Economy and Trade
The three-island group of the Cayman Islands (Grand Cayman, Cayman Brac and Little Cayman) are a British Overseas Territory. They were colonized by the British during the 18th and 19th centuries, and were administered by Jamaica (a former British colony) after 1863. The islands lie 268 kilometers north-west of Jamaica. In 1959, the islands became a territory within the Federation of the West Indies, but when the Federation dissolved in 1962, the Cayman Islands chose to remain a British dependency. With no direct taxation, the islands have developed into a thriving offshore financial centre. Tourism is also a mainstay and the two, together, account for around 80% of the country’s GDP. The tourist industry is aimed at the luxury market and caters mainly to visitors from North America. Total tourist arrivals exceeded 2.1 million in 2003, with about half from the United States. The Caymanians enjoy one of the highest outputs per capita and one of the highest standards of living in the world.
Economic Policy over 12 Months
The Cayman Islands are at risk of hurricane damage, the most recent instance being Hurricane Ivan in 2004, and one of the main policy objectives in the 2009 Budget was a commitment, backed by a US$2.3 million fund, to ensure that the country is better able to deal with and recover from natural disasters. The government also committed a US$8.5 million equity injection to expand and upgrade the Islands’ Emergency Operations Centre. A further US$19.5 million went to fund a new hurricane-resistant office building to house the majority of government departments, with additional funds for sea-wall protection.
Some 25%, or US$162.7 million of the government’s total planned expenditure for 2008–2009, is being targeted at education, in a bid to improve the Islands’ educational infrastructure and capability. Tourism and financial services both did well out of the budget, with tourism getting US$23.6 million to enhance marketing of the Islands to potential tourists and to support local providers. The Islands’ regulation, monitoring and reporting functions for the financial markets received US$23.5 million. The government’s commitment to sound fiscal management continued in 2008/09, with the Islands’ operating revenue forecast to be US$528.2 million. With operating expenses deducted, the government expects an operating surplus of US$13.4 million.
Public debt is expected to amount to US$412.8 million at the end of 2008–2009, including US$154.0 million of new borrowings to finance planned investment activities, including significant capital projects on the Islands. As these investments all have long-term benefits that will be enjoyed by both current and future generations, the government reasons that it is appropriate for their costs to be spread in a manner that reflects this.
The advent of modern transportation and telecommunications in the 1950s led to the emergence of what are now considered the Cayman Islands’ “twin pillars” of economic development: international finance and tourism, each contributing around 40% to GDP. In 2004, there were more than 70,000 companies registered in the Cayman Islands, including 446 banks and trust companies. Forty of the world’s largest banks are present in the Cayman Islands.
Tourism profits from the islands’ unspoiled beaches, duty-free shopping, scuba diving, and deep-sea fishing, which draw almost a million visitors to the islands each year.
Education is compulsory to the age of 16, and is free to all Caymanian children. Schools follow the British educational system. The government operates 10 primary, one special education, and two high schools. In addition, there is a university and a law school.
Economic Performance over 12 Months
The Caymans’ reputation as a global offshore center continued to attract business through 2008. The “dark days” of the Cayman Islands’ financial services and banking center, when the Islands were a haven for money-laundering, are now well and truly over. Financial institutions in the Caymans are now closely regulated by the Cayman Islands Monetary Authority (CIMA), which operates a stricter regime than many on-shore financial jurisdictions. From 1986, when the Caymans entered into a Mutual Legal Assistance Treaty with the United States, the territory has worked to eliminate money-laundering, and to create a model modern regulatory environment. The “know your client” regime, where banks and financial institutions are obliged to know their clients in depth and detail, has helped achieve this goal and has enhanced the Caymans’ reputation as an offshore financial centre.
Several different types of licenses are offered in the Cayman Islands to the various banking institutions, included restricted and trust licenses, but the main two are either Class A or Class B. The rules governing the two categories are relatively complex and detailed. However, in essence, Class B banks are concerned mostly with offshore banking and non-resident customers with some exceptions, while Class A banks can carry on with the full gambit of banking services, both on and offshore. Of the 280-plus banks currently registered in the Cayman Islands, only six banks—Cayman National, RBC, Butterfield, Scotia, First Caribbean, and Fidelity—offered retail services at the start of 2008.
Although offshore accounts are most frequently held in the Caymans by non-residents, many people who visit regularly, live in the territory on a temporary basis, or reside permanently also hold offshore accounts. Aside from the obvious tax benefits, offshore accounts often yield higher interest rates over onshore retail banks, and make international transactions easier for those who travel frequently or who have business interests abroad.
For numerous reasons, the vast majority of offshore accounts are held by people who reside overseas. As international borders crumble in the face of global trade, more and more high-net-worth individuals, rich people, and corporations are seeking to avoid the restrictions or political instabilities of the countries in which they hold nationality, do business, or live.
As the Caymans are a tax-free jurisdiction there are no capital gains, corporation, property, or income taxes to pay—an obvious benefit to the wealthy and to multi-national companies. With no exchange controls, businesses can move funds in and out of the Caymans in any currency, a factor facilitating complex international trades and transactions. This, combined with confidentiality (limited to legal activity), competitive rates, a compliant regime and a stable government which supports and encourages the offshore sector, makes banking in Cayman extremely attractive to a cross-section of the international community.
Support for Inward Investment and Imports
Invest Cayman is the official website of the Cayman Islands Investment Bureau. The bureau provides a single source of customized information, investment marketing materials, and services to Cayman businesses, as well as to potential foreign investors. Establishing a business in the Cayman Islands involves gaining approval from several government agencies, depending on the industry sector involved.
Tax Exemptions
The Cayman Islands is a tax-free country, with free movement of capital.
Statistics
GDP growth: 2.2%
GDP per capita: US$48,290
CPI: 4.4% (2004)
Key interest rate: N/A
Exchange rate versus dollar: CI per US dollar—0.80 (fixed)
Unemployment: 4.4%
FDI: N/A
Current account deficit/surplus: N/A
Population: 47,862
Source: CIA World Factbook except where stated
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