Closure of the CIIB (Hong Kong) Office

Statement by the Honourable Charles E CLifford, JP Minister of Toursim, Environment, Development & Commerce

22nd June 2005

Madam Speaker, I would like to provide this Honourable House as well as the general public with an update on the Cayman Islands Investment Bureau (CIIB). There have been a number of developments regarding the CIIB which demonstrate that it is taking a more rational approach to strengthening its capabilities, improving dialogue with the private sector, and better aligning its resources toward achieving maximum results for the people of the Cayman Islands.

For example, the CIIB recently submitted its first draft strategic plan covering the period of 2005/06. The Plan focuses on building a solid framework in order to more effectively facilitate and secure appropriate inward and local investment in the Cayman Islands. The plan is due to be considered by Cabinet shortly as well as an investment proposal which looks at pairing an overseas investor with a local small business in order to strengthen Cayman s local product offerings. The CIIB is also working on a number of initiatives specifically targeting the Sister Islands. These are just a few examples of how the CIIB is preparing a credible, sustainable, and inclusive way forward.

Among other aims and objectives, the Strategic plan seeks to rationalize the Bureau s decision-making processes, particularly as it applies to the growth of its satellite offices. Following the recent resignation of the CIIB representative in Hong Kong, Mr. William Conolly, the Ministry of Commerce in conjunction with the CIIB, has taken the opportunity to re-assess the viability of the CIIB Hong Kong office and its contribution to the economic development goals of the Cayman Islands.

Objectives of the Hong Kong Office

The Hong Kong office began operation in August 2004 and was officially launched by the previous Minister for Commerce on 15th March 2005. The launch had been rescheduled from the original date of 15th September 2004 due to Hurricane Ivan.

The primary objectives of that satellite office were to assess the inward investment potential of the Hong Kong area, to raise the profile of the Cayman Islands as an investment destination, and to generate inward investment leads.

Operational Issues

One of the key challenges of the Hong Kong office was the pro-active generation of investment leads through relationship building with investors in Hong Kong, and convincing them of the merits of investing in the Cayman Islands. The difficulty with this activity is that the Cayman Islands Economic Development Plan 2004-2009 provides very limited guidance as to the type of investment that should be pursued in light of national economic development goals. An Investor Targeting Strategy is therefore needed in order to identify what types of investors will be the focus of the Bureau s attempts to generate inward investment.

Furthermore, in order to promote inward investment to the Cayman Islands from the Hong Kong area, this would entail direct competition with Chinese agencies in order to attract away investors seeking to enter the low-cost Chinese market.

With these difficulties in mind, there were two alternate options for the operation of the CIIB Hong Kong office:

One option was to operate the office as a Tourism satellite office. From the inception, the Department of Tourism has consistently stated its position that an office in Asia will not provide any value to the Department of Tourism.

A second option was to operate as a promotional office for the Financial Services industry. The Portfolio of Finance and the Cayman Islands Shipping Registry have stated that they are neutral at best on the operation of the office in this regard. Further, it was indicated that Hong Kong was not the preferred location in Asia for the establishment of a financial services office.

Efficiencies

The operation of the CIIB Hong Kong office was estimated to cost approximately CI$16,127 per month, comprised of salaries, rent and other operational expenses. In addition, the office is equipped with approximately US$9,675 of assets.

The Potential for Generating Inward Investment

To justify the continued expense of maintaining a physical presence in Hong Kong, it is important to consider the major and likely sources of foreign investment.

Of the countries in which the Investment Bureau currently has offices, namely the United States, the United Kingdom, China and the Cayman Islands, an examination of worldwide statistics shows that the U.S. was the single largest source of approximately 3,800 investment projects in 2004 with an estimated job creation total of 360,000 jobs. The U.K. was fourth on the list with approximately 800 projects with around 60,000 jobs. China was 15th on the list with approximately 300 projects.

The basic message from this data is that the U.S. is still the biggest player when it comes to foreign investment. It is the biggest source for investment projects and job creation in foreign countries, and is therefore a market in which many competing jurisdictions investment agencies are pursuing investment projects. The U.K. and Europe more widely are also significant sources for investment projects, while countries in Asia-Pacific are relatively poor sources for investment projects.

With the potential of the U.S. market, the CIIB recommends prioritizing the further development of the Bureau s New York office rather than directing limited resources toward the resuscitation of the Hong Kong office. Madam Speaker, it is the government s responsibility to be a good and responsible steward of public funds. The need for responsible financial management is even more pronounced given the financial burdens which this country faces in the aftermath of Hurricane Ivan. In contrast to the past, decisions will now be taken which more responsibly balance priorities and safeguard the interests of the people of these Islands. The CIIB has confirmed that it cannot currently justify funds being spent in speculative markets but rather it must redirect its resources to markets that demonstrate the greatest return on investment.

Private Sector Feedback

A consultative meeting was held on 20th June 2005, with representatives of the various private sector companies that were involved with the launch of the Hong Kong office to solicit their feedback on the future of the office. The consensus was that the CIIB did not need to be the vehicle for maintaining the Cayman Island s continued presence in the Asia-Pacific region. It was agreed that Cayman could continue to be supported by the Cayman Islands based law firms which have a presence in Hong Kong. Indeed, at the launch of the Hong Kong office in March, the majority of the attendees were representatives of companies that already had strong links with Cayman. This strategy demonstrates true public and private sector partnership and is a sensible approach to continuing to promote Cayman s financial industry.

In terms of the region as a source of inward investment, it was further stated that the potential of this region has yet to be realized, and although the area remains an important long-term consideration, the country cannot justify the short-run costs of maintaining a physical presence, particularly at this time given our country s ongoing hurricane recovery.

The Way Forward

Given the issues and concerns stated previously, the government and private sector agreed the way forward as follows:

1. Close the physical office of the CIIB in Hong Kong;
2. Maintain the registration of Cayman Islands Investment Bureau (Hong Kong) Ltd.;
3. Set up a telephone answering system to redirect calls, and
4. Re-evaluate a presence in Asia, perhaps even Hong Kong, as a base for future operations for the CIIB in the context of an Investor Targeting Strategy once this has been developed.

I wish to advise Ministers and Members of this Honourable House and the people of the Cayman Islands that Cabinet has fully endorsed this recommended course of action and the closing of the CIIB Hong Kong office. The savings which can be realized from this rational decision which has been supported by the private sector, will be redirected to markets with greater and more immediate strategic prospects for these Islands.

Last Updated: 2008-12-05