60% of nothing

| 28/08/2012

Some of our old laws are doing Cayman more harm than good. Our current hard economic times and high unemployment can’t all be blamed on the US economy and world recession. We have built blockades to progress right here on our own. Although our currency is tied to the US dollar at a fixed rate and we depend heavily on the US for our supply of tourists, investors and goods and services, we must also realize that in trying to protect ourselves from being overwhelmed from outsiders, we have written certain laws which have had the opposite effect and done ourselves a grave injustice economically.

Government has exhausted measures to increase revenue through taxes and fees and yet still searches for more ways to get a few more drops of milk from the cow. I would even suggest that if proper cost-cutting measures and downsizing of government took place that revenue would still be a primary concern.

Decades ago, protectionist laws were written which were intended to be beneficial to Caymanians and to give them a fair chance at making a decent living in their own country. Specifically, expats coming here to open businesses must have a Caymanian partner with 60% ownership and control of the company. Of course, very few expats were willing to take this gamble of giving a stranger in a foreign country total controlling interest in their ideas and hard work but some did take this gamble. For some it paid off but for most the relationship ended bitterly as you might expect. Also know that for this to be a legally formed 60/40 company, the Caymanian is obligated by law to come up with 60% of the funds needed to build stock and run the business. This law too is more often than not bypassed since the Caymanian doesn’t have that kindof money sitting around waiting for a foreigner to come along with a good idea.

We are seeing business closings now at an alarming rate. Some are of the 60/40 type while others are owned outright by Caymanians. I totally understand the sentiment and intentions of those who made these laws but now we can see that  not only do they not work very well, they are unfair and often result in business failure or a block to inviting outsiders to attempt to open a business here.

I would suggest that this law be scrapped and replaced with a newer version which offers true opportunity for Caymanians and gives outsiders the incentive to want to come here and open businesses. The new law would state that an expat may come here and apply for a business license. Approval will be decided by a board on several levels. First and foremost, the new law will state that at least 60% of the business will be staffed by Caymanians at all times. Proper training by the business owners will be necessary in some cases to assure his workers are up to the standards needed by the company. The review board will also determine if the business is needed or wanted in the community or if it will be able to unfairly compete with and hurt existing local businesses. Healthy competition will be invited but on a level playing field which helps rather than hurts existing business. It would not be advantageous to have a Wal-Mart or Target come here and put all the smaller stores out of business. Discretion must be used as to which companies are allowed or refused in building the look and feel of our community.

This 60% requirement for Caymanian workers acts with the same intention of the original protection law but instead of giving one Caymanian controlling interest in a company he knows nothing about, we now accomplish two very important things. First, we have removed the blockade which kept foreigners from wanting to come here to open a business, and second, we now have the assurance of many more jobs for ordinary Caymanians. They will be trained where training is needed and they will be able to make a decent living. The added bonus is that there would be an increase in the number of work permits by virtue of more existing businesses, which is one of the pillars of government revenue.

We all say that the civil service is bloated and far too big for the size of government we need. The best way to downsize the civil service is to make it more lucrative financially to work in the private sector. With an open door business policy, there will be high demand for locals in the private sector in order to meet the 60% rule for Caymanian employees. There will be competition for local labor and wages will be higher by demand for the best employees. Civil servants will migrate to the private sector for better wages and benefits.

Another way to see this is to look at the US – Mexican border problem. Mexicans cross illegally into the US in search of jobs. You can be sure that if Mexico suddenly was creating more jobs than the US that illegal immigration would flow in the opposite direction. Mexicans would cross back to their homeland and build a wall to keep the US citizens from crossing illegally into their country in search of work.

You catch more flies with honey than with vinegar. This pretty much says it all about the current 60/40 rule. We are trying to catch flies with vinegar and it doesn’t work. Let’s remove this barrier to economic growth and try some honey to see how that works.

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Comments (35)

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  1. Anonymous says:

    A true story:

     

    Years ago the Hyatt Hotel built a resort somewhere in Souteast Asia or the South Pacific. The government granted them permission to build with the stipulation that all hotel employees must be local. No importing of labor was allowed with the likely exception of the executives in charge.  When application day came, 3,000 locals showed up standing in a long line that disappeared deep into the jungle. Not one of them was wearing shoes. The Hyatt hired trained and staffed their hotel with these locals who were trained and held to the high standards of Hyatt customer service.

