Statistics for Business Planning and Global Benchmarking Program

"Statistics for Business Planning and Global Benchmarking Program"

Statistics for Business Planning
and Global Benchmarking Program

Honourable Kenneth Jefferson JP
Financial Secretary, Cayman Islands Government
Chamber of Commerce Luncheon
March 26, 2008

Thank you for that kind introduction.

The President of the Cayman Islands Chamber of Commerce, Mr James Tibbetts,

Chief Executive Officer, Mr Wil Pineau,

Other Executive Members of the Chamber of Commerce,

Ladies and Gentlemen,

Good afternoon.

It is a pleasure to be here today, and I would like to thank the Chamber for providing me the opportunity to announce the launch of our statistical outreach program for the business community at this gathering. In partnership with the Chamber of Commerce, we are launching the ⫿Statistics for Business Planning and Global Benchmarking??? or ⫿Business Statistics??? for short, in conjunction with the System of National Accounts for the Cayman Islands.

Let me outline what I have been asked to speak about.

The Business Statistics Program

We consider this program a milestone.

There is a forgivable impression is that official statistics are mostly intended for use by government. We believe that this mindset must change. The Cayman Islands are embarking on an era in which official statistics will respond equally to the needs of the local business community and government. This is the imperative for which the Business Statistics program is being launched. It signals a new era ??? the modern era ??? in the development of official statistics in the Cayman Islands.

What is the objective of the Business Statistics program?

Simply put, the Business Statistics program aims to improve Cayman’s data infrastructure for business decision-making. This improvement is only possible if there is partnership with the local business community. The ultimate goal is to help local businesses, global investors and credit rating agencies in evaluating the status of Cayman’s economy and its various sectors based on solid data. This minimizes the cost of wrong investment decisions, credit scores and even less than effective government assistance programs due to inadequate data. In other words, the Business Statistics program will help businesses move from the era of ⫿guess-timates??? to the modern era of evidence-based decision-making that is now pervasive in the global community.

For this program to work, a strong partnership with the business community in general and the Chamber of Commerce in particular is crucial. The technical resources, statistical standards and methodology are being provided by the Economics and Statistics Office (ESO) with assistance from international statistical bodies, but the raw data must come from the source ??? the business community itself. In this regard, we are deeply grateful to the Chamber, particularly to its Chief Executive Officer, for taking on the challenge of being a partner and the pre-eminent voice in the business community in supporting the program. We are grateful to the Chamber’s former President, Mrs. Angelyn Hernandez who, almost a year ago, provided constructive criticism on the modernization of our statistical system.

The ESO team has evolved significantly over the past 18 months. A recent recruitment drive has allowed the department to build up the necessary resources which will put the Cayman Islands in line with the highest statistics and economic analysis standards globally. With the help of technical resources from international organizations like the IMF, as well as the implementation of software and methods, the ESO will be able to deliver the value-added data services demanded by both the government and private sector.

As I mentioned earlier, a core component of the Business Statistics program is the System of National Accounts or ⫿SNA???. This subject is necessarily a highly technical one, but I will do my best to deliver it with the least amount of technical jargon.

While the SNA will be the primary focus of my presentation, I will also speak about the revision of our Consumer Price Index (CPI) which, along with other data from the 2007 Household Budget Survey, makes up the second component of the Business Statistics program.

Finally, I will make important announcements regarding the preparations for the next Census which will be conducted in 2010. The Census is the third most important component of the Business Statistics program.

The System of National Accounts

What is the System of National Accounts?

The SNA is a comprehensive and systematic record of the value of all economic activities in a country. This includes the activity of businesses such as yours in buying and selling goods, the activity of individuals and non-profit organizations receiving and spending money, and the activities of the government in its collection of revenues and public sector spending for various goods and services.

Although I will be primarily speaking about the relevance of the SNA to you, I first want to mention the international context of the SNA.

The SNA was developed jointly by the United Nations, the Commission of the European Communities, IMF, OECD and World Bank. It was first published in 1953 and remains one of the most important contributions to national macroeconomic statistics.

It is widely used by countries throughout the world, and is the standard tool for comparing economic performance across countries and periods. Most Caribbean Islands including the Bahamas, as well as Bermuda, have been utilizing the SNA for years.

As an international standard, it is therefore an important tool for countries to better appreciate how their economy is progressing in a global context and serves as an important informational tool for policy-making in this regard.

In simple terms, the SNA records economic activities such as the total value of production in all sectors of an economy. The total value of production essentially measures the output of the economy in the same way that many of you here today would monitor the output of your individual businesses. In this regard, an important record of economic activity generated from the SNA is the Gross Domestic Product or ⫿GDP???. GDP is the sum total of all the productive activity of businesses, government and non-profit organizations taking place within the domestic economy during a given period e.g. monthly, quarterly or annually. It is therefore a direct measurement of the size of the economy.

