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pg. 1
PRIVATE SECTOR ASSESSMENT REPORT (PSAR) for The Commonwealth of The Bahamas
2013
Guillermo R. Alborta February 2013
pg. 2
TABLE OF CONTENTS
Introduction and Background
Compete Caribbean and the Inter-American Development Bank (CC-IADB)
Private Sector Assessment Report (PSAR) Content
CHAPTER I: IDENTIFYING MARKET FAILURES
I. Goal of Private Sector Development (PSD) and Current Agenda
I.1 Private Sector Importance for Long Term Growth
II. Overview of the economy
Summary of the Overall Economy
II.1 Domestic Economy
Gross Domestic Product
Inflation
Unemployment
Fiscal Balance
II.2 International economy
Current Account of the Balance of Payments
Foreign External Debt and Exchange Rate Regime
Trade
Foreign Direct Investment and Sovereign Credit Ratings
II.3 Services and the Productive Structure
Agriculture and Industry
Services
II.4 Institutions and Economic Regulation
Economic Regulation and Private Activity
pg. 3
III State of the Private Sector
IV Large and Fast Growing Sectors
IV.1 Tourism and Travel and the Wholesale/ Retail Trade Sector
IV.2 Financial Intermediation and Financial Services
IV.3 Construction
IV.4 Industry and Manufacturing
IV.5 Agriculture, Fishing and Mining
IV.6 Small and Medium Sized Firms and Informality
V Issues for Private Sector Development
V.1 Institutions for Private Sector Development
V.2 Donors and Other International Entities
V.3 Access to Finance V.4 Corporate Taxation
V.5 Business Environment
V.6 Technology and Innovation
V.7 Trade and Tariffs and Foreign Direct Investment Policies
V.8 Labor Regulation and Workforce
V.9 Infrastructure, Communications and Energy
V.10 Environment
V.11 Gender
V.12 Crime, Corruption and Informality
V.13 Analytical Remarks and SWOT Analysis of PSD
CHAPTER II: SELECTING AND PRIORITIZING ISSUES
I. Identifying Critical Issues
I.1 Inadequately Educated Workforce
I.2 Customs and Trade Regulations
pg. 4
I.3 Infrastructure, Discretionary and Unpredictable Regulation
I.4 Small and Medium Enterprises (SMEs) and Access to Finance
I.5 Other Private Sector Development Issues
Clustering
Information Communication Technology (ICT)
Innovation
Overwhelming public sector red-tape and lack of transparency
II. Establishing a long term action plan
CHAPTER III: CONCLUSIONS AND RECOMMENDATIONS
I. Improving Education and Workforce Skills
II. Infrastructure Provision and the Private Investment Enabling
Environment
III. Financial Support for SMEs and Entrepreneurial Development
IV. Others
V. Policy Matrix
BIBLIOGRAPHY
ANNEX A: List of Participants
ANNEX B: Comparable Countries
ANNEX C: Data Charts
pg. 5
PRIVATE SECTOR ASSESSMENT REPORT (PSAR) FOR THE
COMMONWEALTH OF THE BAHAMAS
Introduction and Background
The Commonwealth of the Bahamas is located in the western part of the Caribbean islands. The
Bahamas is an archipelago country consisting of more than 3,000 islands, cays and islets in the
Atlantic Ocean, north of Cuba and the Dominican Republic and Haiti, northwest of the Turks
and Caicos Islands and southeast of the US state of Florida. The country's population, numbering
around 351,461, lives on a land area of 13,939 km2 (5,382 sq mi). Its capital city is Nassau,
located on the island of New Providence, while the city of Freeport, the second largest city, is
situated on Grand Bahama. At its northern border lies the United States of America, and its
western, eastern, and southern borders are Cuba, Haiti/Dominican Republic (Hispaniola island)
and Turks & Caicos Islands, respectively.
Self-government was achieved in 1964 and full independence in 1973. Lynden Pindling was the
first prime minister and head of the Progressive Liberal Party (PLP) until 1992 when the Free
National Movement (FNM) won parliamentary elections. The FNM ruled for 10 years with its
leader, Hubert Ingraham, as prime minister until the PLP, led by Perry Christie, returned to
power in 2002 until 2007. Elections in 2007 restored Ingraham to the post until 2012. The
Commonwealth of the Bahamas’ most recent election was held in May 2012 when Perry Christie
(PLP) was elected to return to post. Next elections might be expected by 2017.
The head of state is Queen Elizabeth II of Britain, represented in the Bahamas by a Governor-
General. The head of the government is the prime minister, who is the leader of the majority
party or coalition following legislative elections. The two chamber legislature consists of the
pg. 6
Senate, whose 16 members are appointed by the Governor-General on the advice of the prime
minister and the leader of the opposition for five year terms, and the House of Assembly whose
41 members are elected by popular vote for five year terms. The government may dissolve
parliament and call elections at any time.
The Bahamas is classified as a high-income economy, but is not a member of the OECD group.
In 2011 the total nominal value of goods and services produced was USD$ 11.1 billion (current
international USD equivalent) according to the World Bank. GDP per capita on a purchasing
power parity basis (PPP) was $31,978. In relative terms, in 2011 the Bahamian per capita GDP
was almost 2.6 times higher than the per capita income average for Latin America and the
Caribbean.
In terms of income inequality, the situation is less positive. Average income inequality in the
Caribbean region as estimated by the Gini coefficient was 0.38 in 2005, while the Bahamas Gini
coefficient was 0.47 percent in 2011. There are wide regional variances in this measure,
however, with neighboring countries showing greater income inequality such as Haiti (0.65), St.
Vincent and the Grenadines (0.60), and Antigua and Barbuda (0.50).
The Bahamas’ economy has been largely influenced by two services sectors that represent
probably two-thirds of its economy and employ most of its labor force. The Bahamian economy
is driven by tourism (and tourism-related construction) and financial services. Industrial
production, manufacturing and agriculture are limited by the country’s geographic extension and
factor endowment, mainly land and labor. Agriculture is largely carried out on small plots
throughout most of the islands. The nature of the terrain limits the scope of farming, and only
one percent of land is cultivated, mainly for household consumption. Limited agriculture and
agro industry production has necessitated the import of some 80% of the islands’ food supply.
The Bahamas is among the Western Hemisphere countries most vulnerable to global food price
increases because it imports most of its food.
Tourism directly and indirectly employs about half the Bahamian work force. In 2008, 4.6
million tourists visited the Bahamas, 85% from the United States. The number of visitors
declined in 2009 due to the global economic crisis, but by December 2010, the Bahamas once
again enjoyed 5 million visitors. This was a 4.5% year-on-year decrease from 2007. There are
about 110 U.S.-affiliated businesses operating in the Bahamas, and most are associated with
tourism and banking. With few domestic resources and little industry, the Bahamas imports
nearly all its food and manufactured goods from the United States. American goods and services
tend to be favored by Bahamians due to cultural similarities and heavy exposure to American
advertising. The Bahamian economy, due to its heavy reliance on U.S. tourism and trade, is
strongly tied to U.S. economic performance.
The last 2010 census recorded that the population of the Bahamas is 351,461, with an average
annual growth rate of 1.6 percent from 2000 to 2010. In absolute terms the population rose by
47,850 persons during the last ten years. The bulk of the population (70%) resides in New
Providence, with another 14.6% living in Grand Bahamas and 5% in Abaco Island. The other
islands or the Family Islands are less populated, with a total approximate population of 36,540
inhabitants.
pg. 7
As a small island state, the Bahamas along with other Caribbean countries faces extraordinary
vulnerabilities. Despite the country’s relatively high average per capita income, the geographical
spread of the islands, over-reliance on a few key economic sectors to drive economic growth,
and exposure to recurring natural disasters increases the country’s vulnerability to external
shocks.
Economic exposure is generally determined on the basis of the economy’s trade and financial
linkages with the rest of the world, or neighbor countries as the case for Bahamas. Economic
vulnerability measurements are related to income volatility and resilience, as determined by a
weighted measure of GDP using principal components analysis.
Tourism-dependent economies are dangerously reliant on the regular arrival of tourists. If the
rate or number of tourists from the United States falls, this would have immediate negative
repercussions on the economy. The Bahamas has benefitted immensely from tourism, but the
industry is changing and the country needs to maintain a competitive advantage in the sector
over many neighboring competitors or comparable economies for the sector to remain the driver
of economic growth in the future.
For this report, the selection of country comparators was made to deliberately focus on
Caribbean neighbors. The comparator countries selected for the Commonwealth of the Bahamas
are: Antigua and Barbuda, Barbados, Jamaica, and Trinidad and Tobago. The rationale for the
selection of these countries is described in detail in Annex B.
Compete Caribbean and the Inter-American Development Bank (CC-IADB)
As part of Inter-American Development Bank efforts and activities to support economic
development in the region, it created the Compete Caribbean Program (CCP) as a private sector
development program. CCP is jointly funded by the United Kingdom Department of
International Development (DFID) and the Canadian International Development Agency (CIDA)
to provide technical assistance grants and investment funding. Its specific objective is to help
increase: (i) donor harmonization and coherence, equity and sustainability of national and
regional private sector strategies; (ii) the efficiency and effectiveness of Caribbean governments
to promote a competitive, growth-oriented business and investment climate; and (iii) innovation,
productivity, value added production, sales and sustainability in key Caribbean clusters and value
chains, and product sophistication, productivity and exports of individual firms.
One of the analyses used to guide the focus of Compete Caribbean assistance in each country is a
Private Sector Assessment Report, or PSAR. These reports are designed to (a) increase regional
and national consensus and focus on strategic and priority interventions promoting private sector
development; (b) increase the synergies among donor-supported Private Sector Development
(PSD) projects; and (c) strengthen knowledge management to ensure the transmission of PSD
best practices, evaluation of interventions’ impact, and knowledge exchange with national and
regional stakeholders.
pg. 8
Private Sector Assessment Report (PSAR) Content
The PSAR aims to contribute to the development of a comprehensive national strategy for
private sector development. In the case of the Bahamas, a Private Sector Assessment Report
(PSAR) for The Commonwealth of the Bahamas indentifies private sector development
constraints and opportunities in the country and recommends priority areas for action. The
document includes three types of information. First, the PSAR compiles and analyzes
information from different sources, (including the Ease of Doing Business and Global
Competitiveness Reports, and any available databases specializing in PSD indicators and
information), to provide a snapshot of the state of the private sector in the country. More
specifically the PSAR provides an overview of the economy, the state of the private sector, large
and fast growing sectors, and issues for private sector development such as support institutions,
access to finance, taxation, business environment, trade and FDI, and infrastructure among
others. Second, the PSAR brings the information to relevant stakeholders – such as governments
and firms in the economy – to establish priorities on all the identified issues affecting further
growth in the private sector. Third, the PSAR summarizes a comprehensive analysis and
provides conclusions and recommendations to all related stakeholders, while serving as a useful
tool to coordinate further actions and interventions.
pg. 9
CHAPTER I: IDENTIFYING MARKET FAILURES
I. Goal of Private Sector Development (PSD) in the Country and Current
Agenda
The Commonwealth of the Bahamas is a small island state and small open economy in the
Caribbean. The Bahamas is classified as a high-income economy, but is not a member of the
OECD group. Its economy has been largely influenced by two services sectors such as tourism
and financial services that represent probably two-thirds of its economy and employs most of its
labor force. Bahamas’ industry, manufacturing and agriculture are limited by its geographic
extension and factors’ endowment, mainly labor and land. For Instance, Agriculture is carried
out on small plots throughout most of the islands. The nature of the terrain limits the scope of
farming, and only one percent of land is cultivated which is mainly a household industry.
Limited agriculture and agro industry production has necessitated the import of some 80% of the
islands’ food supply.
In order to address these peculiar limitations, since the 1980s the long-term development policy
framework for the Bahamas has historically been addressed by government policy documents
called Manifestos. The latest policy document or manifesto is the “Vision 2030: Charter for
Governance. Believe in The Bahamas”, which belongs to the current administration in office
since May 2012. In this plan, governmental authorities note the urgency of economic change and
the need for a long term development plan. As all of the previous plans the Progressive Liberal
Party’s (PLP) proposal sets up a long term progressive and spectacular future for Bahamians.
Overall, the Bahamas’ current administration economic goal as stated in Vision 2030 are
“Reaching and rescuing those in poverty. Saving and expanding the middle class. Protecting the
future”1 The new administration intends to accomplish that through improving income, removing
impediments to business and investment and the reduction of productive vulnerabilities. The
specific objective is sustainable social development, continued improvement in living conditions
and engagement of private sector as partners in the development process. Along with these
mentioned objectives, there are three sub-themes in the 2030 Vision document: 1) crime and
security cooperation; 2) civil society participation; and 3) institutional development, support and
program effectiveness.
The plan establishes both a short term agenda with twelve issues to address during the first one
hundred days in office, and a long term vision through 2030 with the explicit and vital
participation of the private sector. The role of the private sector is viewed as fundamental.