     

    So you see, it can be done. The question is, will Caymanians who are out of work be willing to train and work to such standards? I know this scenario is impractical for all sectors of the economy such as the Finance Sector and other high level positions requiring expertise and experience which supercede education credentials. However, our problem here is not with lots of highly educated unemployed,it is with unskilled and lower educated masses that need work.

     

    Some argue that the work permit contribution to revenue is needed to sustain government spending. The truth is that much of this money is used to create un-necessary government jobs for the sake of giving a local a way to support his or her family, or to pay mortgages of the unemployed so they can keep their houses or to the Nation Building Fund … The proof of government making jobs for locals through the Civil Service speaks for itself by the fact that CS once had in excess of 5,000 workers. Over 1,000 jobs have been cut and the government is still running. Our government is democratic by model but socialistic by policy. Government sees itself as the provider of jobs rather than the overseer of good economic and immigratoin policy which would allow the private sector to expand and do the necessary job creation. The Premier recently called for the private sector to hire locals so as to reduce unemployment and take the strain off of government. This just shows the Premier's lack of understanding about the private sector and it's ability to create jobs.

     

    Job creation is not and cannot be a charitable gesture. Jobs come from demand for goods and services which increase as consumer spending increases. Consumer spending only increases when the cost of living comes down to reasonable levels. Our government is keeping our cost of living high with its' fees and taxes. Yes they may be able to meet their budget goals but the problem of unemployment and shrinking economy will persist until they adopt a looser fiscal policy. 

     

     

  2. Anonymous says:

    Protecting industries or countries through trade barriers, tariffs or other restrictions has been proven time and again not to work. The advancing competition in the form of other countries and technology advances eventually catches up with those seeking to protect themselves. Industries and countries evolve and the most successful ones evolve and lead, they don’t whine and complain. Cayman needs to have the courage to step up now and decide where it wants to be in 20 years time when there are seven mile beach equivalents throughout the Caribbean, the US has eroded the tax advantages of offshore centers and shetty has gone somewhere else because it’s cheaper and will offer a new set of tax breaks. Cayman needs a 20 year plan, not the 20 day plan or 20 minute plan we have at present. It’s not so much a case of what we have now but whether we still want it and in what form, for our children’s generation.

    • Anonymous says:

      20:24 while I agree with part of what you are saying I am confused about your remark on Shetty. Last time I looked they had broken ground and were proceeding with the project.

      • Anonymous says:

        Sorry I wasn’t very clear. I meant that in years to come those parties who are making big invetments today may have moved elsewhere or stopped investing so we shouldn’t take them for granted as the only solution, rather we should be looking for more projects like these now to be coming on stream many years down the line.

  3. Anonymous says:

    So we tell an expat she can open a restaurant without any Caymanian partners. How exactly does that help the Cayman Islands and their people?

    • In the know says:

      The 60/40 law is dysfunctional, archaic and has never worked. Most of the time it is abused by the Caymanian element who are happy to do any deal as long as they prosper. As an accountant in the know I see it all the time. For example one development with sales of over $150 m disclosed the sole paper Caymanian owning 100 per cent of the company yet he lives in a small house worth no more than $250,000. it is patently obvious that this is a front but the board never investigates fronting so who cares. The law needs to be repealed.

      • Anonymous says:

        I hope you filed an SAR in accordance with your anti money laundering obligations

      • Anonymous says:

        Why do you say that it is abused by "the Caymanian element"? Isn't this an abuse by both elements? It takes two to tango.

    • Anonymous says:

      Then Cayman can be known as a place to get a great meal at a good price?  Would that help the Cayman islands? Probably.  Would that make you happy? Probably not.  Hence the problem.

    • Truth says:

      Many Caymanians  do not like watching "Others" make a good living through hard work with skill when they cannot.  Even if it is "other" Caymanians.  Not necessarily a Caymanian thing.   More like a third world thing.  What you left out is Caymanians CAN open a restaurant without any expat partners.  Know of any successful ones that do so without expat help?  If what Caymanians need to survive in the modern day world cannot be found on island (and it can't) then the choice is to get it or try to live as long as you can without it.  Looks like your trying the latter.  And its not working very well.  If you want something you don't have you must be willing to give something you do have in return.  What do you have?

    • Anonymous says:

      An economy is not a zero sum game. This is clearly beyond your understanding.

      • Anonymous says:

        The Economy depends on local people feeling they benefit from it. Take Starbucks. A primary reason it is not here is because of 60:40. I want a Starbucks coffee, but not at the price of putting out of business young Caymanian and expatriate entrepreneurs and investors who ( working together) have successfully created a number of local coffee shops who simply could never compete.

