Banking Swot

8/6/2019 Banking Swot

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Banking

Banking

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Banking Sector Overview based on 2003 data

The Isle of Man banking sector can be divided into five distinct sub-sectors:o Clearingo Privateo Off-Island Retailo Savingso Trust

Over the past 15 years the sector has grown by between 3% and 9% pa but has been in decline since 2002 andfaces a further sharp reduction (see below).

Banking facilities on the Island range from basic current and deposit account facilities to complex wealthmanagement structures. However, there are no genuinely unique Isle of Man banking products. In a global context, the Isle of Man banking sector offers a mainly retail, mass-affluent proposition targeting UK

expatriates. Its chief revenue stream is derived from international personal client business referred from UK andInternational Group offices.

At 294m the Banking sector directly contributes just over 37% of theIslands Primary Sector GDP of 781m at present and 20% of total IslandGDP.

The sector is the largest employer on the Island outside Government,employing 3,200 people, and paying an average salary of 20,000.

The sector pays just over 46m in taxes each year, circa 38% of thePrimary Sector total, by far the largest contribution of any Primary Sectorindustry, and is responsible for nearly 12% of all taxable income.

The Banking sector supports approximately 6400 secondary sector jobs.

In aggregate Banking is responsible, directly and indirectly, for some 23%of the Islands total working population.

Issues facing the sector

The sector has a severely weakened retail-focused proposition which is under threat from the EuropeanSavings Tax Directive (ESD). In addition access to foreign markets and business development opportunitiesare limited by the rigidity of the legislative environment, and ineffective marketing of the sector. This meansthat other jurisdictions are winning business which the Island should be getting.

294m3,200

20k 46m

Jobs

Av. Earnings

GDP

Total Tax

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Banking Sector SWOT Analysis

The balance of strengths and weaknesses identified within the Banking sector have shifted to a more negative

positioning in recent years, but there are different outlooks within the sector as a whole. While the Trust and thePrivate banks are optimistic, the Clearing and Savings banks are more negative, with the off-Island Retail banksdisplaying mixed views. However, the size and importance of the Savings and Clearing banks in terms of totalassets and staff employed is resulting in an overall more gloomy outlook for the sector. In relation to the issuescovered by the SWOT analysis below, it is the size of the gap between the best estimate and pessimisticoutcomes for the sector that is most noteworthy. This is largely due to the severity of the threat posed by ESD tolarge aspects of the Banking sector proposition and compounded by the market access issue. As these criticalfactors are largely outside the Islands control and banking is the largest sector of the economy, the prognosis is

doubly worrying.

Strengths

Valuable contributor to GDP over a period of 15 yearsand of pivotal importance to the Islands economy.

High standard regulatory environment.

Flexible work permit system and good quality staff offeringpersonal client service.

Weaknesses

Weak retail and mass affluent customer proposition.

General perception of Isle of Man as vanilla jurisdictionthat is is not attractive to the up-scale clients required.

Lack of legitimate access to markets, especially the EU. Lack of competitive differential with other offshore centres. Rigid legislation that inhibits business development.

Opportunities

Unified trade body to lead finance sector programmechange.

Active and aggressive targeting of corporate & privateclients, and institutions that attract such clients, to shiftfocus from mass affluent to HNW business.

Morphing of Banking and CSP propositions to create abigger market share for all.

Co-ordinating business relationships across the IoM finance

sector to increase revenue, thus investing in the ecosystem.

Threats

ESD significantly impacts business levels, affecting theSavings Banks in particular.

Anti-offshore regulations in foreign target markets restricting thedevelopment of products and new markets.

Downsizing and reduction in banking operations in favour ofrival jurisdictions.

Outsourcing to cheaper jurisdictions Subsequent impact on rest of finance sector ecosystem.

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Banking Sector 2014 - Best Estimate View

The forecast best estimate average growth rate across for the Banking sector to 2014 is 2.9% pa. However,

this average masks the Dip-Plateau-Recoverypattern described above. In order for the sector to succeed itmust address the immediate weaknesses and threats it faces (see above). The key factor to enable successwill be developing new, competitive corporate and private banking services. The Banking sector in 2014 maytherefore look quite different to the 2003 model, with upscale Private and Trust Banks offering the bestgrowth potential, and revenue from deposit-takers playing a less prominent role.

The refocus of the sectors proposition will see an increase of small upscaleprivate banks locating on the Island. Existing licence holders will increasinglyfocus on these higher value customers and associated activities.

Despite the re-focus and a healthy 37% real increase in overall activity, thecontribution of Banking to total Primary sector GDP at 404m will decline in realterms to the Manx economy, representing only 29% of Primary sector GDP in2014 compared to 37% in 2003. This reflects the relative growth of other sectorsrather than an absolute decline in banking despite the Turbulent Years

However, although only minimal staff increases are forecast for the sector,Banking remains a major employer in the Manx economy in 2014 with overallnumbers rising by 11.5% over the 11-year period.

