Hurricane Irma highlights BVI’s need for reforms

After Hurricane Irma devastated the British Virgin Islands last September, more than 150 financial services workers and their families came to the Cayman Islands to continue carrying out BVI business.

By early March, only a few dozen evacuees remained, and the BVI government set a March 31 deadline for the rest to return.

In making that target date for displaced workers to come home, the BVI government signaled that its recovery from last September’s storms is well under way.

“While there are many persons still to receive some essential services, it is safe to say that the general quality of our lives has remarkably improved over the past six months,” said BVI Premier Orlando Smith.

According to government, power has been restored to more than 90 percent of the islands, more than 70 percent of the public spaces have been cleaned, 75 percent of the telecommunications infrastructure has been restored, and other essential services are back online. Cruise ships are again making calls, hotels are reopening, and the financial services industry remained steady even in the immediate aftermath of the disaster, with the private and public sectors working together to make sure BVI business could be carried out from jurisdictions like Cayman and other offshore centers.

However, the territory continues to grapple with multiple problems, including destroyed homes, roads and sewerage systems, a sluggish financial services industry, fiscal woes, and rising crime. Some of these problems were caused by Irma, but others were present beforehand and have only become more glaring in recent months.

The territory continues to grapple with multiple problems, including destroyed homes, roads and sewerage systems, a sluggish financial services industry, fiscal woes, and rising crime.

Besides proposing spending packages, few public policy measures have been introduced to address those problems.

But whether government likes it or not, public recovery loans are contingent on at least some reform.

For instance, a US$65 million loan from the Caribbean Development Bank brings with it strict procurement rules for public projects. While some BVI contractors complain that the development bank’s rules favor larger bidders, the CDB’s rules are intended to guard against corruption and waste.

Likewise, the United Kingdom offered the BVI some US$400 million in loan guarantees, which came with stringent requirements. The U.K. government will establish an agency to monitor the BVI’s spending of that money, and will also conduct an audit of the territory’s public finances – and require reforms based on the results of that audit.

The requirements sparked outcry from some residents, with one opposition legislator even likening the U.K. mandates to “economic slavery.” A prominent billboard was installed downtown Road Town, reading, “We Virgin Islanders do not support the U.K. framework for the BVI recovery plan.”

Nevertheless, Smith maintained that the U.K. guarantees are vital to fund government’s US$722 million disaster recovery plan, because they will allow government to save tens of millions of dollars by borrowing at 1 percent interest rather than the higher rates that would be charged with non-guaranteed loans.

“It is time for the raw sewerage to stop running in our streets and ghuts [gutters]. It is time for us to build a stronger and more resilient electricity grid. It is time for us to restore our criminal justice system including rebuilding accommodation for our judiciary,” Smith urged in a March speech in favor of taking the U.K. guarantees. “It is time for our prisoners housed in St Lucia to be back at Balsam Ghut where they can be in touch with their families and friends. It is time to find shelter for those made homeless.”

Along with rebuilding the territory’s physical infrastructure, a large portion of the recovery plan – more than US$200 million – will be used to expand the BVI’s main airport.

With no direct flights between the BVI and the United States and many other Caribbean jurisdictions – Cayman Premier Alden McLaughlin traveled on a Cayman Airways flight with supplies to Anguilla immediately after Irma, but said he couldn’t travel to the BVI because its runway was too short for the jet to land on – government has long maintained that an expanded airport is necessary for its financial services and tourism industries to compete with others in the region. Smith painted the project as even more crucial to stimulate the recovery.

Over the protests of the opposition and some in Smith’s own administration, government passed legislation at the end of March to accept the U.K.’s loan guarantees and accompanying requirements.

Still, more reforms needed if the BVI is to thrive in the long run, according to many professionals there.

Baker Tilly insolvency lawyer Hadley Chilton, who lived in Cayman from 2005 to 2008 and is now based in the BVI, said the BVI would be best served to emulate other Cayman policies that make it relatively easier for non-citizens to obtain permanent residency and open businesses.

“There are people who’ve lived here for 10 to 20 years and still aren’t permanent residents,” he said. “We might want to revisit that.”

Other hurricane-devasted jurisdictions are reviewing their policies for allowing non-citizens to own land. In Barbuda, government passed legislation in the wake of Irma to overturn the island’s longstanding system of communal ownership – where Barbudans would vote on how land should be used – to allow for citizens and non-citizens alike to freehold land. Barbuda Prime Minister has touted the land reforms as necessary to finance reconstruction, but his change was met with much resistance and is currently being challenged in court.

In the BVI, government allows residents to freehold land, but government approval is required for non-citizens to own land, and non-citizens can generally only own one property apiece – with rare exceptions, such as billionaire Richard Branson, who owns two islands there. While loosening those restrictions may encourage outside investment, such reforms have not been discussed in public by government officials.

Perhaps the most pressing need is for immigration reform.

In 2015, government commissioned a study from the consulting firm McKinsey & Company on how to address the long downturn of the jurisdiction’s financial services industry. The BVI’s company formation sector – which is the largest aspect of the BVI’s financial services industry, and the main source of public revenue – has declined by nearly half over the last decade or so, from more than 800,000 active BVI companies in the mid-2000s to around 400,000 now.

One of the study’s primary recommendations was to streamline a decades-old immigration system that takes months to process and renew work permits.

Whereas work permit applicants currently have to obtain separate permissions from the BVI immigration and labor departments, McKinsey & Company recommended that those departments integrate the application process to provide a one-stop shop for applicants – as is done in Cayman and other jurisdictions.

Officials began working on those reforms in 2016, with the goal of being able to process new applications within a month and renewals within two weeks. But those efforts were not carried out, and the immigration process reportedly became as inefficient as ever after Irma.

According to the territory’s local newspaper, The BVI Beacon, people have arrived at the department as early as 3:30 a.m. to ensure they would be seen, with latecomers sometimes being turned away. In a jurisdiction that had more than 4,000 homes destroyed, residents have also been subject to house inspections, with immigration officials declining to renew work permits if the department is not satisfied that applications are living in “favorable” conditions.

In response to growing dissatisfaction from the public, government instituted a number of reforms in March – along with the reassignment of the chief immigration officer. Those reforms include the immigration department allowing requests for permit renewals and extensions to be submitted electronically and processed in the employees’ absence. The department has also announced the establishment of an appointment system that designated certain days for specific steps in the immigration process.

However, the territory’s labor department has not followed in immigration’s footsteps, and delays persist in processing work permit renewals and applications.

But even if the BVI does institute good-governance and pro-growth reforms, Chilton said its economy will likely still be largely dependent on the performance of the global economy
“Cayman had momentum. Ivan was three years before the 2008 [financial crisis],” he said, adding, “I think it’s a bit too early to tell [for the BVI]. We definitely don’t have booming economies around the world.”