Charting uncertain seas

UK economist offers timely and informed advice for the financial services sector

Agility, flexibility and speed.

These qualities are keys to continued success as the BVI financial services sector enters an uncertain global future, according to United Kingdom economist Mark Pragnell. Mark should know as well as anyone. He is the director of Pragmatix Advisory, a consulting firm commissioned by BVI Finance to produce the report “Beyond globalisation: The British Virgin Islands’ contribution to global prosperity in an uncertain world.” During their research, he and his team considered the BVI industry’s future under various very possible scenarios that may already be in the early phases of unfolding on the international geopolitical stage. Shortly after the report’s release last November, Mr. Pragnell sat down with Business BVI Managing Editor & Chief Content Officer - Russell Harrigan to discuss and elaborate on his findings and on other ideas he shared two days earlier at the Globalisation: BVI Beyond Conference. An insightful and informative read that will deepen your understanding of the headwinds that will shape the jurisdiction’s course and by-extension that of the territory in 2023 and beyond. The conversation highlights a number of the opportunities and challenges facing the BVI.

Most timely, its covers areas such as: the creeping politicisation of the rule of law, the very grave implications for the BVI if China crosses the Taiwan Strait, the increasing realisation that the current BVI-UK relationship is not fit for purpose and could become an impediment to the territory’s economic expansion and thereby its viability, the need for the jurisdiction to develop a product for the digital age, the territory’s growing capacity challenge, the trend towards non-geographic - and the opportunity-laden need to be geographically footloose, climate change and the enormous opportunity attached thereto - including in the branding space, the need to migrate up the value chain - moving from back office offerings to front office opportunities and the need for the BVI lifestyle to become a heat seeking missile in the jurisdiction’s global positioning arsenal. A must read.

Remarkably balanced economy for its size

Business BVI: Firstly, I want to congratulate you on a thought-provoking and timely report and for the presentation you did at the BVI Finance conference. What would you say are the three main takeaways from the report that the BVI as an international business and finance centre must take on board in its strategic planning for the future?

Mark Pragnell: The first one isn’t about the future. The first one is about recognising what has been achieved already. One of the elements of the report which I think is really important is the extent to which BVI has a finance centre that has done well and is making a significant contribution globally and domestically. It’s important that before anyone starts to think about the future, they also recognise the achievement so far — and be proud of that. That would be number one. The second element is we don’t know what the future is going to look like. The main report is around two hundred and fifty pages. It’s a long document, and I can’t tell you what the future is going to look like. On that basis, we’ve developed some scenarios to try and think about what the future might be. But the future is what it always is, but especially at this juncture: It is uncertain. Looking forward, the most important thing is not to have a rigid Plan A that the jurisdiction is going to do: The most important thing is for there to be the agility in the jurisdiction to respond and proactively develop the financial centre as you move forward. The third important takeaway is the need to recognise the interconnectedness of the financial services sector and the rest of the BVI economy. The only way in which you’re going to have that strategic future planning done well is by having government, the financial services sector, and the rest of business coordinated, communicating and singing from the same hymnbook.

BB: How do you see the findings of the report being used to advance our financial services sector?

MP: There are a number of ways in which the report can be deployed. One of the reasons why the main report is so long is because it’s got a lot of audiences. One of the most important ways it’s going to be deployed is domestically here on the islands. It’s for government and for the territory to recognise the contribution that the financial services make, but also for the financial services sector to recognise the contributions it’s made. So one of the important things is to stimulate and inform that domestic debate. However, the report’s primary objective is for external audiences. A part of that is to give the industry and BVI Finance some hard data to go to potential markets and explain what happens here to places where they could be doing business. It’s also important that this report can help develop and foster a more constructive and more informed dialogue with the government in London. Finally, and probably most importantly, hopefully this gives a richer and fundamentally more positive perspective on the contribution that these islands really do make to the global economy, which can be used to inform the broader debate around international finance and those dangerous two words: “tax havens.”

BB: In the report, you described three possibilities for the next phase of globalisation: “weaker internationalism,” the “bloc economy,” and “a new economic nationalism.” As you sit here today, what do you see as the most likely next phase?

