A Study to Assess the Economic Impact of COVID-19

THE COVID-19 PANDEMIC IN THE CAYMAN ISLANDS – IMMEDIATE TO MEDIUM TERM ECONOMIC IMPACT1 Presented to:

The Cayman Islands Chamber of Commerce

By

FTS April 21st 2020

________________________________________________________________

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This report is a confidential document prepared for the exclusive use of the Cayman Islands Chamber of Commerce. The report was produced by FTS based on data obtained from the Economics & Statistics Office (ESO) of the Cayman Islands Government & data contained in a Chamber of Commerce business Survey.

Table of Contents 1.

EXECUTIVE SUMMARY ................................................................................. 3 1.1.

ECONOMIC IMPACT ASSESSMENT.................................................................. 3

1.1.1.

1.1.2.

1.1.3.

1.1.4.

Impact on Gross Domestic product (GDP) ................................................. 3 Impact on Employment............................................................................... 5 Assessing the risk of a humanitarian crisis ................................................. 6 Existing Measures and Success factors ..................................................... 9

2.

INTRODUCTION & METHODOLOGY .......................................................... 12

3.

ASSESSING THE ECONOMIC IMPACT OF COVID-19 ON THE CAYMAN ISLANDS ECONOMY .................................................................................. 14

4.

2

3.1.

METHODOLOGY ......................................................................................... 14

3.2.

MEASURES INTRODUCED TO SUPPRESS COVID-19 ..................................... 15

3.3.

IMPACT ON THE CAYMAN ISLANDS GDP....................................................... 16

3.3.1.

3.3.2.

The need for alternative impact scenarios ................................................ 17 Chamber’s COVID-19 Business Survey & major assumptions ................. 19

3.4.

IMPACT ON EMPLOYMENT ........................................................................... 24

3.4.1.

3.4.2.

3.4.3.

3.4.4.

3.4.5.

Unemployment Impact ............................................................................. 25 Financial Impact on workers ..................................................................... 28 How many workers are currently on island and how might they be impacted?................................................................................................. 30 Immediate Jobs Risk and Humanitarian Need .......................................... 34 Existing Measures and Success factors ................................................... 36

3.5.

CONCLUSIONS ........................................................................................... 38

APPENDICES ............................................................................................... 40 4.1.

DATA SOURCES AND ASSUMPTIONS ............................................................ 40

4.2.

CHAMBER OF COMMERCE COVID-19 BUSINESS SURVEY (APRIL 2020) ........ 43

1.

EXECUTIVE SUMMARY

_________________________________________________________________ This report provides an economic impact assessment of the COVID-19 pandemic on the Cayman Islands. This report represents phase 1 of the work to be carried out which includes an assessment of the short to medium term impacts on GDP, unemployment and workers compensation. It also provides an estimate of the number of workers currently remaining in the country.

1.1. ECONOMIC IMPACT ASSESSMENT The report presents three projected impact scenarios based on the following assumptions: That the combination of ‘shelter-in-place’ (hard and soft curfews) remain in place for durations of: §

2 months (late March to end of May)

§

3 months, (late March to end of June) and

§

4 months (late March to end of July).

A number of other sector specific assumptions are made and these are guided by a) whether a sector’s staff can work remotely, b) the extent to which the businesses in that sector can deliver services during the ‘lockdown’ (e.g. essential businesses) and c) knowledge contained within the Chamber of Commerce database, surveys and discussions with key stakeholders. These assumptions are listed in Appendix 4.1.

1.1.1. Impact on Gross Domestic product (GDP) The country’s GDP is the international recognised standard to measure how well the country’s economy is doing. This report uses Real GDP data from the ESO’s Systems of National Accounts2.

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GDP data for all years before 2019 is available from the ESO’s reports. 2019 GDP is estimated based on the projected growth rate contained in ESO reports.

The estimated projections demonstrate a significant decline in most sectors with the public admin, education & healthcare sector being impacted the least, primarily because many public services will continue to be required. Under these assumptions the forecasted GDP for 2020 suffers a 15% decline under the 2-month lockdown scenario, from 4.2 billion to approximately 3.6 billion and under a 4-month lockdown would suffer a decline of 22% in GDP. In the best-case scenario, the construction sector declines by 30%, the ‘other’ sector declines by 19%, tourism declines by 54% and financial services declines by 7%. The ‘other’ sector includes many businesses not directly involved in the other main sectors and includes agriculture, fishing, wholesale and retail trade, ICT, utilities, transport and storage, and real estate among others. Where possible any contributions by the ‘other;’ sector to the main sectors is treated separately in order to provide the most accurate estimates of those main sectors.

Figure 3 - Cayman Islands COVID-19 Impact 2019 GDP & 3 Lockdown Scenarios (000s) 0

Construction, Manufacturing, Mining & Quarrying

500,000

1,000,000

1,500,000

217,341 151,233 136,744 126,782

1,824,716 1,687,863 1,619,436 1,551,009

Financial Services

Tourism (hotels and restaurants)

Public Admin, Education & Healthcare

335,000 152,065 145,004 137,942

491,532 491,532 491,532 491,532

1,329,689 1,075,308

Other Sectors

Summary: Best Case - 15% decline in GDP Medium Case - 19% decline in GDP Worse Case - 22% decline in GDP

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968,933

2019

2,000,000

2 Mth Lockdown

1,022,121

3 Mth Lockdown

4 Mth Lockdown

1.1.2. Impact on Employment As widely anticipated, the tourism sector loses a large number of employees being 4,069, as a result of the fallout based on the best-case scenario and loses 4,383 jobs in the worstcase scenario. The construction industry loses 2,037 jobs in the best case and as many as 2,791 jobs in the worst case. The ‘other’ sector experiences the most significant number of layoffs at 4,017 in the best-case scenario and up to 5,696 jobs under a 4-month lockdown scenario. The financial services sector is expected to lose around 589 employees in the best-case scenario and could lose 1,178 jobs in the event of a 4-month lockdown.

Table 1 shows that the total number of jobs lost nationally in 2020 as compared to 2019 is 10,712 under a 2-month lockdown and as many as 14,048 under the case of a 4-month lockdown.

Using the current percentages of Caymanians and work permit holders in the number of employed persons as a guide, a 2-month lockdown would result in approximately 5,088 non-Caymanian jobs being lost and 5,624 Caymanians losing their jobs in 2020.

Table 1 - Covid-19 Job Loss Scenarios

Estimated Job Losses (by end of 2020) # of persons employed 2019 2 month lockdown

Construction, Manufacturing, Mining & Quarrying Financial Services Tourism (hotels and restaurants) Other Sectors Public Admin, Education & Healthcare (no change) Total

3 month lockdown

4 month lockdown

6,698 7,850 7,452 20,995

2,037 589 4,069 4,017

2,484 883 4,226 4,856

2,791 1,178 4,383 5,696

6,255

0

0

0

49,250

10,712

12,450

14,048

It is assumed that public sector is unlikely to lay off staff as much of their work is essential during the crisis as well as to support the economy in the recovery phase.

The size of salaries lost throughout the country The estimated loss in compensation as a result of the decline in jobs under a 2-month lockdown is CI$373 million and would be as much as CI$512 million under a 4-month lockdown (see Table 4). Table 4 below demonstrates that the workers with the lowest average salaries (construction, tourism and ‘other’ sectors) as presented in Figure 8 below are also the ones hit hardest by the pandemic.

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Table 4 – Estimated loss in compensation per sector (CI$) (millions) Sector

Estimated loss in

Estimated loss in

Estimated loss in

compensation

compensation

compensation

2-month Lockdown

3-month Lockdown

4-month Lockdown

Construction

CI$55,9 Mil

CI$68.2 Mil

CI$76.6 Mil

Financial services

CI$57 Mil

CI$85.5 Mil

CI$114 Mil

Tourism

CI$141.4 Mil

CI$146 Mil

CI$152.4 Mil

Public Admin, Education &

Nil

Nil

Other sectors

CI$119.8 Mil

CI$144.1 Mil

CI$169 Mil

Total loss in

CI$373.6 Mil

CI$444 Mil

CI$512 Mil

Healthcare

compensation:

Fig 8 - Average Annual Compensation Per Employee (2018) (CI$) Public Admin, Education & Healthcare, $60,337

Tourism (hotels and restaurants), $34,774

Other Sectors, $29,673

Construction, Manufacturing, Mining & Quarrying, $27,477

Financial Services, $96,869

Source: ESO SNA 2018, LFS Survey

1.1.3. Assessing the risk of a humanitarian crisis The report estimates that there are 46,787 employed persons currently in the country including approximately 22,223 work permit holders.