Regarding a long term perspective, the document is explicit about protecting the Bahamas’
future, saying ”….this plan will be a commitment to building a broader sense of collective
purpose among all Bahamians ...., to utilizing the collective will of all such people and to better
use natural resources , such as land , sea and geographic location.” Vision 2030 will relate to
every aspect of national life and provide the cornerstone for fostering a sense of common
purpose”2 High on the agenda of Vision 2030 are policies and programs designed to enhance
1 Progressive Liberal Party PLP (2012) pag.15
2 Progressive Liberal Party PLP (2012) pag. 30
pg. 10
Bahamians’ guardianship of the physical resources and natural endowments. These policies will
focus in a more general sense on the relationship between these resources and sustainable
development.
I.1 Private Sector Importance for Long Term Growth
Although the strategy identifies the government as the direct stimulant for policy, it accepts that
most jobs must be created by and within the private sector. The administration stresses that as a
matter of policy, such state direct participation will occur in partnership with private investors in
order to create long term jobs for Bahamians. In order to achieve these long term goals, public-
private sector partnerships are vital for the nation’s interest.
The short term agenda, “The First 100 Days”3 includes the following elements:
Project Safe Bahamas and Operation Cease Fire, including the reintroduction of urban
renewal to immediately reinvigorate the fight against crime and violence.
Prioritize a doubling of the nation’s investment in the education and training of Bahamians.
From preschools all the way up to retraining for Bahamians already in the workforce, new
investment and innovative reforms are needed.
Create a Ministry for Grand Bahama, bringing focus to growing that island’s economy.
Institute a mortgage relief plan in conjunction with private sector lenders to help struggling
homeowners.
Set in motion the plan to secure the nation’s borders, with steps to hire new personnel,
acquire new technology, and initiate new training programs.
Reposition the Bahamas Development Bank, so it becomes again a key player in creating
jobs and expanding small and medium-sized businesses.
Re-establish the Ministry of Financial Services and Investments.
Introduce the Employees’ Pension Fund Protection Act to keep pension funds out of reach of
business owners, and to make directors and officers personally liable for breaches.
Renew the nation’s commitment to National Health Insurance, and support the Public
Hospitals Authority in the acquisition of much-needed new cancer-screening technology,
ensuring that Bahamian women have access to state-of-the-art mammogram machines at both
Princess Margaret Hospital in New Providence and Rand Memorial Hospital in Grand
Bahama.
Initiate a plan to lower the cost of electricity in the Bahamas.
Bring together representatives from all sectors to launch a 40th
Anniversary of Independence
of the National Congress to begin enactment of Vision 2030.
Provide details for a referendum on a National Lottery and gambling in the Bahamas.
3 Progressive Liberal Party PLP (2012) pag.12
pg. 11
Reduce the maximum level of stamp tax payable on real estate transactions from 12% to
10%.
Re-introduce a ceiling on the maximum level of real property taxes payable on a residence.
The private sector was asked to participate in the current government’s Bahamas Economic
Recovery Strategy as a complementary initiative to its original plan. Private enterprises remain
the primary engine of job creation and entrepreneurial opportunity in the country, and tourism
and financial services, supported by industrial expansion, fisheries and agricultural production
should be the chief areas of economic activity in the Bahamas. Current authorities have said
“Government is committed to the formulation and execution of policies that will encourage
private investment in these areas while maximizing job creation and career development for
Bahamians in the shortest possible time.”4
Moreover, the private business community and the government need to look at important issues,
including energy. “The cost of energy is just too high and it’s an impediment to having a
successful country. So we’re working on having a conservative energy platform that over a
period of time will reduce the cost of energy.” “Secondly, the tourism sector is not dead. There
are opportunities to be tapped in the tourism sector so we are going to pursue those
opportunities.”
Bahamas Minister of Investment Mr. Michael Rolle stressed that this is a national strategy that
will need all stakeholders on board, including PLP’s opposition party.
“Our approach is to make sure that it is entwined in what we do, so that the people make
the decision that long-term they want to see this economy develop and that there is a
concrete strategy in place. We are going to sit down and talk to all the stakeholders and to
prepare a plan……”
4 Hon. Minister Michael Rolle (2012) The Freeport News November 17, 2012
pg. 12
II. Overview of the economy
Summary of the Overall Economy
The Commonwealth of the Bahamas is a small island state with an open economy in the
Caribbean. The Bahamas is a constitutional monarchy based on the Westminster system of
parliamentary government. Queen Elizabeth II is the head of state. She is represented
ceremonially by a Bahamian governor-general who acts on the advice of the prime minister and
the cabinet.
The Bahamas enjoys a stable political environment with elections constitutionally held every five
years. The Prime Minister, Perry Christie, took office for a five-year term in May 2012,
following a landslide election victory for the center-left Progressive Liberal Party (PLP). The
previously governing Free National Movement (FNM) has now become the main opposition. Mr.
Christie scored one of the biggest electoral wins ever witnessed in the Bahamas, with the PLP
garnering 29 of the 38 seats in the lower house of parliament.
The Bahamas is classified as a high-income economy, but it is not a member of the OECD
group. Its economy has been largely influenced by two services sectors - tourism and financial
services – representing approximately two-thirds of the economy and employing most of its
labor force. The Bahamas’ industry, manufacturing and agriculture are limited by its geographic
extension and factor endowment, mainly labor and land.
As of 2011, the total nominal value of goods and services produced was USD$ 11.1 billion
(current international USD equivalent) according to the World Bank. GDP per capita on a
purchasing power parity basis (PPP) was $31,978. However, there has been a steady increase in
inequality in the distribution of the Bahamian per capita income since 1999, after a significant
improvement from 1973 to 1998. During recent years, the most common measure of income
inequality (the Gini coefficient) increased slightly from 44% in 2009 to 46% in 2011.
Starting with the contraction caused by the hurricanes in 2004/5, the unemployment rate has
been relatively high, making job creation and labor market reform a fundamental objective. The
unemployment rate hit a recent high of 15.9 percent in 2011, with unemployment registering
33.7 percent for youth between 15-24 years old. Inflation tends to be low and stable in the
Bahamas. Over the last decade, the average annual rate of inflation in the island was 2 per cent
compared to almost 11 per cent in Jamaica or 6 per cent in Trinidad and Tobago. The Bahamas
has a long-standing fixed exchange rate regime that according to the IMF has served them very
well for more than four decades. The exchange rate has sustained a 1:1 parity with the US dollar
since the 1970s.
The Bahamas fiscal position has deteriorated since 2007 due to downturns in international
services trade and counter-cyclical expenditures after 2008. The majority of fiscal revenue
collected derives from taxes on international trade, which are approximately 50 per cent of total
revenue. The government decided to compensate the lower consumption and aggregate demand
with spending, resulting in larger deficits over the period of time from 2007 to 2011. Whereas
pg. 13
the World Development Indicators show moderate deficits for the central government in Graph
15, the International monetary Fund reported a 4.5 per cent overall deficit in 2008 followed by
4.4 per cent in 2009, 4.7 per cent in 2010 and 5.0 per cent in 2011. IMF average projections
forecast the central government deficit will register 4.5 per cent of GDP during fiscal year
2011/2012 through 2015/2016.
The Bahamas trade current account historically registers large deficits. The current account
deficit deteriorated and spiked at 15.5 per cent of GDP in 2006 (US$1,403 million), but in
following years returned to around 10 per cent of GDP. While trade balances in goods are
notoriously negative, trade services are significantly positive, but not large enough in magnitude
to provide a positive overall current account result. The large current account deficits reported
since 2000 period were largely financed by foreign direct investment (FDI) inflows and to a
lesser extent by transfers. Remittance flows are negligible or not significant.
Large and persistent current accounts deficits raise questions about how it is financed, and about
the services trade patterns of the country. Bahamas largely depends upon positive travel services
flows. The total external indebtedness of the island has significantly increased from
approximately US$ 326 million at the end of 2007 to around US$ 1.3 billion as of the second
quarter of 2012.
The government of the Commonwealth of the Bahamas generally encourages foreign investment
in all sectors of the economy except those the Government reserves exclusively for Bahamian
citizens. Government policy is committed to promoting a favorable economic environment in
which the government regulates and facilitates economic development, where transparency, fair
play and equality of treatment are protected. However, private domestic and foreign investors
complain about the discretionary issuance of business licenses and lack of transparency in
decisions to authorize or to renew the license of a business.
The Bahamas is facing increasingly more difficulty in attracting foreign investors. Standard &
Poor's Ratings services announced it revised the outlook on its long-term rating of The
Commonwealth of The Bahamas to negative from stable in September 2012. FDI was high at
US$ 706 million in 2006 and registered a record figure of US$ 860 million in 2008, with
significant variations after 2009. FDI has continued to provide positive flows despite the global
financial recession and the pessimistic outlook from credit rating agencies.
The most important trading partner of the Bahamas is the United States, reflecting the close
relationship between both countries. However, the Bahamas also conducts trade with Canada, the
United Kingdom and other countries in the European Union. In 2011, the U.S. bought 25 percent
of the Bahamas’ non-service exports and accounted for roughly 75 percent of all imports.
Since the 1950s and country independence in 1970’s, the Bahamas has largely been a service-
driven economy with tourism, tourism related activities such as hotels, restaurants and
wholesales along with financial services as the main forces explaining its economic performance.
However, the contribution of other sectors to overall GDP is not negligible. Agriculture is small
in both employment share and overall contribution to growth, and the manufacturing sector is
pg. 14
still in its initial stages. Manufacturing employs approximately 3.2 percent of the workforce and
its GDP share ranks similarly.
As shown in the product space figures, the Bahamas productive structure for goods is very
heterogeneous. Products are not closely connected between sectors, thus they mostly operate in a
relative isolation. A Bahamas detailed merchandise export profile is incorporated in the
following section, but the product space figures indicate that structural transformation cannot be
guaranteed.
II.1 Domestic Economy
The Commonwealth of The Bahamas is an archipelago including a large number of related
islands and cays. It is spread over some 100,000 square miles in the interconnecting waters in the
Atlantic Ocean. Its capital city is Nassau, located on the island of New Providence, while the city
of Freeport, the second largest city, is situated on Grand Bahama. At its northern border lies the
United States of America, and its western, eastern, and southern borders are Cuba,
Haiti/Dominican Republic (Hispaniola island) and Turks & Caicos Islands, respectively.
The last 2010 census recorded that the population of the Bahamas is 351,461, with an average
annual growth rate of 1.6 percent from 2000 to 2010. In absolute terms the population rose by
47,850 persons during the last ten years. The bulk of the population (70%) resides in New
Providence, with another 14.6% living in Grand Bahama and 5% in Abaco island. The other
islands or the Family Islands are less populated, with a total approximate population of 36,540
inhabitants.
Gross Domestic Product
Source: World Development Indicators, WB.
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
-
2
4
6
8
10
12
Bill
ion
s
Graph 1: Bahamas GDP and Per Capita GDP in Current International Currency
GDP ppp GDP pc ppp
pg. 15
As of 2011 (Graph 1), the total nominal value of goods and services produced was USD$ 11.1
billion (current international USD equivalent) according to the World Bank. GDP per capita on a
purchasing power parity basis (PPP) was $31,978. In relative terms, in 2011 the Bahamian GDP
per capita was almost 2.6 times higher than the per capita income average for the Latin America
and Caribbean, 42 percent higher than the Antigua and Barbuda and 21 percent higher than the
Trinidad and Tobago per capita GDP as its Caribbean comparator countries. Within the
Caribbean, comparable GDP per capita levels for Antigua and Barbuda ($18,492) and Trinidad
and Tobago ($25,073) were significantly lower. As shown in Graph 2, per capita GDP in the
Bahamas is only 13 percent lower than other high income countries that are not members of the
OECD.
GDP per capita PPP figures for 2011 in constant terms show the Bahamas at $28,239, followed
by Trinidad and Tobago at $22,132 and then Antigua and Barbuda $16,330. These results
suggest that Bahamas is more similar to non-OECD high income countries than to Latin
American and Caribbean comparable economies (Annex B).
However, there has been growing inequality in the distribution of aggregate household income in
the Bahamas since 1999, following income equality improvements over the period of 1973 to
1998. The most common measure of income inequality, the Gini coefficient, increased slightly
in the country from 44% in 2009 to 46% in 2011. As of 2005, while average income inequality in
the Caribbean (38%) was lower than the regional average for Latin America, some Caribbean
countries suffered from higher inequality, including Haiti (65%), St. Vincent and the Grenadines
(60%), Antigua and Barbuda (50%), and the Dominican Republic (47%).
Source World Development Indicators, WBI
Over the past two decades, the Bahamas GDP growth rates have closely tracked neighbouring
country economic performance and response to exogenous shocks, Graph 3. A significant drop
in travel demand from the United States after September 2001 has resulted in less revenue for the
Bahamas. Additional financial regulation for international operators and reduced financial flows
0
10000
20000
30000
40000
50000
BHS A&B T&T LACall HI noOECD HI OECD
Graph 2: Regional GDP Per Capita 2011, in Current International Currency
pg. 16
to international financial centres including the Bahamas has also contributed to a slower growth
dynamic.