MP: Again, I’m going to answer your question with a negative rather than a positive answer initially. I think the most important thing is what I don’t see happening: I don’t see the world carrying on as it has done for the last twenty years. The world after the fall of the Berlin Wall, I think, was an unusual anomaly in the history of economic development across the globe. We’re going to see something different. I think the world is going to grow economically more slowly than it has in the previous couple of decades. The question then becomes: How bad will it be in comparison to what has happened previously? My view is that the most likely outcome is what we’ve called “weakening internationalism:” The trends carry on, just that the trends carry on more slowly than they have previously. If I was to put a broad number against that, I would probably say something like a forty or fifty percent probability that will go forward.

Our next scenario is the bloc economy. That’s the one where we see the fragmentation of the world into big economic blocs and those blocs become more integrated themselves — but the blocs between each other start to go in diverging directions. I’m not sure that the most extreme example of that is likely to occur. But I believe we will start to see elements of that. To a certain degree, we’ve already started to see some elements of that: The behaviour of the European Union, the extent to which China is taking a slightly different perspective over recent years. That was probably our second most likely scenario. If I was to put a ballpark number to that, that’s probably a thirty-percent-type probability. Then our least likely scenario is what we’ve called “new economic nationalism.” The basis there is what we see as populist politics writ large across a lot of the major states. It’s basically a Trumpisttype perspective. I believe that the Western democratic political establishment is such that actually that [phenomenon] will be dampened over time. But it might not be. We could probably see maybe a twenty, twenty-five percent type of probability associated with that.

BB: What preparations should the BVI be undertaking as this pivot takes place if we’re going to be half as successful as we’ve been over the last twenty to thirty years?

MP: The danger is that the BVI can’t control which scenario ends up coming forward. When you think through what the implications might be for the BVI of those different scenarios, they’re quite varied. So the best planning is to be agile; the best planning is to be forward-thinking. It needs to be about looking at the external environment and trying to work out what direction the world is going and trying to spot the early warning indicators. And then you need to have the speed of response as you go forward. That plays back to the point earlier about having an industry and a government that are working well together; having that common dialogue. That’s going to be absolutely essential to be able to respond. For example, if we head towards the bloc economy, the bloc economy could be a significant impact on this jurisdiction, especially given the scale of which this jurisdiction has a large share of business in China and Asia. To respond to that — and to make the changes or to think through what your position is in that environment — you’ve got to do that early. You’ve got to look for the early warning indicators, and you’ve got to make sure that you’ve got the ability to move quickly. That’s the challenge for government; that’s the challenge for industry.

BB: If you can pivot a little bit to what I’m calling the dragon in the room: China. At the recently concluded 20th National Congress of the Chinese Communist Party, the primacy of the economy and economic growth seems to have taken a back seat to things like national security and the competition with the United States. You mentioned the bloc economy approach. Do you think that’s where the Chinese are heading? Which option do you think today, if you were to posit a guess, would be the direction it will take? And what is the implication of that on BVI?

MP: There are a number of different potential factors that come into play here. I think my central view is that China will continue to grow at a reasonable pace. It’s already got the status of an economic superpower. It will continue to have that and probably grow as well in that context. But we’ve got to remember that the Chinese economy is now heavily indebted. There is a non-trivial risk that there could be implosion of the Chinese economy, just because of the extent to which they’ve got themselves in an indebted position. It’s helpful that most of their indebtedness is actually to themselves — and in some way related to the Communist Party as well. So I think it’s a debt position that probably can be managed better and more easily by them than it would be if it was a similar circumstance in the US or in the UK, for example. But we mustn’t forget that they have got themselves into a position of reasonable fragility.

Let’s put that to one side, though. I personally can’t see them signing up to too many more European-led international initiatives. Regardless of whether or not we end up with this rather stark bloc economy scenario that we’ve put in our report, you can’t see anything other than greater friction between China and elsewhere. The bit that I think is really interesting is the extent to which Africa and Asia start to fall in with China more — or we start to see China going it alone more. That, I think, is a real interesting and unknown quantity at the moment. Clearly, the Belt and Road Initiative has drawn African and Asian states into the Chinese economic sphere of influence. But some of that’s already starting to unravel. I could see a world where there was an Asian bloc fundamentally led by China. But equally I can see a world where there’s an Asian bloc which excludes China, and China carries on as quite a large supertanker of an economy but still somewhat arm’s length to the rest of Asia. I think those are the sorts of things that play in. What does that mean for BVI? Well, it means there’s some really tough questions ahead. And under all those circumstances, when you look at the pie chart of the business done by BVI, there is a large chunk of it which is done by China. Being able to make sure that that business is protected [and] developed will be a tough ask under certain scenarios as we move forward. So that agility becomes really important.