Jobs currently at risk The jobs relating to the sectors that have been fully closed due to current shelter-in-place measures are all at risk although the full extent of this risk is not expected to materialise.

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This includes tourism (7,452), construction (6,698) and persons employed by businesses in the ‘other’ sector not deemed ‘essential’ under the current measures. Based on tourism and construction this puts a minimum of 14,150 jobs currently at risk.

Factors impacting whether a business lays off staff immediately may vary significantly from firm to firm and some of the key considerations are as follows: §

The size of the business and extent to which they can afford to keep staff on for a 2 to 4-month period without revenues.

§

Whether the business’ staff can operate remotely from home.

§

Whether the business is currently able to operate as an essential business

§

Whether the business currently qualifies for any of the concessions offered by the government

§

Whether the business will take advantage of current legal means to lay staff off on a temporary basis without paying severance (For example, businesses in agriculture and construction sector may currently lay off staff for as long as 6 months on a temporary basis only without paying severance)

The results of the Chamber of Commerce survey provide valuable insights into the extent of the shock to local businesses with 1,416 jobs already lost between March 13th when social gatherings were limited and the cruise ship 60-day ban was introduced, and April 17th when the survey results were analysed. This amounts to an average of just over 350 employees being laid off per week.

The result shows that together, the companies surveyed have already laid off 16% of their staff. As local businesses come to grips with the challenges, the survey also indicates that the layoffs will accelerate with the lockdown period. Currently the sectors least likely to reduce staff numbers are financial services, healthcare and the public sector3. The survey results indicate that a large percentage of firms in the construction, restaurants and other sector (which includes many small businesses) say there is a risk of further layoffs within the next 1-4 weeks.

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The Chamber survey does not include public sector entities but this assumption regarding the public sector is made throughout this report as many public services will continue to be needed.

Data collected from various community NGOs also provides insight into the acceleration of the social and humanitarian issues arising from the pandemic. This is summarised in the table below: Table 6 – Select community & social services & levels of COVID-19 support Organisation Resilience Cayman (www.resilience.ky) Provides

Recent development Less than 3 days after its official launch via a press release on April 15th, over 4,000 persons have contacted the organisation for assistance.

food vouchers, financial literacy, wellness program and a farm box (online farmers market) Feed our Future

Continues to provide meals for around 200 students and has seen only moderate increase in this area. But has recently also provided a number of one-off vouchers to help those in need.

Cayman Food Bank The Cayman Food Bank is a

The Cayman Food Bank has more than doubled its support since the pandemic.

core hunger-relief organization dedicated to the fight against hunger, malnutrition, and poverty in Grand Cayman.

Meals on Wheels

Prior to the COVID-19 pandemic, the average daily meal delivery across all

Cayman Islands Meals on

5 districts was 261. Current daily meal output has increased by 16% to 326.

Wheels (MOW) provides free, hot meals to seniors, the homebound and the disabled throughout the Cayman Islands.

National Assessment Unit (NAU), CIG The NAU provides assistance

Towards the end of March, it was reported that the NAU had received 81 new applications for assistance to families since COVID-19. This number is likely to have increased by April 16th.

to approximately 1,700 families, which includes food

Pre-COVID the NAU’s assistance with food vouchers was 361 families; Since

vouchers, rent, utilities and

the pandemic the NAU has increased its assistance to 957 families or 3,828

financial assistance. Just over half of those being served are elderly persons.

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people, representing a 165% increase.

In addition to the community efforts and CI$3 million approved by the Cayman Islands government to assist the vulnerable during the crisis, the government has introduced a number of measures to assist the business and wider community. The Government met with local financial institutions and utility companies and as a result, debt obligations and bill payments have been deferred. Landlords have also been encouraged to consider concession arrangements to retain their tenants.

The Government has also introduced a number of measures to assist small and micro businesses, one-off stipends are being provided to some individuals and recent policy changes will enable workers to gain access to a portion of their pensions4. All of these measures will provide some immediate assistance to those businesses and individuals that qualify to receive them. However, some of these concessions are unlikely to last beyond a 2-4-month period and even if they do, the challenges to the unemployed given the estimated numbers and likely wage brackets, will very likely accelerate beyond the extent of the current relief (see summary of key measures in Table 7 below). The primary reason for this is that the hardest hit sectors are also the lowest paying on average which presents a significant social challenge for the community.

1.1.4. Existing Measures and Success factors Given the significant measures introduced by the Cayman Islands Government it is important to examine how these might mitigate some of the negative economic and social impacts of the pandemic. Coupled with an assessment of the impact, particularly on employment and likely damage to businesses in the worse hit sectors, highlighting the extent of mitigation, and success factors will assist both the government and private sector in their future responses. This summary is provided in Table 7 below.

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The legislation had not yet been passed when this report was published.

Table 7 – Key economic measures and success factors CIG Policy/Measure

Economic mitigation/benefit

Success factors

A $5 million loan programme was established via the Cayman Islands Development Bank, for 100% Caymanian-owned micro and small businesses. The loans will be granted at concession interest rates (only 1%) and over a five year period. There are no payments for the first six months.

Will assist with urgent operational capital needs for those that qualify and gives a realistic timeframe for them to recover without the obligation to make debt payments.

Depends on the number of businesses that qualify. Partnerships between Caymanians and non Caymanians won’t have access.

Could reduce the likely number of persons being laid off.

Depends on the processing time. Small business failures will be time sensitive as some will not have access to operational capital to last beyond very short periods.

Loans will be a maximum of $20,000 for micro-businesses and $50,000 for small businesses.

Subject to a formal application process and certain criteria. $9 million has been allocated for 3,000 vulnerable businesses.

Funds to be distributed to existing micro and small businesses in the form of a $1,000 monthly payment for three months to support operational capital.

The businesses must existed for 12 months.

have

Provides an opportunity for alternative business strategies by existing tourism businesses looking to transition.

Could serve as an urgent and effective benefit, especially for smaller and micro businesses for which even small capital injections can offer sustainable support.

They must demonstrate that they have a domestic market and can survive in a post-COVID-19 local economy. This support will also be provided to tourism related businesses if they are able to transition into another sector in a financially viable manner.

Could potentially reduce the number of likely 1-3 employee layoff situations, particularly in the short term.

A policy decision was taken to enable Cayman Islands pension account holders to withdraw a lump sum of $10,000 from their funds and up to 25% of the rest of their pension.

In the context of this impact assessment this would help to mitigate the expected $373 million to $512 million in compensation that could be lost as a result of the pandemic.

The extent to which each business can demonstrate that it can be sustainable with a focus solely on the domestic economy. As more persons leave the country this will become harder to demonstrate.

Depends on extent to which these funds can be spent throughout the domestic economy due to limitations on business activity. For example, if spent primarily on basic needs this will lessen the impact.

The study does not address the expected deterioration in mental health and the higher risk of crime, both which typically increase under stressful economic conditions, and represent additional challenges arising from the fallout. Finally, the extent of these initial impacts demonstrate that the following work needs to be carried out as part of a longer-term solution for the Cayman Islands economy and wider community:

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Empowering the vulnerable – Detailed work is required to address the most vulnerable on the longer-term basis. In particular, a detailed analysis of those seeking assistance from the NAU is needed, which addresses existing skills and assess retraining/retooling potential.

Economic structure – New strategies are needed to adjust to, and to capitalise on, what is now commonly referred to around the world as the ’new normal’ post COVID-19 and the Cayman Islands situation is no different. The Cayman Islands should now establish an updated medium term economic strategy that better prepares the country to deal with external shocks, diversify its economy, create a more substantive domestic economy, embrace technology and enhance local agriculture, among other aspects, to be addressed on a national level.

