Economy and Trade
The Turks and Caicos Islands are a British Overseas Territory. Broad policies are set by the United Kingdom, while the day-to-day management of the government and economy are the responsibility of a locally elected government.
The main drivers of the economy are tourism and offshore financial services. There is also a sizeable fishing industry, which is a valuable export earner. The only other notable industry is construction, which is largely geared towards improving tourism infrastructure. Most capital goods and food for domestic consumption are imported.
The economy was sluggish in the early part of this decade, but has expanded strongly since 2003, growing by 13.9% in 2005. However, some aid from the United Kingdom is still needed to balance the budget, and fund capital projects.
More recently, the islands have been hit by political turmoil after the Governor suspended self-government following corruption allegations, and the Queen made an order giving the Governor the power to rule directly, while an investigation took place. The move has been heavily criticized by other countries in the region.
Economic Policy over 12 Months
Government economic policy stresses growth and diversification, particularly focusing on tourism—seen as the key to the islands’ future economic well-being, and now worth about US$500 million to the islands’ economy—and the offshore sector. Under pressure from London, the European Union and global organizations such as the OECD, the government has committed to improving transparency, establishing better exchange of information in tax matters, and has introduced a tighter regulatory structure to prevent fraud and money-laundering.
The islands are currently in the midst of advanced preplanning processes for the preparation of a long-term, 10-year, sustainable development plan. The aim is to create a knowledge-driven and internationally competitive economy, with particular regard to those sectors that generate foreign exchange for the country. Specific economic goals include maintaining rates of balanced growth in the high-single digits; diversifying the economy, including with the assistance of foreign investment; greater local participation; and exploiting the islands’ resources to create a sustainable economy.
The steps taken so far include: land use/zoning plan for the family of islands; population projections for the future growth, currently estimated to increase to 35,000 in 10 years, and, possibly, to above 60,000 in 20 years; sectoral development plans—some of which are currently implemented—for education, tourism, housing, solid-waste management, immigration, and citizenship law reform; and profiles reviewing the economic and social conditions on each island, their needs, and prospects.
However, there are challenges. The current lack of diversification means that the economy is heavily reliant on tourism—dangerous in a global economic slowdown—and a narrow set of export-oriented activities. Furthermore, existing tourist facilities are concentrated on one island, which potentially could lead to large disparities between different islands as the economy grows and develops. The islands are also hampered by a lack of physical infrastructure, which will need to be expanded significantly if the ambitious policy plans are to be met. This is likely to incur considerable costs, and it is unclear how much fiscal room for maneuver the state actually has, given its limited revenue base.
To combat these, the government has adopted an “Open Arms” investment policy that highlights the country’s no-tax status, and offers investors a streamlined bureaucracy for licensing and immigration, access to government-owned land under long-term leases at reasonable rates, and a range of duty concessions to investors, who construct “approved” projects throughout the country, with more generous concessions for the lesser-developed islands. There is no income or company tax, which it is hoped will also help attract more offshore financial companies. There are indications that this is working, as more than 10,000 international businesses were registered in the islands in the early 21st century.
Economic Performance over 12 Months
The Turks and Caicos Islands underwent rapid economic growth from the mid-1980s onwards, with an average annual GDP growth rate of 8% by the early 21st century. The recent economic success is evidenced by the fact that the islands no longer receive direct grant aid from the United Kingdom. The major drivers were the rapid rise of luxury tourism and offshore financial services, two sectors on which the economy is now heavily reliant.
The islands have been hit hard on both fronts by the global slowdown, which has renewed the government’s drive to diversify the economy. Visitors from the United States, Canada, and other countries are down by 15–20% because of the global slowdown, which has reduced the money flowing into tourism, and the real-estate sector. This has led to a decrease in two of the primary sources of revenue for the government—the stamp duties paid on purchases and taxes on hotels, restaurants, and departures. Local businesses such as estate agents, lawyers, the construction industry, and retail outlets have also been affected.
The problem is compounded as the overall government budget balance is not stable, showing a small surplus in 2007 before slipping back into the red in 2008. The unemployment rate has also increased over the last year, and is now 9.7% of the labor force.
The islands have also been rocked by a number of corruption and sex scandals over the last year, involving senior members of the government, including the Premier, Michael Misick. Most notably, a commission was established last year to investigate allegations of corruption among the government, following a review of the administration by members of the British parliament. Subsequently, in March 2009, the Governor invoked an order from the Queen, and suspended self-government while the investigation took place. The order will remain in place for two years, although it can also be extended or revoked. The matter has caused some controversy, with several neighboring countries heavily criticizing the decision, and the Caribbean Community (CARICOM) issuing a statement lending their support for the people of the Turks and Caicos against the suspension of the constitution.
Support for Inward Investment and Imports
Attracting quality investments to create a sustainable economy for the Turks and Caicos Islands is a major objective of the TCI Government. TCInvest (Turks and Caicos Islands Investment Agency) an independent agency with a mandate to attract new offshore investment, encourages entrepreneurship among residents, and provides financing to the local population.
TCI is a tax haven, and the government’s “open arms” investment policy brings the additional advantages of an attractive package of concessions to qualified investors. These include streamlined immigration procedures, access to government land, and a variety of duty concessions. More information is available from TCInvest.
GDP growth: 11.2% (2007 preliminary, Dept. of Economic Planning and Statistics)
GDP per capita: US$23,768 (2007 preliminary, Dept. of Economic Planning and Statistics)
CPI: 3.7% (2007, Dept. of Economic Planning and Statistics)
Key interest rate: N/A
Exchange rate versus dollar: N/A, the US dollar is used
Unemployment: 5.4% (2007, Dept. of Economic Planning and Statistics)
Current account deficit/surplus: N/A
Population: 36,605 (2008, Dept. of Economic Planning and Statistics)
Source: CIA World Factbook except where stated