  4. Dennis Smith says:

    Too little, too late

    Actually will done, but you are assuming that there are foreign investors lining up to start new businesses in Cayman. Not likely. Cayman is no longer the moneymaker that it once was, (if it every was) and FATCA has driven away whatever tax advantages that might have attracted a US investor in the past. In any case nobody is interested in our business restrictions and controls even the new one's that you are proposing.

    More legislation is not the answer to our employment problem. Businesses here don't compete for labour, without labour competition there is no incentive to attract, train, develop and pay Caymanians. Someone cheaper and more eager can always be imported from the global labour market. Tnkering with legislation will not change anything.

    • Anonymous says:

      9:05 you too think like your compatriots about yester year mighty US, don’t you see the signs. Europe is going to come out of their woes through help from the stronger economic countries, backed by the Yuan. Also note America is owned by the Chinese with at least 60 percent ownership of their debt. Emerging countries in Sputh America will also play a big part in the financial market.

      There are opportunities for us with facta arising from the us economic holocaust and their continued economic woes. We have to position ourselves and market ourselves to where we have never gone before . This can only be done by men and women of Savy, and integrity. A new paradigm shift of the cayman economic model must occurr to allow sound carefully managed sustainable growth that prospers all and not some.

  5. Diogenes says:

     You miss the point that by existing law 100% of employees in a business should be Caymanians unless the employer can demonstrate that no qualified Caymanians applied.  You are actually arguing for less not more Caymanian paricipation. 

    Perhaps you believe that the 100% rule is not enforced.  But even if you believe that foreign business owners are conspiring to hire more foreign labour than they need to, despite the costs of permits etc, how does your idea deal with the logic problem that you assume that CIG will enforce a 60% rule but not a 100% rule?  And how does it deal with those businesses that legitimately can say that there are either insufficient qualified Caymanians, or none willing to work in the business?  A 60% local ownership law is a lot easier for a foreign investor to deal with than a law that absolutely mandates how many locals he must employ without any provision for the supply or cost of the same. 

    Incidentally, you have also missed the provisions of the Local Companies Control Law that allow foreign ownership (ie without the 60% rule) of a local business under licence provided the investors can satisfy the Trade And Business Licencing Board that the business is inthe best interests of the Cayman Islands and no local investors are interested – in short, there is already a solution to the barrier to investment you think exists without raising more variations on the work permit and immigration laws.  

    • Anonymous says:

      Under my proposed system, 60% Caymanian staff is a pre-requisite for obtaining a business license. The outside businessman would be responsible for recruiting and training before the business is allowed to be licensed. At the very least, we would get proper training for our unemployed who could then be better qualified to work.

       

      • Diogenes says:

        Again:

        1.  How does that deal with businesses where locals are not qualified or not capable of being rapidly trained – do you think the Shetty hospital could simply train up surgeons within a couple of months, for example.  How many local lawyers or accountants or actuaries do you think there are available?   The resource is not there, which is hardly surprising given the huge demand for qualified professionals versus a very small indigenous population.   If you said they had to take on a certain number of trainees and had a staff plan that would graduate those trainess into more senior positions within a reasonable period of time that would be one thing, but you want the guarantee at the front end, and guess what, the current system, if enforced, has exactly these provisions for larger businesses anyway.  And it still wouldnt get past the problem that in a population fo 35,000 there are only ever going to be so many judges, lawers, actuaries, accountants, engineers etc.  Or are you simply concerned with blue collar positions?  In which case:

        2.  You want the investor to commit in advance to hiring a minimum of 60% of Cayman staff, without any knowledge of whether there are sufficient qualified tradesmen, or for unqualified positions, people willing to fill them, when the alternative is to take out an ad asking for local investment, and when he gets no offers, get an LCCL licence provided his business is not detrimental to the islands? As long as he is even handed in offering the work as a priority to Caymanians who are prepared to work for the wage he offers (and which he knows can be fufilled by immigrant labour) there is nothing in the immigration or trade and busines laws to stop him, and there is a huge amount of risk and uncertainty in securing the labour force he needs under the system you propose. 

         I am not saying you have to like the current law, but it is what it is, and your solution says it offers a solution to barriers to investment posed by the existing law.  It simply doesnt, even if you think it would be more beneficial for the employment of Caymanians.  You are trying to design a system from the starting premise of protecting Caymanains rather than encouraging investment without regard to the fact that the investment is entirely discretionary, or for that matter that yoursolution is actually worse for the potential investor than the existing system. 

