Bermuda

Politics:

• Analysis

  Bermuda politics: Quick View - Voters oust the PLP government

  Event

  The opposition centre-right One Bermuda Alliance (OBA) ended the hopes of the centre-left Progressive Labour Party (PLP) of a fourth successive election victory, and its 14-year hold on power, in a general election ballot held on December 17th. The OBA won a slim two-seat majority of seats in the legislature following a tight election race in which the premier, Paula Cox, lost her seat.

  Analysis

  Bermudians voted for change at the snap election called by Ms Cox in December when the opposition OBA won a narrow two-seat majority in the 36-seat lower house. A historic high unemployment rate of 8% and four successive years of economic recession had fuelled voter disenchantment with the PLP government. The OBA polled 52% of the vote against 46% for the PLP, while 2% backed independent candidates. The biggest election upset for the PLP came with the loss of Ms Cox's previously safe seat to an OBA newcomer, Glen Smith.

  The PLP's support fell by 15% from the previous election in 2007, while the OBA polled 5% more than the former main opposition United Bermuda Party (UBP). The OBA's victory means party leader and businessman Craig Cannonier will become the next premier. Mr Cannonier is another relative political newcomer, having won his first parliamentary seat in a by-election 13 months previously.

  Bermuda's mainstay international business sector, which contributed 24% of GDP in 2011, is likely to be cheered by the result, as the OBA has pledged to implement policies to encourage overseas investment, including the suspension of six-year work permit term limits for overseas workers and the easing of a requirement for local businesses to be 60% Bermudian owned. The OBA aims to stimulate the economy by extending the scope of tax-efficient economic development zones and through a two-year payroll tax exemption for new Bermudian employees. The OBA also plans to continue with mild fiscal austerity measures such as a public-sector recruitment freeze.

  December 18, 2012

• Background

  Bermuda: Political forces

  The ruling PLP was the first party to be formed in Bermuda, in 1963, as a result of a bid by black workers to gain representation and power in a white-controlled political and economic system. The PLP traditionally advocated higher income taxes and independence from the UK, but dropped both of these policies from its manifesto for the 1998 election in its successful bid to gain power. In government the PLP has repeatedly found itself at odds with its traditional partners in the labour movement.

  The UBP was formed in 1964, largely by whites, as a response to the formation of the PLP. An outbreak of racial conflict in the 1970s led the UBP to broaden its ethnic base to become a multiracial party. Seen as a centre-right party, the UBP won all eight elections between the beginning of the formal party system in 1968 and 1998. In the mid-1990s the party found itself divided on the issue of independence. Divisions and uncertainties surrounding the party damaged its reputation in the years leading up to the 1998 election. Boosted by attracting 48% of the popular vote in the 2003 election, the UBP, under the leadership of Wayne Furbert, is providing robust opposition to the government, while at the  same time attempting to broaden its appeal by reaching outside its traditional constituency.

  The National Liberal Party (NLP) was formed as the result of a split in the PLP in the early 1990s. Although it has had as many as four members of parliament (MPs) in the past, the party failed to win any seats in the 1998 or 2003 elections. A new party leader, Graeme Outerbridge, has maintained the party's centrist approach. However, a general movement by the two main political parties towards the centre ground in recent years has left the NLP struggling to differentiate itself on specific issues.

  July 02, 2007

• Structure

  Bermuda: Political structure

  Official name

  Bermuda

  Form of state

  Representative democracy; UK Overseas Territory

  Head of state

  Queen Elizabeth II, represented by a UK-appointed governor, who is responsible for defence, external affairs and internal security

  The executive

  The premier, chosen from the majority party, heads a cabinet of no more than 14 members of the legislature

  Legislature

  Bicameral; the Senate (the upper house) consists of 11 members, five appointed by the governor on the advice of the premier, three on the advice of the leader of the opposition and three by the governor at his discretion; the 36-member House of Assembly (the lower house) is directly elected for a maximum term of five years

  Legal system

  Bermuda's laws and legal system are based on the UK model; the ultimate court of appeal is the UK Privy Council

  Elections

  December 18th 2007; next election due by February 2013

  Government

  The PLP holds 24 seats in the 36-member lower house

  Main political organisations

  Government: Progressive Labour Party (PLP)

  Opposition: One Bermuda Alliance (OBA)