Salary levels are forecast to see a slight increase in real terms in conjunctionwith the more specialised nature of the sector.

The sectors contribution to Government tax take is also forecast to rise to 63m,representing just over a quarter of the total 219m collected from the PrimarySectors.

Actions required to achieve this: Realignment of proposition from Retail / mass affluent to High Net Worth clients by embracing a corporate access route through CSP

products. Aggressive targeting of up-scale clients and those who introduce them, with a focus on London.

Staff skills shortages overcome by intensive training programme. Ongoing pro-active development of the finance sector assisted by the Government. Focused on aligning factors such as tax, regulationand legislation, intellectual property, technology and people to help facilitate finance sector growth in general.

404m+37%

3,600+11.5%

24k+18%

63m+35%

Jobs

Av. Earnings

GDP

Total Tax

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Banking Sector 2014 - Pessimistic View

In the worst case scenario, Primary sector GDP levels in 2014 areforecast to be reduced to below 2003 totals in real terms and stand at700m. However, the Banking sectors contribution to total Primarysector GDP will reduce by over 45% to 161m.

Staff numbers are also forecast to fall as more operations downsize andclose their doors. The total is expected to reduce from 3,236 to 2,120 in

11 years. Salary levels are forecast to remain static and stay at their 2003 levelsin real terms.

Taxes paid to the Government will diminish dramatically in line with thereduced levels of economic activity reflected in the lower GDPcontributions and staffing levels. From a 2003 total of 46m, the 2014tax paid is expected to fall to 27.4m.

This pessimistic scenario would, in all probability, hole & sinkthe

proposed zero corporate tax strategy due for implementation in 2006that has taxation of banking activities at its core.

The pessimistic view of Banking in 2014 is based on an analysis of official 2003 GDP, tax take,employment and salary figures and illustrates what might happen should the sector not takeaction in overcoming the challenges it faces. As the largest financial services sector business,the prospect of a significant drop in banking revenue will have broader impact on the economyas a whole than a downturn in any of the other Primary sectors.

161m

-45%2,120

-34%

20k0%

27m-41%

Jobs

Av. Earnings

GDP

Total Tax

Events that could trigger this pessimistic case: EU Savings Directive could have a bigger and longer impact on Manx banks, causing loss of revenue, then confidence, then key staff

and ultimately driving international banks to invest in other international centres. A resurgent Channel Islands competing more aggressively for Manx business to ensure their own survival.

Failure by Manx banks to develop strong corporate and private banking offerings OR failure to market them internationally, so thatIoM fails to attract business against competition in better-known financial centres.

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Life Insurance

Life

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Life Sector Overview based on 2003 data

Since the late 1970s the Isle of Man has been at the focal point for the global offshore Life industry and was successful in attracting

many major international companies which have established operations here. The sector provides mainly investment-linked insurance products aimed at mass-affluent and high net worth clients, with a strong focus

on the UK (c. 40%) and expatriates of different nationalities in a range of foreign markets. Local nationals now form a larger proportionof total clients reflecting how the business has gone nativein some markets. A high proportion of their business is sold viaindependent financial intermediaries.

In the four years prior to 2001, the sector had enjoyed compound new business growth of 14% pa and had seen assets undermanagement grow to 14.4bn. However, 2002-3 proved to be a testing time. During this period profits and margins were thinner as aresult of falling stock markets generally and the retail consumers desertion of the with-profit bond specifically. 2004 has seen

something of a recovery for the major players as they have begun to source business from a broader range of distributors at thinnermargins.

The Life sector on the Island currently contributes 13% of Primary sectorGDP, the third largest source after the Banking and Fiduciary sectors.

It is also one of the largest employers, accounting for almost 2000 or 16% ofprimary sector jobs alone. The average salary of a life sector worker is 20k

per annum, similar to the banks. The sector contributes 10% to the total primary sector tax take, although it

pays no corporate tax Finally, the Life sector supports a further 4000 secondary sector jobs on the

Island, or some 14% of the total workforce. It is also a vital part of thefinancial services sector sourcing almost all of its business off-Island. It isestimated to be responsible for over 30% of the Islands Asset Managementbusiness.

Issues facing the sector: Competition from other jurisdictions, regulatory arbitrage, the demise of with-profits, legacy of a

three-year bear market, increased market uncertainty, consolidation or change of parent companies. Limited growth in new markets owing to strengthening of international law, national legislation and

the enforcement of actions against previously tolerated practices. Continually rising cost of staffing, administration and compliance.