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2.

INTRODUCTION & METHODOLOGY

_________________________________________________________________ This study was commissioned by the Cayman Islands Chamber of Commerce to assess the economic impact of the COVID-19 pandemic on the Cayman Islands economy and to draft proposals for economic stimulus and recovery for both the immediate term and over the medium term to be presented to the Cayman Islands Government for consideration.

The work being carried out is structured into two phases: the first being this report which focuses on a detailed assessment of the short to medium term impacts up to the end of 2020.

Additional consultation and discussions with stakeholders within the community will inform the 2nd phase report. That version will include recommended immediate and medium-term measures aimed at helping the wider community as well as to address the country’s economic recovery once the Government and its medical experts have determined that economic activity in the Cayman Islands may resume.

Scope/Methodology The scope is as follows: 1. Assess the short to medium term economic impact on the wider Cayman Islands economy (using appropriate assumptions and alternative scenarios where necessary). The impact will be assessed in 4 areas: §

Gross Domestic Product (GDP)

§

Sectoral impact (specifically tourism/hospitality, construction and financial services)

§

Employment

§

Government revenue (Phase 2)

2. The second phase includes the drafting of proposals to address economic recovery and will involve discussions with stakeholders in each of the major sectors as well as with the Cayman Islands Government. §

Key to the process will be access to information from the Economic & Statistics Office (ESO) as well as a number of government departments.

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All work was carried out remotely in accordance with existing curfews and social distancing rules.

The final set of recommended solutions in Phase 2 will be guided by the information received from each sector and from additional research and discussions.

The purpose of having alternate impact scenarios is to provide guidance to policy makers in the event that the situation changes as it is currently dynamic. This will better enable both the private sector and the Government to plan alternative actions.

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3.

ASSESSING THE ECONOMIC IMPACT OF COVID-19 ON THE CAYMAN ISLANDS ECONOMY

_________________________________________________________________ The Cayman Islands does not currently appear to have in place an advanced macroeconomic model to accurately test the impact of external shocks5. However, there is a wealth of macroeconomic data and labour statistics that can be drawn on to establish a credible estimate of the economic impact of the pandemic. The result is an approximate macroeconomic estimate of the impact that relies on established economic theory, certain data checks and measures to ensure its credibility. The impact focuses on the wider economy via the impact on businesses. But ultimately the aim of the exercise is to better understand the impact on employees and to provide a set of potential solutions which may be considered by the government as well as the private sector generally.

3.1. METHODOLOGY The approach used in this section to estimate the impact is as follows: i.

Examine historical GDP data to establish consistency in terms of the contribution of certain key sectors (e.g. financial services, construction, tourism)

ii.

Use data from a Chamber of Commerce survey, tourism statistics and immigration to assist in generating assumptions on the impact on key sectors of the economy.

iii.

Estimate the impact on GDP for the Cayman Islands in 2020 and compare to the GDP for 2019.

iv.

Examine labour force data from the ESO.

v.

Use the estimated shocks to GDP, labour force productivity data, and the survey results to estimate the impact on employment/unemployment.

vi.

Utilise data from the labour force survey on wages for segments of the workforce, to estimate the likely financial impact on individuals.

vii.

Consult with local community organisations to better understand the extent, and acceleration of, the humanitarian need.

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This should not be viewed as a criticism of the current resources, experts and systems within CIG. The fact is that it is often not cost effective for small islands economies to have complex models. In addition, the relatively small community presents a unique opportunity for technical experts to more easily interact with, and obtain information from, local businesses and key stakeholders. This access can on occasion, be more beneficial than complex models.

3.2. MEASURES INTRODUCED TO SUPPRESS COVID-19 The Cayman Islands Government (CIG) has been recognised for the proactive and timely manner in which measures were introduced to address the COVID-19 crisis. Figure 1 below summarises the key events and timelines that are relevant to understanding the impact of COVID-19 on the economy. The Government also introduced a number of measures aimed at mitigating some of the negative impacts on the economy and wider community and these measures will be addressed in Phase 2 of this report which sets out various recommendations and existing measures.

Figure 1. CIG Measures Timeline – Key Dates February 10th - Government adds COVID-19 to Schedule of Notifiable Dieases in Public Health Law andf introduces mandatory quarantine for persons with travel history to China. Publc health guidance also issued to community.

February 25th - Government denies 1st cruisehip entry into port due to COVID-19 concerns.

Regulations also introduced to deny entry for visitors from China, implement quaratine for returning residents from China and discourage non essential travel to several countries.

March 9th Cruise ship cancels call in Grand Cayman but unloads 2 critically ill passengers with issues that appear unrelated to COVID-19.

March 12th - First Case of COVID-19 Confirmed.

March 13th - Public gatherings limited to 50 persons. All events and business subjected to the limits. All cruise ships banned for 60 days.

All schools to be closed effective March16th.

March 16th – Inbound flights limited to residents only effective March 19th and outbound flight end March 22nd when airport closes with exception of all cargo and essential flights.

March 24th. Lockdown begins. Hard curfew starts from 7pm to 5am and soft curfew from 5.01 am to 7pm. All non-essential businesses required to close if staff cannot operate from home. This combination of hard and soft curfew remains in place up to April 16th.

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3.3. IMPACT ON THE CAYMAN ISLANDS GDP The broad composition of certain key sectors’ contribution in the Cayman Islands economy is provided below in Figure 2. This composition is simplified to focus on 5 areas: financial services, tourism, public administration, education & healthcare and construction (which for the purpose of this report also includes manufacturing, mining and quarrying) and ‘other’.

ESO data combines hotels and restaurants in the ‘tourism’ category.

The ‘other’ sector includes many businesses not directly involved in the other main sectors and includes agriculture, fishing, utilities, wholesale and retail trade, ICT, transport and storage, and real estate among others. Where possible, any contributions by the ‘other;’ sector to the main sectors is treated separately in order to provide the most accurate estimates of each of those main sectors.

Fig 2- Est 2019 Sector Contribution to GDP

5% Construction, Manufacturing, Mining & Quarrying 32%

Financial Services Tourism (hotels and restaurants) 43% Public Admin, Education & Healthcare

12%

Other Sectors 8%

As widely known, financial services constitutes the single largest contribution to the economy. The estimate of 43% in Figure 2 does not take into account the indirect impact of financial services on the other sectors and the full contribution of financial services has

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previously been estimated to be between 50 and 60% of the Cayman Islands economy6.

The tourism sector contributes a relatively small percentage to GDP but this sector includes many small businesses and sole entrepreneurs and its employment contribution is significant (see Figure 4 in this report). Tourism also contributes indirectly to the other sectors and its total contribution is likely higher. Ultimately, the final impact on the country’s GDP during 2020 and into the medium term thereafter will be determined by a) the size of the immediate shock to the economy, b) the policy response to those shocks, c) how long the current suspension of most economic activities will last and d) the efforts towards recovery once normal activity resumes. In this section we will use the assumptions in Table 1 to gain a clear understanding of the magnitude of the challenges posed by COVID-19.

We will also assume that the combination of ‘shelter-in-place’ (hard and soft curfews) remain in place for durations of: §

2 months (late March to end of May)

§

3 months, (late March to end of June) and

§

4 months (late March to end of July)

3.3.1. The need for alternative impact scenarios The impact of the pandemic is uncertain and the situation in the Cayman Islands, like in many other countries is fluid. The primary reasons for this include the fact that this virus is very contagious, it is a novel virus so there is currently no known cure or vaccine, and there is uncertainty regarding how well communities will abide by the various measures introduced by governments, particularly as the time period for lockdowns and other measures are extended. This challenge is not unique to the Cayman Islands and is precisely why many countries have tried (some unsuccessfully) to avoid lengthy lockdown periods.

It is quite possible that a situation occurs whereby efforts to supress the virus in the Cayman Islands are effective and while the borders are likely to remain closed, there may be a partial resumption of domestic economic activity.