Monitoring the output of a sector of the economy is as important to policymakers and the wider community as it is to an individual business to be able to monitor its own output of goods or services. This measure tells us how well we are doing and provides us with information of how sectors of the economy are performing relative to each other.

In addition, the SNA measures the total earnings of employees and owners of the capital used in production. This is also key to our understanding of how our ⫿business,??? in the broader sense, is doing in terms of labour costs and returns on capital.

It is important for us to understand the level of consumption and savings in the economy. Expenditure gives us an indication of the health of our local economy, with low expenditure periods typically being an indicator of an underperforming economy and high levels of consumption reflecting a more active economic environment. The SNA provides the business community with these important barometers of economic activity.

In addition to measuring the flow of economic activities as I just outlined, the SNA also measures the changes in total assets and liabilities of institutions (households, businesses, government and non-profit organizations) as well as the total stock of assets and liabilities of institutional units and sectors.

I have just given a summary of the SNA. Rest assured that we have a qualified team here today capable of addressing any additional questions you have on the SNA itself.

I will now be more specific as to what the SNA means to organizations like the ones you either work for or own.

Our goal is to explain the SNA to you and more importantly to seek your cooperation in completing the very important surveys which have been sent to you. But in order for that to work it is equally important that we explain the benefits of the survey, not only for the country as previously outlined but also to individual businesses and organisations.

Once the information is collected and organised at an aggregate level by the ESO, it will allow local businesses and non-profit organisations to understand the economic health of the sector in which it operates.

It also enables a business to compare its own performance against the overall performance of its sector, or other sectors ??? such comparisons can be beneficial for business planning, investment, marketing and other strategic reasons.

With the SNA a business can get a direct understanding of how the country is spending or saving. If patterns suggest people are spending more, this can be utilisedin several ways by a business. On the other hand if the SNA indicates that the economy is slowing down businesses can prepare for that situation as well.

Gaining a direct understanding of the level and growth of wages or the price of other inputs such as fuel can be a powerful tool for any business as it considers expansion or recruitment strategies.

Once all the information is collected from individual businesses and brought together in an aggregate format by the ESO, the resulting database and the various manipulations of that database will be available to businesses and the wider community for a variety of purposes. It is important that I assure business owners and managers that your specific individual information will not be disclosed in any way to the rest of the business community or the government. I will speak more to this when I clarify the legal mandate for the SNA survey.

For the business community and the financial services sector in particular, the SNA provides another important benefit relating to how the country’s credibility is perceived in the international capital markets. The SNA is used by organisations such as credit rating agencies (e.g. Moody’s) as it enables them to assess the strength of our economy generally and in comparison to others. This is necessary for Moody’s to assign a sovereign credit rating for our jurisdiction. This rating in turn impacts the cost at which our financial institutions and the government can gain access to financing. Generally, the higher the rating the more beneficial the terms of the financing that a private sector company or the government can secure in the international financial markets.

As many of us will recall, the measurement of our economy was a crucial factor in our assessment of the Cayman Islands by international organizations after Hurricane Ivan. This is yet another benefit of the SNA as we could not effectively measure the impact of such a disaster without a good understanding of our economy in the first place.

The SNA is equally important to foreign investors as it is the main tool for global bench-marking in economics. It makes use of definitions and measurements that are accepted across countries; hence investors who are interested in the growth of a specific sector in Cayman can compare it with the same sector in other countries. Conversely, local business owners who wish to expand their businesses abroad can compare Cayman’s SNA results with those of other countries.

How will we go about the process of collecting this information?

This month ESO distributed SNA forms to almost three thousand businesses, voluntary organizations and government enterprises and statutory authorities. This form asks for information relating to areas such as expenses, earnings, fixed assets, and employment, among others.

At this point it is appropriate for me to say something about the legal framework within which the ESO works to carry out the survey.

ESO is bound strictly by the Statistics Law which mandates the collection of data required for the SNA and prohibits the dissemination of data pertaining to individual business who have supplied the information requested by the survey forms. The data reported in ESO surveys is treated in strict confidence, and used for statistical purposes and published in aggregate form only ??? meaning, once again, that information on individual businesses will not be made available, either to the business community or Government. ESO is therefore strictly prohibited from publishing or disclosing any statistics relating to any identifiable entity, not even to me as Financial Secretary or the broader Government. The data cannot be used for any purpose other than the compilation of the SNA.

This standard of data integrity and confidentiality represents the highest international standards in this area and is identical to that used by major developed countries where statistical integrity and its confidentiality is an integral part of the data collection and dissemination process.

Finally, let me discuss briefly the timelines for the SNA project in the interest of transparency. The SNA questionnaires were sent out this month. A period of six to eight months is expected for verifying, coding, processing and tabulating the results. Provided all goes well with the responses, we expect to have the preliminary National Accounts tables for the Cayman Islands by November 2008.