As shown in Graph 4, economic trends in the Bahamas closely follow the United States. A
notable exception was in 2004, when two major hurricane storms (Janine and Francis) hit the
Bahamas during September 2004 disrupting economic production.
Source: World Development Indicators, WB
Source: World Development Indicators, WB
-15
-10
-5
0
5
10
15
20
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
Graph 3: GDP growth rates
LAC
A&G
BHS
BRB
JAM
T&T
-6
-4
-2
0
2
4
6
8
Graph 4: Bahamas Growth Rates Closely Correlated with US Growth Rates
BHS USA
September 2004 : Hurricane FRANCES AND JEANNE hit The Bahamas
pg. 17
Over last two decades, the Bahamas’ economic compound average growth rate has been low but
stable.5 Compound average growth during the period averaged 0.7 per cent per annum, including
two major economic downturns during the period: 1999-2003 and 2007-2009.
In contrast, the average annual rate of growth for similar countries was 0.9 per cent per annum
since 1988, not significantly different from the Bahamas, but at little bit higher for Trinidad and
Tobago and Antigua and Barbuda
The recent international economic downturn also had a significant effect on the Bahamas’
economic growth, with the economy contracting by approximately 4 or 5 per cent accompanied
with a decrease in GDP per capita by 1.6 per cent in 2008, 5.2 per cent in 2009 and a disputable
0 per cent in 2010. Graph 6 shows that the downturn has significantly affected all comparable
countries to varying degrees. While the Bahamas and Antigua and Barbuda growth rates showed
the first contractions in 2008, Barbados and Trinidad and Tobago growth contractions were first
felt later (in 2008 and 2009, respectively). Graph 5
Source: World Development Indicators, WB
The new growth dynamic following 2007 has affected principally the gross fixed capital
formation in the island. The following graph shows the GDP dynamic by expenditure category.
5 As a small island state, the Bahamas along with other Caribbean countries faces extraordinary vulnerabilities.
Despite the country’s relatively high average per capita income, the geographical spread of the islands, over-reliance
on a few key economic sectors to drive economic growth, and exposure to recurring natural disasters increases the
country’s vulnerability to external shocks.
-15
-10
-5
0
5
10
15
2005 2006 2007 2008 2009 2010 2011
Graph 5 : GDP Per Capita Growth After the Crisis
A&B BHS BAR T&T
pg. 18
Source: World Development Indicators, WB
Graph 6 shows that the significant drop in gross fixed capital formation was partially
compensated by a significant increase in government consumption (expenditure) after 2007, but
the fiscal stimulus lasted for a relatively short period of time. However, exports and imports
percentage chance regain dynamic after than government effort.
Source: World Development Indicators, WB
Taking into account the fact that services represent a large and increasing share of the Bahamas
economy, Graph 7 highlights the fact that the economic downturn has affected all sectors of the
(20.00)
(10.00)
-
10.00
20.00
30.00
2004 2005 2006 2007 2008 2009 2010 2011
Graph 6 : Bahamas Dynamic of Investment (GFKF) and Consumption
Household Cons Govern cons Var Invent
GFKF Exports Imports
-30.00
-20.00
-10.00
0.00
10.00
20.00
30.00
40.00
Graph 7: Bahamas GDP Dynamic by Sector
Services Agriculture Manufacturing Industry
pg. 19
economy since 2007. Correspondingly, manufacturing and agriculture represent small shares of
GDP and unsteady rates of economic activity over time. Industry’s participation has hovered
around 15 percent of total GDP over the last decade. During 2008 and 2009, the Bahamian
economy contracted and the services sector has dominated overall performance. Once the
services sector resumed growth after 2011, the economy recuperated slowly and with little
impact over employment. Along with Bahamas, comparators country growth have shown similar
trend regarding services sector.
Inflation
Inflation tends to be low and stable in the Bahamas, Graph 8. Over the last decade, the average
annual rate of inflation in the island was 2 per cent compared to almost 11 per cent in Jamaica or
6 per cent in Trinidad and Tobago. The Bahamas’ inflation rate is approximately equitable to
Antigua and Barbuda, but half of the Barbados average rate, as it is shown in Graph 9 . Since
2004, however, inflation in the Bahamas has been above its historical average, largely due to
rising food and commodity prices including oil prices.
Source: World Development Indicators WB
0
1
2
3
4
5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Graph 8: Bahamas Inflation 2000-2011
CPI
pg. 20
Source: World Development Indicators, WB
Unemployment
Due to the low and negative rates of economic growth after 2005, the unemployment rate has
been relatively high, making job creation and labor market reform a fundamental objective. The
unemployment rate hit a recent high at 15.9 percent in 2011 with youth unemployment
registering 33.7 percent for 15-24 years old.
-5
0
5
10
15
20
25
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Graph 9: Inflation in the Bahamas is One of the Lowest in the Region
A&B BHS BRB JAM T&T
0
2
4
6
8
10
12
A&B BHS BRB JAM T&T
Graph 11: Average Inflation over the Last Decade
pg. 21
In the early 2000s and up to the recent global crisis, the Bahamian unemployment rate registered
6.9 percent in 2001, and then after rose to 10.8 percent in 2003. However, the rates declined
slightly between 2003 and 2007. Since the crisis started in 2007, unemployment has increased
rapidly and has remained in two digits after 2009, see Graph 10 . By 2010, the Bahamas’
unemployment rate was significantly higher than that of Antigua and Barbuda (11.7) Barbados
(12), Jamaica (12.7), and Trinidad and Tobago (6.4) according to CIA World Factbook and the
IMF. Bahamas unemployment rates started to rise in 2006 due to less investment flows to
construction and real estate.
Source: Department of Statistics and Labor Force Survey 2011, IDB
Note: There is no Data for 2010, because the DOS conducted the Census.
As will be constantly stressed for the Bahamas, the service sectors provide the largest share of
employment in the country, with women being considerably more reliant on these sectors for
employment than men. By 2011 sectors such as hotels and restaurants, wholesale and retail trade
and financial services including banks, insurance, real estate and others represented the largest
shares of GDP and employment. When construction is included, which tracks closely with
tourism, these sectors together represent more than 60 percent of total employment.
National unemployment rates are almost evenly distributed between man and female during last
decade according to official figures, see Graph 11 Despite there is no data available for 2010,
the latest labor force survey for 2011 show that unemployment rates by gender were 16.1 percent
for men and 15.7 percent for women. While female unemployment rates were usually slightly
higher than men, this trend has been reversed since 2009.
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Graph 10: Bahamas Unemployment rates
pg. 22
Source: UN Comtrade ILO Labor
A complete picture of the employment market shows that better educated workers have had a
larger chance to be employed as of the end of 2011, see Graph 12
Source: Department of Statistics, MOF
Fiscal Balance
The fiscal year of the Bahamas ends on June 30 of each year. The Bahamas government does not
have a system of direct taxation, but instead relies on indirect taxes, mainly in the form of
customs duties, stamp taxes, real property taxes and taxes on tourism activities.
The Bahamas fiscal position has deteriorated since 2007 due to downturns in international
services trade and the expansion of expenditures after 2008 as Graph 13shows. The majority of
0
5
10
15
20
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Graph 11: Unemployment by gender 2001 - 2011
Female Male
0% 20% 40% 60% 80% 100%
No Schooling
Primary
Incomplete Secondary
Complete Secundary
University
Other Tertiary Institution
Not Stated
Graph 12: Bahamas Employed and Unemployed
Workforce by Educational Attainment (2011)
Employed Unemployed
pg. 23
the revenue collected derives from taxes on international trade, which are approximately 50 per
cent of total revenue. Miscellaneous taxes represent approximately 40 per cent of total
government revenues and non-tax revenue comprised of various fees, service charges and
property sales accounts for the final 10 per cent of total revenue. On the expenditure side, wages
and the purchase of goods and services are approximately two-thirds of total current
expenditures with subsidies and transfers making up the other third.
Source: World Development Indicators, WB
Revenues fell from 17.3 per cent of GDP to 16.7 per cent from 2008 to 2010 as international
trade continued to drop. The government decided to compensate the lower consumption and
aggregate demand with spending, resulting in larger deficits over 2007 to 2011. Although the
World Development Indicators showed moderate deficits for the central government in Graph 6,
the International Monetary Fund reported an overall deficit of 4.5 per cent in 2008, 4.4 per cent
in 2009, 4.7 per cent in 2010 and 5.0 per cent in 2011. IMF average projections forecast the
central government deficit will be 4.5 per cent of the GDP during fiscal year 2011/2012 through
2015/20166. On the expenditure side, current spending rose from 16.8 per cent of GDP in 2008
to 18.2 per cent in 2009 and an estimated 18.4 per cent in 2010. The government also accelerated
privatization of BTC, its telecommunicationcompany, and expanded capital expenditure and net
lending to 4 per cent of GDP in 2009. The following Graphs 6 and 14 shows the acceleration in
government expenditure after 2007 and corresponding debt increase after 2008.
As with all countries, the slowdown in world economic growth has had a negative effect on
macroeconomic fundaments in the Bahamas over the last five years. The Bahamas’ very close
economic relationship with the United States has made it more difficult to pull out of the global
recession quickly, in light of the weak US recovery to date. Fiscal accounts have deteriorated
with a consequent acceleration in public sector debt, which has increased from approximately 28
6 IMF (2011) Pag 1.
-5
0
5
10
15
20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Graph 13: Fiscal Deficits as pct of GDP
Surplus (+)/Deficit (-) Revenues excl. grants
Expenses excl. k Investment
pg. 24
per cent of the GDP in 2007 to 49 percent in 20117. As with many countries in the region, the
government’s focus moving forward is on revenue-boosting measures including possible tax
reform along with further institutional reshaping of its state-owned enterprises.
Source: World Development Indicators WB
.
The government has made announcements for its taxation reform while challenges will be
remain at the level of state own companies transformation and regulatory issues that might
impact on or limits its recovery prospects.
II.2 International Economy
Current Account of the Balance of Payments
The Bahamas current account historically registers large deficits. The current account deficit
deteriorated and spiked at 15.5 per cent of GDP in 2006 (US$1,403 million), but in following
years returned to around 10 per cent of GDP. While trade balances in goods are notoriously
negative, trade services are significantly positive, but not large enough in magnitude to provide a
positive overall current account result.
The current account deficit in 2011 was estimated at 10.5 per cent of GDP (US$1,090 million),
following deficits of 7.6 per cent in 2010, 7.8 per cent in 2009, 11.12 per cent in 2008 and 12.0
per cent of the GDP in 2007. See Graph 15.
7 Debt information was not available for the time period 2001 to 2005. For reference, debt as a percentage of GDP
was 23.9 per cent for the year 2000.
-
10.0
20.0
30.0
40.0
50.0
60.0
2007 2008 2009 2010 2011
Graph 14: Bahamas: Debt as a Percentage of GDP
pg. 25
Source: World Development Indicator WB.
Large and persistent current accounts deficits raise questions about how it is financed, and about
the services trade patterns of the country. Bahamas largely depends upon travel services positive
flows. Nevertheless its net financing have significantly increased during 2004 to 2006 as a
reflection of current account deficits and reserve accumulation as it is shown by Graph 16.
Source: Author elaboration with WDI data
The large current account deficits reported since 2000 period were largely financed by foreign
direct investment (FDI) inflows and to a lesser extent by transfers. Remittance flows are
negligible or not significant. Likewise, FDI was high at US$ 706 million in 2006 and registered a
(1,500)
(1,000)
(500)
-
500
1,000
1,500
2,000
2,500
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
Mill
ion
s
Graph 16: Bahamas Net Financing
FDI + REMITTANCES + ODA NET FINANCING
CAG&S balance + Acc Reserves
-3,000
-2,000
-1,000
0
1,000
2,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Graph 15: Bahamas Current Account balance
Goods Services
Net income Net Transfers
Current Account Balance
pg. 26
record figure of US$ 860 million in 2008, with significant variations after 2009. FDI has
continue to provide positive flows despite the global financial recession and the pessimistic
outlook from credit rating agencies.
Foreign External Debt and Exchange Rate Regime
The total external indebtedness of the island has significantly increased from approximately US$
326 million at the end of 2007 to around US$ 1.3 billion as of the second quarter of 2012. In
2009, the external debt load rose quite sharply to double the outstanding public and public
guaranteed debt to US$ 945.6 million. As shown in Graph 17 , overall debt has grown steadily
since 2007, but there is no publicly guaranteed private debt. At 49 per cent of GDP in 2011,
servicing the external debt of the island is likely to increase in absolute values that will reduce
the amount the public sector has available to pay for recurring goods and services, including
government employee wages.
Source: World Bank (QEDS)
As part of this external scenario, the Bahamas has a long-standing fixed exchange rate regime
that according to the IMF has served them very well8. Central bank authorities restated their
commitment to support the peg citing medium and long economic perspectives and the
expectation that fundamental external balances will remain strong. Authorities remarked that the
Bahamas reserves are adequate and inflation pressures under control. Labor market dynamics are
not part of the IMF mandate.