  Main members of cabinet

  Governor: George Fergusson

  Premier, finance minister: Paula Cox

  Key ministers

  Attorney-general: Kim Wilson

  Business development & tourism: Wayne Furbert

  Economy, trade & industry: Patrice Minors

  Education: Jennifer Smith

  Environment: Marc Bean

  Government estates & information services: Michael Scott

  Health: Zane DeSilva

  National security: Wayne Perinchief

  Public works: Michael Weeks

  Transport: Walter Roban

  Youth affairs & families: Glenn Blakeney

  Chair of the Bermuda Monetary Authority

  Jeremy Cox

  October 17, 2012

Economy:

• Background

  Bermuda: Population

  Population density is high in Bermuda, with 1,119 inhabitants/sq km according to the 2000 census. The 2000 census recorded a total population of 62,059, 6% higher than the 59,324 recorded in the previous census in 1991. During the decade, the foreign-born population grew by 12%. In 2000 blacks made up 55% of the total population, whites 34%, and mixed and other races 11%. The unemployment rate fell to 3% in 2000, down from 6% in 1991. Total employment grew by 1.5% year on year to 38,947 filled jobs in 2005. Many of those employed have more than one job. The nationality split of the workforce has become a political issue in recent years, amid public concern that non-Bermudians have greater employment opportunities than Bermudians. In 2005 non-Bermudians held 28% of all jobs, up slightly from 27% in 2003. The median income for non-Bermudians in 2005 was one-quarter higher than that for Bermudians. There are also income disparities along racial lines, with whites earning 22% more than blacks on average.

  Tourism is directly responsible for around one-fifth of employment on the island, but the trend is downward. Following eight years of falling employment levels, the hotel industry saw a short-lived increase in employment in 2004 as refurbishment of hotels damaged by Hurricane Fabian lifted the number of jobs in the sector. The two fastest-growing sectors in terms of employment are construction and the international business sector. Government remains the largest sectoral employer. However, in line with the increasing importance of the international financial sector to the economy, the share of workers employed by companies offering business services, such as legal and accountancy firms, has increased steadily, rising by just under one-quarter between 2000 and 2005.

  July 02, 2007

• Structure

  Bermuda: Economic structure

  Economic structure: Annual indicators

  	2008a	2009a	2010a	2011b	2012b
  GDP at market prices (Bda$ bn)	6.1	5.8	5.8	5.7	5.8
  GDP (US$ bn)	6.1	5.8	5.8	5.7	5.8
  Real GDP growth (%)	3.0	-5.0	-1.9	-2.0	-1.0
  Consumer price inflation (av; %)	4.8	1.8	2.4	2.7a	2.6
  Population (m)	0.1	0.1	0.1b	0.1	0.1
  Exports of goods fob (US$ m)	24.0	29.0	15.0	16.0	13.0
  Imports of goods fob (US$ m)	-1,159.0	-1,065.0	-988.0	-940.0	-950.0
  Current-account balance (US$ m)	890.0	548.0	671.0	726.0	655.0
  Exchange rate (av) Bda$:US$	1.00	1.00	1.00	1.00a	1.00
  a Actual. b Economist Intelligence Unit estimates.

  Download the numbers in Excel

  Origins of gross domestic product 2010	% of total	Components of gross domestic product 2010	% of total
  Agriculture	0.7	Private consumption	41.1
  Industry	7.3	Government consumption	15.7
  Manufacturing	1.3	Fixed investment	24.6
  Services	91.9	Stockbuilding	0.0
  		Exports of goods & services	54.8
  		Imports of goods & services	33.3
  Main destinations of exports 2009a	% of total	Main origins of imports 2009a	% of total
  Spain	16.3	United States	31.9
  India	14.1	South Korea	27.6
  Brazil	9.2	Poland	6.2
  Germany	7.1	Singapore	5.5
  a Based on trading partners' returns.

  Download the numbers in Excel

  Download text file (csv format)

  October 17, 2012

• Outlook

  Bermuda: Country outlook

  Bermuda: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  OVERVIEW: An election is due by February 2013 but is likely to be called in December by Paula Cox, the leader of Bermuda's governing nationalist Progressive Labour Party (PLP). The opposition One Bermuda Alliance (OBA) is leading in voter polls. Despite the centre-right OBA's poll lead, the Economist Intelligence Unit expects the election to be very closely contested. Even if the OBA wins an absolute majority of the votes, it may well lack a legislative majority. Rising debt-service costs will weigh on the public finances in the 2013-14 outlook period and beyond. Financing constraints will reduce capital spending but some priority projects will advance. Our central forecast is for a weak recovery to begin in 2013-14 after four consecutive years of recession. Weak growth, high unemployment and public spending constraints will support price stability, and annual inflation will average 2.7% in 2013-14. The current-account surplus will narrow to an annual average of 10.3% of GDP in 2013-14.