104m1,970

20k 12m

Jobs

Av. Earnings

GDP

Total Tax

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Life Sector 2014 - Best Estimate View

The best estimate view for the Life sector in 2014 sees a steady rate of 5% pa growth for asector which has reached a stage of relative maturity but one that needs to continue its shift tohigher value/lower margin business in order to remain competitive and thrive.

Actions required to achieve this: Actively develop a new model for the Life business on the Island focused on higher premium/lower margin business by building uponthe steps already taken by some of the key players in expanding their product proposition to cater for wholesale and corporatebusiness, including bancassurance.

Attract more small, niche market players with this same focus. The sector must move away from its reliance on the old style retail IFA-focused distribution model and seek more client-focused

professional adviser distribution. Finally, it must ensure that it can offer the high standards of service required to cater for such a specialist market. Education and

training on a wide scale is required to bring staff up to standard. Work with the rest of the finance sector to develop financial solutions for the international investor and internationally mobile

workforce.

143m+38%

1,500

-24%

24k+18%

11m-10%

Jobs

Av. Earnings

GDP

Total Tax

A refocus of the Life sector proposition to concentrate on the more highpremium/lower margin business including corporate sources, is forecast toincrease sector GDP contribution to 143m, the fourth highest contributor withinthe Primary sector.

However, jobs are expected to decrease to 1500, as many of the lower-endadministration jobs will be automated away. In the future the sector willpredominantly employ skilled technical staff. The hierarchical shape will shiftfrom that of a pyramid to a diamond.

Salary rates will increase in line with this repositioning and the average rate forthe sector is expected to rise to 24k per annum in real terms over the 10 yearperiod.

The overall tax take from the industry is forecast to be lower than the totalcollected in 2004, largely due to the lower number of staff employed and theconsequent lower personal and indirect tax revenues generated from them.

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Life Sector 2014 - Pessimistic View

The 2014 pessimistic assumptions for the Life sector provide an insight into how it might look if itfails to address the key issues facing the industry or does not build on the more recentimprovements. It is based on an analysis of official 2003 figures relating to GDP, employmentnumbers, salary levels and tax contribution. As one of the largest finance sector businesses, andone in particular that generates almost all its income from off-Island sources, the effect of a furtherslowdown in the sector would have a significant impact on the financial services sector as a whole.

In 2014, pessimistically the sectors GDP contribution is expected to remainat broadly the same level in real terms as in 2003, but this is largelygenerated from administering the run-off of several closed businessesrather than that of active players.

As more parent companies withdraw backing from their international

operations and close to new business, employment figures are expected tofall sharply, from 1,970 in 2003 to 800 in 2014. This is the most strikingaspect of this scenario and, if it occurred, would undermine up to a further2,300 secondary sector jobs in the process.

Salary levels are forecast to stay the same, but fewer than half the peoplewill be working in the sector than did ten years ago.

Total tax contribution is also forecast to fall sharply to now represent only5% of total Primary sector tax take.

104m

0%

800

-59%

20k

0%

5m

-59%

Jobs

Av. Earnings

GDP

Total TaxEvents that could trigger this pessimistic case: Another prolonged bear market The introduction of gross investment roll-up for life products in the domestic UK market Changes to the tax treatment generally of offshore life products in a range of foreign markets. Continued consolidation of UK financial services market (life companies in particular) A significant IoM player relocates low value activities off-Island.

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Fiduciary

Fiduciary

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Fiduciary Sector SWOT Analysis

Strengths

Island-based management and decision making.

Well regulated, comparatively low-cost jurisdiction. Mature, well-trained specialist workforce. Catalyst for other sectors essential part of the financial

services sector.

Weaknesses

Lack of competitiveness of current corporate productcompared to other jurisdictions.

Higher cost base than previously owing to cost ofregulation and downturn in world economy.

Some view the sector as over-regulated compared tocompetitor jurisdictions

Struggle with historic reputation issues

Opportunities

Introduction of new legislation to create a lowercost/easier to administer structure that will end the

decline in company formations & promote growth. New products not only company products but alsopension and fund administration products.

Zero-rate tax regime to support IoM companyformation.

Appoint industry representative to market anddevelop the IoM proposition.

IoM to offer top quality customer service as differential to

competitor jurisdictions.

Threats

Competitor jurisdictions improving their productofferings.

Regulatory inflexibility in IoM is met with regulatoryflexibility elsewhere.

Failure to obtain a level playing field with competitors.

External threats from supra-national bodies such asOECD/FATF and their influence on legislation.

The Fiduciary industry on the Island has suffered declining growth in recent years due to the popularity ofstructures in other jurisdictions. However, the industry is hopeful that, with some adjustments or additions toIsle of Man company law, the introduction of the zero-rate tax regime and effective marketing of the Islandsproposition, this decline can be reversed. Bridging the gap between best estimate and pessimisticprojections for the Fiduciary industry is dependent on the sector galvanising itself to respond to newcompany legislation but the challenge is broadly within the sectors control if these issues can be addressed.