However, it is also equally possible that the

situation in the Cayman Islands worsens and therefore the Government has to maintain the current shelter-in-place measures and occasional ‘lockdowns’ for many more months.

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The ESO reports provide sub categories such as accounting and legal services which have been included in the financial services estimates in this report. But the financial services sector also contributes directly to the ‘other’ sector for example by providing consumers for real estate and many other products as well as purchasing services from local businesses and that indirect impact has not been estimated here.

Indeed, in a press conference on April 11th, the Cayman Islands government mentions the possibility that the country’s tourism sector may well be out of operation for the remainder of 2020. The three scenarios are therefore presented to enable the public and private sectors to better plan their responses.

Table 1 – Sector Impact Assumptions7 Sector Construction

Assumption There is no activity during lockdown. Sector recovers 70% of its monthly average after the lockdown period ends.

Financial services

Sector contributes 90% of its monthly average during the lockdown period and this is assumed to continue after the lockdown ends.

Tourism

There is no activity for businesses during the lockdown with the exception of restaurants. The hotel and accommodations sector recovers 30% of its monthly average 60 days after the lockdown ends. Some restaurants, bars and other food services activities continue to operate at 60% of their monthly average during the period. Those that don’t offer takeout/delivery services remain closed during the lockdown and recover 60% of their monthly average once operational (See Appendix 4.1 for details).

Public Admin, Education &

The vast majority of this sector is assumed to remain at a similar level during

Healthcare

the lockdown period. The government sector is assumed to continue and its output is likely to increase over the short to medium term due to the additional funding and support provided by the government. Some private educational institutions will experience a decline (for example private tutoring). But total private education represents only 3% of GDP so it was included with the rest of this category for simplicity. Private healthcare is also expected to experience some decline. During this research anecdotal evidence demonstrates that some healthcare businesses have offered very little services during the lockdown as they cannot offer telemedicine and clients are generally not inclined to leave home (even on their allotted soft curfew days) as often as they would in normal circumstances. The private healthcare sector represents around 6% of GDP and this sector is assumed to recover 80% of its monthly average. When the impact on private healthcare is modelled coupled with the likely increase in public services the net impact was negligible so the entire sector is assumed to experience no change for simplicity.

Other sectors

Non-food related businesses are assumed to be closed during the lockdown period with the exception of utilities companies. Generally, the ‘other’ sector recovers 80% of its monthly average after the lockdown ends.

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Details of all assumptions are provided in the appendices in Section 4.

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3.3.2. Chamber’s COVID-19 Business Survey & major assumptions Before assessing the impact, it is important to test our major assumptions in Table 1 against what businesses are doing on the ground. The Chamber of Commerce conducted a survey of 300 businesses to assess the likely short- and medium-term impacts on their operations.

The survey captures important information regarding human resource decisions, financial challenges and how businesses are responding, or planning to respond, to the pandemic.

Combining the analysis of official macroeconomic data from sources such as the ESO with information from local businesses improves our ability to provide a robust estimate of the likely impact of COVID-19 on the Cayman Islands. The key results of the survey are presented in this section and discussed in the context of the major assumptions in Table 1 above. Full details of the Chamber survey are also provided in the appendices in Section 4.2.

All of the major sectors were represented in the sample of Chamber survey respondents, with tourism being 11%, financial services 19%, restaurants 5%, construction 15%, ‘other’ sector 44%, and healthcare 6%. The sample of respondents together also employed 8,956 employees before the onset of the pandemic. The key results are presented in the charts below and summarised as follows: §

130 businesses have already downsized or made other adjustments in an effort to stay opened.

§

The 20 businesses likely to close in the next 4 weeks are from the tourism, ‘other’, construction and restaurant sectors.

§

145 businesses say that at least 1 Caymanian or Permanent Resident’s job is now at risk.

§

142 businesses say that at least 1 Work Permit Holder’s job is now at risk.

§

Many of the 300 businesses reported that they have already laid off workers. The total number of workers already laid off as a direct result of COVID-19 is 1,416.

This represents a 16% reduction in staff numbers of those companies since the pandemic began in the Cayman Islands.

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If Shelter in Place continues and there is no financial assistance, what are your Plans?

140

130

120 100

85

80 52

60 40 20 20 0 Likely to close in 1-4 weeks

Downsized/made adjustments Have not made any changes to & will try to survive the business

Not sure what to do yet

130 local businesses have already downsized or made adjustments to date in an effort to stay open

Likely to close in 1-4 weeks 7 6

6 5

5

5 4

4 3 2 1 0

0 Financial Services

Tourism

Restaurant

Construction

The 20 businesses likely to close are all from the tourism, 'other', construction and restaurant sectors.

20

0

0

ICT

Healthcare

Other

How many Caymanians or PR are currently at risk of being laid off by your company?

140

132

120 100 78 80 60 40

30

26

20

5

3

3

25-50

51-100

0 1-3

4-6

7-12

13-24

0 100+

7 NR

None

145 local businesses say at least 1 Caymanian or PR job is at risk

How many Work Permit Holders are currently at risk of being laid off by your company?

100 90

87 84

80 70 60 50 40

31

30 20

13 5

10

2

1

3

5

25-50

51-100

100+

NR

0 1-3

4-6

7-12

13-24

142 local businesses say at least 1 Work Permit Holder's job is at risk & 3 large companies each say more than 100 workers are at risk.

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None

Sector View: Are Caymanians jobs at risk of being laid off?

Other

81%

Tourism

79%

Restaurant

73%

Construction

70%

ICT

43%

Healthcare

25%

Financial Services

20%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

A very large percentage of the 'other' tourism, restaurant and construction sectors report that Caymanian or PR jobs are at risk. But only 20% of financial services firms & 25% of healthcare firms report a risk of Caymanians or PR losing their jobs.

Sector View: Are Work Permit Holders' jobs at risk of being laid off?

Other

94%

Tourism

77%

Restaurant

73%

Construction

70%

ICT

43%

Healthcare

25%

Financial Services

20%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

A very large percentage of the 'other', tourism, restaurant and construction sectors report that Work Permit Holders's jobs are at risk. But only 20% of financial services firms and 25% of healthcare firms report a risk of those workers losing their jobs.

22

Using the above assumptions in Table 1 and guided partly by the insights from the findings of the Chamber survey, the impact on GDP for 2020 compared to 2019, based on the 3 ‘Lockdown’ scenarios is provided in Figure 3 below. The projections demonstrate a significant decline in most sectors with the public sector being impacted the least, primarily because many public services will continue to be required. Under these assumptions the forecasted GDP for 2020 suffers a 15% decline in the 2-month lockdown scenario, from 4.2 billion to approximately 3.6 billion and under a 4-month lockdown would suffer a decline of 22% in GDP. In the best-case scenario, the construction sector declines by 30%, the ‘other’ sector declines by 19%, tourism declines by 54% and financial services declines by 7%

Figure 3 - Cayman Islands COVID-19 Impact 2019 GDP & 3 Lockdown Scenarios (000s) 0

Construction, Manufacturing, Mining & Quarrying

500,000

1,000,000

1,500,000

217,341 151,233 136,744 126,782

1,824,716 1,687,863 1,619,436 1,551,009

Financial Services

Tourism (hotels and restaurants)

Public Admin, Education & Healthcare

335,000 152,065 145,004 137,942

491,532 491,532 491,532 491,532

1,329,689 1,075,308

Other Sectors

Summary: Best Case - 15% decline in GDP Medium Case - 19% decline in GDP Worse Case - 22% decline in GDP

23

968,933

2019

2,000,000

2 Mth Lockdown

1,022,121

3 Mth Lockdown

4 Mth Lockdown

Global Context and the Cayman Islands economic structure Many countries around the world are predicting single digit declines in their GDP as a result of COVID-19, although there are also a few countries predicting larger declines. There are two primary reasons why the Cayman Islands forecast appears worse.

The first is that one difference between the Cayman Islands and the major economies is that those countries have a substantial domestic economy contributing to GDP. In comparison the Cayman Islands has an economy that is dominated by international services, being tourism and financial services. This makes the country more vulnerable to external shocks.