  DOMESTIC POLITICS: Bermuda's political environment will remain broadly stable, despite the onset of campaigning ahead of a general election, which is due by February 2013. Although campaigning will raise the political temperature, it is not expected to lead to political unrest. Ms Cox is seeking to win a fourth consecutive term in office for the PLP. She faces a number of major challenges. Voter concern is focused on the much-weakened economy, over which Ms Cox has presided as finance minister. Meanwhile, the previously fragmented opposition has been strengthened by a merger between members of two centre-right parties, the United Bermuda Party (UBP) and the Bermuda Democratic Alliance, to form the OBA, which is leading recent opinion polls by a significant margin. The UBP has remained a political party but will secure little backing as opposition support has increasingly coalesced around the OBA, ending a damaging split in the opposition vote and giving the OBA the potential to pose a serious electoral threat to the PLP. A general election must take place by February 2013. With few signs that the economy is emerging from a lengthy recession, the government's poor record on economic management during the last eight years will bolster the opposition's case for a change in governing party. A resurgence of voter support for a reformed and united opposition front is already evident; this will make for a very closely fought election, with the PLP facing a high risk of being ousted from power. During 2012 the PLP has consistently trailed the centre-right OBA by 7 percentage points in opinion polls; the OBA polled 45% support in the most recent survey, conducted in September, compared with 38% for the PLP. In terms of candidates, a poll by the Royal Gazette newspaper indicated that only 16.6% of voters wanted Ms Cox to remain as premier after the election, while 59% wanted the opposition leader, Craig Cannonier, to become premier. The September poll also showed voter choices firming up, with only 13% of respondents undecided, compared with 32% in May. Although the survey still shows a significant number of potential swing voters, the outcome of the election is becoming more predictable and we now attach a 60% probability to an opposition victory. While an election date has yet to be fixed, a ballot in December is most likely, as students who study abroad tend to return during year-end holidays; they traditionally boost support for the PLP. The PLP will continue to count on firm support from Bermuda's black majority, owing to social inequality issues with white Bermudians and largely white expatriate workers. Most black Bermudians will remain suspicious of any party comprised of former members of the UBP, which has historic ties to Bermuda's white community. The OBA's chances of electoral success hinge on its ability to convince black voters that it is not just a repackaged version of the UBP.

  INTERNATIONAL RELATIONS: Relations between Bermuda and its most important economic partner, the US, are being boosted by ongoing efforts to sign international tax treaties, although relations could deteriorate sharply if the US government were to adopt tax reforms that prevent the use of offshore tax domiciles (such as Bermuda) by US companies. Opposition in the US to the use of offshore jurisdictions to avoid domestic taxes on overseas earnings means that the US government will continue to seek to clamp down on the practice. Relations with the US will therefore be dominated by efforts to improve the supervision of financial services companies, in order to prevent the islands from being used for transactions connected to the illegal drugs trade, money-laundering or terrorism. With support from the UN's Special Committee on Decolonisation, the PLP government is committed to pursuing a policy of disengagement from the UK, of which Bermuda is an overseas territory. However, this move is unpopular, with some 80% of voters opposed to such a policy in a 2012 survey.

  POLICY TRENDS: Policymakers will have little scope to boost the economy through capital spending during 2013-14, owing to fiscal constraints and the limitations of a fixed exchange rate. Nevertheless, the government has increased borrowing to meet spending commitments on healthcare, justice reforms and improved policing. It has also made piecemeal efforts to attract international financial services providers-which are crucial to economic growth-through the relaxation of some visa limits and, more recently, the removal of foreign ownership restrictions on publicly quoted companies. Bermuda's captive insurance businesses and hedge funds are expecting to gain a competitive edge over rivals as tax rises and policy uncertainty are reducing the attractiveness of the Cayman Islands. In addition, the signing of a tax information exchange agreement with Canada earned Bermuda "designated treaty country" status. Bermuda-based captive insurers providing reinsurance to Canadian parent companies can now repatriate profits to Canada tax-free. Despite some signs of a more flexible approach towards business under Ms Cox, a PLP government would still struggle to end a restrictive employment policy for foreigners. A more radical approach to improving Bermuda's attractiveness to foreign investors will be required before the sector is likely to grow markedly again. The government will continue to restrain expenditure under its 2012/13 (April-March) budget, approved in March, in a bid to address steeper than expected revenue shortfalls arising from economic contraction since 2009. Balancing the budget in a recessionary environment will require further tax and borrowing increases. However, the need to maintain a stable tax regime that is attractive to international business will limit the government's ability to increase the corporate tax burden. The budget projected a fourth consecutive year of fiscal deficit in 2012/13, of around 3% of GDP. However, recent fiscal trends show spending ahead of budget, and this, together with continued economic contraction, means that the deficit is now expected to remain unsustainably high in 2012/13, at around 4.5% of GDP. Fiscal trends since 2007 have forced up debt levels, with estimated public borrowing growing by US$242m (4.3% of GDP) in 2011/12. A successful US$475m ten-year international bond issue in late June, Bermuda's first since 2010, resulted in a yield of 4.14%, lower than that of a previous issue. This will enable more costly short-term debt to be cancelled and will reduce borrowing costs. Total public debt and debt guarantees are projected to rise to around US$1.4bn (29% of GDP) by the end of 2012/13.

