Bermuda has emerged from a difficult year, after global issues and domestic troubles combined to present a series of business challenges that will bleed into the new year.
The mature and developing markets of international insurance and reinsurance remain the bright spots on the business landscape, of which there is evidence in this newspaper on almost a daily basis.
Employing an increasing number of Bermudians, the companies and other international businesses support service providers such as accounting firms, law firms, banks and advisers, and indirectly a host of other enterprises.
The talent base being built here has become a buffer to the surge of unemployment in our economy in recent years.
But what else for the health of Bermuda business?
Faced with a continued slump in air arrivals for the foreseeable future, hints of what the new year has in store can also be found in a review of local business, the global tax initiative, the economy, tourism and infrastructural construction.
It is fair to say that a post-Covid surge in residential construction projects gave the industry a boost this year.
However, a leading construction boss has told us that momentum is not expected to last in 2024.
Alex DeCouto, co-owner and president of Forte Building Group Ltd, said: “The word that comes to mind for 2023 is ‘indigestion’ as a metaphor because it was a very busy year for local companies.
“We have not had any mega projects like we had before Covid — the airport, Belco, Morgan’s Point — where foreign entities came in to do the work, but in 2023, everything was done by local companies and that is better for us in the market.
“Covid created a real jolt in the arm for residential where the residential construction market went sky high.
“The commercial market is still active enough, too. Businesses were making investment and it was active commercially.”
Mr DeCouto said rising prices for items such as concrete and concrete block, a tight labour market, and backlogs in the planning department that were exacerbated by the hack of the Government’s online systems in September, will contribute to a slowdown in the residential construction market next year.
However, he added: “It looks like commercial construction will stay healthy.
“We are bidding on lots of projects that are on tap — industrial, restaurants and office renovations.
“We are getting lots of inquiries about the office renovation market. That is all good for Bermuda as well.”
Two high-profile projects, the Fairmont Southampton makeover and Brookfield Reinsurance’s 91 Front Street scheme, are expected to come online next year.
Mr DeCouto said: “Brookfield is easily swallowed up by local capacity. It is not a large building for Hamilton. It is a small site for a new build. It doesn’t take a lot of workers.
“It’s a great job, and an awesome investment for Bermuda, but it has nowhere near the impact of the Southampton Princess on the local labour market.
“The Southampton Princess is a gut and refit, and very labour-intensive.”
Mr DeCouto said the project will require between 400 and 500 workers.
He added: “The majority of workers will not be coming from the local market. There will be locals interested in working the job, but the local market is exhausted.
“Twenty-five to 30 per cent of the labour market in the industry is already on work permits.”
Switching gears, in 2023 it was hard to find any aspect of Bermuda life not impacted by skyrocketing costs. Food inflation remained above 10 per cent, electricity was up 20 per cent and some rents increased by an estimated 30 per cent.
It was a year that left many Bermudians feeling the bite of the rising cost of living.
The former Bermuda Chamber of Commerce president, businessman Peter Everson, said things will improve when Bermuda gets the Fairmont Southampton hotel operating again.
“The biggest surprise for 2023 was the lack of progress on that,” the economist said. “We really need to get that going again. It will be a direct employment benefit for 600 jobs. It would also be the equivalent to another ten additional flights at the airport.”
However, he did not anticipate getting the hotel — which closed in October 2020 — open again for at least another two years.
Looking forward, he thought that food prices may start to stabilise next year. “We all hope they do,” he said.
He also thought fuel prices could become more reasonable.
“The oil and gas production in the US has been increasing, which provides some relief for prices in our region,” he said.
American energy companies are now churning out a record 13.2 million barrels of oil a day, more than Russia or Saudi Arabia, and are expected to add another 500,000 barrels a day next year.
Mr Everson said a change in the way Belco sets its fuel adjustment rate would help the hotel industry.
“Bermuda would be better served if the FAR was fixed in October of each year for the next year,” he said. “Currently, a hotel in the summer months might be receiving a bill for $600,000, the next month it might be $660,000 and the next $580,000. You can see what the impact that has on hotel profits because they pre-sell a lot of their rooms.”
Earlier in the year, urban planner Jonathan Starling, attributed local inflation to economic shocks of the pandemic, the Russian invasion of Ukraine and climate change.
Like anywhere else, the economy will always be a central issue. In the face of crippling debt and annually spending more than we make, the Government has promised a day in the near future when revenues will exceed expenditure, a needed development to begin cutting into what we owe to foreign interests.
For that to happen, we need to grow the economy. Bermuda’s gross domestic product expanded 3.60 per cent in the first quarter of 2023 over the same quarter of the previous year.
Just this December, one company blamed “the prolonged stagnation of Bermuda’s economy” for the laying-off of 19 staff just before Christmas.
There are whispers that trouble at the BAC Group is not the only bad news on the shoulder-season horizon.
Bermuda has been held together by the success of international business, and the executive decision to not just make Bermuda their home, but to directly participate in our affairs, to be positive corporate citizens, and in many cases make our concerns, their concerns.
The major global issue that we have been forced to face together this year, and in the future, is the impending introduction of the global minimum tax.
Corporate Income Tax legislation was passed in the House of Assembly and it is proposed that from 2025, Bermuda will start taxing multinational corporations with more than €750 million (about $827 million) of global annual revenue, as determined by the Organisation for Economic Co-operation and Development.
It will end the island’s historical status as a zero-rate jurisdiction.
The tax will be set at 15 per cent, although investment and spending by corporations — such as funds spent towards the creation of jobs, training and career development, local infrastructure investment and investment in support of the environment — could generate tax credits.
There is enormous hope within the Government that revenues can be used to cut other taxes such as payroll and customs duties, to help reduce the cost of living and the cost of doing business.
A Tax Reform Commission will go through the implementation of the corporate tax and make suggestions on the reduction or elimination of existing taxes and customs duties.
It is expected that the commission will deliver its recommendations by mid-2024.