The Bahamas: Because of foreign investment and foreign banking ...we’ve had the highest GDP per capita in the region for decades ...and, because of tourism, we’ve had adequate foreign currency reserves to support our fixed dollar value ...yet our people are still poor

A country with no plan, pt. 3

I cannot, with any degree of honesty, call myself a supporter of Robert Mugabe, but there is one quote attributed to him from a recent interview with BBC World News which resonates within me. And though I find his style of leadership questionable, I cannot deny that I am in full agreement with his thinking when he declared to his people that “…never, never again shall we make the mistake of allowing our resources – natural resources – to be owned by foreigners. Never.”

I am of the opinion that foreign direct investment (FDI) should never include the giveaway or sale of natural resources, be it acres of land or miles of beaches and waterfront. A sovereign country should always be able to negotiate terms of investment from a position of strength, upholding its sovereignty, such that the very land it is presiding over remains in the ownership of the citizens, guarded on their behalf by their government.

The injection of capital in the form of FDI, in the way we have welcomed it, may serve well as a last resort to boost economic activity, but as a long-term growth model it is worrisome. We have come to think of FDI as the great deliverer, but this neglects to consider the necessity of direct domestic investment and moves the prospect of property ownership further beyond the reach of the common man. A modified approach to FDI where domestic investment is the lead part of FDI should be the norm, particularly in a small country.

This norm and modified approach to FDI should also limit the percentage of ownership of foreign investors in domestic investment partnerships to a capped amount of 49 percent with the remaining 51 percent held by the citizens of the host country as private shareholders, and not held in trust with a government where it does nothing to create new wealth and continuing prosperity for the people.

As is the case at present, a government could choose to have as much FDI as it likes with many capital injections and it will give the perception that the economy is robust, but the real story lies in the domestic sector and with domestic investment. If you want to know how well the economy is doing, ask first how large the domestic investment sector is.

How vibrant is it? How much is it growing? What is it comprised of? What percentage of small businesses in the domestic sector account for overall economic activity? What is the ratio of domestic investment opportunities to FDI opportunities? What percentage of the labor force is employed in the small business/domestic sector as opposed to being laborers in a byproduct of FDI?

And, finally, to get a better idea of long term growth potential, you should also ask how many businesses in the domestic sector really do innovate and are not merely international franchises, resellers or reproducers. You should then seek to bring partners who facilitate the development needs of the domestic sector, not the other way around.

Small business and real growth

The reason small business is the ‘lifeblood of the economy’ is because it relies on innovation, but a search through the local yellow pages and the news dailies is disheartening in this regard. A primarily copycat economy exists in our nation when there is great potential for invention. With the existing imitator blueprint, sustainable growth will be hard to come by. There cannot be sustainable growth until the people prepare themselves to have ownership of original ideas, instead of just employment in duplicates, and until they are creating and innovating as opposed to replicating.

Our country’s net exports in services yield a surplus. Our net exports in goods yield a deficit. We have more services than products to offer the world. Certainly services are an important part of an economy. But what about the other part?

We go to work every day, but what are we producing? A tourist has a great vacation. An offshore investor makes more money. But in this environment how does our daily labor make our lives better? Really, how productive are we in these industries? And how do we quench our thirst for expensive imports when we do little to innovate?

At the end of the day, we still lack infrastructure; we have very little along the lines of finished manufacturing and agriculture, and FDIs leave the same way they came. If these business ventures were more than FDIs, if they were joint ventures with all the consumers in the national economy, we might have more to show for them.

Some argue that we can’t be a producing economy in the traditional sense, that our services will always be greater than our goods, but we have many natural resources and we have them in abundance. If our people were trained throughout life to be innovative and not reliant we could have a stronger and burgeoning domestic business sector and a more resilient economy with more to trade than just ‘heads in beds’ and stock portfolios which consist of assets we can’t even purchase.

As it stands, we are too heavily reliant on people wanting to visit us and on them spending more money here, constantly trying to find ways for them to empty their pockets when our productivity could be speaking for itself in a number of other ways.

There are very many local businesses that provide necessary products and services. Of course we will always need groceries and healthcare and other such necessities, but we have to think beyond the necessary. How do we make the necessary better, more effective and more efficient? That is innovation.

If you sell something already, perhaps you can learn how to make your own version of it or make it better. Keep your business idea as simple as possible and in this manner make it more achievable. Let it grow organically and tend carefully to it as it grows; don’t sit and wait for handouts from visitors. Initiate. Innovate.

A laissez-faire society hinders progress

Inviting tourists to the country and then hoping they will buy something expensive or a lot of something not too expensive is like drawing straws for a prize. It sounds great in theory – a relatively easy win. But what happens when we all get bored with that game? What is our backup when tourists and investors don’t come our way any longer, or when they don’t spend any more, or when our people no longer want to be only servants in any industry?