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Fiduciary Sector 2014 - Best Estimate View

The sector is optimistic about its future over the next ten years and there is a general belief that,

provided company legislation can be improved and the Isle of Mans proposition is marketedmore effectively, the sector will enjoy healthy growth. However, this is dependent on action beingtaken now in order to adjust the Islands positioning within the global fiduciary market.

GDP contribution is forecast to rise to 147m in real terms or 11% of the totalPrimary Sector contribution compared to 12% in 2003 reflecting the plannedgrowth in the ICT/eBusiness rather than a decline in the Fiduciary sector.

Staff numbers are predicted to rise and salary levels will increase 12% from2003 levels in real terms. This will be achieved due to advances in technologythat will reduce much of the manual work undertaken in the past. In additionnew company legislation will mean that fiduciary structures and companies willbe easier to administer, and in 2014 staff will be highly skilled in both theirtechnical abilities and in providing excellent customer service.

Although the zero-rate tax strategy will reduce elements of the current tax-takefrom this sector, fees generated via the incorporation of new companies andtheir annual renewal under the revised IoM Company Law are expected to seea significant increase of 140% in real terms by 2014.

Actions necessary to achieve this:

A change in company legislation required to facilitate this a create the lower cost/easier to administer structure required to competewith other jurisdictions and attract new business.

The Isle of Man sector lacks an effective marketing and development unit. This must be addressed to raise the Islands profile andattract new business. An industry wide representative body must be established to coordinate such issues with Government.

Take steps to improve labour market efficiency by making the Island attractive to high quality technical staff, by encouraging greater

regulatory flexibility and by implement training schemes to ensure a ready supply of high quality staff to meet the increased demand.

147m+52%

1,490+16%

28k+12%

25.8m+140%

Jobs

Av. Earnings

GDP

Total Tax

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Fiduciary Sector 2014 - Pessimistic View

The pessimistic view of the Fiduciary sector in 2014 is based on an analysis of official 2003 GDP, tax

take, employment and salary figures and illustrates what might happen should the sector not take actionin overcoming the challenges it faces in 2004. While the Fiduciary sector is not the largest in terms ofstaff employed or GDP contribution, the sector is a valuable originator of business to the Island and hasa number of important relationships with other financial services sector businesses. Failure to act wouldhave a direct impact on other areas of the economy. Its GDP-impact on the Islands economy isestimated to be over 35% more than its actual GDP.

Rather strangely, the pessimistic view of the Fiduciary sector in 2014 predicts thatthe sectors GDP contribution will actually rise from 12% to 17% of Primary sectorGDP. This in part reflects overall financial services sector shrinkage in thepessimistic scenario and relatively stable performance of the Fiduciary sectoracross both the Best Estimate and Pessimistic situations.

Jobs levels are forecast to fall as, in the pessimistic scenario, there is no newfiduciary formation activity warranting extra staffing but the upward shift in the levelof work undertaken is likely to continue regardless leading to a smaller number ofhigher paid staff.

Pay rises in real terms are not expected to suffer greatly as profitability within thesector falls, however, they are expected to increase less than could be assumed ifthe sector was in a state of real growth.

Total tax contribution is expected to reduce by over a quarter in real terms from2003 levels, owing not only to the zero tax policy but the loss of new company

formation and renewal licence fee income.

119m+23%

1020-20%

27.5k

+10%

7.7m

-28%

Jobs

Av. Earnings

GDP

Events that could trigger this pessimistic case: Isle of Man company law based fiduciary structures are ostracised by the significant numbers of professional advisers. An incident occurs causing major reputation damage to the IoM as a jurisdiction. Anti-fiduciary legislation in key markets, including any decision by the EU to regulate fiduciary activities that would take IoM business

outside Protocol 3.

Tax-take

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Asset Management

Asset Mgt.

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Weaknesses

Lack of critical mass and sector share of total fundsmarket.

Lack of codified funds legislation. Lack of EU market access restricts geographical

diversification. Dependency on IoM financial sector business, need togenerate more income from off-Island sources.

Labour supply.

Opportunities

Potential growth market in alternative investmentsand specialist funds, with an opportunity to attractsuppliers and product providers to the Island.

New products such as WRAP Accountsand international pensions.

Ability to create market impact, concentrating on keymarkets such as London and Switzerland.

Threats

Narrowing of IoM cost advantages in relation to otherjurisdictions.

Strategic decisions made off-Island, leading to funds oradministrators leaving.

Changes to legislation and regulations making the IoM lessattractive as a jurisdiction.

Erosion of the advantages of offshore e.g. UCITS III.

