the outcome shown by the third hourglass. Bermuda needs the outcome shown in the fourth hourglass, it is what we owe to this and future generations.