Non-EU Europe, 5 European Union, 7 mediate between those blocs, that’s a really important role to have. And it could become an incredibly valuable role to have. But as you rightly point out, as an overseas territory of the United Kingdom your ability to do that will be influenced by the extent to which the United Kingdom is willing for that to happen. So you could paint a picture even in the bloc economy of BVI — as currently one of the biggest mediators of China [and] non-China business — having a really valuable and important role. It’s just whether or not that can be navigated through the geopolitics of what’s happening in Washington, what’s happening in London, and what’s happening in Paris.

BB: To what extent is Singapore a country to look at in mediating between the two from a business standpoint? If you look at what they have done from their founding, they have managed to be a-go between without getting caught on one side or the other. And that was, I think, a deliberate strategy. Is their history in that regard something we should be informed by?

MP: It’s certainly history you should be informed by, but there are obviously two very important differences. One is independence, and the second is scale. The relationship with London in many respects becomes really important in this context. A constructive, forwardlooking relationship with London — and that’s not just a pressure on the BVI; that’s a pressure on the government in London as well — could easily open ways in which this jurisdiction could be that big mediator. Also, though, the scale point is important. This is still a jurisdiction with a population of only 33,000. You need the scale; you need the capacity to be able to operate at that level. That, again, is a part of the challenge for the BVI.

BB: Given where things are at the moment with our relationship with the UK, constitutionally and otherwise, what is the likelihood of their willingness to say, “BVI, we hear you: Let’s have a conversation about the longer term”?

BB: [A high] percentage of our business comes from Asia and [especially] from China; we are an overseas territory of the UK; and then we have longstanding deep relations with the US. If the blocs keep going their separate ways, is BVI going to be stretched to a breaking point?

MP: This is where it becomes a bet. It’s a wager that has to be taken by the industry and by government. Even under the bloc economy, you will still have trade between blocs. It’s simply human and business nature: Where you can see that advantage, people will try and get it. There’s always going to be some form of business advantage to trade and investment flows. What happens is that those trade and investment flows become more difficult to do, more costly, more inefficient. If — and it’s a big if — but if BVI can

MP: Speaking candidly as someone who lives in the UK and sadly has been following UK politics too much recently, nothing in my view is going to come from London at the moment. The scale of trauma that has been caused — economically over the last few years through the Pandemic; more recently in the markets through the interesting (if I can use that phrase) mini budget; and politically through our absolute inability to keep the prime minister in power for more than a few weeks — [means that] there are some big problems in London. They are focused, and their focus is going to be there. So I really don’t think you can expect the government in London to come here or start that conversation. However, let’s be blunt about it: This is a period after what’s been a traumatic period for the BVI as well. The Commission of Inquiry: I actually see that as at least the door being ajar for a meaningful conversation. I’m hoping that our report at least starts to allow there to be a proper discussion with London about what’s at stake. I really don’t think that civil servants in the departments that matter — for example, civil servants in His Majesty’s Treasury — really understand what happens here. Their level of insight about the nature of the international business and financial centre in BVI will come out of what they read a few months ago in the newspapers. So I think the BVI needs to go to London [and say], “This is what’s at risk. This is what’s at stake. This is how the islands do well with a successful international business and finance centre. This is what would happen if you don’t at least provide a supportive environment for what we do.”

BB: Taiwan has become a flashpoint between the US and China. The president of the US has made it very clear that if the Chinese were to cross the Taiwan Strait, he will not sit by and do nothing. Do you see the situation as it relates to the Ukraine sanctions being part of a response should that happen? And how would that impact BVI?

MP: My first point is that I don’t see a Chinese movement towards Taiwan as particularly likely.

