A bill aimed at making the Virgin Islands business climate more competitive by updating and streamlining the licensing process passed with amendments in the House of Assembly last Thursday as the new cross-party National Unity Government continued on the quest of the previous government to smooth the way for economic activity in the territory. Among other provisions, the Business Licensing Act 2022 would vastly increase licensing fees, reserve certain categories of business for belongers, and take aim at the practice of “fronting” trade licences.
The law, which still awaits assent from Governor John Rankin, “is part of a fairly large suite of legislation that is intended to transform the business environment in the Virgin Islands,” said Premier Dr. Natalio “Sowande” Wheatley.
“It aims to make it easier, more convenient and more efficient for persons wishing to register their business so that they can engage in trade in the Virgin Islands,” the premier explained last Thursday.
The proposed law — which would repeal and replace the 1990 Business, Professions and Trade Licences Act — is part of a set of related legislation that was launched last June when the HOA passed the Consumer Protection Act and the Trade Commission Act, which requires the establishment of a new statutory agency headed by a seven-person board.
The Trade Commission “launched” in February 2021 with no members, though they were finally approved by Cabinet in March and included Chairman Michael Fay and Deputy Chairwoman Sasha Hodge.
Although foreign direct investment has played an essential role in the territory’s development, the premier said last Thursday, the government must always walk a balancing act between encouraging investment from abroad and encouraging local entrepreneurship.
He added that responsible investment from abroad buoys local business.
Dr. Wheatley said his goal for the bill is that it will lead to “increased participation and activity in the economy, [and will help] our economy to continue providing opportunities.”
FDI and local business
There will always be a relationship between foreign direct investment and the growth of the local business sector, he noted, adding that in order to encourage responsible foreign investment, the legal framework is being updated so that licensing will not be guided by political whims.
Among other provisions, he said, the bill defines dozens of areas in which trade licences will be reserved for belongers, ranging from agriculture and fishing to construction to advertising and news broadcasting. These new rules, however, won’t apply to non-belongers who already hold licences in those categories.
“That’s being done to preserve the business environment for Virgin Islanders in particular areas that we say are exclusive to our own people to ensure that we continue to play a part and a role in our economy,” he said.
Hand in hand with those measures, he added, government must define the areas where it welcomes foreign investment in order to facilitate it efficiently and responsibly.
The act goes on to specify a smaller group of categories where belongers and non-belongers can enter into a joint business venture.
Since the original act is more than 30 years old, Dr. Wheatley said, many of its categories are outdated. The new law, he added, would aim to update and consolidate those categories in alignment with international standards.
“One of the two frequent complaints that we hear concerning registering businesses and obtaining trade licences in the Virgin Islands is how long the process takes, or how in some instances the system does not appear to be streamlined,” he said. “They end up going back and forth with requests for additional information.”
When granting a business licence under the new law, the commission would have to take into account the amount of belonger involvement and whether the category of business is reserved for belongers — but also to consider “the necessity, if any, for the institution of quotas for the types and categories of businesses to be licensed and operated,” according to the bill.
In the debate on the bill last week, Fourth District Representative Mark Vanterpool said that section needs another look.
“We must be careful what we mean by ‘quotas for business’ and what it means for affecting business, for individuals who may have aspirations for doing business, and may be prevented from doing that business because of a quota,” he said.
Meanwhile, trade licence annual fees are to increase by a factor of six to 25 times under the bill. For those wary of the sticker shock, Dr. Wheatley said research showed that VI licence fees are currently far lower than in other comparable jurisdictions, including the Turks and Caicos Islands and the Cayman Islands.
In Cayman, he said, the fees are “five to 10 times higher, with a range of $150 to $400,000. Turks and Caicos annual fees for business licences range from $150 to $10,000, depending on the type of business.”
The VI’s existing fees range from $25 to $250 for belongers and $200 to $600 for non-belongers.
“As it relates to the new proposed structure, the fees range from $150 to $1,500 for belongers and $1,500 to $15,000 for non-belongers depending on the category of business,” the premier said, adding that the new scale is still lower than many comparable jurisdictions. “We have aimed to be competitive and relatively affordable while balancing the need for the Virgin Islands Trade Commission to generate revenue.”
The difference, he explained, recognises that non-belonger businesses are considered foreign direct investment.
“The new structure also encourages more local participation and involvement in the economy while promoting fair competition between locals and FDIs,” he said.
In November, then-Premier Andrew Fahie announced that annual revenues from trade licences had increased to more than $1 million — up from the $906,000 in 2020.
Shereen Flax-Charles, junior minister for trade and economic development, who ushered in the launch of the Trade Commission last year, said the bill should sort how “international investment can be implemented and ways to see BVIslanders no longer fronting or simply being employed, but instead benefiting from outside investment and support while still maintaining our say-so.”
During the debate, Health and Social Development Minister Marlon Penn said the bill should aim to “reform the way that government operates; the way that government does business with the public, with the business community.”
As the traditional economic pillars of financial services and tourism have each faltered in recent years in the face of challenges like the 2017 hurricanes and the Covid-19 pandemic, leaders have frequently addressed the importance of opening up new economic avenues.
Mr. Penn echoed these remarks last Thursday, pointing out that shipping containers that import the majority of goods to the VI typically leave the territory empty.
“You’re telling me that we could not have come up with some type of innovative product that we could ship back out of this territory?” he asked.
He added that it is important to prevent oversized and “predatory” businesses from harming local entrepreneurs.
Mega-corporations like Walmart, he said, have purchasing power well beyond the VI’s gross domestic product and can undercut small and medium-sized competitors.
“You cannot allow businesses to come into your territory and destroy the economic climate, the economic foundation of your country because of their purchasing power,” he said. “We have to guard against that type of behaviour.”