Recent indications suggest that the Virgin Islands economy is improving, but as 2015 begins leaders would do well to closely monitor and mitigate potential threats to tourism and financial services. At the same time, they should carefully consider how to diversify the economy, both inside and outside of these relatively delicate sectors.

 

Though important progress has been made in recent years, fresh challenges loom, and more will need to be done to protect the livelihoods of VI residents.

Happily, there are positive signs in the tourism sector. In 2011, more than 337,000 visitors stayed overnight in the VI, a number that rose to more than 355,000 in 2013, the last full year for which statistics are available. This trend continued through the first three quarters of last year.

Though cruise visitor numbers simultaneously have dropped, a major project is under way at Wickhams Cay that leaders say will help cement the territory’s position in that expanding sector for years to come.

While these developments are encouraging, the territory should not rest on its laurels, as coming challenges are serious.

The recent news that Americans soon will be able to travel to Cuba doubtlessly will divert visitors from other Caribbean islands, potentially upending tourism-dependent economies like this one. This concern is immediate and urgent for the VI, and it will continue to be a threat for the foreseeable future as tourists, media outlets and investors turn their eyes toward the Cuban market.

We also note with concern the recent passage of an American law that will make it possible for yachts disembarking from the United States Virgin Islands to carry as many as 12 passengers, up from six. The new bill could encourage VI-based boats, especially those with American crews, to base themselves in St. Thomas or St. John. There, they could sail this territory’s waters while provisioning and performing repairs in the USVI, depriving this territory’s marinas of business and reducing government revenue from work permits, taxes and other fees.

Additionally, developers hope to build a 145-slip marina in St. John, which could bring further competition.

In the face of such challenges, this territory will need to do what is necessary to retain its commanding lead in the yachting sector. At the same time, it should take advantage of opportunities to improve land-based activity options, such as historical sites and possibly Brandywine Bay.

But even these steps will be pointless if tourists can’t get here easily. Currently, accessing the territory remains unnecessarily difficult. Flights to Beef Island are expensive, and they often require multiple connections. Though government has promised a new airport, leaders have yet to release a comprehensive cost-benefit analysis that indicates whether this is a good idea and why.

Meanwhile, ferry service is notoriously unreliable, and its reputation deteriorates with each delayed voyage.

Government has not released key details of its solutions to dealing with such access problems in the medium term, which surely gives investors pause before they commit new resources to VI projects.

The other pillar of the VI economy, financial services, also has faced serious issues that have been much publicised. Though incorporation numbers went up in the third quarter last year, they fell substantially in previous months amidst waves of negative publicity and pressure from larger economies, many of which have pushed the VI and other overseas territories to establish public registers of beneficial ownership.

Diversification within the sector is needed and being pursued, notably in the field of arbitration, but it could take years. Though it’s likely that the decline will eventually stabilise, an unexpected event could speed the sector’s deterioration just as the unanticipated US invasion of Panama in 1989 enabled the VI to assume a leading position in incorporations.

For these reasons, we note with optimism government’s recent hiring of the New York-based consultancy firm McKinsey and Co. to evaluate the sector’s future, and we eagerly await the publication of the findings. Another recent step in the right direction was the opening of a Hong Kong office to take advantage of the expanding Asian market.

What more can be done to ensure that the futures of both sectors remain bright? Continued collaboration with industry stakeholders and the wider public for starters, followed by committed cooperation to carry out the community’s suggestions. And any solutions should be well thought out and follow a long-term plan regardless of any change in government.

Even as financial services and tourism are protected and expanded, the territory should consider ways to further diversify the economy. Various suggestions have been put forward in the past, including information technology, fishing, medical tourism, farming and others. Any one of these industries seems unlikely ever to be a “third pillar” comparable to financial services or tourism, but each certainly could be expanded and improved upon. To that end also, a comprehensive, long-term plan is needed.

Such measures, we hope, will help ensure that 2015 is a year of stability and growth in which the VI shores up its economic foundation against future challenges.

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