        Lot of hope, not enough logic, I am afraid.

    • Anonymous says:

      I think you know perfectly well that is not how it works in practice. Qualified Caymanian applicants are often not even acknowledged and don't even reach the interview stage. The process is often rigged to produce the desired result. The argument about the costs of permits is thin. All sorts of factors are taken into account in hiring decisions, e.g. whether the employee will be "a good fit" within the organisation, i.e. is he/she one of us; how will they be perceived by international clientele who may associate local with lower quality, whatever the qualifications of the individual; favours for friends from back home by expat employers etc. etc.

      • Anonymous says:

        Whether they turn up when it rains, whether they see "sick days" as ad hoc vacation, whether they see a letter to immigration as a means to promotion . . .

        • Anonymous says:

          …when a letter gets written ti immigration it is usually because the employer ” forgot” to tell them about a Caymanian candidate they knew about who could do the job ( and turns up when it rains and takes no sick days).

        • Anonymous says:

          Thanks for acknowledging that prejudice against Caymanians also plays a part since you have clearly assumed that any Caymanian applicant will do all these things.   

  6. Dred says:

    You make it seem like what we are going thru is so UNIQUE to Cayman.

    We are not unique, we just have IDIOTS at the helm. When you spend CI$713 Million and have ABSOLUTELY NOTHING to show for it then THAT IS YOUR PROBLEM.

    Our problem lies within EXPENDITURE. Yes we could use some additional revenue streams such as Gambling and when the medical tourism gets started we will be okay if we can get rid of the spend monger we have now.

    What I would like to see more is incentives for Caymanians to start their own business. The business would have to be 100% Caymanian owned. Incentives could be waiver or highly reduced first 2 years of Business License fees and a cut in work permit fees but only if 80% of employees are Caymanian. We could also look at the funding of the business to see if their is a need for the business. Options such as business advice or possible mentoring.

    What we are doing is not allowing our own people to get anything. The recent hikes in fees has killed a huge number of small Caymanian businesses.

    Honestly while I like other businesses coming to Cayman I am growing tired of us bending over backwards for it. All I am seeing is us GIVING AWAY THE COUNTRY to foreign investors and not giving anything back to the Caymanians who are trying to move forward.

    • Anonymous says:

      And the more they get the more they will spend!!

    • Anonymous says:

      Dred, you just could'nt leave politics out of this…could you… got to blame smoeone. We have to stop pointing our fingers at governments. You could be the next one in that seat,  then what?

      The latter part of your statement sounds great. but why don't  Caymanians lobby for these issues, and stop asking for the politicians head on a platter? 

  7. Adam Smith says:

    The existing 60% rule keeps poor and middle class Caymanians out of work by denying the expansion of the local economy through foreign investment, while ensuring oligpolistic returns on capital for the rich families of Cayman.  As the rich powerful families are making a fortune out of this rule, and the majority of voters have been duped into thinking this rule is good for them, it has stayed and played a significant impediment to investment in the Cayman economy.

    • Anonymous says:

      The one thing Cayman has not lacked over the last 3 decades is foreign investment – too often to the exclusion of any locals.

      • Anonymous says:

        We are talking about today.   Not the past.  Look past your nose, things have been different recently.

        • Anonymous says:

          I see well past my nose. You want to introduce new business with no local ownership right when any additional competition will kill existing locally owned businesses.

          Work with Caymanians in our local economy or go away.

          • Adam Smith says:

            And in three steps, we are defending the oligopolistic profits of the Caymanian capital owning families . . . .

            • Eck O'Nomist says:

              And oddly enough the people defending these oligopolisitc profits are the same people who moan about the cost of living in Cayman.  I would guess that the 60% rule probably adds at least 10-15% to the cost of goods and services.

  8. Dred says:

    No. In short form NO.

  9. Anonymous says:

    I completely agree with this. As an expat there are a number of business ventures I'd be interested in starting or financing here, but the LCCL makes it too risky.

    I also think the current duty laws are preventing local stores from succeeding.  Instead of generating revenue all the current duty laws do is ensure people do their shopping in Miami and then either stay under the duty limit or don't declare the things they buy. That's bad for the country and bad for the local economy. A lower rate of say 10% would ensure that local retail stores could succeed, and would drastically increase the level of duty-generating imports into the country.

  10. Anonymous says:

    classical economics works, but the structural adjustments that will occur while the markets re-align often cause social issues of an unplanned magnitude…so good article but probablyno go