Hurricanes test Caribbean islands’ fragile economies

Hurricane Irma, the costliest storm ever to hit the Caribbean, has caused more than $10bn-worth of damage across the region and killed more than two dozen people. Risk analysts at the Center of Disaster Management and Risk Reduction Technology calculate the final cost to be $12.75bn in the Caribbean.

As relief efforts continue and citizens begin to survey the damage done to their homes, the longer-term challenges are becoming apprent for a region highly dependent on tourism for its economic stability.

Widespread damage

Entering the region as a category 5 hurricane, Irma wrought severe damage to a number of territories and nations including the British Virgin Islands (BVI), Turks and Caicos, the US Virgin Islands, the UK’s Anguilla, and Barbuda – the last of which has been “95% destroyed”, in the words of its prime minister, Gaston Browne. Cuba, Haiti and the Dominican Republic – not included in Caribbean cost estimates – also suffered serious destruction of property.

Authorities are not yet certain how long a full recovery will take, but it is likely to be a number of years, given that Hurricane Maria followed quickly on Irma’s heels, devastating Dominica and Puerto Rico, and causing further damage to some islands that were still reeling from the earlier storm. 

Caribbean economies rely on tourism for between 50% and 60% of gross domestic product (GDP), according to the World Tourism and Travel Council, while analysis cited by the BBC found that “tourist traffic in the Caribbean… fell by 2% after a typical hurricane and by as much as 20% for major events”.

Remaining optimistic

Hugh Riley, secretary general of the Caribbean Tourism Organisation, told reporters: “It has not escaped our attention that the economic wellbeing of the Caribbean is taking a hit.” However, while many hotels have been destroyed or plan to stay closed for months, several still remain mostly intact, and Mr Riley hopes that the perception of widespread destruction will not frighten travellers away from those islands and resorts that survived the storm. Some are even expected to reopen for the rest of the tourist season.

Officials from Antigua and Barbuda expect the recovery to cost up to $200m. Chet Greene, Barbuda’s minister for trade, industry and commerce, nonetheless expressed optimism in an interview with fDi.  

Asked if he was worried the devastation would scare off investors, he said: “It should not. In every challenge there are opportunities. Barbuda is now on the global stage, and I think investors will want to be a part of that rebuilding process in a state that is pretty much virgin. Those in the hotel sector have indicated their desire to continue their investments by way of reconstruction and renovations.

“While we are prone to hurricanes, we also have unparalleled natural attractions. We anticipate that within six to eight months, those who relocated to Antigua can return to Barbuda. By the hotel season of 2018-19, elements of the tourism plans will be up and running, and so Bermuda should be ready for business. My optimism is driven by the policies of the government, the resilience of the people, and the support of the international community.”

Financial services

Aside from pristine beaches, many Caribbean islands enjoy substantial revenue from offshore corporate financial services. The BVI is a leader in the sector, but after five people were killed and large swathes of infrastructure destroyed, more than 250 staff from up to 20 firms including KPMG, Deloitte and EY were evacuated and their offices closed. Most have temporarily relocated to other regional financial hubs such as the Cayman Islands and Bermuda.

“The Deloitte office most impacted by the storm was in BVI and a full assessment of the recovery effort on the ground is ongoing,” said John Johnston, CEO of Deloitte’s Caribbean and Bermuda arm. Deloitte’s 25 BVI staff have relocated to Bermuda and the Caymans. “In the meantime, our regional business and infrastructure platforms have enabled us to continue serving clients with little interruption and no loss of data.”

The BVI holds more than $1500bn in offshore company assets, 40% of which come from Hong Kong and China. “We expect the recovery process for the region to be a long and costly one that will require co-operation between the private sector and governments as well as significant funding,” Mr Johnston said.

One upside is that these financial operations can be carried out remotely. “With many businesses activating their business continuity plans, a significant level of services and operations have continued either on island or via international networks,” said Lorna Smith, interim executive director at BVI Finance. And the BVI’s Financial Services Commission, which hosts the BVI corporate registry and its records for more than a million companies, has not been damaged; its online company registration platform was up and running within days.

A managing director at the BVI offices of Grant Thornton guessed it would realistically be a couple of months before staff could return to the BVI, but it seemed clear that firms do aim to return. “While many employees of private sector firms have had to be relocated, there is every intention for these professionals to come back as soon as possible, so that businesses can substantively return to the BVI,” Ms Smith said. “I would also like to assure people that all controls and safeguards are in place with regards to data privacy and security, with Hurricane Irma having no bearing on these fundamental principles.”

Aftercare a priority

Turks and Caicos, the UK territory of 35,000 inhabitants, is another provider of offshore financial services, although newer and smaller than its regional counterparts. The sector accounts for 12% of the country’s GDP, according to John Rutherford, former director of Invest Turks and Caicos investment agency. It was among the first island chains battered by the hurricane, and now is working to salvage its economy.

“The most important priority is aftercare, looking after the existing investors and working with government departments to move forward,” Mr Rutherford told fDi. “I don’t know how long it will take everything to get back to normal, but first [the country has] to get infrastructure back on track.”

Still, he is certain that Turks and Caicos will return to form. “Clearly Irma was a major setback and this is part of what companies will consider in terms of locating,” he said. “But this is a once-in-a-generation thing, and the Caribbean will continue to grow because of its positive conditions for financial services: rule of law, the US dollar and financial expertise.

“Tourism and hospitality will always be the most important sector for the islands – and the conditions are still there. It’s still got beautiful beaches, which are regarded as a luxury. The islands rely so much on tourism that everyone will be getting behind this.”