We are a people who hasten to fall back on “God will provide”. Perhaps for us the spirit of innovation is not instinctive, and maybe that’s why we go nowhere faster. Our motivation to assert ourselves and produce great things like we’ve never done before is pre-disabled.

It’s all well and good to dress up every day and prance around preaching prosperity to others, saying a higher power will provide, but what are we doing to help that power along?

If you were the highest level executive, would you provide to a well-dressed, able-bodied beggar who plainly does not help himself? Probably not, because that would be productive for neither one of you.

Gross Domestic Product (GDP) is a measure of what we produce, how industrious we are, but the deceitful thing about GDP is that it includes output by foreign firms who repatriate their earnings to their own or other countries. So, when we calculate GDP per capita, what are we truly measuring?

Because of foreign investment and foreign banking, we’ve had the highest GDP per capita in the region for decades and, because of tourism, we’ve had adequate foreign currency reserves to support our fixed dollar value, yet our people are still poor. That GDP per capita and those foreign currency reserves suggest that we are either over-producing, which is clear we are not, or that this kind of great wealth is spread amongst everyone, which is clear it is not, or that it is held by a small few, which is most likely. And the few holding this wealth will use it to modernize their lifestyles and possessions, because who knows when they’ll get to hold it again. Consequently, is economic growth through foreign direct investment, foreign banking and tourism really just an illusion in an otherwise non-producing society?

• Nicole Burrows is an academically trained economist and a self-trained writer. She writes primarily on the economy and society, and her interests include economic growth and development and contemporary women’s issues: nicole.burrows@outlook.com.

April 30, 2014

thenassauguardian

- A country with no plan, pt. 2

- A country with no plan, pt. 1

Economic prosperity in The Bahamas and the Overseas Territories

By D. Markie Spring
Turks and Caicos Islands


The Bahamas and the overseas territories, especially the British Territories -- British Virgin Islands, Cayman Islands and the Turks and Caicos islands -- have always declined the idea of regional integration -- sometimes from an individual prospective and at times from governmental concerns.

In fact, The Bahamas is mostly dependent upon tourism to grow its economy. This country’s proximity to North America has placed it in an ideal position, which ignites, propels and escalates the tourism industry there. Furthermore, its tourism industry accounts for about 60 percent of the country’s gross domestic product (GDP), whilst other important sectors of the GDP, such as tax and the financial sectors, make up the other 40 percent of GDP.

Let me stress that, although the economy there seemed vibrant hitherto, in years to come The Bahamas tourism industry will not be able to sustain its economy. From an economic prospective, The Bahamas economy is not diverse enough for future sustainability.

Recently, the global economic downturn has resulted in the loss of thousands of jobs in The Bahamas alone. Because its economy relies heavily on visitors’ arrivals, which experienced a sharp decline, hoteliers were then forced to lay off workers. Some hotels had more employees than guests in-house.

The government of The Bahamas has an obligation to further diversify its economic environment through regional integration. When the tourism sector is affected, whether by natural disasters or by an act of terrorism or by challenges derived from social, environmental, political and economic factors, The Bahamas must be able to turn to an alternative sector for economic sustainability.

Similarly, the overseas territories -- especially Britain’s -- have also illustrated lack of support for regional integration. With much focus on the Cayman Islands, this country’s economy relies heavily on its humongous financial services industry, which is ranked fifth in the world’s banking centers. In addition, the government also piled up revenues from its taxation system. This together has placed the Cayman Islands at the top in the region, relative to the standard of living.

Looking at Cayman’s economic environment allows me to conclude, hitherto, that this country’s economy is not diverse enough to maintain viability in the long run. With the financial challenges faced by the United States and the European Union, the financial sector there is gravely affected.

Additionally, the Cayman Islands were forced to regulate its banking operations under the principles of the European Union Savings Directives (EUSD), coupled with intense pressure from the Organization for Economic Cooperation and Development (OECD) to prevent Cayman Islands’ offshore financial centers from becoming a tax haven. In addition to this, the current US president has disclosed his intention to exert severe pressure of the use of Cayman’s financial centers by multinational corporations.

Moreover, the International Monetary Fund (IMF) has set up programs that regulate the money laundering regime, and the country’s banking, securities and insurance industries. Similar environments exist in the other overseas territorial states.

Constructively, I looked at the lack of interest in regionalism from a Bahamian and from the prospective of the overseas territories and I understand the reason. Picturing the many people who would move from countries with weak economies and high unemployment rates to seek jobs in those places; figuring the movements of other Caribbean national – creating mass migration – I do understand. However, if the situation is being looked from a wider prospective then it should be known that there will be many benefits to gain and that rules and other stipulations will be in place, which would govern the movement of foreign citizens, such as having an assigned job before taking up residence in another country where more jobs are available.