Strengths

Expertise in administering specialist funds: hedgefunds, experienced investor and professional funds.

User friendly fund structures. Comparatively low cost jurisdiction.

Symbiotic relationships with other sectors.

Asset Management Sector Swot Analysis

The balance of strengths and weaknesses in the Funds sector is positive in the main, as the growth in

alternative investments offers good prospects for expansion of the sector in the future. While the sector iscoming from a small base, the right combination of aggressive promotion with legislative streamlining andprotection of the Islands low cost and relatively simplistic fund approval regime could seal its success overthe coming ten years. In addition, the factors which make the difference between the sectors bestestimate and pessimistic figures are within its control to a certain extent, so steps can be actively be takento promote opportunities or prevent threats.

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Asset Management 2014 - Best Estimate View

In the light of the increasing consolidation of investment management activities towards the major

onshore centres, in the period to 2014 it is anticipated that the Island stockbrokers and private portfoliomanagers will continue to provide bespoke services largely to group clients, leading to steady growthin the sector at an average of just 5% pa. The achievement of growth in respect of third party fundadministration will depend on a number of key factors. Firstly, the maintenance of a regulatoryenvironment which is conducive to the retention of existing businesses and the attraction to the Islandof a number of new global fund administration businesses. Secondly, encouraging new funds toincorporate on the Isle of Man utilising substantially amended and specifically tailored fund companylegislation.

In 2014, while the Funds sector is expected to enjoy steady growth andmake a greater contribution to GDP and tax in monetary terms than its owneconomic activity, it remains one of the finance sectors smaller businesses.In percentage terms, forecasts show the Asset Management sector

continues to make a roughly similar contribution to the Islands economy. Employee numbers are expected to increase, but while the number of

companies within the sector is hoped will grow, advances in technology willmean that fewer numbers of staff are required to cope with increasing levelsof business.

Average earnings will also increase significantly in line with this in real terms.

Actions required to achieve this: Attracting to the Island at least one or possibly two global third party fund administration businesses and thereby increasing the

number of administration mandates held on the Island and the Islands share of international fund administration business. Implementation of training programmes designed to ensure that growing third party administration businesses have an ongoing

supply of new recruits, either directly from second level education or from the third level sector.

Maintenance of regulatory environment conducive to third party fund administration, whether the underlying funds are formed in theIsle of Man or overseas.

48m+71%

500+12%

27k+18%

21m+51%

Jobs

Av. Earnings

GDP

Total Tax

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Asset Management 2014 - Pessimistic View

The pessimistic view of the Isle of Man Funds sector is that having largely re-invented theproposition to achieve a level playing field with its competitor jurisdictions, it fails to attract thenew fund managers and administrators to give the sector critical mass. In this scenario thesector plods along and ultimately stagnates.

In the worst case scenario, the Asset Management sector in 2014 isforecast to remain broadly at 2003 levels in real terms although tax-take will take a 7% hit, largely due to the introduction of zero ratedcorporate tax.

Salary levels and job numbers are expected to remain largely static,

with sector decline offering little in the way of hope for technologicaladvances or a highly-skilled workforce. Due to its high dependence on other Island-based finance sector

businesses for its introductions, the Funds sector represents abarometer of the overall finance sector, for better or worse.

Events that could trigger this pessimistic case: Failure to predict the growth in future alternative investments and an inability or unwillingness to react to them. Failure to address the current lack of visibility in the market of the Island as a fund administration centre. Failure to attract more providers to the Island by not being seen as an attractive jurisdiction to do business with. A major regulatory incident causing a loss of confidence in the Isle of Man as a jurisdiction.

28m0%

4400%

23k0%

13m-7%

Jobs

Av. Earnings

GDP

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Total Tax


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Captive Insurance Sector Overview based on 2003 data

Captive Insurance Management is primarily involved in the running of general insurance risk companies for large corporate entities.

Business is generally introduced to the offshore captive managers from risk management brokers within their own group ofcompanies based in key centres like London.

The Isle of Man has been a domicile for the management of captive insurance companies for 25 years and is viewed as one of themost successful locations, attracting business from all over the world, but primarily from UK blue chip companies.

179 captive companies are currently authorised here which ranks the Island ninth in the world. There are 20 captive managers, 3 ofwhom manage approximately 60% of the total number of captive companies.

At present, the Captive sectors direct impact on the Islands economy isrelatively small contributing 2% of total Primary Sector GDP, 100% of which isgenerated from off-Island sources.

Staff numbers are relatively small with the sector employing only 150 peopleand an estimated further 25 ancillary support staff, or 1% of the Primary Sectortotal.

Salaries in this specialised sector are relatively high at an average of 25k peryear. This reflects the technical and specialist nature of the business and itsclients.

The overall tax contribution is also small, with only 1% of the total PrimarySector contribution in personal tax and National Insurance payments. Captivecompanies and managers pay no corporate tax.