BB: In the near term or —

MP: In the near term or in the medium term. A lot of what we’ve seen recently has been more about Nancy Pelosi landing there than has been about anything significant in terms of a change in perspective from the Chinese. In fact — especially given what’s happened with Russia’s invasion of Ukraine — I think the Chinese are quite risk averse in terms of military action. For me, the risk is a more generalised parting of the waves between China and maybe Asia and the rest of the world as China realises, “Actually, we’re a superpower in our own right. We don’t need to follow your rules or behave in the way that you want us to.” I’m less concerned about the potential trigger point of Taiwan. However, that’s only my view, and I’ve been proven wrong on lots of things before. I’m not going to pretend that just because I say it’s not going to happen it won’t happen. If it does happen, the BVI at first glance looks pretty exposed to what might be sanctions. There are a couple of issues here. Firstly, yes, the Ukraine model has at least illustrated what can be done. But it’s illustrated what can be done versus a nation — i.e., Russia — which had very limited trading relationships with the US and a reasonable chunk of Western Europe. Clearly, gas is an issue. But predominantly, the relationship between Russia and the rest of the Western alliance was one which was relatively limited in an economic sense. That’s not the case with China. So as we move into a world where there’s some form of military intervention by China with respect to Taiwan, the model of sanctions will come forward, but I think they will be done far more cautiously. Fundamentally, blocking trade with China is going to hurt the Americans and the Europeans a lot more than blocking trade with Russia. Notwithstanding, with forty-four percent (44%) of BVI business companies related to China, that’s going to have an impact here. Again, that relationship with London — the scenario planning, the preparation, the recognition: “You go down that route, look what it’s going to do to our islands” — I think is really important.

BB: I want to pivot a little bit to the panel discussions on Tuesday. Your presentation was quite insightful and informative, raising and highlighting a number of opportunities and challenges for the BVI. There were five things I pulled out that I want to get your further thoughts on. One was a comment by Robert Briant about the politicisation of the rule of law, which is an interesting thought. You can make the case that it has always been, but I think he was referencing that Ukraine has brought it to a really high level. What do you think of that idea and its implications for the BVI?

MP: It was a lovely turn of phrase, and Robert has a really big and serious point to make there. Fundamentally, what he’s highlighting with the politicisation of the rule of law is playing exactly into the beginnings of an extreme bloc economy scenario. Effectively, the Western alliance has changed the rulebook in order to form a bloc against another area. With that, you will get the start of a lack of trust in the ability to use law on either side of that bloc divide. So I think the point that Robert is making is absolutely valid. It’s part of a general weakening of the norms that we’ve seen over the last twenty years or so. That will have an implication in terms of people’s willingness to trade. It will have an impact on people’s willingness to invest across borders and the risk appetite that they’d have to have to do that. That can play out either way for the BVI. It can play out badly for the BVI in that [it] might curtail levels of activity. It might also [mean] that the likes of China will look closer to home to find places to mediate. The flipside is that if the BVI can maintain that independence — can maintain that robustness — the solidity and the maturity of the product that it offers may well be more valuable in a world where these things start to weaken.

BB: Do you think there’s a chance that [such developments] could undermine the use of the common law, which is what our law is based on?

MP: I suspect it’s more an issue of: Is there a potential undermining of jurisdictions able to deliver on it? If it appears that the common law jurisdictions are becoming partial rather than impartial, regardless of the underpinning law, that would be a problem in terms of the market. I don’t see it being an issue of trading legal codes: I see an issue being the reputation and authority of the individual jurisdictions.

BB: The second thing that came up [during the conference] that I thought was interesting is that the BVI needs to develop a new product for the digital age. What are your thoughts on that?