Trade
As an open economy, Bahamian trade is not only largely dependent on trade of physical goods
with neighboring countries, but also in services which are dominated by tourism. Trade in
services has dominated most of the country’s international relationships, registering large
8 IMF Art IV revision 2011, page 11-13
0
500
1,000
1,500
2007Q4 2008Q4 2009Q4 2010Q4 2011Q4 2012Q3
Mill
ion
s
Graph 17: Bahamas: External Debt Position 2007-2012
Publicly-Guaranteed Private Sector External Debt
Public Sector External Debt
Public and Publicly-Guranteed Private Sector
pg. 27
positive net balances. Export services have notoriously compensated imports services since the
1990s. Graph 18 shows the positive balance between services export and import.
Source: World Development Indicators
At the same time, trade balances in goods have been negative which reflects the Bahamas’
dependency in consumable goods and foreign inputs for its economic activities.
As we can observe in the following tree-maps for Bahamian exports and imports of goods, there
is little diversification in both goods and markets. The two Graphs 19a, 19b and Chart 1 show the
distribution of good exports for the Bahamas in 2010 according to HS4 and SICIT4 respectably.
0
0.5
1
1.5
2
2.5
3
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
Bill
ion
s
Graph 18: Bahamas Services Exports and Imports
Exports Imports
pg. 28
Graph 19a : Bahamas Exports Tree Map 2010
Source: The Observatory of Economic Complexity MIT, HS4 classification
pg. 29
Graph 19b: Bahamas Exports Tree Map 2010
Source: The Observatory of Economic Complexity. MIT, Atlas SITC 4.
Goods exports are highly concentrated in mineral fuels and mineral oils, followed by plastics and
related articles. As we can observe in the international classification of goods, Bahamian exports
are concentrated in codes of manufacturing along with agriculture products.
The country also has a relatively vibrant generic pharmaceutical and cosmetics industry. Some
industry has important linkages with tourism and agriculture. Other merchandise was primarily
composed fish and crawfish, salt, cement, rum, argonite, residual fuel oils, distilled fuel,
cascarilla bark, and citrus. The island’s export market is largely dominated by some industrial
codes such as 27, 39, 03, 29 and 84. The Bahamas main exports codes represent more than nine-
tenths of total merchandise exports.
pg. 30
Chart 1: Bahamas Export Codes 2010
Code Description
27 Mineral fuels, mineral oils and products of their distillation; bituminous substances;
mineral waxes
39 Plastics and articles thereof
03 Fish and crustaceans, mollusks and other aquatic invertebrates
29 Organic chemicals
84 Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof
Source: UN Comtrade
In the other hand, the following tree-map for imports Graph 20a, 20b and Chart 2 reflects that
Bahamian goods imports were mainly composed of petroleum fuels, mineral oils, machinery and
mechanical appliances and electric machinery and equipment. Imports were comprised primarily
of foodstuffs, motor vehicles, animal feed, petroleum products, clothing, machinery and
appliances. Foodstuffs account for a significant amount of imports from the United States.
Graph 20a: Bahamas Imports Tree Map 2010
Source: MIT, Atlas HS4 Classification
pg. 31
Graph 20b: Bahamas Imports Tree Map 2010
Source: The Observatory of Economic Complexity MIT, Atlas SITC 4
The following chart lists the most important import codes for the Bahamas in 2011. It shows the
large dependency of imported consumable goods and industrial inputs at the same time.
Chart 2: Bahamas Import Codes 2010
Code Description
27 Mineral fuels, mineral oils and products of their distillation; bituminous substances;
mineral waxes
84 Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof
85 Electrical machinery and equipment and parts thereof; sound recorders and reproducers,
television image and sound recorders and reproducers, and parts and accessories of such
articles
39 Plastics and articles thereof
73 Articles of iron or steel
pg. 32
Source: UN Comtrade
The most important trading partner of the Bahamas is the United States, reflecting the close
relationship between both countries. However, the Bahamas also conducts an amount of trade
with Canada, the United Kingdom and other countries comprising the European Union. In 2011,
the U.S. bought 25 percent of the Bahamas’ non-service exports and accounted for roughly 75
percent of all imports. Other countries in the region including Canada and Trinidad & Tobago
have become more important in Bahamian exports. Even so, the Bahamian economy will
continue to be dependent upon economic and other conditions in the United States to drive
growth in its tourism sector and merchandise exports.
The following chart summarizes Bahamian trade in goods.
Chart 3: Bahamas Trade 2010
Major exports: Petroleum oils, refined (49%), Cruise ships and similar vessels for the transport
of persons (22%), Oils and other products of the distillation of high temperature
coal tar (7%), Heterocyclic compounds with nitrogen hetero-atom(s) only (4%),
Polymers of styrene, in primary forms (4%)
Major imports: Petroleum oils, refined (59%), Cruise ships and similar vessels for the transport
of persons (5%), Paintings, drawings and pastels done by hand (2%), Cars (1%),
Medicaments, packaged (1%)
Major trade
partners
(exports):
United States (25%), Singapore (12%), Germany (11%), Poland (11%),
Dominican Republic (9%)
Major trade
partners
(imports):
United States (75%), Colombia (6%), Poland (5%), Canada (4%), Switzerland
(3%)
Source: The Observatory of Complexity HS 2007 classification
Bahamas is not a WTO member, but as of the end of 2012 it had made considerable progress
towards reforming its trade regime to bring it in line with WTO guidelines. In its accession to the
WTO, the Bahamas will address issues such as: trading rights, import licensing, export/import
regulations, subsidies, agricultural policy, intellectual property rights, anti-dumping and
countervailing measures, telecommunications services, quantitative import restrictions, technical
barriers to trade and sanitary/phytosanitary measures. Bahamian authorities have stated that
WTO accession is an important part of the government’s program to accelerate trade and
economic development, as well as to create more and better jobs for Bahamians. The 2012
Customs Management Act will begin to address some of the performance requirements of the
EPA. Predictable access to world markets for goods and services originating in the Bahamas is
one of the necessary preconditions for this government’s economic expansion strategy to
succeed.
As of April 26, 2013, the Bahamas has summited four sets of documentation to the working
party of the WTO regarding new legislation and policy proposals. The Bahamas has provided
documentation according to Article 25 of the agreement on Subsidies and Countervailing
pg. 33
Measures and Article XVI of GATT 1994. The Working Party's information gathering process
on The Bahamas' economic policies and legislative, regulatory and administrative regime has
continue in order to complete its accession package.
According to WTO information records, the Bahamas has not only handed its proposal over
countervailing measures and subsidies, but also new bills such as the Animal Health and
Production Bill, Food Safety and Quality Bill, Plant Protection Bill, and, Plant Protection Import
Control and Transit Regulations. Any “accession package” consists of three documents which
represent the results of both the multilateral and bilateral phases of the negotiation. This package
must include: a report of the Working Party containing a summary of proceedings and conditions
of entry; a Protocol of Accession; and, schedules of market access commitments in goods and
services agreed between the acceding government and WTO Members.
Foreign Direct Investment and Sovereign Credit Ratings
In general the administration of the country’s investment policy and attraction of foreign direct
investment (FDI) largely resides in the Bahamas’ National Economic Council (NEC), led by the
Prime Ministry. The most important trading partner of the Bahamas is the United States,
reflecting the close relationship between both countries. However, the Bahamas also conducts an
amount of trade with Canada, the United Kingdom and other countries comprising the European
Union. In 2011, the U.S. bought 25 percent of the Bahamas’ non-service exports and accounted
for roughly 75 percent of all imports. Investment regulations in the Bahamas recommend that
foreign investors register and declare inflows into the country for quicker processing of
applications to repatriate profits and capital. The Bahamas Investment Authority (BIA), an
executive agency, serves the investor as a one stop shop for investors and as a secretariat for the
cabinet in investment matters.
The Bahamas provides large and significant investment incentives for private investors,
including exemptions from the payment of customs duties on building materials, equipment,
inputs, and real property taxes according to sectorial promotion legislation. A list of these
legislation norms is presented in the institutional section of this report. In general the following
benefits are offered to investors:
A 20 year tax holiday;
duty-free imports of raw materials and inputs (customs duty exemptions do not apply to
consumables);
low tax rates for companies in the international business and financial services sector;
and
no tax withholding on dividends and interest, and in some instances royalties.
Manufacturing companies in the Bahamas also benefit from international trading treaties that
provide duty-free access to the US (CBI), the European Union (EPA) and Canada.
In 2011 the UN reported total investment flows into the country reached US$ 1,533 million – a
significant increase from the US$ 873 million registered in 2009. Since 2009 flows into the
pg. 34
country for real estate and direct investment in companies have returned as noted in Graph 21,
but they have not yet recovered pre-crisis levels. These FDI inflows are largely related to foreign
investors making large real estate investments in traditional tourism, manufacturing and public
utilities sectors.
Source: UN Comtrade
There is a direct linkage between imports coming into the Bahamas and foreign direct
investments. Both values have almost recuperated pre-crisis levels after 2011. Firm data
regarding the source nationally of incoming FDI to the Bahamas is not reported by either the UN
or the government, but according to some sources the most important investors are American,
Canadian, Chinese, and South A in origin.
Data from the United Nations confirm that the Bahamas has received substantially more FDI
since 2009 than its Caribbean neighbors. See Graph 22.
-
200.00
400.00
600.00
800.00
1,000.00
1,200.00
1,400.00
1,600.00
1,800.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Graph 21: Bahamas FDI 2000-2011
-
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
Graph 22: Foreign Direct Investment
A&B
BHS
BAR
JAM
T&T
pg. 35
Source: World Development Indicators, WB.
Nevertheless, the Bahamas is facing increasingly more difficulties in attracting foreign investors.
Standard & Poor's Ratings services announced it revised the outlook on its long-term rating of
The Commonwealth of The Bahamas to negative from stable in September 2012. As the
country’s fiscal outlook continued to weaken, and the government deficit rose even further in the
fiscal year ended June 2012, S&P granted the Bahamas a 'BBB/A-2' sovereign credit rating and
'BBB+' transfer a convertibility assessment in September 2012.
In December 2012, Moody's Investors Service downgraded the sovereign credit rating of the
government of the Bahamas to Baa1 from A3, with a negative outlook. The drivers of this rating
action were summarized in three points: 1) limited growth prospects following a protracted
recession and weak recovery in tourism and construction; 2) significant and rapid deterioration
of the government's balance sheet, exacerbated by a low revenue base and 3) high and rising
levels of debt and a weakening of debt sustainability metrics relative to peers.
In the short term, Moody’s noted expanding financing needs, as the central government's debt
stock rose to 53% of GDP in 2012 from 31.7% in 2007 and debt sustainability metrics have
deteriorated relative to A-rated peers. The combination of historically high debt levels and large
fiscal deficits has left the government with limited fiscal buffers to affect further stimulus or
respond to external shocks.
II.3 Services and Productive Structure
Within this macroeconomic context, this section will examine the productive structure of the
country, focusing in greater depth on industry, agriculture and services to identify large and fast-
growing sectors.
Agriculture and Industry
As previously mentioned, the Bahamas’ economy largely depends upon services although
industry’s share in overall GDP is not negligible. Agriculture is small in both employment share
and overall contribution to growth, and the manufacturing sector is still in its initial stages.
Manufacturing employs approximately 3.2 percent of the workforce and its GDP share ranks
similarly.
The country’s productive agriculture, manufacturing and exporting base has historically focused
on a very narrow range of primary commodities and goods with low value-added content. The
most recent Product Space Maps for 2000, 2005 and 2010 indicates the challenges that the
country will face in moving into new high-growth sectors in the future or more complex
interrelated industries.
Figure 1: Bahamas Product Space Map 2000
pg. 36
Figure 2: Bahamas Product Space Map 2005
Figure 3: Bahamas Product Space Map 2010
pg. 37
*
Source: The Observatory of Economic Complexity MIT, Atlas.
In a recent paper for the Inter-American Development Bank, Ricardo Hausmann and Bailey
Klinger said: “Given the Bahamas’ hyper-specialization in tourism and finance, it is difficult to
draw many conclusions from their data, but that country does have some export activity in
beverages as well as chemicals that are approaching the industrial core”. They continue “As
with Jamaica, Guyana, and the Bahamas, both Malta and Cyprus are somewhat present in the
peripheral agri-food and textile sectors”9
As shown in the product space figures, the Bahamas productive structure is very heterogeneous.
Products are not closely connected from one sector to others nearby, and thus they mostly
operate in a relative isolation. A Bahamas detailed merchandise export profile is incorporated in
the following section, but the product space figures indicate that structural transformation could
not be guaranteed.
Diversification
Despite this “hyper-specialization” label, the diversity of Bahamas’ exports hints some diversity
over recent years and the average ubiquity10
show the particular nature of the Bahamas’ exports.
