Caribbean Islands - Cayman Islands and the Turks and Caicos Islands Economy

For more information about the economy, see Facts about the Cayman Islands.

Economy

In the mid-1980s, the Cayman Islands were one of the most prosperous areas in the Caribbean. The gross domestic product in 1985 was approximately US$254.5 million, with a per capita GDP of US$12,789. Approximately 75 percent of all workers were employed in the service sector. Industry accounted for an additional 23 percent of workers; the remaining 2 percent were in agriculture. Forty-two percent of adult women were in the work force in 1979. As with most Caribbean islands, imports to the Cayman Islands greatly exceeded exports. In 1983 imports totaled US$140.4 million, while exports totaled only US$2.4 million. Major trading partners were the United States, Trinidad and Tobago, Britain, and the Netherlands Antilles.

Until 1970, fishing generated most of the Cayman Islands' income. In the 1960s, however, the islands began systematically to nurture two industries--offshore financial services and tourism. The territory passed new banking laws and made extensive investments in infrastructure, including roads, airports, and wells and desalination plants for water supplies. By the late 1980s, the islands had become the Caribbean's leading tax haven. Citizens, permanent foreign residents, and corporations paid no income, property, inheritance, or capital gains taxes. In 1985 approximately 19,000 companies were registered in the islands, including 498 banks and trust companies and 369 insurance companies. Revenues from company registration fees, trust and insurance licenses, and stamp duties brought in almost US$18 million during 1983. About the same amount was collected in import duties, and total revenue exceeded government expenditures by almost US$2 million. Banks on the islands handled an estimated US$1 billion a day in Eurocurrency (see Glossary) deals. External assets of banks licensed in the Cayman Islands totaled US$127 billion at the end of 1982.

The Cayman Islands also has succeeded in building its tourist industry. Infrastructure for tourism has been developed substantially, and new hotels and condominiums have been built on all three islands. Tourist arrivals soared 300 percent between 1973 and 1984, largely because of more cruise ship arrivals. In 1986 more than 382,000 tourists visited the islands, including 216,000 cruise ship passengers. In 1985 tourism contributed US$75 million to the economy and employed one-fourth of the work force.

Despite the relative prosperity of the Cayman Islands, problems remained. The tourism boom had inflated land prices to such an extent that young islanders found it difficult to build homes. Agriculture was almost nonexistent in the Caymans because of low rainfall and poor soils. Over 90 percent of the islands' food was imported, a major part of the Caymans' import bill. However, development efforts had made the islands self-sufficient in eggs and bananas, and beef, oranges, and tomatoes also were produced.

Serious questions also had been raised about the offshore banking industry. In the early 1980s, United States officials became concerned that Cayman banks were becoming havens for illegally obtained drug monies. The United States Department of Justice estimated that between 20 and 40 percent of the US$76 billion generated annually by illegal narcotics trafficking in the United States and the Caribbean was laundered through offshore banks in the Caribbean, where criminals were shielded from investigators by secrecy laws. The United States government therefore put pressure on Britain and the Cayman Islands to modify bank secrecy regulations to allow the United States attorney general access to Cayman bank and business records. On August 27, 1984, the two countries and the Cayman Islands signed a pact requiring the islands' administrators to obtain requested records within fourteen days of receiving a certification that the records were needed for an investigation of a drug-related offense.

The Cayman Islands had a modern communication system in the 1980s. The British firm Cable and Wireless operated an entirely automatic system of over 9,000 telephones. A small ground satellite station and submarine cables provided international links to the United States and Panama. Four radio stations on Grand Cayman served the island, broadcasting on 1205 and 1555 kilohertz and on 101.1 and 105.3 megahertz. The Cayman Compass and the Sun were both published five times a week.

Transportation among the islands was relatively good. In 1984 the territory had 252 vessels over 100 gross tons; the large number reflected the islands' sizable charter boat business. Georgetown was a major port. Populated sites on all three islands were linked by 160 kilometers of all-weather roads. Municipal buses ran between Georgetown and West Bay on Grand Cayman. Owen Roberts International Airport outside Georgetown and an airfield at the western end of Cayman Brac had paved runways to accommodate international flights. There were no railroads or inland waterways.

In the late 1980s, the Turks and Caicos economy was considerably less prosperous than that of the Cayman Islands. The GDP in 1984 was approximately US$26 million, with a per capita GDP of US$3,478. Services employed 61.8 percent of the work force, industry 23.3 percent, and agriculture 14.9 percent. Thirty-three percent of adult women were in the work force in 1979. Imports exceeded exports by over US$18 million in 1982. Major trading partners were the United States and Britain.

Historically, economic development in the Turks and Caicos had been limited by weak infrastructure. The highway system on the islands was underdeveloped in the 1980s. South Caicos and Grand Turk Island had a total of 24 kilometers of paved roads; the other islands had a total of about 100 kilometers of gravel roads. However, the completion in 1983 of a British-financed airport on Providenciales was an important stimulus to the rapidly growing tourism industry. Within a year, a major international hotel chain had begun operations on the islands; the chain opened 100 additional rooms in 1985 as tourist demand exceeded expectations. In 1986 arrivals of stopover visitors to the Turks and Caicos increased by 22 percent over the previous year, one of the highest growth rates in the Caribbean. Two additional hotels were expected to be constructed in 1987. Large ships could be accommodated on South Caicos, Salt Cay, Grand Turk Island, and Providenciales. In addition to Providenciales, Grand Turk Island had an airfield with a runway capable of handling international flights.

As in the Cayman Islands, offshore financial services were an important component of the Turks and Caicos economy in the 1980s. More than 4,000 companies registered in the islands in the mid1980s to take advantage of the absence of company and income taxes and exchange controls. In 1986, however, the industry stagnated in response to increased competition from other Caribbean islands and investor concerns regarding the political situation in the Turks and Caicos.

Fishing had also become an important industry by the mid-1980s; lobster, conch, conch shells, and fish were the territory's principal exports. Exports of fish to the United States, the main customer, totaled US$3 million in 1983. Despite its importance, the industry was plagued by serious technological and marketing problems; overfishing was also a major concern. Almost all foodstuffs other than fish were imported by the Turks and Caicos. Low rainfall, poor soils, and the inadequacy of irrigation systems confined agriculture to small amounts of subsistence farming.

The Turks and Caicos government experienced chronic budget deficits in the 1980s; as a consequence, operating subsidies and development aid from Britain were essential. The 1983 closure of the last United States military base on the islands--a navy facility on Grand Turk Island--led to a loss in rent equal to 10 percent of total government revenues. In an effort to reduce expenditures, the government initiated a privatization policy in 1985; within two years, much of the debt-ridden electricity department had been transferred to private control. Because of the government's action, the deficit was reduced from US$4.3 million in 1984 to US$2.2 million for the fiscal year (FY--see Glossary) ending March 1987.

In the 1980s, domestic communications in the Turks and Caicos were only fair; international communications were of better quality. Although the islands had 1,400 telephones, service was often erratic and was limited to Grand Turk Island, North Caicos, South Caicos, and Providenciales. Two submarine cables and a small ground satellite station provided modern international links. Broadcasting was limited to one AM radio station on Grand Turk Island on 1460 kilohertz. The Turks and Caicos News was published weekly.

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