The Bahamas and the Caymans Islands along with the other overseas states must join the rest of the Caribbean to integrate their efforts in making the Caribbean a region a region to reckon with. I stress that individually we won’t be able to sustain our economy and these countries’ economies are not diverse enough to stay strong for much longer. Some citizens purported that too many Caribbean countries are economically disabled to have successful integration; this does carry some concerns; however, the EU has successfully integrated with only the countries in Western Europe having strong economies.

Interestingly, the US, the world economic power, has established many regional bodies to enhance the country’s economic sector.

December 15, 2010

caribbeannewsnow

Bahamas Blog International

The Bahamas cannot afford to "sit and wait" for economic recovery to be driven by the US - says James Smith, former minister of state for finance

Bahamas can't 'sit and wait' for US tide to lift recovery
By NEIL HARTNELL
Tribune Business Editor:



THE Bahamas cannot afford to "sit and wait" for economic recovery to be driven by the US, a former finance minister warned yesterday, urging this nation to "fix" its high cost base and structural inefficiencies, given that "unacceptable levels of unemployment" were set to linger post-recession.

Describing the recovery outlook as "fair to overcast", James Smith, former minister of state for finance in the Christie-led administration, told Tribune Business that to escape from arguably the deepest recession since the 1930's Great Depression, this nation needed to long beyond its traditional reliance on a rising US tide to lift the Bahamian boat.

"For us this time around I think we have to go beyond recovery in the US," Mr Smith said. "For us to participate in that recovery, we need to do more things to fix our major industry, addressing the cost, for the simple reason that during this recession our major travel market, the US, had the opportunity to see what was happening in our competitors, Cancun and other, where they have been a little more competitive."

Rival Caribbean destinations, with lower cost structures/bases, had been more competitive with US tourists seeking greater value and better prices, something that was borne out, Mr Smith suggested, by the fact that the Bahamas had - along with Jamaica - suffered the longest period of economic contraction.

The Bahamas had done "worse than other countries", the former finance minister added, pointing to the fact that while this nation had been among the first to slip into recession during the 2008 second half, it was among the last predicted to recover, with economic growth not forecast to resume until 2011.

"We've had two years of negative growth in GDP besides Jamaica. A lot of other countries are more competitive, so it suggests, broadly speaking, that there are other areas of the economy that needs fixing," Mr Smith told Tribune Business.

"One that springs immediately to mind is the cost structure and competitiveness in that area. As we look to recover, we have to do more than sit back and wait for it to happen. We have to address without delay our cost structure and making our main sector more competitive.

"This would be a good time to do it, while all are feeling the pinch and recognising the need to improve, so it would be easier to take the programme forward. They would realise we have to do a better job than we have been doing. We have to take this opportunity to improve the services we give at all levels, and the cost of these services."

Energy and labour were the two critical cost components that had to be addressed, Mr Smith said. While it was not practical to reduce wages, due to the high living cost in the Bahamas as well as the presence of highly restrictive trade union agreements, the former minister suggested that this nation tackle "fundamental issues" - enhanced efficiency, bringing pay in line with productivity, and "getting rid of wastage in the public sector".

"We know what to do, we just have to start doing it," Mr Smith said, describing the persistence of high unemployment levels (last officially measured at 14.5 per cent, but believed to be higher) as a "vexing problem for the Bahamas".

One factor behind the hotel industry's relatively high costs in comparison to rivals was that the Bahamas had "more people employed per room", and during the recession resorts had found ways to operate more efficiently with less staff following the late 2008/early 2009 lay-offs.

"The prospect of a return of jobs at the same level over a short period of time is pretty bleak," Mr Smith said. "Jobs have to be created in other areas, and we may find ourselves with unacceptable levels of unemployment for a long period of time, even after the recession has passed. We're really not seeing any signals out there that there will be a quick turnaround."

The former finance minister also expressed scepticism that the Government's increased taxes would not achieve the objective of plugging the Bahamas' fiscal deficit or reducing the national debt, as they were being impose against a backdrop of reduced national income and economic growth that was sluggish to non-existent.

"The increase has fallen disproportionately on the business sector, so we will not have them expanding and hiring people," Mr Smith said. "We might be in a Catch-22 position. The Government needs revenue, so it raised taxes, but it might not get paid in full because people are not working."

To move the Bahamas forward, Mr Smith said the Government and all economic stakeholders needed to dialogue and come to a consensus on a sustainable development strategy for the Bahamas, ensuring that issues such as public sector investment in education were not impacted when administrations changed - that policy stayed broadly in course, in line with a national plan.

He also warned against "trade offs", where the Bahamas sacrificed future generations - for instance, by compromising the environment - in return for development and foreign direct investment now.

August 27, 2010

tribune242

Bahamas Blog International