Over last decade, the number of products for which the Bahamas has a revealed comparative
advantage (RCA larger than 1) has fluctuated between 40 products in 2000 and 23 products in
9 Inter-American Development Bank (2009). Private Sector Development Discussion Paper # 2, Hausmann R. and
Klinger, pag. 13. 10
It is measured by the number of countries with similar exports.
pg. 38
2010, and its diversification11
seems to be far behind Antigua and Barbuda and Jamaica. Graph
23
Graph 23: Bahamas Export Diversification
Source: Wiston Moore (2012) Pag.20
Ubiquity
The average ubiquity index shows in Graph 24 how unique are its exports - the higher the value,
the less unique a country’s exports. The Bahamas is the lowest among selected comparators and
most Caribbean islands, which shows the relative uniqueness of Bahamian exports.
Graph 24: Bahamas Export Ubiquity
11
Measured by number of products exported by a country.
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
Antiguaand
Barbuda
Bahamas Barbados Jamaica
Nu
mb
er o
f P
rod
uct
s
pg. 39
Source: Wiston Moore (2012) Pag.20
From all of these measures, the Bahamas shows low economic complexity in the goods sector.
Its export products are notoriously disconnected from each other, operating almost alone in the
product space map. There have not been any significant changes over the time frame 2000 to
2010. Despite the limited complexity of the Bahamas economy as reflected in the analysis and
graphs of the Product Space Map, it is noted that its largest sectors and/or its traditional sectors
will remain relevant for some period of time, but there are some exports such as Alcoholic
beverages that have started to fall in terms of their importance in the overall export basket.
An alternative view of the Bahamas’ exports is shown in the following manufacturing exports
graphs. The first Graph 25 shows the significant growth of exports since 1998 from a small base
for manufactures and non- manufacture products accumulated. The second Graph 26 shows
those exports values as shares of total exports where some products such as non-manufacture
expanded their share since 2008, despite the general economic downturn. Both figures underline
that Bahamas’ merchandise exports have multiplied and grown over last decade until 2010.
Graph 25: Bahamas Exports 1998 – 2010
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
Antiguaand
Barbuda
Bahamas Barbados Jamaica
Ind
ex
pg. 40
Source: The Observatory of Economic Complexity, MIT
Graph 26: Bahamas Export Share by Products 2010
pg. 41
Source: The Observatory of Economic Complexity, Tree Maps
As of 2010, a small Bahamas exports have transformed from chemical products, mounted
precious stones, diamonds, precious jewelry and oxygen-function acids & derivatives to sodium
chlorinate, heterocyclic compounds, warships, work of arts, polystyrene and fresh, chilled,
frozen or salted crustaceous and mollusks poultry.
Using the SITC4 classification, Bahamas’ exports reveled comparative advantage (RCA) is
manifest on products such as mineral tars, salt (sodium chloride), ships & boats and polystyrene,
which have shown the largest RCA values for 2010, but with very small participation in the total
value of exports except ships & boats. During 2008, The Bahamas has exported warships with a
RCA of 356.71; represented approximately USD 195 million in export. Along those lines the
exports of alcoholic beverages have decline from USD 227 million in 2008 to only USD 14
million in 2010 as its RCA significantly declined.
Chart 4 provides a detailed list of products that represent approximately 97 per cent of total
merchandise exports.
pg. 42
Source: Author elaboration, from data in The Observatory of Economic Complexity, MIT
Among those identified industrial export codes in the previous Chart 4, products with a RCA
have varied a lot during last years, with the highest RCA values in red. At the same time that
export share and value of the most important products have represented approximately more than
95 per cent of merchandise exports during 2008 to 2010. Among these industry lines we identify
subsets such as food & live animals, beverages & tobacco, machinery & transport equipment,
and other manufactured articles.
An alternative way to confirm this dynamic is by comparing Bahamas exports growth and its
share of world total market by 2011. Using the Harmonized System classification, the following
graphs show the structural nature of Bahamian exports and its products dynamic vis a vis world
markets.
Graph 27: Bahamas Exports Structure
The Bahamas Main Exports and Revealed Comparative Advantage (RCA)
Code Name
RCA
Share of
Total
Exports
USD$ Value of
Exports RCA
Share of
Total
Exports
USD$ Value of
Exports RCA
Share of
Total
Exports
USD$ Value of
Exports
360
Fresh, chilled, frozen or salted
crustaceans & molluscs 18.48 3.13% 84,602,625 19.4 3.4% 71,157,215 22.96 3.39% 87,363,017
422 Semi or wholly milled rice 2.21 0.3% 6,140,083
612 Refined sugar 5.45 0.5% 9,508,796
1124 Alcoholic beverages 3.37 0.52% 14,069,529 38.54 6.2% 131,039,002 62.52 8.84% 227,638,277
2734 Stones 27.1 0.49% 13,185,721 35.49 0.8% 15,952,716 61.25 1.37% 35,180,081
2783 Sodium chloride 38.87 0.89% 24,040,952 36.85 0.8% 17,274,527 29.37 0.48% 12,312,022
2820 Iron & steel waste 1.95 0.55% 14,826,461 1.53 0.4% 7,417,500 2.23 0.72% 18,479,762
2882 Other non-ferrous base metals 1.56 0.30% 7,693,661
2890 Ores and precious metals 3.61 0.27% 7,403,640
3330 Crude petroleum 0.24 2.18% 56,027,135
3345 Lubricating petroleum oils N.E.S. 12.27 48.96% 1,322,782,987 14.99 51.2% 1,085,828,276 7.35 30.11% 775,355,021
3352 Mineral tars 76.78 7.65% 206,611,249 7.34 0.6% 13,317,266 7.19 0.64% 16,598,580
5156
Heterocyclic compound; nucleic
acids 4.12 1.86% 50,387,641 7.38 3.6% 77,079,507 7.28 2.97% 76,526,508
5833 Polystyrene 24.71 3.66% 98,909,931 34.57 4.6% 97,609,574 39.77 5.50% 141,517,355
7810 Cars 0.11 0.4% 7,958,575
7931 Warships 356.71 7.57% 195,026,501
7932 Ships & boats 36.16 22.90% 618,647,573 19.92 13.8% 293,700,320 39.83 21.87% 563,229,536
8960 Works of art 21.47 2.39% 64,524,282 24.06 2.4% 51,505,169 24.7 2.94% 75,752,441
9310 Unclassified transactions 0 4.36% 117,861,547 0 7.7% 163,519,226 0 8.05% 207,173,514
Total Share of Exports 97.63% 96.6% 96.93%
Red = Highest RCAs in the period; Green = significantly diminishing value of RCA year to year
2010 2009 2008
pg. 43
Source: International Trade Center, Trade Competitiveness Map www.intracen.org
The relevance of sectors in the core such as mineral fuels, organic chemical & related materials,
petroleum refining and ships & boats and mechanical industry are going to continue and
establish a permanent role with limited interconnection with others. Graph 27
Graph 28: Bahamas Export Dynamic
pg. 44
Source: International Trade Center, www.intracen.org
A significant number of new products for Bahamian exports have shown a Revealed
Comparative Advantage larger than one. Graph 31 confirms the Bahamas role in machinery
(code 64), tools and base metals (code 82), articles of iron (code 73), iron and steel (code 72),
perfumes and cosmetics (code 33), art (code 97) and optical and medical apparatus (code 90) as
very significant compare to the world exports in these classification code products. These are
mid-size exports for merchandise or non-service Bahamas exports. Graph 28
More aggregated data shows that the shares of GDP for all these sectors- Agriculture and
Industry- were fairly stable over the decade, with only the beverage and tobacco industry sector
experiencing a precipitous decline.
UN Trade data for a sub-set of sectors is presented in the following section of this report,
showing the compound average growth rate (CAGR) for the entire economy over last decade
was a very modest 0.97 percent over last eleven years. Traditional sectors linked to hotels,
restaurants, wholesales and construction have grown over the decade with larger CAGR.
Services
Since the 1950s and country independence in 1970’s, the Bahamas has largely been a service-
driven economy with tourism, tourism related activities such as hotels, restaurants and
wholesales along with financial services as the main forces explaining its economic performance.
pg. 45
Source: World Development Indicators, WB
Within the last decade the sector share of GDP has remained unchanged, as shown in Graph 29.
In the year 2000 services value-added accounted for 80.4 per cent of GDP, by 2008 this
proportion was almost unchanged representing 79 per cent of GDP. The share of agriculture
barely reached 2.1 per cent, manufacturing was around 3.7 per cent and industry the other 15.4
per cent by 2011. Overall growth in the Bahamas has been and will remain highly dependent
upon the performance of the services sector. At the same time export services represent
aproximately 80 percent of total exports. See Graph 30.
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Graph 29: Bahamas GDP by Sectors share 1999-2011
Agriculture Industry Manufacturing Services
pg. 46
Source: World Development Indicators, WB.
The decomposition of the various components of the services sector, Graph 31, for the period
1990 to 2010 shows that travel services explains a large portion of total exports services.
Source: World Development Indicators, WB
Travel services accounted for just over four-fifths of service exports, with communications and
computers, transportation sharing almost evenly the over one-tenth. There is no insurance and
financial services related to exports recorded for the Bahamas, its activity is highly concentrated
as offshore financial activity.
40
60
80
100
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Graph 30: Bahamas Services exports to total exports 1999-2011
0
20
40
60
80
100
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Graph 31: Bahamas Travel , Transportation, Communication Services as pct of Export
Services 1999 - 2010
Communi & comp Transport Travel
pg. 47
Nevertheless, manufacture merchandise has slowly grown over the last and half decade. Despite
of the fact that the small base of the non-service sector, it has started to influence not only the
participation of the whole economy, but it also has influenced manufacture and non-manufacture
total exports. The following Graph 32 shows that manufacture merchandise become to be the
new ones in the block of exports since 1999.
Source: World Development Indicators, WB.
The chart shows how the Bahamas economy is changing its productive structure during last
decade. Manufacture exports have been increasing their share in total exports from around 6 per
cent in 1999 to almost 16 per cent in 2011, at the same time that non manufactured merchandise
has varied around 11.5 per cent in 2008 and 7.5 per cent in 2011.
II.4 Institutions and Economic Regulation
The Bahamas is a constitutional monarchy based on the Westminster system of parliamentary
government. Queen Elizabeth II is the head of state. She is represented ceremonially by a
Bahamian governor-general who acts on the advice of the prime minister and the cabinet. The
leader of the majority party in parliament serves as prime minister and head of government. The
cabinet consists of at least nine members, including the prime minister and ministers of executive
departments. They answer politically to the lower House of Assembly. The governor-general
appoints the chief justice of the Supreme Court on the advice of the prime minister and leader of
the opposition. Other justices are appointed on the advice of a judicial commission. The Privy
Council in London serves as the highest appellate court for the Bahamas. Bahamians main
authorities are: Queen Elizabeth II since 1952, Governor General Mr. Arthur Foulkes since 2010
and Prime Minister Mr. Perry Christie of the PLP party since May 7, 2012.
The Prime Minister presides over a Cabinet of Ministers who is largely responsible for
policymaking. The executive branch is currently headed by the following authorities.
0
20
40
60
80
100
Graph 32: Bahamas Manufacture merchandise is slowly growing in importance as an export
Services Non Manuf Merchan Manuf Merchandise
Name Title
pg. 48
The Bahamas enjoys a stable political environment with elections constitutionally held every five
years. While there are some minor differences between the two major political parties, both
parties are largely committed to democracy, the rule of law and the operation of free markets. In
addition, there is a new party Democratic National Alliance. The House of Assembly consists of
38 members elected from individual constituencies for five-year terms. As under the
Westminster system, the government may dissolve the parliament and call elections at any time.
The House of Assembly performs all major legislative functions. The Senate consists of 16
members appointed by the governor-general, including nine on the advice of the prime minister,
four on the advice of the leader of the opposition, and three on the advice of the prime minister
after consultation with the leader of the opposition.
The government of the Commonwealth of the Bahamas generally encourages foreign investment
in all sectors of the economy except those the Government reserves exclusively to Bahamian
citizens. Reserved businesses include: wholesale and retail operations; commission agencies
Bell, Sen. the Hon. Keith Minister of State in the Ministry of National Security
Darville, The Hon. Dr. Michael Minister for Grand Bahama
Dorsett, The Hon. Kendred Minister of the Environment and Housing
Fitzgerald , The Hon. Jerome Minister of Education, Science and Technology
Gibson, The Hon. D. Shane Minister of Labour and National Insurance
Gomez, The Hon. Damien Minister of State in the Ministry of Legal Affairs
Gomez, The Hon. Dr. Perry Minister of Health
Gray, The Hon. V. Alfred Minister of Agriculture, Marine Resources and Local
Government
Griffin, The Hon. Melanie Ministry of Social Services
Halkitis, The Hon. Michael Minister of State for Finance
Hanna-Martin, The Hon. Glenys Minister of Transport and Aviation
Johnson, The Hon. Daniel Ministry of Youth, Sports and Culture
Maynard Gibson, Sen. the Hon. Z.C.