The second reason is somewhat related to the first. Because of the success of the international economy and given the country’s small population size, the Cayman Islands imports a significant number of employees (nearly half of the entire labour force). These additional employees (and in some cases their families) increase the size of the resident population (and therefore the size of the local consumer market) which serves as a key driver for the domestic economy. Much of the GDP contribution of the ‘other’ sector and construction sector is driven by this additional benefit derived from the country’s international economy.

Therefore, a 7% decline in the financial services sector and a significant disruption to the tourism sector, as predicted in the best-case scenario, would have significant effects throughout the wider economy.

3.4. IMPACT ON EMPLOYMENT Figure 4 provides an industry breakdown of employment in the Cayman Islands using data from the 2019 Spring Labour Force Survey8 and adding the number of additional work permits towards the end of the year.

8

24

The Spring 2019 Labour Force Survey (LFS) provides an estimate of 46,215 employed persons. The survey collected administrative data such as work permits in February 2019 as part of the estimation process.

Between February and November 2019 there were an additional 3,035 work permits according to a data from WORC reported by the Cayman Compass on December 23rd 2019 (‘Year in Review: Population surges amid work permit growth’). This report adds these additional work permits to the official Spring 2019 LFS data to estimate the number of employed persons at end of 2019 as 49,250.

Fig 4 - Est 2019 Industry Contribution to Employment

20,995

Other Sectors Public Admin, Education & Healthcare

6,255

Tourism (hotels and restaurants)

7,452

Financial Services

7,850

Construct ion, Manufacturing, Mini ng & Quarrying

6,698 0

5,000

10,000

15,000

20,000

25,000

Source: Estimated from ESO LFS Spring 2019, WORC data

The contribution to employment demonstrates that both the construction and tourism sectors, while contributing relatively smaller percentages of the country’s GDP, provide significant employment. The ‘other’ sector which includes many small businesses, employs a large number of persons in the Cayman Islands.

The results also indicate that financial services sector which provides the largest contribution to GDP (and to government revenues) has a relatively lower direct impact on employment. It should be noted however that both tourism and financial services have additional indirect contributions to employment (via the ‘other’ sector) and their overall contribution to the number of persons employed in the Cayman Islands is likely higher.

3.4.1. Unemployment Impact The estimates provided in Figure 3 relating to how each sector will be impacted can be utilised to estimate the potential impact on unemployment. One exception is in the area of the public admin, education & healthcare sector which is unlikely to lay off staff as much of their work is essential during the crisis as well as to support the economy in the recovery phase. Table 1 below provides this estimated impact on unemployment under the 3 ‘lockdown’ scenarios.

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Table 1 - Covid-19 Job Loss Scenarios

Estimated Job Losses (by end of 2020) # of persons employed 2019 2 month lockdown

Construction, Manufacturing, Mining & Quarrying Financial Services Tourism (hotels and restaurants) Other Sectors Public Admin, Education & Healthcare (no change) Total

3 month lockdown

4 month lockdown

6,698 7,850 7,452 20,995

2,037 589 4,069 4,017

2,484 883 4,226 4,856

2,791 1,178 4,383 5,696

6,255

0

0

0

49,250

10,712

12,450

14,048

As widely anticipated, the tourism sector loses a large number of employees being 4,069, as a result of the fallout based on the best-case scenario and loses 4,383 jobs in the worstcase scenario. The construction industry loses 2,037 jobs in the best case and as many as 2,791 jobs in the worst case. The ‘other’ sector experiences the most significant number of layoffs at 4,017 in the best-case scenario and up to 5,696 jobs under a 4-month lockdown scenario. The financial services sector is expected to lose around 589 employees in the best-case scenario and could 1,178 jobs in the event of a 4-month lockdown.

Table 1 shows that the total number of jobs lost nationally in 2020 as compared to 2019 is 10,712 under a 2-month lockdown and as many as 14,048 under the case of a 4-month lockdown.

A loss of 10,712 jobs represents a 21% decline in the number of jobs in 2020 as compared to the estimate in 2019. It should be noted that the Chamber Survey indicates that firms have already cut their existing staff by 16% over a relatively short period of 4 weeks9. Given that many firms have not yet been able to adjust to the crisis it is highly likely that there will be many more redundancies. This likelihood is supported by the Chamber survey results which also indicates that large percentages of the construction, tourism and the ‘other’ sectors are very likely to lay off additional staff over the next 1-4 weeks. As a comparison the Cayman Islands’ primary trading partner, the United States has already recorded losses of approximately 14% of all jobs over the past 4 weeks as a result of the COVID-19 pandemic.

9

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The true situation is likely much worse because the sample of 300 respondents surveyed by the Chamber captures data from firms employing only 18% of all jobs in the country.

Using the current percentages of Caymanians and work permit holders in the number of employed persons as a guide, a 2-month lockdown would result in approximately 5,088 non-Caymanian jobs being lost and 5,624 Caymanians losing their jobs in 2020.

Under a 2-month lockdown, the number of employed persons in the country would decrease from 49,250 estimated at the end of 2019 to 38,538 by the end of 2020.

In order to test the robustness of the estimated employment impact, a rough estimate of total unemployment can also be derived using a separate method by examining the typical labour force productivity ratio in the Cayman Islands. Labour productivity is defined by the International Labour Organisation (ILO) as total real GDP divided by the number of persons employed in a given time. If the labour productivity ratio is consistent over a period we can deduce the likely employment associated with the reduced GDP (using the best-case scenario for this purpose). This data is provided below for the Cayman Islands for the period 2010 to 2018 in Figure 7 below.

Fig 7 - Cayman Islands Labour Productivity (2010-2018) 2018

91,159

2017

96,745

2016

94,697

2015

95,148

2014

96,059

2013

97,832

2012

95,611

2011

97,645

2010 86,000

97,317 88,000

90,000

92,000

94,000

96,000

98,000

100,000

Source: Estimated from data from ESO's Labour Force Surveys and GDP Estimates.

With the exception of 2018 where productivity falls10, the level of productivity over the period is fairly consistent and averages CI$95,802 (US$114,962) per employed person. Table 4 10

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In 2018 there was a noticeable increase in the number of persons employed without a corresponding increase in GDP. The country’s unemployment also dropped significantly from 4.9% to 2.8%. There was also a decrease in the number of persons recorded as not being in the labour force. It is likely that the influx of workers took some time to result in productivity but there is no data to confirm this.

below shows how this average compares to select countries using 2018 data from the ILO’s website.

Table 4 - Labour Productivity for select countries (2018) (US$) Country

Productivity

Bahamas

55,443

Canada

85,206

Cayman Islands

114,962

Trinidad

61,169

USA

114,378

UK

80,980

The data on labour productivity is consistent with the Cayman Islands’ very high GDP per capita. The high ratio is also driven strongly by the output of the financial services sector as that sector provides a very large percentage of GDP (43%) as compared to its percentage share in employment (16%).

Using this productivity ratio, we can estimate the number of employed persons remaining after the 15% decline in GDP using the 2-month lockdown scenario, and compare that to our estimate of 38,538 as predicted above. The estimated GDP as a result of the impact of COVID-19 is CI$3.6 billion. When the average productivity of CI$95,802 per worker is applied we get an estimated 36,533 employed persons. This number is comparable to the estimated number of remaining employed persons of 38,538 from Section 3.4.1 (a difference of 5.2%).

3.4.2. Financial Impact on workers To better understand the impact on the many workers that will be laid off, analysis of typical sector compensation was carried out. This allows a full appreciation of the total amount of salaries lost as a result of the pandemic as well as the extent of reduction in domestic expenditure throughout the local economy11.

11

Not all compensation is spent in the local economy. Many work permit holders remit funds on a regular basis to families in their home country. In addition, some workers save some of their compensation (although in the Cayman Islands this savings ratio is relatively low). The economy is also very open and many consumers purchase products online. Despite these caveats the level of employee compensation is still a significant driver of domestic economy activity.

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This analysis will also assist us in predicting the level of demand for services from the NAU or private sector organisations.

