Economy and Trade
Located some 60 miles east of Puerto Rico, between the Caribbean Sea and the North Atlantic Ocean, the British Virgin Islands (BVI) were settled by the Dutch in 1648, and then annexed by the English in 1672. There are about 50 islands in the archipelago, with Tortola being the main island. The BVI were part of the British colony of the Leeward Islands from 1872 to 1960, and were granted autonomy in 1967. The BVI have the status of a British Overseas Territory. The economy is closely tied to the larger and more populous US Virgin Islands to the west. The BVI have one of the most stable and prosperous economies in the Caribbean, based on a sophisticated, well-developed offshore financial center and a strong tourist industry. Some 820,000 tourists, mainly from the United States, visited the islands in 2005. Because of traditionally close links with the US Virgin Islands, the British Virgin Islands has used the US dollar as its currency since 1959. Livestock is the most important agricultural activity; poor soil limits the islands’ ability to meet domestic food requirements, which underlines the importance of the tourism and financial services sectors.
Economic Policy over 12 Months
With financial services and tourism being the twin pillars of the islands’ prosperity, the BVI government of Premier Ralph O’Neal is highly interested in ensuring the continued prosperity of both these sectors. As such, the government is very keen to see that the BVI’s financial offshore sector complies with international best practice and is not a haven for money laundering. This is a particularly pressing issue as the many uninhabited islands in the BVI, together with the archipelago’s proximity to Puerto Rico, which is seen as a gateway for illegal drugs entering mainland United States, have made the region a natural staging point for the drugs trade.
With this backdrop, the government has been eager to assure international regulators, and the international anti-money laundering body, the Financial Action Task Force (FATF), that the BVI operate a transparent regime, with formal “corridors” or gateways by which national anti-money-laundering and tax-evasion authorities can call for information from BVI-registered banks and institutions.
In July 2008, the BVI government joined the flow of offshore financial centers submitting evidence to the UK parliamentary committee’s offshore inquiry. Government spokespeople took advantage of their appearance before the committee to drive home the message that the BVI operates a “robust regulatory and supervisory regime” in financial services, with a well-proven track record of international cooperation. The BVI already have tax information exchange agreements (TIEAs) in place with the United States, the United Kingdom, and Australia. The Organisation for Economic Co-operation and Development (OECD) welcomed the BVI’s initiatives in this area.
Premier Ralph O’Neal said in his 2009 Budget speech (in February 2009) that tourism to the islands had experienced a slowdown in the latter part of 2008, as a consequence of the global slowdown. This had caused layoffs and cutbacks in the sector but the government is committed to sustaining tourism through initiatives such as maintaining a subsidized transport service to Puerto Rico. Infrastructure projects such as renovation work on the cruise ship pier and the tender dock for cruise ships would also go forward in 2009, Premier Ralph O’Neal has said.
The BVI’s offshore sector was launched in the mid-1980s, when the government began to offer offshore registration to companies wishing to incorporate in the islands. Today, incorporation fees generate substantial revenues for the islands. Roughly 400,000 companies were on the offshore registry in 2000. The adoption of a comprehensive insurance law in late 1994, which provides a blanket of confidentiality with regulated statutory gateways for investigation of criminal offences, made the BVI even more attractive to international business.
A UK National Audit Office report on the BVI noted that it is better equipped through its Financial Investigation Agency, which dates back to 2004, to investigate financial crime, than many other offshore centers.
Economic Performance over 12 Months
The BVI economy, though one of the most stable and prosperous in the Caribbean, has been hit hard by the global economic downturn. The economy is estimated to have contracted by around 0.6% in 2008, with further contraction almost certainly taking place in 2009, due to the impact of the global slowdown on the BVI’s financial services sector, and on tourism. GDP in 2007 was US$1 billion with the contribution from tourism and financial services accounting for more than 48%, and real estate, renting, and business services accounting for 19%. GDP per capita is above US$41,000, giving the BVI one of the highest per capita incomes in the Caribbean. Financial services levies are the major contributor to government revenues, along with payroll taxes and import duties.
In March 2010, the World Travel & Tourism Council projected that the Bahamian travel and tourism industry would contract by 4.1% during 2010, but its long-term projections for the sector’s 3.4% annualized growth over the next decade were backed by leading industry figures. Direct employment in the Bahamian travel and tourism industry amounted to around 32,000 jobs in 2010.
The government has sought to stimulate the economy through a variety of policies and program initiatives. Higher government spending has triggered a rise in the national debt, which moved toward the US$4 billion mark by the end of 2009. The Central Bank of The Bahamas has revealed that the national debt rose from US$3.2 billion in 2008 to US$3.9 billion in 2009. The government recorded a budget deficit of around 5% of GDP in 2009.
The managing director and chief executive officer of the BVI Financial Services Commission, Robert Mathavious, warned at the end of January 2009 that the territory’s offshore center faced challenging conditions, and not just from the global slowdown. The fact that the incoming regime of US President Barack Obama is committed to much tighter regulation of offshore tax havens is itself a challenge, he said. The coming initiatives against offshore jurisdictions would draw a distinction between those that have implemented effective standards and are committed to transparency and the exchange of information on tax matters, and those that seek to offer complete secrecy and privacy to those using their jurisdiction.
Support for Inward Investment and Imports
The BVI are one of the premier jurisdictions for fund domiciliation, with more than 420 funds registered at the end of 2007. Key advantages to registering or recognizing a fund in the BVI include zero taxation on profits and capital gains, and no minimum capital requirements.
GDP growth: n/a
GDP per capita: US$41,000 (BusinessBVI, 2009 est.)
CPI: 7.1% (2008)
Key interest rate: n/a
Exchange rate versus US dollar: n/a (US dollar used)
Unemployment: 3.6% (1997)
Current account deficit/surplus: n/a
Population: 24,939 (July 2010 est.)
Source: CIA World Factbook except where stated