  ECONOMIC GROWTH: Faltering economic growth in Europe and only a weak recovery in the US, on which Bermuda's crucial international business, insurance and tourism sectors depend, will continue to undermine its recovery prospects. Leading indicators for employment, bank credit growth, tourist arrivals and retail sales all stayed firmly below year-earlier levels in the first half of 2012. We forecast that a very mild recovery will take hold only in the second half of 2013, after a fourth consecutive year of contraction in 2012, when GDP is estimated to decline by 1%. Growth will be supported by an improvement in investment income, but recovery will be inhibited by high unemployment by historical standards, a contraction in government consumption and weak public investment. We expect that pent-up domestic demand will support growth in 2013, but this will be insufficient to lift employment and incomes significantly. Fiscal adjustment will impair growth prospects throughout 2013-14, assuming that the next government will abide by and deepen existing fiscal austerity measures. Domestic demand and private consumption are underpinned by Bermuda's large proportion of high-income individuals. Downside risks to our growth forecast stem from dependence on the financial services sector, particularly insurance, which can be subject to highly erratic investment flows as a result of shifts in the global economy and in the perceived stability of Bermuda's tax regime towards foreign-based, and especially US-owned, firms.

  EXTERNAL ACCOUNT: After a marked widening in 2010-11, Bermuda's current-account surplus narrowed slightly in 2012, to an estimated 11.3% of GDP, on the back of subdued import demand and lower average oil prices. The narrower current-account surplus also reflects the weak outlook for international business and declining investment. Although down from their 2011 peaks, the prices of soft commodities and oil will remain high, assuming that a global recession is avoided, keeping some pressure on the external accounts. A slow recovery in income and services receipts in 2013 and continued feeble import demand will be offset by the weak investment and growth outlook during 2013-14, and so the current-account surplus will narrow further in 2013. Tepid consumer demand will help to offset any rise in import prices and prevent a sharp increase in the structurally huge trade deficit (with negligible merchandise export earnings) in 2013-14. However, an expected slow recovery in tourism revenue will support the services surplus. As demand growth gains traction in 2014, some slight easing of fiscal constraints on the back of revenue growth will see the trade deficit expand again, but the effect of this will be mild and there will be only a slight widening of the current-account surplus in that year, to 10.4% of GDP.

  October 23, 2012

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Country Briefing

Land area

Around 53 sq km; Bermuda comprises a string of seven major islands linked by bridges and a causeway and 131 smaller islands. It is situated around 900 km east of the US North Carolina coast

Population

64,186 (preliminary official census data, May 2010)

Main towns

Hamilton (capital); St George's

Population of main parishes:

Pembroke, incl Hamilton: 10,602 (2010 census)

St George's: 6,417 (2010 census)

Climate

Mild and humid

Weather in Hamilton (altitude 46 metres)

Hottest month, August, 23-30°C; coldest months, February-March, 14-20°C (average daily minimum and maximum); driest month, April, 104 mm average rainfall; wettest month, October, 147 mm average rainfall

Language

English

Measures

UK (imperial) system, also US units

Currency

Bermuda dollar (Bda$) = 100 cents; pegged at parity with the US dollar (Bda$1:US$1)

Time

4 hours behind GMT

Public holidays

January 1st; Good Friday; May 24th (Bermuda Day); third Monday in June (National Heroes Day); Thursday before first Monday in August (Emancipation Day); Friday before first Monday in August (Somer's Day); first Monday in September (Labour Day); November 11th (Remembrance Day); December 25th-26th

July 25, 2012