Data from the Cayman Islands System of National Accounts (SNA) provides information on annual compensation of employees (COE) by the industry sectors. This data combined with the estimates of the number of persons losing their jobs will give us a sectoral understanding of the loss of wages and potential reduction in domestic expenditure in the economy resulting from the fallout from COVID-19.

Fig 8 - Average Annual Compensation Per Employee (2018) (CI$) Public Admin, Education & Healthcare, $60,337

Tourism (hotels and restaurants), $34,774

Other Sectors, $29,673

Construction, Manufacturing, Mining & Quarrying, $27,477

Financial Services, $96,869

Source: ESO SNA 2018, LFS Survey

Figure 8 above shows the average compensation per worker in the various sectors of the economy. These figures represent an average estimate and are not meant to capture actual compensation for each individual for various reasons. For example, the financial services sector will have many employees earning less than CI$96,000 and some staff working in the construction sector earn more than the average compensation of CI$27,477. The average estimate however is useful to get a picture of the size of lost salaries in each sector and this gives us a better understanding of the potential social challenges the country might face.

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Table 4 – Estimated loss in compensation per sector (CI$) (millions) Sector

Estimated loss in

Estimated loss in

Estimated loss in

compensation

compensation

compensation

2-month Lockdown

3-month Lockdown

4-month Lockdown

Construction

CI$55,9 Mil

CI$68.2 Mil

CI$76.6 Mil

Financial services

CI$57 Mil

CI$85.5 Mil

CI$114 Mil

Tourism

CI$141.4 Mil

CI$146 Mil

CI$152.4 Mil

Public Admin, Education &

Nil

Nil

Other sectors

CI$119.8 Mil

CI$144.1 Mil

CI$169 Mil

Total loss in

CI$373.6 Mil

CI$444 Mil

CI$512 Mil

Healthcare

compensation:

The estimated loss in compensation as a result of the decline in jobs under a 2-month lockdown is CI$373.6 million and would be as much as CI$512 million under a 4-month lockdown. Table 4 also demonstrates that the workers with the lowest average salaries (those working in the construction, tourism and ‘other’ sectors) as presented in Figure 8 are also the ones hit hardest by the pandemic.

3.4.3.

How many workers are currently on island and how might they be impacted?

Estimating the number of workers on in the country One of the most important impacts to understand is how workers are being affected and the level of support needed in the short to medium term. In order to estimate this, we need information on how many workers are currently in the country and an idea of the typical wage structure for individuals. To date there is no official immigration data which provides this information but in this section an estimation will be made based on the data available.

During the month of March over the past 3 years the number of stay over visitors has been 44,100 (2017), 55,000 (2018) and 59,500 (2019). The Cayman Islands tourism sector has experienced significant growth over the past 2 years and in 2020 the monthly figures projected for March 2020 is likely to have been at least 60,000. The average length of stay for these visitors is just over 6 days, according to ESO/Department of Tourism (DOT) data.

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If visitors are staying for a week on average, the likely number of visitors on island at the beginning of the 3rd week of March would be in the region of 10 to 15,00012 after taking into account the fact that some visitors may have already adjusted travel plans to visit the Cayman Islands due to the global impact of the pandemic.

According to media reports, between 15 March and 22 March, when the airport was closed, 12,574 people left the islands and 4,003 people returned, leaving a net migration of 8,57113.

Using our 2019 estimate of 49,250 employed persons we can conservatively conclude that the majority of these workers are currently in the country. There are two important assumptions to support this conclusion.

The first assumption is that at the onset of the pandemic very few if any, new visitors would have travelled to the Cayman Islands during the period March 15th to 22nd so we can safely assume that the majority of the 4,003 persons arriving during this period were residents.

The second assumption is that, as most businesses did not react to the pandemic until the Government first announced the initial measures on March 13th, it is unlikely that many businesses made significant employment decisions regarding restructuring their businesses between March 15th and March 22nd when a large number of persons left the country. Furthermore, not only would the businesses have had very little time to make the decisions but there was also a very short period for the employees, once terminated, to make arrangements to leave the island before the airport was closed. Therefore, we can assume that a majority of the 12,574 persons leaving the island during this period were air arrival tourists returning home.

Data from the Labour Force Surveys indicates that the percentage of work permit holders to the total employed has increased gradually over the past 3 years with the latest percentage being 47.5% (LFS Spring 2019). Using a crude estimate of the number of

12

The average number of visitors on island during any given week in March would normally be around 15,000 in 2020 given the numbers for 2019. The estimate is revised downward given the likely interruption of travel plans, and particularly given the outbreak in the United States.

13 Cayman News Service story entitled ‘Population details still in question’ April 2, 2020. A Government official is named as the source of the information.

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persons on island as 95% of all workers remaining (46,787), Figure 9 provides an estimated breakdown of the employed workers currently on island by status14.

Fig 9 - Estimated number of Employed currently in the Cayman Islands by Status (Apr 2020)

22,223 24,564

Caymanian & PR

Work Permit Holders

Figure 9 estimates that there are as many as 22,223 work permit holders still remaining in the country. Data from the Labour Force Surveys over the years also present a consistent picture of the composition of the employed persons in terms of their monthly wage brackets.

The percentages of workers earning lower versus mid and higher-level wages has remained consistent. Using the latest report from the Spring 2019 Labour Force Survey, Table 5 provides an estimate of the likely breakdown of the number of persons currently employed based on monthly earnings.

14

32

This is not a scientific estimate. Workers travel out of the country on a regular basis and some will have left the country for a variety of reasons. However, we have to assume that even in those cases, many would have returned to the country at the onset of the pandemic as part of the 4,003 persons who returned during the week in March. We are using 95% of workers as a conservative estimate to assess the likely humanitarian crisis which may unfold.

The employees in the lower wage brackets are especially vulnerable to meeting basic needs but all laid off staff will face challenges. Many employees will also have significant financial obligations such as bank mortgage payments.

Table 5 – Estimated number of employed in various wage brackets Currently remaining in the Cayman Islands by status (est. 46,787 persons) Wage Bracket (CI$ monthly)

Caymanians/PR

Non-Caymanians

0$ to $399

406

0

$400 to $799

427

702

$800 to $1199

1,024

3,041

$1,200 to $1,599

1,648

3,673

$1,600 to $1,999

1,557

2,924

$,2,000 to $2399

1,773

2,339

$,2,400 to $2,799

2,113

2,035

$,2,800 to $3,199

1,673

1,006

$3,200 to $3,599

1,664

1,076

$3,600 to $3,999

1,280

749

$4,000 to $4,399

1,648

608

$4,400 to $4,799

982

655

$4,800 to $5,199

1,140

608

$5,200 to $5,599

1,299

515

$5,600 to $5,999

1,021

374

$6,000 to $6,399

855

374

$6,400 to $6,799

515

374

$6,800 to $7,199

449

374

$7,200 to $7,599

316

281

$7,600 to $7,999

305

0

$8,000 to $8,399

545

187

$8,400 +

1,517

702

This estimate is important to better understand the magnitude of the crisis that has started to unfold and will likely accelerate over the coming weeks. It is also information that policymakers can use to make decisions regarding how best to manage the situation relating to existing work permit holders. Some of these would have already lost their jobs and many more will become unemployed over the coming weeks based on the job loss projections in Figure 4.

33

3.4.4. Immediate Jobs Risk and Humanitarian Need The jobs relating to the sectors that have been fully closed due to current shelter-in-place measures are all at risk, although the full extent of this risk is not expected to materialise.

This includes tourism (7,452), construction (6,698) and persons employed by businesses in the ‘other’ sector not deemed ‘essential’ under the current measures. Based on tourism and construction this puts a minimum of 14,150 jobs currently at risk.

Factors impacting whether a business lays off staff immediately may vary significantly from firm to firm and some of the key considerations are as follows: §

The size of the business and extent to which they can afford to keep staff on for a 2 to 4-month period without revenues.

§

Whether the business is currently able to operate as an essential business.

§

Whether the business’ staff can operate remotely from home.

