INVESTMENT OPPORTUNITIES: OFFSHORE FINANCIAL SERVICES
The benefits of offshore banking
Granted, the value of offshore business done by international banks can amount to many times the GDP of the hub that hosts the transaction. Offshore business done in the Bahamas, for example, was equivalent to 75 times the state’s GDP in 2011, according to the International Monetary Fund. Yet, because this reflects the treasury operations of international banks acting as intermediaries, the risks lie largely with the parents – not their offshore offspring. Firewalls also protect the financial system, and so insulate the local economy from contagion should anything go wrong. Nor is offshore banking for companies and individuals the only pebble on the beach. The businesses of dealing in securities in Jamaica – set to increase further with the Jamaica Stock Exchange’s planned adoption of online trading in 2014 – and in unit trusts (mutual funds) in Trinidad and Tobago, for example, have grown rapidly in recent years. Indeed, the value of funds under management in Trinidad and Tobago now exceeds that of bank deposits. As a result, management of pension funds has also grown significantly. However, although steps are being taken to support capital market integration in CARICOM, stock markets across the Caribbean remain small in relation to the size of their overall economies.
As the custodians of the world’s fourth-largest collection of offshore banks, the governments of the Caribbean states are aware of both the responsibilities and the opportunities before them. With efforts by the Financial Stability Board, the intergovernmental Financial Action Task Force and other such legislative bodies to rein in the industry worldwide, offshore financial centres are bound to feel some unwelcome attention. The largest such centres within CARICOM are the Bahamas and Associate Members Bermuda and the Cayman and British Virgin Islands, but other states within the Region are also active. There is evidence, too, that offshore financial centres contribute to their own economies as well as the liquidity of the world’s financial system. Indeed, researchers estimate that offshore banking in the Caribbean accounts for about eight per cent of Regional output a year, a figure that is only marginally higher than the average for the countries within the G7 group of nations. This is partly because offshore banks also encourage tourism, better telecommunications and better infrastructure. Offshore banks also contribute a large slice of most governments’ tax revenues.
source: World Bank data
Ratio of offshore bank deposits to domestic bank deposits (per cent)
8,000
6,000
2009
2010
2011
The Bahamas
5,827.6
5,248.5
8,393.6
Barbados
301.7
n/a
n/a
Belize
42.6
38.2
64.5
Dominica
1.4
1
7.8
Grenada
1.2
0.3
0.5
Guyana
13.4
23.8
20.4
70
Haiti
22.7
39.4
24.1
60
Jamaica
19.7
23.3
21.2
4,000 300
80
50 40
St Lucia
3.6
19.5
11.2
St Vincent and the Grenadines
3.4
3.5
11.9
Suriname
60.6
50.6
n/a
10
Trinidad and Tobago
59.7
46.3
59
0
30 20
2009
2010
2011
CARICOM AT 40
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