Allyson
Attorney General, Minister of Legal Affairs
Mitchell, The Hon. Frederick Minister of Foreign Affairs & Immigration
Nottage, The Hon. Bernard J. Minister of National Security & Leader of Government
Business
Pinder, The Hon. Ryan Minister of Financial Services
Rolle, The Hon. Khaalis Minister of State for Investments
Strachan, The Hon. Hope Minister of State in the Ministry of Transport and
Aviation
Wilchcombe, The Hon. Obediah Minister of Tourism
pg. 49
engaged in the import/export trade; real estate and domestic property management agencies;
domestic newspaper and magazine publication; domestic advertising and public relations firms;
security services; domestic distribution and building supplies; personal cosmetics and beauty
establishments; shallow water scale-fish; crustacean, mollusk and sponge fishing operations;
auto and appliance service operations; and public transportation. On April 18, 2011, the
government amended the National Investment Policy to remove foreign investment restrictions
on restaurants and entertainment businesses and to increase the minimum investment
requirement.
According to the official document “The Bahamas: A paradise for many reasons”12
, the
government has targeted the following categories of businesses of particular interest for foreign
investors: tourist resorts; upscale condominiums; time share and second home development;
international business centers; marinas; information and data processing services; assembly
industries; high-tech service; ship registration, repair and other services; light manufacturing for
export; agro-industries; food processing; agriculture; banking and other financial services;
captive insurance companies; aircraft services; pharmaceutical manufacture; and offshore
medical centers.
The benefits and incentives of investing in the Bahamas include: a stable, democratic
government; relief from corporate and personal income taxes; timely repatriation of profits of
approved investments; proximity to the United States; extensive air links through nearby Miami,
Ft. Lauderdale, and Orlando; well-developed telecommunications links; excellent tourism and
conference facilities; and tariff concessions under the Caribbean Basin Economic Recovery Act.
There are no taxes on income, sales, estates or inheritances. The only direct tax is a real property
tax. Casinos are taxed, and there is a departure tax levied at the airports and harbors. The
principal incentives for investments are concessions on import duties and property tax
abatement. Tariffs in general are high but do not generally discriminate by country of origin.
On January 25, 2010 the Bahamas signed an Economic Partnership Agreement (EPA) with the
European Union that aims at the eventual elimination of duty on EU imports over the next 25
years.
Incentives are offered for investment under the following legislation by sector or region:
The free Trade Zone Act or Hawksbill Creek Agreement Act (1955): Declares a Free
Trade Zone on Grand Bahamas, Freeport.
The Export Manufacturing Industries Encouragement Act: Under this law, the
government may exempt duties from the machinery, tools, equipment, and raw materials
imported to construct new factories. A list of duty-exempt items is negotiated separately
with each new venture.
The Hotels Encouragement Act: Under this law, new hotels and resorts can be exempted
from real property taxes for ten years from the date the new facility opens, and for
significant tax reduction for up to ten additional years. An amendment to the Act
currently before Parliament would allow the Government to grant tax relief for an
12
Bahamas Investment Authority (2011)
pg. 50
additional ten years, raising the maximum length of tax abatement to thirty years. In
addition, the Act allows the duty-free importation of materials used for the construction
of new facilities or the substantial renovation of existing facilities acquired by new
owners for a set period of time. The list of duty-free items for each project and the
duration of some duty-free windows are negotiated separately for each venture.
The Agricultural Manufacturers Act: This law allows any materials necessary for the
construction, alteration, or repair of an agricultural factory, as well as any machinery or
supplies used in establishing such a factory, to be imported duty free. An agricultural
factory refers to any factory established for the purpose of manufacturing or preparing
agricultural or horticultural produce of The Bahamas for sale or export.
The Spirits and Beer Manufacturers Act: This law provides for the duty-free importation
of materials used in the construction, alteration or repair of approved liquor distilleries or
beer breweries and the duty-free importation of raw materials and equipment for liquor or
beer production.
The City of Nassau Revitalization Act and the Vacation Plan and Time Sharing Act.
The Tariff Act and additional amendments provide duty exemptions for construction,
energy efficient durable goods and development on certain outer "Family Islands
Prospective investors should discuss the specific terms and conditions under which these benefits
will be made available with The Bahamas Investment Authority.
Economic Regulation and Private Activity
Government policy is committed to promoting a favorable economic environment in which the
government regulates and facilitates economic development, where transparency, fair play and
equality of treatment are protected. However, private domestic and foreign investors complain
about the discretionary issuance of business licenses and lack of transparency in decisions to
authorize or to renew the license of a business. Obtaining required permits, especially
immigration permits, can involve lengthy delays. To encourage and maintain foreign and local
investment the government has pledged to implement new investment policies which will
simplify the process and reduce ambiguity.
Last year, the government privatized the Bahamas Telecommunications Company (BTC)
signaling the end of a major government monopoly on telecommunications. The Utilities
Regulatory Competition Authority (URCA) has responsibility for oversight of the
telecommunications industry and public utilities. Canadian-Bahamian Company Cable Bahamas
merged with U.S. company System Resource Group on February 7, 2011 to add landline services
to its internet and television bundle. Government corporations such as the Hotel Corporation of
the Bahamas and the Broadcasting Corporation of the Bahamas (BCB) compete on a basis of
rough equality with private corporations in similar businesses. To prevent the BCB from
competing with private television stations, the government has expressed intent to convert the
company to a Public Broadcasting Services (PBS) station.
.
pg. 51
III State of the Private Sector
In the Bahamas the private sector represents around 80 percent of GDP and approximately 78.7
percent of total employment as of 2011.See Graph 33.
Source World Development Indicators, WB
Between 2008 and 2011, public sector employment increased slightly due to the government’s
expansionary policy in response to the international financial crisis. Nevertheless, the private
sector is structurally the main provider of employment for Bahamians, as shown in graphs 34a
for 2008 and 34b for 2011.
Source: Department of Statistics, MOF, Bahamas
80.5
19.5
Graph 33: GDP SHARE 2011
Private Sector Public Sector
82.2
17.8
Graph 34a: Bahamas Employment Share 2008
Private Sector Public Sector
pg. 52
Source: Department of Statistics, MOF, Bahamas
Graph 35 shows the evolution in employment by sector for the years 2001, 2007 and 2011. The
financial sector, wholesale and retail trade and construction have been the three top sectors
demonstrating visible job growth over this time frame.
Source: UN Comtrade. ILO
Agriculture, mining and manufacturing combined employ 6.1 percent of total employment (1.9
percent, 1 percent and 3.2 percent respectively).
78.7
21.2
Graph 34b: Bahamas Employment Share 2011
Private Sector Public Sector
0
10
20
30
40
50
60
Tho
usa
nd
s
Graph 35: Bahamas Employment by Sector 2001, 2007 and 2011
2001 2007 2011
pg. 53
Examining employment by gender, reveals that the non-service sectors hire quite a different mix
of men and women. While the construction, mining, agriculture and transportation sectors
employ predominantly male workers, most of the employees in the community social services,
finance and hotels and restaurants sectors are women. Employment is evenly distributed in
wholesale and retail trade.
At the same time, some disaggregation by employment type or status confirm the relevance of
the private sector, provides some details about the self-employed individuals and other type of
employment. However, private employment has significantly dropped and government
employment has risen, but not enough to absorb the workers the private sector is dismissing,
Graphs 36a and 36b The public sector has temporally employed more, but government’s
expenditures eventually being adjusted as the country comes out of recession to maintain fiscal
solvency.
31205
120160
23190 285
Graph 36a: Bahamas Employment 2008
Government &Government Corporation
Private Employee andApprentice
Self Employed
Unpaid family worker
Other not disclosed
pg. 54
Source: Department of Statistics, MOF, Bahamas
Over the period of time 2008 to 2011, the number of self-employed people decreased slightly
from 23,190 individuals in 2008 to 22,880 by 2011, a 1.3 per cent decline. According to the
Department of Statistics, the data show that there was a noticeable increase in the number of
employed persons and a slight decrease in the number of unemployed persons by May 2011 as
some people withdrew from the labor force while a substantial number of persons, on the other
hand, rather than becoming discouraged workers sought means of making a livelihood by
engaging temporarily in informal sector activities such as the selling of phone cards and similar
street vendor activities as well as the selling of jewelry, clothing and similar items from their cars
or homes.
As part of the overall labor scenario, the informal sector refers to those parts of an economy that
are not taxed nor monitored by any form of government13
. Workers in this sector usually have no
contracts, little or no job security, no fixed hours, and often no fixed location from which they
operate and no employment benefits such as retirement plans, sick leave or maternity pay. As of
May 2011self-employment in the formal or informal tends to increase temporarily and this is
borne out in the data which shows that the informal sector grew faster 10.3 percent than private
enterprises that grew in 1 percent according to the Department of Statistics.
The Labour Force Report of 201114
shows that female employment increased by 5.6% compared
to 2.4% for men from 2009 to 2011. Further, while men continue to represent the majority of
informal workers (Graph 37), recent trends show female participation in informal employment
growing by 65% compared to a much lower increase, 20%, experienced by their male
counterparts over the same time period. Informal activities tend to be concentrated in the retail
industry, a subgroup of the Wholesale and Retail industry that grew more than any other industry
over the period, increasing its employment numbers by 16%. In contrast, industries which tend
to be dominated by males such as construction experienced a decline of 18%. By the end of
13
Department of Statistics (2012) Labour Force – News August 5, 2011 14
Department of Statistics of the Bahamas – Labour Force Report 2011, pg 17
34890
105235
22880 495
Graph 36b: Bahamas Employment 2011
Government &Government Corporation
Private Employee andApprentice
Self Employed
Unpaid family worker
Other not disclosed
pg. 55
2011, the informal sector employed 17995 individuals, of which 6005 were women and 11990
were men.
Source: Department of Statistics, MOF, Bahamas
Informal activities tend to be concentrated in the retail industry, a subgroup of the Wholesale and
Retail industry. In contrast, industries which tend to be dominated by males such as construction
experienced a decline between 2008 and 2010. Informal employment represent approximately
one-half of total employment of the wholesale and retail sector employment, almost equivalent to
hotels and restaurants employment and alternatively one-third of the construction employment.
IV Large and Fast Growing Sectors
Tourism and financial services are the largest sectors of the economy measured in terms of GDP
share, but further analysis reveals industry and agriculture to be the promising see Graph 38. In
addition, the smallest sector – mining – is the fastest growing.
The Bahamian economy is dependent on two main servicers sectors - tourism (hotels and
restaurants) and financial services (commercial banks, insurance and other financial institutions),
both of which earn revenues in foreign currencies and influence directly at least two-fifths of
GDP and indirectly two-thirds of the Bahamian economic activity. Their main indirect influence
is reflected in construction, with other indirect effects observed in the wholesale and retail trade
sector. Of the rest of the economy, approximately one-fifth is industry, manufacturing and
agriculture as a new addition to the traditional economic structure during the last decade and half
(1995-2012). Agriculture represented approximately 2 percent of total GDP in 2011.
6005
11990
Graph 37: Bahamas Informal Sector Employment 2011
Female Male
pg. 56
Source: World Development Indicators, WB.
Source: UN COMTRADE, ISIC Rev 4, SNA 93 classification
Hotels and restaurants represent approximately three-fifths of the total wholesale, retail trade
sector. By the same token, real estate is three-fifths of financial services and other services such
as education, health, community services and public services and defense participate equally in
the rest of the entire services sector. Using International Standard Industrial classification
Revision 4, Graph 39 shows the relative importance of non-services sectors for the Bahamian
economy.
2.1 15.4
3.7
78.7
Graph 38: Bahamas GDP Share 2011
Agriculture
Industry
Manufacturing
Services
1.72 2.10
3.69
6.89
27.45
6.57
45.76
Graph 39 : GDP Share 2011 Agriculture, hunting, forestry,fishing (ISIC A-B)
Mining (ISIC C)
Electricity E
Manufacturing (ISIC D)
Construction (ISIC F)
Wholesale, retail trade,restaurants and hotels (ISIC G-H)
Transport, storage andcommunication (ISIC I)
Other Activities (ISIC J-P)
pg. 57
The Bahamas still depends upon the sale of services to foreigners and visitors. The proceeds of
foreign currency earnings provide the means to import goods and services not produced in the
Bahamas. This is the fundamental economic reality of the islands.
IV.1 Tourism and Travel and the Wholesale/ Retail Trade Sector
As of the end of the first decade of the new millennium, the economy of the Bahamas remains
highly dependent on two sectors -- tourism and financial services.
According to the World Travel & Tourism Council (WTTC), by 2006 the tourism industry was
estimated to directly account for about 17 percent of GDP and 24 percent of jobs, and by 2011 its
contribution increased in both counts, its direct contribution of GDP went up to 18.5 per cent and
employment went increased to 25.8 per cent. Even considering the significant competition of
neighboring countries in these industries, the WTTC forecasts that its direct contribution to GDP
in the Bahamas will grow by 3.1 per cent in 2012 and employment by 2.4 per cent. If both
indirect and induced contributions15
are considered, the industry contributed 46.2 percent of GDP
in 2011 and 53.8 percent of total employment, approximately 90,500 jobs. Looking forward, the
WTTC expects sustained growth in the tourism industry at 2.6 percent annually through 2022
and for employment to grow to approximately 111,000 individuals by 2022.