MP: I’m the last person to ask what the product should look like. I don’t know. Trying to second guess what the market looks like isn’t where I ought to be — and I don’t think many should be. What the islands need to do is have an environment where you can see the good ideas being made and developed with speed and robustness. Digital is one of those areas. Digital is a very important part. The two bits for me is that nimbleness, that agility; but the other bit is I think it’s important to not just jump on the bandwagon that others are doing. What’s important is to step back and think about what you’ve got here that can be deployed. What is the [unique selling proposition]? What is the competitive advantage? What is it that people are going to want from you that they wouldn’t want from somewhere else? There are a number of elements to that. The bit that struck me is the extent to which this jurisdiction is really successful in effectively recognising and registering asset and allowing the securitisation from it. Which, for me, feels like an absolute no-brainer in terms of moving into the digital world. I know that some of that is being done. But I think it’s a case of thinking through: What’s here? What do we do? What’s our skill set? And how can that work within the digital age? And rather than saying, “Bermuda’s doing that; Jersey’s doing that: Why aren’t we?” it’s “What can we do that they can’t?”

BB: To me as a BVIslander, one of the challenges that we have in that regard is capacity. This is not trying to land a man on the moon, for heaven’s sake: It’s about knowing what is it that you have; what is it that the world needs; and how can you match those things — and creating the offerings, the legislation, the environment. I think we have a capacity problem in stepping up to that plate. The more competitive it becomes, the more dependence we have on the sector. We have that burden to step up to ensure that the quality of life that we’ve become accustomed to is maintained. But if we don’t build that capacity, we are going to end up in a bad place.

MP: I’ll say it again: This is a jurisdiction of a population of 33,000. It’s simply the case that you are limited resource-wise. It doesn’t mean you can’t do it: It means you’ve got to think laterally about how you do it. I think it’s easy for an industry, it’s easy for a government, it’s easy for a jurisdiction to get bogged down by all the choices they’ve got. A part of the issue is having some faith to give something a go. At some point in time, some risks are going to have to be taken. You’re going to have to choose something and you’re going to have to give it a go. It may go wrong. It may not work. But you’ve got to. I think there needs to be a cooperative approach between government and industry. A part of that’s also got to be a recognition that there could be failure, and that to be successful you’ve got to be footloose; you’ve got to be rapid; you’ve got to be agile. And some of them won’t work.

BB: The International Business Companies Act came about in 1984, and prior to that there were things we were doing that didn’t go the right way. We thought they were going the right way until Ronald Reagan said, “No, we’re not signing that double taxation treaty again.” We went back and found some opportunities. To be honest, though, I think over the successive period we’ve become a little bit more complacent. I’m worried about that and its implications for the future.

MP: I’m sure there is a chunk of it which is complacency. But it’s also that with success you become more cautious, and you become more careful to try and maintain what you’ve got. The danger at the moment is that what you’ve got is something that isn’t necessarily sustainable. You need more; you need different. You’ve got to have a punt on something.

BB: The third [point from the conference] was the idea of digital distorting geography. What does that mean from where you sit and for BVI? It essentially to me is saying, “Look, a lot of things can be done anywhere.” I say to people in tourism, for example, “There are places with no assets but lots of money, [who are] very determined and putting together a strategy and selling it. That’s what we’re up against.” To me, it’s the same thing in financial services. Your thoughts?

MP: There are two elements to our thinking on what we’ve called the trend towards nongeographic. The first point is an absolute positive in BVI because of the revolution in digital technology; because of what the Pandemic has taught us about how we can work, how we can invest, how we can play without having the same geographical limits. Let’s be absolutely blunt about this:

The BVI isn’t an easy place to get to. The digital world has allowed people to do more from BVI than was the case in the world where physical location was one hundred percent important. So that’s an absolute positive for the BVI, because it’s pushed the BVI up into the marketplace where previously only airports that could take a 747 were going to go. My other point on this: Digital means there’s a whole raft of activities out there now which are put in the cloud; are non-geographic. And the rule of law has always been geographically specific. Assets have been geographically specific. We’re now getting into a world where a large chunk of what we’re willing to put our money into — what we see value in — is at best geographically footloose; potentially completely non-geographic in terms of its identity. The [Base Erosion and Profit Shifting Project] regime has been a part of trying to respond to that. We’re starting to see some of this in terms of tokenisation and digital assets. But I don’t think yet we’ve fully understood or thought through what it means to be in a world where a large chunk of value doesn’t have to be geographically specific. For me, that’s an area where this jurisdiction could be really powerful. Up to now, it’s been very good at being able to work out what you do with assets that have got multiple geographical locations or relationships. I see the sorts of skills and the sorts of understanding that you’ve got here in Road Town as being the sorts of skills and knowledge that’s going to be vital in trying to make this new digital non-geographic world work.