§

Whether the business currently qualifies for any of the concessions offered by the government

§

Whether the business will take advantage of current legal means to lay staff off on a temporary basis without paying severance (For example, businesses in agriculture and construction sector may currently lay off staff for as long as 6 months on a temporary basis only without paying severance)

The results of the Chamber survey provide some insights into the extent of the shock to the local job market with 1,416 jobs lost between March 13th when social gatherings were limited and the cruise ship 60-day ban was introduced, and April 17th when the survey results were analysed. This amounts to an average of just over 350 persons being laid off per week. The result means that together, the companies have already laid off 16% of their staff. As local business come to grips with the challenges the Chamber survey also indicates that the layoffs will accelerate with the lockdown period.

Currently the sectors least likely to reduce staff numbers are financial services, healthcare and the public sector. The survey results indicate that a large percentage of firms in the construction, restaurants and other sector (which includes many small businesses) say there is a risk of further layoffs within the next 1-4 weeks. Data collected from various community NGOs also provides valuable insight into the acceleration of the social and humanitarian issues arising from the pandemic. This is summarised in Table 6 below: 34

Table 6 – Select community & social services & levels of COVID-19 support Organisation Resilience Cayman (www.resilience.ky) Provides

Recent development Less than 3 days after its official launch via a press release on April 15th, over 4,000 persons have contacted the organisation for assistance.

food vouchers, financial literacy, wellness program and a farm box (online farmers market) Feed our Future

Continues to provide meals for around 200 students and has seen only moderate increase in this area. But has recently also provided a number of one-off vouchers to help those in need.

The Cayman Food Bank is a core hunger-relief organization

The Cayman Food Bank has more than doubled its support since the pandemic.

dedicated to the fight against hunger, malnutrition, and poverty in Grand Cayman.

Cayman Islands Meals on Wheels (MOW) provides free,

Prior to the COVID-19 pandemic, the average daily meal delivery across all 5 districts was 261. Current daily meal output has increased by 16% to 326.

hot meals to seniors, the homebound and the disabled throughout the Cayman Islands.

Needs Assessment Unit (NAU), CIG provides assistance to approximately 1,700 families,

Towards the end of March, it was reported that the NAU had received 81 new applications for assistance to families since COVID-19. This number is likely to have increased by April 20th.

which includes food vouchers, rent, utilities and financial

Pre-COVID the NAU’s assistance with food vouchers was 361 families; Since

assistance. Just over half of

the pandemic the NAU has increased its assistance to 957 families or 3,828

those being served are elderly

people, representing a 165% increase.

persons.

In addition to the community efforts and CI$3 million approved by the Cayman Islands government to assist the vulnerable during the crisis, the government has introduced a number of measures to assist the business and wider community. The Government met with local financial institutions and utility companies and as a result, debt obligations and bill payments have been deferred. Landlords have also been encouraged to consider concession arrangements to retain their tenants.

35

The Government has also introduced a number of measures to assist small and micro businesses, one-off stipends are being provided to some individuals and policy changes will enable workers to gain access to a portion of their pensions. All of these measures will provide some immediate assistance to those businesses and individuals that qualify to receive them. However, some of these concessions are unlikely to last beyond a 2-4-month period and even if they do, the challenges to the unemployed given the estimated numbers and likely wage brackets, will very likely accelerate beyond the extent of the current relief (see summary of key measures in Table 7 below). The primary reason for this is that the hardest hit sectors are also the lowest paying on average which presents a significant social challenge for the community.

3.4.5. Existing Measures and Success factors Given the significant measures introduced by the Cayman Islands Government it is important to examine how these might mitigate some of the negative economic impacts of the pandemic. Coupled with an assessment of the impact, particularly on employment and likely damage to businesses in the worse hit sectors, highlighting the extent of mitigation, and success factors will assist both the government and private sector in their future responses. This summary is provided in Table 7.

36

Table 7 – Key economic measures and success factors CIG Policy/Measure

Economic mitigation/benefit

Success factors

A $5 million loan programme was established via the Cayman Islands Development Bank, for 100% Caymanian-owned micro and small businesses. The loans will be granted at concession interest rates (only 1%) and over a five year period. There are no payments for the first six months.

Will assist with urgent operational capital needs for those that qualify and gives a realistic timeframe for them to recover without the obligation to make debt payments.

Depends on the number of businesses that qualify. Partnerships between Caymanians and non Caymanians won’t have access.

Could reduce the likely number of persons being laid off.

Depends on the processing time. Small business failures will be time sensitive as some will not have access to operational capital to last beyond very short periods.

Loans will be a maximum of $20,000 for micro-businesses and $50,000 for small businesses.

Subject to a formal application process and certain criteria. $9 million has been allocated for 3,000 vulnerable businesses.

Funds to be distributed to existing micro and small businesses in the form of a $1,000 monthly payment for three months to support operational capital.

The businesses must existed for 12 months.

have

Provides an opportunity for alternative business strategies by existing tourism businesses looking to transition.

Could serve as an urgent and effective benefit, especially for smaller and micro businesses for which even small capital injections can offer sustainable support.

They must demonstrate that they have a domestic market and can survive in a post-COVID-19 local economy. This support will also be provided to tourism related businesses if they are able to transition into another sector in a financially viable manner.

Could potentially reduce the number of likely 1-3 employee layoff situations, particularly in the short term.

A policy decision was taken to enable Cayman Islands pension account holders to withdraw a lump sum of $10,000 from their funds and up to 25% of the rest of their pension.

In the context of this impact assessment this would help to mitigate the expected $373 million to $512 million in compensation that could be lost as a result of the pandemic.

37

The extent to which each business can demonstrate that it can be sustainable with a focus solely on the domestic economy. As more persons leave the country this will become harder to demonstrate.

Depends on extent to which these funds can be spent throughout the domestic economy due to limitations on business activity. For example, if spent primarily on basic needs this will lessen the impact.

3.5. CONCLUSIONS This study estimates that COVID-19 will have a significant negative impact on the Cayman Islands economy and employment.

The country’s GDP is expected to decline by 15% under a 2-month lockdown and as much as 22% under a 4-month lockdown.

Depending on the lockdown period results suggest that 10,712 to 14,048 jobs may be lost as a result of the pandemic. While the results are significant they are not surprising given the significant role that the international economy plays in the Cayman Islands and its susceptibility to external shocks such as COVID-19.

The country’s heavy reliance on imported labour means that external shocks which results in a loss of jobs can, through a domino effect, lead to a material negative impact on the domestic economy as many businesses rely on the labour force for their consumers.

The hardest hit sectors also demonstrate the lowest average compensation per person and this combination presents a challenge for the community in terms of the potential humanitarian challenge that is unfolding.

The Cayman Islands government has been recognised for its proactive approach in introducing measures to supress the virus which have so far been successful. Additional measures by the government to mitigate the negative economic impact will also be very helpful in reducing the immediate hardships on businesses and individuals.

Those mitigating economic measures and concessions are unlikely to be sufficient given the extent of the negative impacts. Additionally, results of the Chamber survey indicate that large percentages of the construction, tourism and ‘other’ sectors are planning to lay off additional staff, and the country will very likely experience an acceleration of the humanitarian need.

38

Finally, this study does not address the expected deterioration in mental health and the higher risk of crime, both which typically increase under stressful economic conditions, but these are among the other challenges that arise from the fallout.

At this stage a critical next step is for the private and public sectors to coordinate on the development of an Action Plan that anticipates a resumption of economic activity at a time to be determined by the government and its medical experts, along with the necessary conditions for such activity to resume.

In addition, the extent of these initial impacts demonstrate that the following work needs to be carried out as part of a longer-term solution for the Cayman Islands economy and wider community.

Empowering the vulnerable – Detailed work is required to address the most vulnerable on the longer-term basis. In particular, a detailed profile of those seeking assistance from the NAU is needed. This profile should also address existing skills and assess retraining/retooling potential.

