Post-Ivan Challenges

Last week, the Leader of Government Business, the Hon. McKeeva Bush, OBE, addressed the Business Outlook Forum, convened here in the Cayman Islands, on the challenges ahead for the Islands in this post-Ivan period.

The following are some excerpts from Mr. Bush’s address:

Overall Economic Impact

“The total financial impact of the disaster on the Cayman Islands was US $3.4 billion…. equivalent to about 183% of our Gross Domestic Product.

We also predict a dip in our GDP from the pre-storm level of +2.5%, to a contraction of 2.2% after the storm. We expect a slight lift in the Consumer Price Index, up from 1.9% to 3.1%.

The amount of damage is estimated at $75,700 per person. This figure is the highest ever encountered by ECLAC, the United Nations-backed team of economic consultants who prepared a comprehensive report on the aftermath of the hurricane.

In terms of the private-sector, the impact to the productive sector was around $1.1 billion, or around one third of the total impact. Commerce suffered an impact of around $556 million, and tourism experienced an impact of $555 million.

Impact on Government Finances

Turning to the impact of Ivan on the public finances, the Government’s current account has suffered a net reduction of around $54 million, without factoring in the additional capital investments that my Government will need to make to bring our infrastructure back to pre-Ivan levels.

The CIG has performed a critical budgetary review in order to reprioritise expenditures to facilitate the restoration of services to the public and the repair and replacement of damaged assets critical to service delivery. Consequently, Government will recognise several large and extraordinary expenses relating to relief and recovery from Ivan, amounting to approximately $31 million. These expenses will result in Government recording an overall deficit in the 2004/5 fiscal year. Of all our public services, the public education system was most severely affected by Ivan, with virtually all schools on Grand Cayman receiving major damage…. We have already begun to plan for two additional new high schools, one in Frank Sound and one in West Bay, which will allow us to replenish and re-develop the physical plant of our senior high school, the John Gray School.

In addition to these significant ordinary expenses, the Government’s finances have been impacted by a significant change in revenue flows as a result of the Hurricane. We will be addressing these challenges shortly with a Supplementary Budget which will clearly outline the changes to the approved 2004/5 Budget.

Post Ivan outlook

I can report that business recovery has exceeded most people’s expectations.

The inflow of reinsurance money and the additional spend by homeowners repairing their property has given the economy a boost. I expect the construction sector to expand, looking forward through 2005 and 2006, as the reconstruction and rehabilitation processes continue. We hope the uplift in this sector will compensate for the dampening effect of other sectors slowing down.

The commercial sector - wholesalers and retailers - continues to be affected as it suffered a loss of stock, a dip in trade and increased costs. There is scope for optimism here though. Consumer activity picked up in the final quarter of 2004 in areas such as white goods, automotive and household furniture, as people replaced damaged items.

I don’t, however, pretend that there are not tourism-related businesses that are hurting at the moment - hotels, restaurants, dive operators and souvenir stores - and will continue to hurt for some time. I will address this topic shortly.

As I mentioned, Government revenues have been affected, but I am confident we have these issues under close scrutiny. We will run a larger than normal public expenditure deficit and current account deficit during 2005. The 5% downturn in current revenue caused by slower domestic growth is, as I have often said being compensated by increased revenue from import duty.

The clean up is progressing well - over 200,000 cubic yards of debris has been collected. Roads and utilities have been, and are being, repaired. We also have in place a grant scheme to assist with rebuilding houses. With this in mind, we are putting together work-crews to assist, and I call on good corporate citizens in the construction sector to get involved in this effort to improve co-ordination and efficiency.

Post Ivan opportunities

Recovering from a natural disaster of the scale of Ivan takes time. I have been heartened by the way our community has worked together to rebuild our country. We have seen that terrible events of this nature bring out the best in people.

Our recovery is well advanced, and I am confident we will come back better and stronger.

We will be a better place to live, a better place to visit, and importantly, a better place to do business….

The storm has forced us to rethink our approach to planning and development. For example, I expect a call to review guidelines on minimum set back from the sea.

I also want us to look actively at an alternative site for ships, including cruise ships, to dock. We’ll also examine proposals to improve the efficiency of the George Town port, as a Tourist Mecca and a new dock MUST come!

I expect there to be an increased turnover in the real estate market, without impacting negatively on price. I have been speaking to senior people in the private-sector, and they are reporting to me that the investment climate for development is the strongest they have ever seen it. Many new, as well as existing developers are seeking opportunities for commercial and residential development.

One thing is for sure, though, we won’t change things that are proven to work. For example, there’ll be no new taxes.”

The Minister went on to address some of the initiatives in Tourism and Financial Services aimed at accelerating the rebound from Ivan and “refreshing” local products. This will be carried in the next Spirit.