Tuesday, 23 June 2009

What is Inward Investment?

Investment is widely recognized as a key driver of long term economic growth. Given the current economic climate, an increased focus has been placed on inward investment in particular as a way of stimulating the Cayman economy.

Inward investment refers to the action by a foreign investor to start or acquire a business in the Cayman Islands. The benefits of inward investment include the injection of money into our economy (e.g. through the purchase of land and/or construction of a building), the creation of jobs, and new opportunities for local entrepreneurs (e.g. as suppliers).

The degree to which inward investment is beneficial depends in part on the extent of the linkages created in the local economy and the length of time that the foreign business operates in Cayman. Specifically, greater linkages (and thus benefits) exist when the foreign business has higher levels of Caymanian employees, greater use of local suppliers, and where the income to the foreign business is retained or reinvested locally versus being repatriated. Over time, there is also the possibility that the operation of the foreign business results in a transfer of productivity and/or technology to local businesses.

Given the above facts, the attraction of inward investment is only the initial stage in the economic development process. Retention of foreign business must also be considered in order to ensure long term benefits such as continued employment, and continued purchases within the economy. Encouraging the expansion of a foreign business already within the Cayman economy is also an important consideration. As any good salesperson knows, it is often easier and more productive to work with existing customers than to attract new customers.

Proper consideration must also be given to domestic businesses. As stated above, the links between foreign businesses and local businesses is a key aspect of the overall economic benefit of inward investment. Due attention must be placed on ensuring that small and medium sized domestic businesses can make the investments needed to pursue the opportunities introduced by foreign businesses. Take for example the construction of a new foreign-owned hotel. Such an investment presents an opportunity for local businesses in the tourism industry to work with this hotel in the provision of services to their guests. This indigenous investment must be facilitated and nurtured in order to ensure a successful partnership.

With these considerations in mind, and the cry from some quarters that the Cayman Islands have become overdeveloped in some areas, the question must be asked if all inward investment is beneficial. Does the introduction of a foreign business that competes directly with domestic businesses have a positive overall impact? This competition can take many forms, not just in terms of market share, but also in terms of competing for qualified employees and competing for funds from commercial banks.

Is it beneficial to attract inward investment in areas where there are no local businesses or individuals with the skills or capabilities to take advantage of the opportunities presented? In such a case, there may need to be an emphasis on developing local small and medium enterprises, workforce development and even infrastructure development to ensure that beneficial linkages within the local economy are created.

The balance between inward investment and indigenous investment is a complex one that is not easily distilled into simple statements. That said, not all inward investment is beneficial. Consideration must be made for the long-term strategic direction of the country, including a position on the stimulation of indigenous investment. A clear policy framework and a common understanding among key stakeholders are therefore necessary elements to ensure that investment is effective as a key driver of economic development for the Cayman Islands.

1 comment:

  1. greetings to all.
    I would first like to thank the writers of this blog by sharing information, a few years ago I read a book called costa rica investment in this book deal with questions like this one.

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