Issues facing the sector: Prospect of decline in traditional blue-chip captive company numbers owing to merger & acquisition

activity Little formalised marketing of the Island as a captive domicile means that new business may locate in

alternative jurisdictions.

Difficulty in recruiting appropriately qualified staff. Lack of direct writing access to the EU, a key growth market.

17m150

25k 1.6m

Jobs

Av. Earnings

GDP

Total Tax

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Captive Insurance 2014 - Best Estimate View

29m+69%

174+16%

29k+18%

2.2m+36%

Jobs

Av. Earnings

GDP

Total Tax

Best estimate growth in the Captive sector is expected to be slow but steady, with theeffect of minor legislative changes continuing to make the Island a more attractive place toconduct captive business. The sector remains an important part of the financial servicessector as 100% of its business comes from off-Island sources.

The sector is expected to continueto play a small but vital part in thefinance sector ecosystem and willsee GDP contribution grow bynearly 70% to 29m in real terms.

Increasing workloads will notimpact greatly on the number ofstaff required and employment

figures will not increasesignificantly.

However, average salaries willincrease in real terms by roughly18% over the next ten years.

Total tax take is expected to riseslightly, up to 2.2m, an increase of36% on 2003 in real terms.

Actions required to achieve this: Lobby Government to undertake joint initiative with industry to promote the Islands considerable benefits as a

location for captive insurance to the right risk management decision makers. Encourage innovation in product creation, taking advantage of the new markets for captives in the SME and company

partnership markets.

To continue pro-active developments e.g. re-domiciliation and Limited Partnerships legislation .

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Captive Insurance 2014 - Pessimistic View

The pessimistic view of business in 2014 sees the Captive sector in a state of stagnation,having not moved forward from its position in 2004. As a business which relies heavily onreferrals from inter-group companies, the Captive sector has to actively target new businessfrom the right sources i.e. global risk managers based in London, in order to ensure itsdevelopment and future growth.

In 2014, the Pessimistic scenariosee the Captive sector prettymuch as it was in 2004. While itremains an important part of thefinancial services sector, itssignificance as an originator ofincome will diminish with its size.

GDP and tax take levels areforecast to be similar to those in2003, and the same number ofpeople will be employed by thesector on broadly the samesalary levels in real terms.

17m0%

150

0%

25k0%

1.6m0%

Jobs

Av. Earnings

GDP

Total Tax

Events that could trigger this pessimistic case:

UK Revenue attack the tax sheltering activities of the underlying UK Blue-chip company Captive clients. A significant lowering of the current global Terror Alert reducing the cost of insurance and making captive arrangements less

attractive. The decision of any of the Big 3 (Aon, Marsh & Willis) to route their UK-centric captive business via Guernsey, Dublin or

another centre). EU action to enforce direct dealing by EU-based Captives dealing with EU risks.

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Shipping

Shipping

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The best estimates available suggest that in early 2003 the shipping sector wascontributing at around 1.4% of GDP.

The sector employs a high proportion of qualified technical staff and the ratio ofprofessional staff to administrative staff is about 50%.

The shipping sector in its three divisions employs approximately 400 to 600 peopleincluding those in indirect occupations in banking, legal services, trust servicesand others. These employees are also counted in other statistics for banking,insurance, legal etc.

Shipping Sector Overview based on 2003 data

The largest threat to the islands shipping sector over the next 10 years is likely toarise from one of two sources:

A general shift to the Far East by ship management in search of cost savings.While freight rates are currently very high and new building orders are atrecord levels it is thought that the current levels cannot be sustained

indefinitely which threatens to leave the market over tonnage and in declineat some point in the medium term future.

The European Fence. A political move in Europe to bring European Shippinginto line with EU views on manning and operations. European Wide tonnagetax rules and manning requirements could mean that flagging outside Europe

and operating from bases outside Europe is problematical for any owner ormanager attempting to trade in or around Europe. A number of current EUmoves seem designed to close Europe to all but EU entities and flags.

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The Isle of Man shipping sector can be sub divided into three distinct areas:

Mainstream Ship Management

Shipping Related Support Services

Indirect Services

It has always been difficult to estimate the total effect in economic terms of theshipping sector for two reasons; firstly the fact that the mainstream ship managershave operated as exempt companies and hence little data is available and secondly

the fact that the indirect services are not recorded as shipping in any datacollection reporting. The sector has grown steadily since the creation of theShipping Register in 1985

19.3m400

26k 3.7m

Jobs

Av. Earnings

GDP

Total Tax


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eBusiness

e-Business

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Tourism

Tourism

6. 7. 8. 9. 10 11

Tourism Sector Overview b d 2003 d t

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Tourism Sector Overview based on 2003 data

