Business

The Changing Landscape

of the Turks & Caicos Islands

By Gary Brough, KPMG

When KPMG opened our office in the Turks & Caicos Islands (TCI) in September, 1990, TCI was very different from the country we know today. There was only one direct commercial flight into the country — Pan-Am flying from Miami. There were only seven miles of paved road on the entire island of Providenciales and when you joined Leeward Highway you didn’t need to look to your left or right because you knew nothing was coming! Unpaved were the road to the airport, downtown and the road to Leeward from the current Allegro Resort. Club Med was here, as was the original Ocean Club, but there was no Provo Golf Course or IGA. The opening of the Turquoise Reef Resort & Casino (later to become the Allegro) was eagerly anticipated and the current impressive Beaches Turks & Caicos Resort and Spa property was a single story “white elephant” on the beach, with little expectation that it would evolve into the development it has become. Similarly, the Parrot Cay project was about to represent a multi-year “tease.” The magnificent structure was unable to accept guests for various reasons until it was acquired by the current owners in 1998, who developed it into the superb resort that it is today justifiably recognized as one of the world’s most luxurious destinations.

TCI’s two major industries are hospitality (tourism) and financial services. Let’s take a closer look at the changes in these sectors over the last 15 years, as they have been of a magnitude and scope that both industries have never previously experienced.

* For a few days during the early 1990s when Pan Am collapsed, there were no scheduled direct commercial flights to the Turks & Caicos. Today there are more than 60 direct commercial flights to TCI per week from the USA, Canada, Britain, Bahamas and Jamaica.

* In 1990, there were 48,000+ visitors to TCI. In 2001, TCI had 165,000+ visitors.

* In 1991, the three-year moving average price of land per acre on Grace Bay was approximately US$200,000. In 2001, the equivalent figure exceeded US$1,000,000.

* In 1988, TCI’s GDP was approximately US$63,000,000. In 2001, TCI’s GDP was approximately US$220,000,000.

* In 1980, approximately 7,500 people lived in TCI. In 1990, that figure was 12,500 people; now, it is approximately 21,000.

* In 1980, less than 1,000 people lived on the island of Providenciales. In 1990, that figure had risen to 5,500 people and it is now approximately 14,000.

* In 1991, there were less than 1,000 hotel or condominium rooms available to visitors. There are now well in excess of 2,000.

These are extraordinary statistics by anyone’s standards and with this growth comes a number of challenges and growth management issues, for example in the areas of education, health, immigration, housing and policing. Such exponential growth necessitates existing infrastructure (such as roads) having to be maintained and improved.

It is partly because of these challenges that TCI’s target tourism market is primarily the high net worth niche market rather than the volume market targeted by other Caribbean jurisdictions such as Jamaica, Bahamas and, increasingly, Cuba. It is to TCI’s great credit that it has attracted 5+ star resorts such as Parrot Cay, Point Grace and the forthcoming exciting resort developments at North West Point on Providenciales and on West Caicos. It is this market sector which is increasingly important to the future of TCI’s hospitality industry.

Typically, such resorts are low density developments generating high revenues for government through their high nightly rates and valuable real estate sales. They also tend to attract the quality of clientele and developers with strong philanthropic tendencies and who are more likely to develop emotional and cultural attachments to the TCI and its citizens and residents, a factor critical for sustainable development.

At KPMG, our primary interaction with the hospitality industry has been through the provision of audit services, which represent the core of our practice in TCI. Some development projects may need to be audited to satisfy financiers or to satisfy the requirements of management agreements. Many of the increasingly sophisticated investors who are attracted to TCI voluntarily choose to have their projects audited, as they recognize that an independent audit is a healthy discipline for their organization. However, an audit is not always practical for every operating entity and in certain cases, KPMG’s business advisory department can, on an outsourced basis, help projects achieve the financial reporting standards that they are seeking utilising generic accounting software.

Investors considering business opportunities in TCI increasingly engage us to conduct a feasibility study that incorporates extensive local knowledge. Businesses seeking financing also utilize our corporate finance services for assistance in negotiations with financial institutions and other financing sources.

ADAPT OR BECOME EXTINCT
TCI’s financial services industry is somewhat impervious to the factors which have had such a significant impact on the hospitality industry. While one would expect the volume of financial service business to increase as the number of visitors and the profile of TCI have, there is not necessarily a direct correlation.

In fact, over the last 15 years the financial services industry has experienced changes in landscape every bit as dramatic as those experienced by the hospitality industry. Bodies such as the OECD, FATF, EU and others were almost unheard of a decade or so ago and issues such as tax harmonization, anti-money laundering and anti-terrorism financing were nowhere near as high profile as they are today.
As a result, financial service jurisdictions and practitioners are recognizing the need to adapt to the new landscape or become dinosaurs. Changes are taking place from the very outset of business relationships. The critical importance of knowing your client (“KYC”) and the due diligence needed to achieve that knowledge is increasingly recognized.