Let me now turn my attention briefly to developments on the CPI and the Census.

The New CPI Basket

The new CPI basket is an important component of the Business Statistics program. The CPI is a very practical statistic that is widely used by the business sector for reviewing contracts, rents, fees and salaries. This is by far the most widely-used statistic by the business sector. Updating the CPI basket was therefore considered an urgent task for ESO.

As you all know, ESO conducted the Household Budget Survey (HBS) from February through June 2007 as part of the National Assessment of Living Conditions Study. In fact, the business sector, through the Chamber of Commerce, provided significant support in conducting the survey by giving vouchers to households who participated in the HBS. I would like to take this opportunity to again thank the Chamber of Commerce for their much needed support.

The HBS provided the ESO with expenditure data as the basis for revising the basket of goods and services in the CPI. The current basket has been in use since 1994, and is based on the 1991 Household Income and Expenditure Survey. We very much appreciate the concerns raised by the Chamber of Commerce and the public about such an outdated cost of living basket.

I am pleased to announce that this project was completed earlier than initially targeted, and we now have a new CPI basket. ESO submitted a preliminary report to Cabinet in February 2008 and I will now give you an overview of this report.

The expenditure data in the 2007 HBS has been processed, coded and categorized using the United Nations Classification of Individual Consumption According to Purpose. Following this UN classification system, there will be 12 major categories in the new CPI basket as against the 8 major categories in the current basket.

The new CPI basket assigns housing the highest weight ??? 391 per thousand. This means that for every CI$1000 of expenses, an average household in Cayman spends $391 of that for housing including utilities , ie electricity, water and sanitation. We can similarly interpret the weights of the other categories:
?_ miscellaneous goods and services (137.9),
?_ transport (88), food (76.5), communication (61.6);
?_ household equipment and maintenance (57.2);
?_ recreation and culture (48.1);
?_ restaurant and hotels (42.9);
?_ clothing (35.6);
?_ education (28.5);
?_ medical/health (25.6); and
?_ alcohol and tobacco (7.1).

The new basket includes products and services that are not in the current basket that we have been using since 1994, (new items) such as:

in communication: cell phone calls, basic land line telephone services and internet connection services;
in recreation and culture: computers, software, video and new audio gadgets;
in transportation: freight services for household items;
in food: health foods; and
in health: ambulance services;

However, the work of the ESO is not over yet in this area. A survey of specific varieties of goods and services that can best represent the 12 categories in the new basket is being finalized this month. I wish to acknowledge with thanks those in the business community that have been working with ESO in this regard, providing them with updated information on the most popular varieties and their prices.

The ESO is expected to submit a final report on the new CPI basket and the first CPI survey using this basket in June 2008. To be included in that report are statistics that will be most useful for business decisions, such as average spending of households and persons, and total estimated spending for specific items in the basket. This report will be made accessible to all businesses in Cayman.

Census 2010

Let me now turn to the upcoming Census. The Cabinet approved last month, the planning, preparation and implementation of the next Population and Housing Census which shall take place in October 2010. The Census shall provide the most comprehensive housing, socio-economic and demographic statistics of residents in the Cayman Islands for the government’s socio-economic planning and for the private sector’s business planning. Early approval of the Census by the Cabinet is important in view of the required two to three years of preparation.

Among the activities to commence this year is the organization of the Census Advisory Committee. We are pleased to inform the Chamber of Commerce that Cabinet approved the proposal to invite the Chamber to be represented on this Committee.

We look forward to working with the Chamber representative as our link to the private sector in two ways ??? first, in ensuring that the data needs for business decision-making are addressed in the Census questionnaire, and second, in facilitating support for the Census from the business sector. I am therefore formally inviting the Chamber to name a nominee to the Census Advisory Committee which will be convened in May.

Closing Remarks

In closing, I wish to reiterate the importance of the Business Statistics program. It is concrete proof that the government and business and government community can work together in modernizing the data infrastructure for business and government decision-making. We are just in the beginning stage, and we have a long way to go as we confront challenges in implementing this program.

Among these challenges is the need to trust each other as partners. We have a professional team at the ESO who are technically independent as a unit, with regional and international experience, and knowledgeable of international standards.

Another challenge is the need to appreciate more fully that Cayman is part of the global business community that is now widely driven by evidence-based decision-making. We can now readily make use of the SNA and other information produced by other countries, and it is also time for us to provide and increased contribution to the global information community.

We trust that businesses in Cayman will take responsibility in building up the Business Statistics program for their own individual benefit, for the good of the local business community and for the reputation of the Cayman Islands in the area of global bench-marking. I am very much hopeful that with the leadership of the Chamber, Cayman’s business sector will rise to this challenge. Today’s event is indeed a most encouraging start. We expect an equally encouraging response from everyone who received the Annual National Accounts questionnaire.

Thank you once again to the Chamber of Commerce, and good afternoon.