Tourism is one of the important economic drivers for the Isle of Man economy, and most of its services and

facilities benefit also local residents as well as visitors to the Island. These facilities contribute significantly tothe diversity of the local economy and the high quality of life here. In 2003 69% of visitors were ABC1, and thismarket is better educated, better informed, better off and more widely travelled than any other. The Island mustmeet the challenge in the continually rising standards of product expectations and the demand for better valuefor money; for example with the growth of low cost budget airlines from UK regional airports the Island isincreasingly seen as expensive and difficult to reach. The continued decline in bed stock is also stifling growthwithin certain markets, but for the most part this is countered by the market seasonality of much of our product.The TT is still recognised throughout the world as being associated strongly with the Isle of Man and has the

capability of becoming an even stronger international brand.

The Tourism industry generates GDP of 74m. Theaccommodation sector contributes 10.9m of GDP andemploys a workforce in excess of 600

However the visitor economy in total is valued at 102.5m in

2003 (source Economic Affairs Division, Treasury) andunderpins a much larger proportion of jobs

Average earnings at 13.7k are lower than other sectorsparticularly financial services due to many of the jobs beinglower paid and of a part time nature. However without thesepositions much of the quality of Island life would decline.

Issues facing the sector:

Continued reduction of bed spaces Increasingly competitive market Uncertainty in the UK economy and no European gateways

to stimulate growth. Lack of access to volume low cost air travel Lack of consistent service provision Tourism markets are getting older and more demanding

74.2m630

13.7k 9.1m

Jobs

Av. Earnings

GDP

Total Tax

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Tourism Sector SWOT Analysis

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Tourism Sector SWOT Analysis

Strengths

The Isle of Mans natural environment and wildlife based onits landscape, coast and character.

The rich nature of the Manx culture and heritage.

Well established events and activities. International Mecca for motor sport. A safe environment based on a quiet and peaceful way of

life.

Weaknesses

Lack of quality bed spaces particularly in the serviced sector. Poor service levels due to the transient nature of staff and

relatively low pay.

Limited use of technology with few businesses offering on-linebookings. Uncared for appearance of some urban areas. No core visitor attraction or energised core. Costs of travel to the Island. Marked seasonality.

Opportunities

Interactive traveller partnership Maximising the advantages of the Manx landscape. Established department for facilitating and marketing events. Motor sport heritage based on internationally acclaimed

brand. Conference initiative.

Threats

Increased worldwide competition with growth of destinationsbased on access through budget airlines.

Continued decline of bed stock. Lack of forward marketing funding from 2005/6. Negative impact of increased regulation. Structure of travel industry. Lack of private sector marketing.

The Tourism or visitor economy has recovered from the severe downturn in business suffered as aresult of the 2001 UK foot and mouth crisis. Total revenue for the visitor economy was 102.5m in2003, well ahead of the targets set within 3 year recovery plan ending in 2004. The Tourism industryhas seen many changes since its peak of the 1960s and 1970s, chiefly as a result of the collapse ofthe traditional UK target market, together with increasingly low cost holiday offers abroad and thegrowth of budget airlines. The Isle of Man has, therefore, re-invented itself as a short breakdestination based on relaxing, regenerative experiences. Available evidence indicates the longprocess of market attraction may be over as volume and revenue increase. This continued growth isnot guaranteed and continued investment in marketing and the product is needed.

Tourism 2014 - Best Estimate View

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Tourism 2014 - Best Estimate View

The best estimates for the Tourism and tourist accommodation sectors is an annual growth rate

of 3.6% in line with European estimates until 2009 and higher growth of around 5% thereafter.These rates are reliant on the continued refinement of the Isle of Man product to attract highspending markets. Development is to focus on core strengths such as marine activity, naturalenvironment, and cultural experiences.

Employment levels rising marginally as new businesses come into themarket offsetting losses elsewhere.

Salary levels likely to rise by inflation due to competitive nature of thebusiness but some above inflation rises possible from 2009 onwards asquality kicks in.

This will feed through to the economic output for the Island in the formof increased GDP up by 54% over the period.

Tax-take also picks up in line with GDP, rising to 14m in 2014, andincrease of 47% in real terms.

114m+54%

710+12.5%

13.7k0%

14m+47%

Jobs

Av. Earnings

GDP

Total Tax

Actions required to achieve this:

Ensure the Tourism Strategy Fit for the Future is endorsed by the Island and fully introduced. Deliver a new Tourist Act to take into account the new vision for the visitor economy. Attract high spending markets such as conference and quality short breaks. The industry must become self sufficient and not rely on Government. Introduction of the Manx Welcome programme uplifts quality across the hospitality sector. There is a clear focus on technology throughout the industry. The sector must overcome its reliance on out-dated methods, reduce seasonality and embrace change.