In order to comply with TCI’s anti-money laundering regulations, all TCI financial service providers must have documented client acceptance, identification, record keeping and internal reporting procedures. Financial service providers must also appoint a money laundering reporting officer and provide staff with training on anti-money laundering procedures, as well as the provisions of TCI law. At KPMG, we have set up a regulatory compliance department to help service providers adapt and comply with these mandatory requirements.

Other than in the insurance and reinsurance fields, TCI has yet to attain a critical mass of financial service activity. But it may be to TCI’s advantage that it does not have a concentration of activity in any one area that may be unable to adapt to the new regulatory landscape.
The future for TCI’s financial services industry will likely be based on developing and sustaining niche products, a strategy not dissimilar to that achieved within the hospitality industry. No one is pretending it will be easy. The competition amongst jurisdictions is fierce, the regulatory environment is increasingly complex and success requires teamwork, skill and speed of action by all participants.

TCI’s financial services industry can also attain significant growth by simply securing a very small share of established markets in the banking, trust and fund industries.

THE NEXT 15 YEARS
So what will be the landscape changes faced by TCI’s hospitality and financial services industries over the next 15 years? It would have been almost impossible to predict the changes of the last 15 years, so any predictions for the future must be viewed with a healthy degree of skepticism. Analysis of the past can, nonetheless, help predict the future and certain trends do appear compelling.

TCI’s hospitality industry appears to have developed a momentum that will lead to continued growth, particularly in the area of 5+ star, low density resorts targeted at the high net worth visitor and investor.
One area of massive change experienced by the hospitality industry has been in the utilization of technology and further advances are inevitable. The clientele of upscale resorts have very high expectations in terms of service delivery. High net worth clients expect the same technology delivery systems they enjoy in New York, Toronto or London. They expect seamless high-speed access to the Internet and they expect all their technology gadgets to work in TCI. With the increased use of fibre optic, access to the ARCOS link and liberalization of the communications markets locally and globally, TCI is moving into a position to meet these expectations.

In recognition of this change and so as to facilitate and manage these expectations, KPMG’s Information Technology (IT) Department provides a wide variety of IT solutions, concentrating on state-of-the-art networks that simultaneously support video, voice, and data. We recognize that today, solving a problem is often not enough. It must be solved quickly and decisively.

OTHER PREDICTIONS
Another area that is expected to play a role in the future development of TCI’s hospitality industry is that of public private partnerships (“PPPs”), a concept that is rapidly gaining currency worldwide. During the last 15 years of development, TCI has had successful examples of PPPs long before the concept gained international recognition.

When Pan-Am collapsed, the public and private sector worked together to attract other airlines into TCI. The public and private sector also worked together to pave the road from Allegro to Leeward. In the future, more formal, larger scale PPPs may contribute positively to TCI’S development.

It is certain that the future of TCI’s financial services industry will continue to change. The industry and its practitioners, like those in competing jurisdictions, will have to adapt to the new landscape or become extinct. Already some rationalization within the industry has occurred and that process will only continue. To try and avoid change and hold on to old ways of doing business is futile. The new landscape, with its increased regulatory demands and sensitivities, is here to stay.

Financial service practitioners must know their clients and conduct appropriate due diligence at the very outset of professional relationships. They must have documented client acceptance, identification, record keeping and internal reporting procedures, appoint a money laundering reporting officer and train their staff to recognize suspicious transactions. All of the above are now considered minimum standards for those intending to deliver professional services within the financial services industry in the future.

TCI’s financial services future will likely depend primarily on how the insurance and reinsurance industry is serviced and developed. The hope and expectation is that it will lead to TCI increasingly becoming a well respected and well regulated insurance and reinsurance center. Successfully developing a critical mass in this area can lead to the success of other financial service products.

In conclusion, the extraordinary changes in landscape experienced by TCI’s hospitality and financial services industries over the last 15 years show no signs of slowing down. Fasten your seat belts! There is every indication that the future will bring changes that are every bit as dramatic.

Gary Brough is the Managing Director for KPMG in TCI. He is the President of the TCI Society of Professional Accountants and Chairman of the TCI Insurance Managers Association. He can be reached at gbrough@kpmgtci.tc



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German photographer Georg Roske took this interesting image as part of a series of photos for the new South Bank development on Providenciales. And although he takes his pictures intuitionally and spontaneously, he realizes the “perfect moment” must be well calculated. For more of his work, visit www.georgroske.de

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