The global economic impact of COVID-19 has been catastrophic. Its effects will continue to be felt across the world indefinitely. Despite being COVID-19 free, the Cook Islands has not been spared the economic fallout of the pandemic due to its reliance on the tourism sector.
It is anticipated that, over the longer term, tourism activity and revenues will return, but maybe not to pre Covid-19 levels. It is therefore vital that the country acts now to ensure a more balanced economy exists when that time comes.
There has therefore never been a greater opportunity for the Cook Islands to develop and grow new and existing industries to diversify its economy. One such industry is the financial services industry (“FSI”).
The Financial Services Industry
The FSI consists of licensed banks, insurance providers, trustee companies and money remittance businesses. It has been an essential part of the Cook Islands economy for several decades, returning consistent revenues to Government and providing employment for many Cook Islanders. The FSI has shown itself in the past to be resilient in the face of domestic and international financial crises and is doing so again.
In these unprecedented times where many businesses have closed, jobs have disappeared and the tourism industry has ceased to operate, the FSI remains open for business with no reduction in productivity or employment or the need for the Government subsidies which have provided crucial support for many Cook Islanders. It is an environmentally friendly industry that is able to grow and benefit the Cook Islands with little impact on infrastructure and with minimal carbon footprint given service providers’ ability to carry on business largely on line and by virtual means.
At present the FSI employs approximately 260 people in management, legal, accounting, administration, IT, compliance and marketing roles. The career opportunities for young Cook Islanders are wide ranging and exciting. Those opportunities will continue to expand with the growth of the industry through the introduction of new products and services, business lines and service providers. It is anticipated that a significant part of the growth of the FSI will be through the use and integration of financial technology (“fintech”) to modernize and automate the delivery of financial services. Fintech areas that are active globally include; distributed ledger technology (commonly known as Blockchain), cryptocurrency and digital cash and cybersecurity.
The Financial Services Development Authority
The Financial Services Development Authority (“FSDA”) was established by the Financial Services Development Act 2009 to promote, encourage and develop the FSI. It receives an appropriation annually from Parliament to work towards its objectives.
The FSDA has recently released its first Strategic Plan 2020: The Next Five Years (the “Plan”). The Plan focusses on the growth of and diversification within the FSI to increase employment opportunities for Cook Islanders and increase the industry’s contribution to the Cook Islands economy. In light of the current economic situation, this could not be more timely.
Diversification through financial services
Over the next 5 years the Plan targets a $13.5 million (approximately 50%) increase in the FSI’s dollar contribution to real GDP and the creation of 75 new jobs in the FSI. However, with the total commitment of its stakeholders, being the FSI service providers, Government, local regulatory bodies and the FSDA, those targets should be exceeded.
The Plan notes “The Cook Islands financial services industry has a key role to play through the next 5 years and beyond in the post COVID-19 Cook Islands economy. The resilience of the FSI over the past 30 years and its ability to consistently contribute to the economy, despite many domestic and international challenges, make it an obvious cornerstone of the country’s future.”
In light of the Cook Islands current economic predicament and the release of the Plan, the Chair of the Board of the FSDA, Ms. Dallas Young has said:
“Our strategic plan reflects where we as a Board will focus our energy and resources towards over the coming years. Whilst we as a country are challenged by the impacts of COVID19 today, we must continue to focus on the long game. Our industry is serviced by capable, innovative professionals in wealth management and are the key to elevating the industry towards higher growth and employment. The expansion through innovation and use of fintech will also unlock a wider net of job opportunities for Cook Islanders and service providers. We are excited and driven to ensure our team is resourced and the policy frameworks we work within be enhanced to achieve these goals.”
Diversification within and expansion of the FSI will provide an outstanding opportunity to generate significant growth and increase the economic value of the FSI. More importantly, it will provide the Cook Islands a more resilient, diversified and balanced economy moving into the future, one that is much better equipped to weather the next storm that hits.
30 June 2020