Bermuda needs to open up its borders to foreign investment and rethink the 60/40 ownership arrangement for local companies in order for the Island to prosper during the recovery.

That is according to former Premier Sir John Swan, who delivered a speech on ‘Bermuda’s New Real Estate Economy’ to the Bermuda Chamber of Commerce’s Real Estate Division at its annual general meeting last month.

Sir John said that the capital required to sustain the country’s “success story” was not going to be found on Bermuda’s shores and it was therefore key for foreign people and institutions to have confidence in the jurisdiction.

He said that due to rents being down and business flat if not declining dialogue needed to take place between the real estate sector and Government to come up with attractive and lasting policies and structures.

“We have to pull ourselves out of this thing and I think there is a great opportunity in many ways to reform Bermuda so we come back even stronger,” he said.

“I think we have lived in a false world of thinking that the 60/40 ownership arrangement in local Bermuda companies is protecting Bermudians.

“We are retarding capital inflows by not allowing product, minds and management to stream together.”

Pointing to the need for Bermudians to allow foreign capital into the Island and to own and manage their businesses, Sir John said that local businesses required a steady stream of capital to thrive, grow exponentially and be far more successful by allowing foreigners with their money and know-how proper access to the economy.

He said that incentives were required to achieve this, including the possible reversal of the 60/40 ownership ratio of locals to foreigners to 40/60.

Sir John said that the inflow of foreign capital was essential to the survival of the economy due to the country producing little and the need for foreign exchange in dollars in order to buy items from overseas.

He said that the mix was wrong and if the Island continued the way it was going, Government was going to see its revenue seriously deteriorate, resulting in higher taxes or a cut in services.

“What we are living off now is borrowed money and everybody knows when you live too long off borrowed money the end result is disaster,” he said. Looking to Monte Carlo and Singapore as examples of the prudent use of foreign knowledge, capital and local land ownership, Sir John said that there was tremendous room for expansion in Bermuda’s real estate market.

He said that the Island couldn’t just sit and wait for the US to recover, but needed to take advantage of the opportunities in the residential market, citing Tucker’s Point as an example of how to cater to high net worth foreigners.

In addition, Sir John recommended that 4,000 to 5,000 square feet of condominiums should be built on the sites of abandoned hotels across the Island for foreigners to buy and set up exempted companies, thereby bringing their wealth to Bermuda in a favourable tax neutral jurisdiction.

“We should allow these people to come in with their boats and their places,” he said “Right now if someone brings their boat or plane in, the first thing Government wants to do is tackle them with taxation.

“That’s why they stay away. We should be a transient point. Back before we put in this tax, and I am sorry that this tax was put in, we used to have about 1,500 boats transit to Bermuda.”

Sir John said that Government needed to reverse the taxation and start looking critically at ways of getting the money flowing back into the country again.

He said that if a Bermudian was qualified to do a job they should get the job and a foreigner should stay if they can do the job that needs to be done. The revoking of work permits, instead of slowing down the progress of businesses moving to Bermuda due to a lack of resources and outsourcing to other jurisdictions, resulted in a loss of rents among other factors.

“We must also stop our fear - the fear of that which is foreign. We have been so inculcated with fear that every time that every time we think about change, we think that change is going to take something from us,” he said.

“If we allow this xenophobic approach, the protectionistic approach, we will do a disservice to the next generation and to you.”

Sir John said that Bermuda needed to build itself on wealth as a model for its future sustainability.

“Bermuda can be a sovereign wealth country if it decided that’s what it’s going to be, but if it is going to sit and let the triviality of these little merchants downtown trying to save every little penny, protect every little penny and go to the bank and try to borrow money and the bank says no and therefore they have to close up their shops and so forth and restaurants, so let’s get come good management in here. Let’s not fear the 60/40 process, let’s turn that around,” he said.