Economic structure – New strategies are needed to adjust to, and to capitalise on, what is now commonly referred to around the world as the ’new normal’ post COVID-19 and the Cayman Islands situation is no different. An updated economic strategy that better prepares the country to deal with external shocks, diversify its economy, create a more substantive domestic economy, embrace technology and enhance local agriculture are also elements of the discussions to be held.

.

39

4.

APPENDICES

_________________________________________________________________

4.1. DATA SOURCES AND ASSUMPTIONS Figure 1 – 2019 Sector Contribution to GDP § § §

Data for 2006 to 2018 taken from System of National Accounts 2018 Data for 2019 estimated based on 2.8% GDP growth rate.

Rough estimates on the indirect contribution of the tourism sector (specifically in the System of National accounts categories ‘admin & support services, ‘other services’ and ‘transport & storage’) was received from the ESO which enabled a more accurate measure of the impact of this sector. This does not include other possible sectors where tourism may have an impact.

Table 1- Sector Impact Assumptions § § §

§ § § §

40

Assumptions based on known measures taken by Cayman Islands government and how they will likely impact each sector.

Each sectors’ annual GDP was converted to monthly averages. Assumptions are made regarding the extent to which each sector will be fully, partially operational or not at all based on the ‘shelter-in-place’ measures.

The public admin healthcare and education sector is assumed to remain at a similar performance after COVID-19. Some private educational institutions may experience a decline (for example private tutoring). But private education represents just over 3% of GDP so it was included with the rest of this category for simplicity. Private healthcare is also expected to experience some decline and indeed during this research anecdotal evidence supports this as some healthcare businesses have offered very little services during the lockdown as they cannot offer telemedicine and clients are generally not inclined to leave home as often as they would in normal circumstances. The private healthcare sector represents around 6% of GDP and this sector is assumed to recover 80% of its monthly average. When the impact on private healthcare is modelled coupled with the likely increase in public services the net impact was negligible so the entire sector is assumed to experience no change for simplicity.

Non-food related businesses are assumed to be closed during the lockdown period with the exception of utilities companies. Generally, the ‘other’ sector recovers 80% of its monthly average after the lockdown ends.

The financial services sector is assumed to have a normal period from Jan to March, operate at 90% of its monthly average throughout the rest of the year.

Tourism air arrivals assessed for period 2010 to 2009 to determine typical slow months, but sector’s monthly averaged was used for simplicity.

Tourism also includes restaurants, bars and other food services activities (“RBOF”).

Data from the ESO’s SNA was used to estimate the percentage of GDP attributed to RBOF and the 5-year average for this subsector was 28% of the tourism sector as a whole. In addition, data from the Chamber of Commerce website reveals that approximately 78% of restaurants offered take out or food delivery services.

§

Separate assumptions were made for the tourism sector excluding RBOF and RBOF itself. These are as follows: o The Hotel sector is assumed to have a ‘normal’ period from Jan to the 3rd week of March, no activity during the lockdown period and operates at 30% of their monthly average beginning 30 days after the lockdown ends. o The RBOF subsector is assumed to have a normal period from Jan to the 3rd week of March. o Approximately 78% of RBOF are assumed to have offered take out or food delivery services during the lockdown period and maintaining 80% of their monthly average throughout the year. o Approximately 22% of the RBOF subsector are assumed to have been completely closed during the lockdown and assumed to recover 50% of their monthly average when it ends.

The likelihood of sectors being able to access staff remotely was considered

Figure 2 – Cayman Islands sector contribution to GDP and post COVID-19 Impact §

Final estimates for 2020 calculated from above assumptions results are compared to 2019.

Figure 3 – Estimated industry contribution to Employment §

Date sourced from ESO Labour Force Survey Spring 2019

Figure 4 – Cayman Islands sector contribution to Employment and post COVID-19 Impact § § §

Percentage declines per sector taken from Figure 2 are imposed on employment figures to estimate employment impact.

Total employment impact is also calculated and estimated to decline from from 49, 250 to 38,538 To improve robustness of the estimate, a measure of labour productivity is calculated and the number of employed persons post-COVID-19 is estimated based on the forecasted decline in GDP. Using this productivity ratio, we can estimate the number of employed persons remaining after the 14% decline in GDP using the 2month lockdown scenario, and compare that to our estimate of 38,538 as predicted above. The estimated GDP as a result of the impact of COVID-19 is CI$3.6 billion.

When the average productivity of CI$95,802 per worker is applied we get an estimated 36,468 employed persons. This number is comparable to the estimated number of remaining employed persons of 38,538 from Section 4.4.1 (a difference of 5.2%).

Figure 5 – Labour Productivity § §

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Data for other countries sourced from ILO website Data for Cayman Islands taken from ESO Labour Force Survey and converted to US$ at a rate of 1.2 for comparison

Other Sources: ยง ยง ยง ยง ยง

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Annual Economic Report (Economic & Statistics Office).

Cayman Annual Compendium of Statistics (Statistics Office) (2008) International labour Organisation (ILO) website www.ILO.org WorldBank.org, various data tables. www.world-tourism.org (World Tourism Organization). 2017

4.2. CHAMBER OF COMMERCE COVID-19 BUSINESS SURVEY (APRIL 2020) The Chamber of Commerce conducted a survey of 300 businesses between April 14th and April 17th to better understand how the COVID-19 Pandemic was impacting businesses and the wider community. The results are provided below:

Q1 - What is your primary industry?

40.00% 35.67% 35.00% 30.00% 25.00% 20.00%

19.00% 14.67%

15.00% 11.33% 10.00% 5.33%

5.00%

6.00%

5.33% 2.33%

0.33%

0.00% Financial Services

Tourism

Restaurant

Construction Technology/ICT Health Care services Services

Other Retail Business

Not Sure

Other Sector (please note)

Q 4 - Assuming the current situation continues (i.e. soft/hard curfews) and no financial assistance from government is forthcoming, which of the following best describes your plans for the business at this stage?

50.00%

45.33%

45.00% 40.00% 35.00%

29.67%

30.00% 25.00%

18.00%

20.00% 15.00% 10.00%

7.00%

5.00% 0.00% I will close the business or very I have downsized the business or likely close down within the next 2 made other adjustments and will to 4 weeks try to survive until the economy recovers

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I have not made any changes to the business

I am not sure what to do as yet

Q 5 - How many Caymanians or Permanent Residents do you feel are currently at risk of being laid off in your business in the next 1 to 4 weeks?

50.00%

46.31%

45.00% 40.00% 35.00% 30.00%

27.18%

25.00% 20.00% 15.00%

10.07%

10.00%

9.40% 2.01%

5.00%

3.02% 1.01%

1.01%

0.00%

25 - 50

51 - 100

>100

0.00% 1- 3

4- 6

7 - 12

13 - 24

Prefer not to Say

None

Q 6- How many work permit holders do you feel are currently at risk of being laid off in your business in the next 1 to 4 weeks?

50.00% 44.26%

45.00% 40.00% 35.00%

30.74%

30.00% 25.00% 20.00% 12.16%

15.00% 10.00%

3.04%

5.00%

3.04%

4.05% 1.69%

0.00% 1- 3

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4- 6

7 - 12

13 - 24

25 - 50

0.00%

1.01%

51 - 100

>100

Prefer not to Say

None

Q 7 - Are you in support of a plan to enable staff to access some of their pension funds?

90.00%

83.84%

80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 15.82%

20.00% 10.00% 0.00% Yes

No

Q 8 - I am seeing an increase of unpaid service invoices 50.50% 50.00%

50.00%

49.50% 49.00% 48.29%

48.50% 48.00% 47.50% 47.00% Yes

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No

Q 9 - How can the Chamber help your business? (Check all that apply).

Other (please specify)

30.56%

Advocate for temporarily reduced Government fees

53.82%

Advocate for a source to provide financial relief (Resilience Cayman)

47.57%

24.65%

Advertise my organisation’s status (open/closed/alternate hours) Webinars from Legal Community on Work Permits/Redundancy/Severance Pay/Retaining Health Insurance

31.94%

Connect me to businesses which can help me navigate

12.50% 52.43%

Information & Resources 0.00%

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10.00%

20.00%

30.00%

40.00%

50.00%

60.00%