BB: An interesting example was when the hurricane hit. The government went up to The House of Assembly — interestingly, digitally — and said, “You can now do BVI business from anywhere in the world.” There’s a sunset clause in it, obviously, but that’s an interesting example of not being fixed geographically in this particular location. The other thought I heard raised was the notion that the global climate change movement is potentially also a branding opportunity for the BVI: We are a small place where the environment — and managing it in a certain way — is critical to our quality of life. But can you then extrapolate that on a wider level and do some things in the green space, particularly on the financial services side of the economy? What are your thoughts on that?

MP: I think it’s more than a branding opportunity. If we’re going to see both significant retail but also significant privatesector and public-sector institutional capital flows to address climate change, then they would be facilitated by jurisdictions that have got skin in the game. And that’s what this place has got. Yes, that’s a branding opportunity. But I think it makes sense that these are the sorts of activities that this jurisdiction has done well.

BB: The final one: I think you were the one who made this point about wealth management as a possible area of opportunity, particularly as the baby boomers move off the scene and pass [their wealth] on to the millennials. What are your thoughts on that? As you pointed out, the millennials and the Gen Zs are certainly different in the way they manage wealth and the way they look at wealth. But it’s a huge amount of wealth to be passed on. The millennials in terms of a cohort are much larger than the baby boomers were. So there is the potential for opportunity for jurisdictions such as the BVI.

MP: There are some interesting dynamics here. The first one is that the cohort of those who are rich is probably going to be far more concentrated than it was previously. In previous generations, the wealthy typically had reasonably high birth rates. So the wealth that was passed on was passed on to more, as it were. Nowadays — especially in the West, although it’s starting to happen in China as well — the birth rate for those who are more affluent is starting to come down quite markedly. Rather than passing on your wealth to several siblings, what you’re doing is you’re passing on your wealth to only children, or a couple. So the first thing is that we end up with a more concentrated wealth pool, and more individuals with a very high amount of wealth versus what there would have been previously. Secondly, as you said, the new generations of the wealthy are going to have some quite markedly different values playing directly into the arguments around climate change and [so on]. What we’re seeing is that they’re not doing what their parents did. So there is an opportunity and there is also a risk. But I think what we’re going to see is quite a bit of turbulence in the private wealth environment —which may or may not be the right thing for BVI to do, but it’s certainly something that I think is worth flagging and spotting as a potential movement now.

BB: There’s an increasing realisation that the current BVI-UK relationship could become an impediment to the territory’s economic expansion, and thereby the viability of the territory. How do we address that?

MP: I’ve seen the work of the BVI London

Office: I know how much effort goes into the relationship with the UK government, so this is in no way trying to criticise the work that’s done in that context. But fundamentally, nobody really knows who you are or what you do here. It’s absolutely important that there is better understanding amongst civil servants in London about the nature of the BVI and what it means. That has to be beyond just the Foreign, Commonwealth and Development Office. That, for me, is critical.

BB: That’s an important point, because the FCDO now seems to be the only point of contact. And you’re right: I don’t know to what extent there is the depth of appreciation for how the BVI is 30,000 people. As a result of that, you get policy positions that are askance to where we are and how we think we should be dealt with.

MP: I don’t know if you noticed in the report, but, somewhat controversially, I’ve used the phrase “the islands” to describe the BVI rather than “jurisdiction;” rather than “territory.” I think part of the issue is that it’s a set of islands with a population of 30,000. A lot of the language that’s used around the overseas territories — a lot of the language that’s used around the “tax haven” debate — is frankly dehumanising.

I think it’s vitally important that not only is the economic significance of these islands made clear to policymakers and opinionformers in the UK, but also just what the human story is. Here is a set of islands with a population of 30,000 — low-lying islands where the sea is rising in the middle of a hurricane area — trying their best to make a living. That human dimension has to come across in London, rather than it being about “jurisdictions” and “tax havens,” which is how the dialogue works at the moment.

