THE COVID-19 PANDEMIC IN THE CAYMAN ISLANDS – IMMEDIATE TO MEDIUM TERM ECONOMIC IMPACT1 Executive Summary
By
FTS April 21st 2020
________________________________________________________________
1
1
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.
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.
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. 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.
2
2
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
3
968,933
2019
2,000,000
2 Mth Lockdown
1,022,121
3 Mth Lockdown
4 Mth Lockdown
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$512 million under a 4-month lockdown (see Table 4). Table 4 below demonstrates that the workers with the lowest average salaries (construction, tourism and ‘other’ sectors) as presented in Figure 8 below are also the ones hit hardest by the pandemic. 4
Table 4 – Estimated loss in compensation per sector (CI$) (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
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. 5
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.
3
6
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 5 – Select community & social services organisations & 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
people, representing a 165% increase.
half of those being served are elderly 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 7
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 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 (see summary in Table 7 below). 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. 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. 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 below.
8
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:
9
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.
10