Although the Bahamas tourism sector receives a larger number of visitors by sea than by air
(Graph 40), cruise visitors might not represent a significant source of income for the sector. On
the contrary, air visitors or stopover spending is ten times more important in value than cruise or
daily visitor spending despite their number.
Source: Quarterly Report Bahamas Central Bank (BCB), Min Tourism (2012)
15
The WTTC includes tourism and travel (T&T) investment (construction), government collective T&T spending
and suppliers as indirect contribution and food and beverages, recreational, clothing, housing and household good as
induced. WTTC Bahamas Travel and Tourism Economic Impact (2012) pag. 2.
22.69
77.31
Graph 40: Bahamas Visitor Arrivals 2011
AIR SEA
pg. 58
Source: Quarterly Report BCB, Min Tourism (2012)
Source: Quarterly Report BCB, Min Tourism (2012)
Cruise boat and daily visitors might represent on average two-thirds of total arrivals (Graph 41),
but only one-tenth of total tourism spending. Therefore, cruise ship and day tourism is
economically clearly less significant than air visitors or stopovers. Most stop-over visitors are
high-end tourists from the US who spend their holidays in one of the mid-sized or large hotels.
Of the overall number of visitors, New Providence receives approximately 55 percent, the Grand
Bahama 15 percent and Family Islands 30 percent (Graph 42). The tourism sector in the
Bahamas is dominated by large resorts with an average occupancy rate of around 60 percent, and
hotels cater to international tourism. Small hostels or bed & breakfasts are dedicated to serving
domestic tourism. Although the overwhelming majority of hotels are small in size (20 or fewer
24.05
74.50
Graph 46 : Visitors to the Bahamas in 2011
Stopover Cruise
53.79
14.65
31.57
Graph 42: Visitors to the Bahamas in 2011
New Providence
Grand Bahama
Family Islands
pg. 59
rooms)16
, they are estimated to account for less than 5 percent of overnight stays; a clear
indication of the importance of large hotel resorts in the sector.
Source: Quarterly Report BCB, Min Tourism (2012)
Stopover visitors have accounted for 90 percent of total tourism expenditures since the year
2000, with the most recent figures for 2011 shown in Graph 43. Previous studies of stopover
expenditures have shown their reliance on tourists’ home country income to a large extent, and to
a lesser extent to variations of relative local prices. According to the IMF, tourists’ home country
income explains 45 percent of the variation in their tourism expenditures and relative prices less
than 6 percent.17
The dynamic of the Bahamas’ revenues from travel and tourism are largely
explained by overseas demand and US demand especially.
Small businesses in the tourism industry are directly and indirectly related to the hospitality
(food and beverages and recreational) wholesales sector. Most of them are retail stores,
transportation providers, or night clubs that cater to cruise ship passengers and hotel guest
resorts. The rest of the small numbers of local businesses that work directly with the hospitality
sector include basic service providers, advertising companies and a few providers of equipment,
clothing, food or ancillary tourist services. All of them depend heavily upon cruise ship
schedules and synergies with large tourism operators or hotel management.
Regionally, the 2011 travel and tourism sector contribution to GPD and employment in the
Bahamas ( see Graphs 44 and 45) are larger than for other comparator countries Antigua and
Barbuda, Barbados, and Jamaica. According to the WTTC, travel and tourism investment in the
Bahamas is 2.8 times the sector investment in Barbados; 7 times than the Antigua and Barbuda
and it is almost 17 percent higher than the investment in Jamaica.(see Graph 46)
16
According to the Bahamas Hotel Association, these hotels are approximately 70 percent of its total number or
associates. 17
IMF (2005) Pages. 9 -10
89.95
11.02
Graph 43: Share of Visitor Spending, by Mode of Transport 2011
Stopover Cruise
pg. 60
Source: Bahamas WTTC Travel and Tourism Economic Impact 2012.
Source: Bahamas WTTC Travel and Tourism Economic Impact 2012.
0
200
400
600
800
1000
1200
1400
1600
A&B BHS BAR JAM
Graph 44: Travel & Tourism Contribution to GDP US$ million 2011
0
10
20
30
40
50
60
70
80
90
A&B BHS BAR JAM
Graph 45: T&T contribution Jobs 2011 (thousands)
16.6%
22.9%
10.4%
6.3%
Percentages of country labor force
pg. 61
Source: Bahamas WTTC Travel and Tourism Economic Impact 2012.
Travel and tourism accounts for four-fifths of the Bahamas’ foreign exchange earnings. During
the period from 2000 to 2011, hotels and restaurants were one of the most dynamic sectors in
terms of growth, with approximately 4.1 percent compound average growth rate, which in turn
spurred growth in wholesales and construction. The wholesale, retail trade, restaurants and hotels
(ISIC G-H/SNA 93) sector accounted for the largest share of GDP during last decade, the second
largest share of total employment in 2011 (20.5 percent), and the largest share of employment of
women. In spite of turbulent economic times, the wholesales sector has grown significantly well
over the period with a compound average growth rate of 2.7 percent. In 2011, the Department of
Statistics has identified 2031 establishments in New Providence, of which 1438 employ between
one and four individuals and 358 establishments with five and nine employees. These wholesale
and retail trade establishments represent potential employment for almost 8900 individuals in
small enterprises. This last figure shows how important the wholesale and retail trade sector is
for employment generation, even though small and medium enterprises (SME) are operationally
linked to most activities in the Bahamas.
IV.2 Financial Intermediation and Financial Services
The second most important productive sector is financial services, with a large component of off-
shore transaction services and smaller domestic activity. The Bahamas’ financial sector
dynamism began as a government-led effort in the 1940’s to diversify the economy. Although
commercial banking, trust fund and private banking services have traditionally been the
cornerstone of the country’s financial industry, the sector has expanded significantly to offer
more sophisticated services to include wealth management, insurance services and other
activities over last ten years. Demanding regulatory changes were made after the year 2001, but
even so the attractiveness of offshore financial services remains strong and is closely linked to
the Bahamas’ advantageous tax, legal and regulatory framework, including banking secrecy laws
and tax-free status.
0
50
100
150
200
250
300
350
400
450
A&B BHS BAR JAM
Graph 46: T&T Capital Investment (US$ Million) 2011
pg. 62
As a worldwide offshore financial center (OFC), the Bahamas financial sector has a large and
cumbersome institutional structure and works within the confines of restrictions for domestic and
foreign market operations18
. As of June 2012, of the number of financial institutions authorized
to carry operations within or from the Bahamas were 274, of which 159 of them were restricted
under OFC regulations and 115 were authorized to work as Banks and Trust companies.
However, most of these institutions are dealers, euro-currency branches and subsidiaries of banks
and trusts that operate outside the Bahamas. The Bahamas local financial sector is composed of
18 banks and trusts, of which approximately ten banks serve the domestic market.
The Bahamas government exerts capital control on the financial flows of these institutions,
where off shore deposits represent approximately seven times the stock of domestic deposits as
of 2010. Stock exchange debt and equity transactions are limited, reflecting the small domestic
market for securities. The Bahamas Central Bank exerts restrictions on capital movements to
sustain the standing fixed parity (1 to 1) of the Bahamian dollar to the US dollar.
The direct contribution of the financial sector to the economy is estimated to be around 15
percent of GDP, and another 12 percent can be added as indirect effects taking into account the
contribution of insurance companies and agents, credit unions and other stock exchange
operators. Although direct and indirect impacts are difficult to disaggregate by sector, a recent
labor market survey including real estate services sustains that the entire financial sector
employed approximately 40,687 people in 201119
. The central bank estimates that the financial
sector directly provides 25,000 jobs and employs around 6,000 professionals, of which about 95
percent are estimated to be Bahamians20
.
An additional way to view the contribution of the financial sector is through gross operational
and capital expenditures (Graph 47). Both figures show that significant contributions not only in
terms of government revenue and the number of employees, but also highlights a large number
of small related companies such as registration companies, auditing services and law firms. The
following graph shows total expenditures of B$ 574.7 million in 2010, of which B$ 25 million
are capital expenditures, another B$ 4.3 million government fees and approximately B$ 287.7
million went to salaries. An important detail is that approximately B$ 236 million was spent on
administrative costs with related partners and overhead.
18
An off shore financial center (OFC) is a country or jurisdiction that provides financial services to nonresidents on
a scale that is incommensurate with the size and the financing of its domestic economy. Zoromé, IMF Working
Paper/07/87] 19
Department of Statistics, MOF Bahamas 20
Inter-American Development Bank (2012)
pg. 63
Source: Bahamas Central Bank (BCB)
According to these figures, there are a fair number of small businesses or independent
consultants who provide legal advisory or accounting services to foreign and domestic clients.
Some of them may also be offering services to local financial institutions, competing with
international accounting firms and tailoring services for the domestic market.
During 1990’s, the Bahamas promulgated the International Business Companies (IBC) Act to
enhance the country's status as a leading financial center. As a result, a large number of
international businesses have registered to the reduce costs of incorporating offshore companies
in the Bahamas. As of 2010, more than 162,872 IBC-type companies had registered and
approximately 42,745 remain active. Although this additional regulation has impacted and
reduced the number of offshore banks registered in The Bahamas, the industry and the
government is considering additional legislation to keep the industry competitive while
complying with international standards, including possible reform of the regulatory structure. As
of March 2010, the Bahamas had signed 20 bilateral Tax Information Exchange Agreements, 14
with Organization for Economic Cooperation and Development (OECD) members and seven
with G-20 members. The Bahamas has sufficiently complied with OECD and international tax
information exchange regulations.
IV.3 Construction
Over last decade a number of planned hotel constructions have not only increased economic
growth, but employment as well. For instance, the construction of the Atlantis Resort and Casino
on Paradise Island continues to boost tourism and other activities in New Providence. The
construction of the BahaMar resort project is driving construction growth with a 2.6 billion US$
planned facility to be completed by 2014. Recently, the renovation of Nassau’s Lynden
Pyndling International Airport and its new U.S. arrivals and departures terminal at the airport
was completed in March 2011. Other projects of significance to the construction sector include
the construction of a new US$ 30 million sports stadium in New Providence and road
construction projects for another US$ 100 million. The country's construction sector and
0
200
400
600
800
2005 2006 2007 2008 2009 2010
Graph 47: Gross Expenditures by Banks and Trust Funds (US$ million)
Salaries Government fees
Administrative Costs CAPITAL EXPENDITURES
TOTAL GROSS EXPENDITURE
pg. 64
infrastructure is best developed in the principal cities of Nassau and Freeport, where there are
relatively good paved roads and international airports.
IV.4 Industry and Manufacturing
The industry and manufacturing sectors have grown in importance to the Bahamas economy over
last two decades. As of 2011 industry has contributed approximately 15.7 per cent of GDP and
manufacturing another 3.7 percent. Major industries in the Bahamas include cement, oil refining
and transshipment, rum, pharmaceuticals, and spiral-welded steel pipe. As a result of a long
standing agreement, the Hawksbill Creek Agreement, the largest segments of Bahamian industry
are established in a duty-free zone in Freeport. The Bahamas' second-largest city has been based
for foreign and local industry investment in manufacturing, including chemicals and ship
refurbishing, and a recently established film production facility.
The Bahamas has a few notable industrial firms: the pharmaceutical firm PFC Bahamas
(Syntex); the BORCO/ Vopak Terminal Bahamas oil facility; Sands Beer; the Bahamian
Brewery in Grand Bahama; and the Commonwealth Brewery in Nassau, which produces
Heineken, Guinness, and Kalik beers. Other industries include sun-dried sea salt, cruise ship
repair services, and aragonite mining.
IV.5 Agriculture, Fishing and Mining
Agriculture and fisheries together account for 2.1 percent of GDP in 2011. Production in these
sectors includes citrus, vegetables, and poultry. Although the Bahamas has been exporting
lobster, fish and craft-poultry- (organic, free range, craft meat), most of that production is not
captured or raised commercially. Lobsters, crawfish and other seafood products have been
exported to the US and European Union. There is no large-scale agriculture, and most
agricultural products are consumed domestically. Most agriculture production comes from
Andros, the Abacos, Eleuthera and Grand Bahama Island. The Bahamas imports more than $250
million in foodstuffs per year, representing about 80% of its food consumption.
The mining sector plays a minor role in the economy of the Bahamas. The production of salt and
aragonite stone (a component in glass manufacture) are the two most commercially important
mineral products. Among its major mining operators are Morton Bahamas Salt Company, the
only major industry and the largest employer on the island of Inagua, where the second-largest
solar saline operation in North America is located. Limestone sand is produced by Freeport
Aggregate Ltd. for the local construction industry. Aragonite is used for building materials and
cell phones. Operators claim they produce some of the finest light weight aggregate- mined
materials in the world because the Bahamas has the best high quality lime stone in the world.