Tourism & Leisure 2014 - Pessimistic View

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Tourism & Leisure 2014 Pessimistic View

If the industry fails to grasp the opportunities now presenting themselves then sales volumes arelikely to be virtually non-existent and could even decline. The effect would be to see a furtherreduction in bed spaces and corresponding loss of facilities thus impacting on the quality of lifeon the Island. There would also be a decline in the number of air and ferry services. This lackof growth could hit other industries as service levels and facilities are not up to the standardsdemanded.

In 2014, the Tourism sector GDP is positive but has averaged less than1% annual growth over the period.

Overall sales have fallen reflected in the lower numbers of staffemployed and their average earnings which are estimated to decline by

nearly 20% due to pressure on margins. However, due to the focus on higher value customers the tax-take from

the sector is still marginally positive.

81.6m+10%

520-16.4%

11.0k-19.9%

9.8m+6.3%

Jobs

Av. Earnings

GDP

Total Tax

Events that could trigger this pessimistic case:

Lack of forward marketing funding Continued decline of bedstock Failure to develop new bedstock particularly 4 star and above Demise of TT and other motor sport events Uncompetitive pricing growth of low cost airlines E-enablement for the industry remains weak Failure to develop new and emerging markets Global economic downturn

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Manufacturing

Manufacturing

Manufacturing Sector Overview based on 2003 data

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Manufacturing Sector Overview based on 2003 data

This is a diverse sector producing a wide range of products, with a wide range of jobs spread across

the Island. Over the past 15 years the sector has grown in real terms by an average of 9.25% pa. TheManufacturing sector generates significant secondary income for the Islands economy through arequirement for a wide range of on Island services. This increases the sectors contribution to GDPfrom 6.9% to 10.7%. High volume low skilled labour intensive production on the Island has reduced inrecent times due to lower cost competition from the Far East and remains under pressure, threateninga further 300+ jobs. To counterbalance this, it continues to be Governments policy to encourage highvalue manufacturing where such businesses have niche products, good intellectual property and arecapital intensive so labour costs are not the dominant cost factor.

Issues facing the sector:Most businesses in the sector compete in the global market place and are subject to a range of external factors beyond their control such asthe impact of terrorism, a fluctuation in interest rates and the strength of the pound against other currencies etc. It is also increasingly difficultfor these businesses to compete against businesses in low wage economies such as the Far East. To combat this businesses need to adopt

a greater use of technology. 30m + has been invested by Government and 50m + by the private sector in the last 10 years in a bid to boostproductivity and thus enable them to compete.

Engineering

Food & Drink

General

Manufacturing

GDP(Ms)

Jobs No.Av. Earnings

(Ks)

Tax& NICs(Ms)

28.7m1,050 25.3k 4.9m

22.9m1,220 18k 2.9m

47.3m1,080 20.6k 5.7m

Sub-sector Company Examples

Swagelok Ronaldsway Aircraft

BA CitiExpress

IoM Creamery Breweries Robinsons

Strix SLS Optics

Prometic Biosciences


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Civil Aviation

Civil Aviation


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Civil Aviation 2014 - Best Estimate View

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The best estimate view for civil aviation sector sees the Island successfully establishing an aircraft

register and building on this catalyst to increase momentum in developing greater civil aviationbusiness activity in and through the IOM.

Much of this growth will be based on attracting corporates and high net worth individuals looking toprotect their assets and to hold them through a reputable common law jurisdiction.

There will be a number of different segments contributing to the increased GDP:

Aircraft registration, Aircraft ownership and management providing businessfor specialist management companies and CSPs

Professional services business related to civil aviation including financing,banking, legal services etc.

Civil aviation engineering potential to establish further JAA 147 engineeringservices business on the Island

Employment agency / specialist staff procurement. Potential to attract furthercivil aviation staff procurement and management businesses to the island.

Actions required to achieve this:

DTI appoint a Director of Civil Aviation and support staff during 2005 DTI establish a Manx Aircraft Register by 2006

Form a civil aviation marketing group (comprising private and public sector representatives) to

promote the Island as a leading location for civil aviation related business during 2005, then market theIsland in 2006

3.5m50

28.1k+12.4%

0.4m

Jobs

Av. Earnings

GDP

Total Tax

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The pessimistic view is based on how the sector might look if we fail to establish an aircraftregister and grasp the opportunities flowing form this in a timely manner. Failure to gainagreement from the UK to an aircraft register or failure to exploit the commercial potential ofsuch a register is key.

Without the establishment of an aircraft register or other initiative deliveringsignificant additional commercial activity in the civil aviation sector there willbe no growth in real terms from civil aviation over the period.

0.4m6

27.5k+10%

0.04m

Jobs

Av. Earnings

GDP

Total Tax

Banking Swot

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