BB: One of the things you said in the report: Under weaker internationalism, the jurisdiction would need to pivot towards providing a wider and deeper range of high-value advisory services and professional services. Put another way, someone said in the panel discussions we need to migrate up the value chain. Can you give some specific things that the BVI can do in the short term to make this a reality?

MP: Just to explain the concept on that one: For the first couple of decades of the existence of the finance centre here in Road Town, growth was achieved through volume; through more and more business companies, more and more registrations. Although I don’t think they’re going to fall off any cliff, in my view you’re not going to see significant growth over time in the registrations. So you’ve got to get more out of each company on the register. You’ve got to try and find more value — more wagepaying work — out of each company rather than just trying to find more companies. That’s the important bit. This isn’t something that is particularly innovative or radical, because you’re doing it already. Look at the work of a number of the corporate law firms here. The corporate law firms are delivering quite significant amounts of value add: employing people on island with decent salaries; paying quite significant taxes; and supporting quite a lot of jobs elsewhere on the islands. That’s already here. The question is, can you grow that? That’s the model that you’ve got to move forward. Likewise when you think about the corporate service providers moving into a world where you’re doing directorships and you’re doing more fiduciary duties on top of the registration.

Finally, we talked earlier about the digital changes. Up to now — and I don’t mean this in a pejorative way — a lot of what’s happened in BVI has been a bit of the back office of the value chain. The front office — for example, investment management — has been done either onshore or in other financial centres. Part of that reason is because it’s been difficult to get here, and you haven’t necessarily had the same level of telecommunications connectivity that others might have. I think that’s changing. I don’t see why you can’t have some of that front-office-type business: actually having investment managers, portfolio managers here on island. They can do that work here just as easy as they can do it in Jersey or in the City of London, but they can have a BVI lifestyle. For a decent chunk of people out there, that BVI lifestyle has got value. They want to have it. It’s just whether or not they can get the jobs here to do that.

BB: It’s interesting you mentioned the legal [work] that’s going on. I know that one of [the government’s] challenges with it is because the politicians can’t really tax it and say, “The more dispute resolution you engage in, and the more M&As you do, send us five percent of it.” So it’s a challenge for them to come to grips with. But the fact that it’s going on — as you just pointed out, there’s more lawyers being hired and hence each lawyer needs some air-conditioned space, amongst other things — also produces more value added.

MP: I think you flagged a really important point, which is that there needs to be a rethink of how public services are funded in the jurisdiction. Up to now, the main driver of government revenues — of the funding of public services — has been fees taken off that volume of business companies that have been registered. If that volume of business companies isn’t going to grow as fast as it used to — it might not even grow at all — then you’ve got a limit on what could be funded through that. So I think the islands have got to move from a world of fee-based, volume-based provision of government funds to one which is trying to tax the value that’s created. You’re never going to get five percent of the M&A. But you can start to think about taxing the domestic incomes of the IFC; you can think about taxing the domestic profits of the companies in the IFC.

BB: If you were to list the top five global financial centres in terms of the best or most complete list of expertise and services with the lifecycle of a business company, who would make the cut?

MP: That’s a good question. I’m not totally sure I know how to answer it. I think it’s a case of horses for courses. In most circumstances, probably what might be described as midshore locations are the place where you’re going to have the scale and the depth. If the question is whether or not you can manage the structures that you want to have internationally within that more mature environment, then it comes down to what’s the purpose. I’m not going to list any: I think that would be too dangerous. The issue is that the BVI scores well for a certain group of activities. And the question will be: Can you grow some of those activities and score well on more than that?

BB: I think you’ve answered the question. The reason for my question, obviously, is given where we are, who is the competitive set? Who do we need to aspire to be? Who do we need to keep an eye on?

MP: I think that plays back to the point you were making earlier about how well respected the law and the delivery of the law is here. There are lots of new starters, and quite a few of them aren’t so new anymore. Frankly, your competitive edge is that you’re in respected British common law jurisdiction. If that remains the case, I wouldn’t worry about them too much. Then you’re back into the world of competition with the other Caribbean centres, the Crown dependencies — and to a degree you’re playing a game with some of the European midshores as well. The point I made in the presentation, which I think is important here, is that under all of the scenarios, we see a world where growth is going to be slower than it was before. I can’t believe that all the IFCs out there at the moment will survive. The competitive position is going to become more important. Up to now, lots of IFCs have been able to survive because the market has grown so quickly. Now that the market will slow, the competition will get tougher. And some will fail.

BB: There’s been a lot of discussion about the digital space being potentially the next sector for growth. What’s your sense of that whole space at the moment, particularly given some of its more recent challenges?

MP: It’s like so many disruptive technology markets. You know full well that in twenty years it’s going to be massive. It’s going to be ubiquitous, and it’s going to be the norm. At the moment, you don’t quite know where it’s going, and you don’t know when it’s going to turn the corner. I think that’s where we are with cryptocurrency. I come back to the point I made earlier, though: This is where you’ve got to avoid jumping on the bandwagon. This is where you’ve got to think about where does the BVI add value. Where does the DNA fit with these markets? The BVI has done a really good job in the physical world of helping people have faith in ownership of assets and securitise them for debt and exchange them in deals. That core concept of how you use law to help people have assets and have faith in their assets is exactly the same competency you ought to be bringing to digital.

BB: My next question is a little bit along the same lines. How do you see the global response to climate change in terms of the possibilities and potential for growth for an offshore centre such as the BVI?

MP: This is exactly the same issue as with digital: You know in twenty years, thirty years, it’s going to have to be. But you can’t quite see how it’s going to get there. At the moment, I’m afraid to say the pressures are pushing it a little bit into reverse, because we’ve got a period of quite significant fiscal constraint globally with the cost-of-living crisis and with what’s happening in the macro-economy. So it’s definitely a longterm win. The question is what the shortterm trajectory looks like. I don’t know what that means for the BVI in terms of what it does precisely now. But, as I say, it feels like this is an area the BVI ought to be able to leverage. We talked about the DNA: This is a part which just feels like it is essential to the DNA.

BB: If you were able to pull into a room the key private-sector and public-sector decision-makers in this space, what three things would you say, “You guys need to get right and you guys need to cooperate on to navigate the uncertainty that is ahead of you”? What three things would you say, “Don’t leave the room unless you can agree on these three things”?

MP: In many respects, it’s not a case of what needs to be agreed now. In many respects, it’s too early to tell what’s going to happen. What the report has highlighted to me is the extent to which — and I know we economists come out with this all the time — the world is uncertain. But it is uncertain at the moment. On the fan chart of what could happen, the trajectories are so diverging. If you’ve got those individuals in the room, what they need to agree is the way in which they handle the next few months and the next few years of really tough decisions. It’s ensuring that there’s that dialogue. It’s ensuring that there’s a common understanding of the risks. And it’s ensuring that when decisions need to be made, they can be made quickly and will be followed through. That, for me, is the bit that has to happen. It’s not the time to be saying, “You know what? We need to put on the brakes in China.” I’m not too sure it is yet. It’s not the time to be thinking, “We’ve got to sign up to every European Union directive that comes out.” Again, I think you have a bit of time to work out what to do. And you have a bit of time to track and look out for those early warning indicators. Before they leave the room, they’ve got to have that process in place; they’ve got to have that common understanding in place. As I said before, they’ve got to have that acceptance on both sides that at some point some mistakes will happen as well. This can’t be a blame game. This has to be one where there’s proper cooperation around the table about having a process that can be responsive to what is a very uncertain future.

BB: What canary in the BVI coal mine is currently keeping you up at night?

MP: I’ll bring one topic up, because we haven’t mentioned it so far. It may seem a bit left field, but I think it’s important. The one that worries me — and that’s increasingly worried me as I’ve written this report — is banking: the correspondent banking regime and concerns over it in the US. We talked about trying to go up the value chain regardless of the volume in this jurisdiction. I think a part of that is about trying to get to a place where this is a sort of one-stop shop for corporate activity of whatever market you’re in. My concern is that I don’t know how achievable that will be — or how competitive that will be — if it doesn’t have a decent banking system next to it as well. Let’s be blunt about it: Other jurisdictions have been trying to do this as well, and other jurisdictions may well have that banking in place. BB

This interview was condensed and edited by Business BVI.