IV.6 Small and Medium Sized Firms and Informality
In all sectors of the Bahamas economy, a significant number of small and medium enterprises
(SMEs) coexist with large domestic and international companies. Despite their number and
proximity to those large operations, SME economic contribution to GDP is limited as the
majority of these individual or small operations operate in sectors with very low productivity.
pg. 65
Among SMEs, coexisting with the tourism sector or hotels and restaurants there are a large
number of wholesale and retail stores, transportation providers, bars and night clubs that cater to
cruise ship passengers and hotel or resort guests. SMEs also include advertising companies,
repair and equipment services, clothing, food, local accessories and tourist services. The latest
survey from the Department of Statistics states that approximately 42.9 percent of total small and
medium firms in New Providence are wholesales firms.
SME in the construction sector provide services in the home construction market, plumbing,
woodworking, electric installations, and some participate as subcontractors. Large construction
development projects and the real estate industry employ local firms for services to hotel
complexes or residential areas. Other economic activities with important SME participation
include domestic retail trade, personal, social and business services, communication, education
and health activities.
Statistical information on the participation of small enterprises in the economy is precarious and
scattered. Although it was confirmed that there was a private establishment survey carried out in
2007 and 2008, there is no rigorous data, or nation-wide establishment survey. Charts 5 and 6
summarize data obtained for New Providence regarding business establishments by number of
employees.
Chart 5
Source: Department of Statistics, MOF Bahamas
pg. 66
Along with this chart we can introduce information about Grand Bahamas from UNIDO, which
has some differences in the industrial nomenclature and classifications21
and time period (2008-
2009). While the average firm employs 10 individuals, there are some firms which employ four
times more people in metal products and machinery and the double the number of employees in
the meat, fish, fruit and vegetables food sectors.
Chart 6
In terms of both employment and GDP share, the travel and tourism and financial services
sectors are the Bahamas’ most important economic activities. Along with a number of small and
medium enterprises together they may account both directly and indirectly between two-thirds
and four-fifths of the economy for the near future.
Regarding employment and SME firm activities in the Bahamas, employment rates by sector
provide figures that must be disaggregated in order to obtain consistent data regarding SME
employment by sector. A recent labor survey for the Bahamas in 2011 indicates the four most
important sectors are tourism (hotel, restaurants, wholesales and retails) which employs 30.7
percent of the labor force; financial services (financing, insurance, real estate and other business
services) which employs 25.4 percent; construction which employs 25.1 percent; community,
social and personal services which employs 9.9 percent; manufacturing, which employs 3.2
percent; transport, storage and communication, which employs 2.7 percent; agriculture, hunting,
forestry and fishing, which employs 1.9 percent.
21
The Business Establishment Section of the Department of Statistics MOF Bahamas classifies businesses based on
Rev.4 of ISIC. However all the ISIC categories are not currently being surveyed by the Department of Statistics
along with the Agriculture, Financial and Insurance sector. Establishments are coded at the four digit level, however
when reporting some ISIC they are reported at the two or three digit level. The following individual categories of
ISIC are surveyed by the Establishment Section: Section Divisions B 08, 09; C 10, 11, 14, 15, 16, 17, 18, 20, 23, 24,
25, 31, 32, 33, 35, 36, 37; F 41, 42, 43;G 45, 46, 47; H 49, 50, 51, 52, 53, I 55, 56
J 58, 59, 60, 62, 63; L 68; M 69, 70,71, 72, 73, 74, 75; N 77, 79, 80, 81, 82; P 85, 86, 87, 88,
R 90, 91, 92, 93;S 95, 96; Section B, C, F, J and R are coded at the four digit level but released data are reported at
the three digit aggregation.
Grand Bahama: Manufacturing Firms and Employees
Employees Establishments Employees Establishments 2008 2009
151 Processed meat, fish, fruit, vegetables, fats 1029 49 1061 50 21 21 1
171 Spinning, weaving and finishing of textiles 101 16 76 16 6 5 2
1810 Wearing apparel, except fur apparel 138 68 142 66 2 2 3
2010 Sawmilling and planing of wood 93 17 77 17 5 5 4
221 Publishing 430 63 473 64 7 7 5
2610 Glass and glass products 332 19 329 20 17 16 6
281 Struct.metal products;tanks;steam generators 500 49 521 52 10 10 7
291 General purpose machinery 758 20 758 20 38 38 8
3610 Furniture 250 49 250 51 5 5 9
D Total Manufacturing 10 3631 350 3687 356 10 10
1)151 includes 1520, 153, 154, 155; 2)171 includes 172,173; 3) 1810 includes 1820; 4) 2010 includes 202 5) 221 includes 222,2230; 6) 2610 includes 269
7) 281 includes 289; 8) 291 includes 292,2930; 9) 3610 includes 369; 10) includes all available data
Source: UNComtrade INDSTA UNIDO
ISIC Rev 32008 2009
Average Size of
Firm by # of
Employees Foot
note
pg. 67
Informality
In a country without corporate tax and where firm registration exceeds 93 percent, it is difficult
to define informality.22
However, the large number of people engaged in small-scale operations
has encouraged authorities and the government to seek a definition of small and medium
enterprises within the Bahamian context. According to an IMF document in the Latin American
region,” The size of the informal economy in the early 2000s is found to vary considerably—
from a low of around 15 percent of measured GDP for the Bahamas to …..”23
.
Small firms employ between one and four employees, while medium firms employ between 10
and 49 employees and have sales lower than US$250,000 annually. It is estimated by the
Department of Statistics of the Bahamas that the informal sector employed 17,995 individuals in
2011, representing approximately 11 percent of total employment. The causes of informality
worldwide include burdensome tax systems, rigid labor markets, high inflation, and dominance
of the agriculture sector. In the case of Bahamas, the current analysis suggests a key factor
determining the size of the informal economy is labor market rigidities.
IV.7 Fastest Growing Sectors Since 2000
Traditionally large sectors are not the fastest growing sectors of the Bahamas economy, as shown
in Graph 48 4, sectors and subsectors show a significantly pace of growth. Although mining is
only 1.7 percent of GDP, the production of aragonite and salt are the fastest growing sectors with
a 7.5 percent compound average growth rate (CAGR) over the last decade. Similarly, the sub-
sector of fishing with a CAGR of 2.3 percent was sufficient to overturn the negative growth
trend of agriculture as a whole.
The observed dynamic of the last decade reveals new trends with manufacturing growing at a
small pace of almost 0.5 percent compound annual growth since 2000. Electricity, gas and water
have shown a solid 2.4 compound annual growth rate for the same period and construction with
also was robust with a 2.21 percent CAGR.
For traditional sector such as financial services and tourism, wholesale and retail trade the data
shows important differences among their subsectors. At the same time that hotels and
restaurants, wholesale and retail trade have grown steadily (4.16 percent and 2.74 compound
annual growth rates, respectably), hotels and restaurants became the second fastest sub-sector.
While the financial services sector growth is largely explained by real estate and renting with a
dynamic compound annual growth rate of 2.32 percent, financial intermediation itself seems
stagnant with a growth rate of almost zero (0.05 CAGR). Graph 54 provides subsector growth
performance in more detail.
The third fastest growing sub-sector is health and social work with a 3.14 percent compound
annual growth rate, which in turn contrasted with the large negative growth rates of community,
social and personal services. While education services have grown by 0.77 percent, social and
personal services decreased by almost 3.2 percent. By the same token, the reduction in transport,
22
The Department of Statistics has published some data on informal sector employment by 2011, as noted in a
previous section of this report. 23
IMF (2008) Page 4
pg. 68
storage and communications subsectors was offset by growth in telecommunications and surface
transport sub-sectors.
Source: Author’s calculations using UN Comtrade Data Base, ISIC Rev4 classification SNA 93. Department of
Statistics
In short, the smallest economic sectors are the fastest growing and most dynamic sectors of the
Bahamas economy. Although traditional sectors such as tourism (hotels and restaurants) and
financial services will continue driving the Bahamian economy, three small sectors have
registered interesting economic growth - mining, sea poultry fishing (crustaceans and mollusks),
-4 -2 0 2 4 6 8
Mining and quarrying *
Hotels and restaurants
Health and social work
Wholesale, retail trade, repairs and personal…
Electricity, gas and water supply
Real estate, renting and business activities
Fishing
Construction *
Agriculture, hunting, forestry and fishing *
Financial intermediation, real estate, renting…
GROSS DOMESTIC PRODUCT
Education
Manufacturing *
Surface Transport
Financial intermediation
Agriculture, hunting, forestry *
Transport, storage and communications *
Education; community, social and personal…
Public administration and defence;…
Post and telecommunications
Other community, social and personal services
Graph 48: CAGR by Sector and Sub Sector 2000 -2011
pg. 69
and real estate. Last but not least, manufacturing sustained positive growth rates until 2011,
despite the decline of some industries such as beverages and alcoholic beverages.
V. Issues for Private Sector Development
Moving from a macro overview of the economy and the role played by the private sector, the
following section will address twelve issues relevant for the private sector to add a
microeconomic and institutional perspective to the initial assessment.
Relevant businesses and donor entities consulted in the analysis for this study are listed in the
following tables (Sections V.1 and V.2).
In order to expand the understanding of these private sector development issues, a country
comparative perspective for each indicator follows starting with Section V.3. The case of the
Commonwealth of the Bahamas is compared with countries such as Antigua and Barbuda,
Barbados, Jamaica and Trinidad and Tobago which Bahamas share historical, institutional and
economic similarities and distinctive differences. Annex B provides more detail on how the
comparator countries were selected.
A comprehensive analysis about strengths, weakness, opportunities and treats (SWOT) will
come at the end of this subsection, after all issues have been discussed.
pg. 70
V.1 Institutions for Private Sector Development
BAHAMAS: INSTITUTIONS FOR PRIVATE SECTOR DEVELOPMENT
Name Type Vision, Mission and Goal Contact Additional information
Bahamas Hotel AssociationPrivate Sector
Representation
The Bahamas Hotel Association (BHA) serves the needs of the Bahamas hotel industry by
providing a forum to facilitate the promotion, profitability, quality growth and security of
the tourism industry consistent with the needs of The Bahamas.
Mr. Frank Comito http://www.bhahotels.com
Bahamas Chamber of Commerce and
Employers Confederation
Private Sector
Representation
To serve as the premier employers’ and business organization in the Commonwealth of The
Bahamas by developing, promoting and protecting trade activity as well as the interests of
the employers on all social and labour policy issues within the context of true tri-parties, in
national, regional and international forums
Mr. Winston Rolle
Several programs to support Private Sector
and SME;
http://www.thebahamaschamber.com
Grand Bahamas Port AuthorityPrivate Sector
Representation
Our vision today is to become the island of choice for global investment in The Bahamas by
2012. This vision means we have to run the most efficient and effective regulatory
organization not only in the Bahamas but in the Caribbean. Our vision also dictates that we
operate to the highest ethical standards and ensure we hold each other to account for
ensuring we live by them each and every day. "The Mission of GBPA is to better the lives of
the Grand Bahama Community, and by extension, The Bahamas, through the unique
features offered by our island."
Mr. Charles Pratt http://gbpa.com
Grand Bahama Chamber of CommercePrivate Sector
Representation
To provide the network, to sustain, promote and support business development in an
effort to encourage growth and expansion in the Grand Bahama economy and within a
healthy and clean community environment
Ms. Mercynth Ferguson http://www.gbchamber.org
Bahamas Real Estate Association PrivateTo unite the Real Estate Brokers, and their Associates of The Bahamas for the purpose of
exerting effectively a combined positive influence upon matters affecting their profession.Mr. Franon Wilson
http://www.bahamasrealestateassociation.c
om
Bahamas Entrepreneurial Venture Fund Private
Venture capital is money provided by professionals who invest alongside management in
young, rapidly growing companies that have the potential to develop into significant
economic contributors. Venture capital is an important source of equity for start-up
companies
Mr. Michael Cunningham; Mr. Sean Brennen http://www.bahamasventurefund.com
KPMG PrivateOur mission is to turn knowledge into value for the benefit of our clients, our people, and
the wider business community.Ms. Karen Williams-Bartlett www.kpmg.com
Bahamas National Trust Private
The Bahamas National Trust will continue to develop an integrated National Park and
Protected Area System and foster initiatives to achieve conservation and sustainable use of
the natural and historical resources of The Bahamas.
Ms. Lynn Gape http://www.bnt.bs/_m1699/Home
Bahamas Financial Services Board Public and PrivateProvides a comprehensive overview of the Bahamas' financial industry and consumer
guidance.
Mr. Paul Winder; Ms. Tiffany Norris-
Pilcher; Mr. Brian Jones
Associates participate in financial sector;
www.bfsb-bahamas.com
pg. 71
BAHAMAS: INSTITUTIONS FOR PRIVATE SECTOR DEVELOPMENT
Name Type Vision, Mission and Goal Contact Additional information
Bahamas Institute of Chartered
Accountants Private
To govern, discipline and regulate the professional conduct of members, associates and
students Ms. Jasmine Davis; Mr. Reece Chipman http://www.bica.bs
Ministry of Finance Public
The primary responsibility of the Ministry of Finance is the care and management of the
Government's financial resources. This responsibility involves providing support and advice
on the most appropriate fiscal, tax and economic policies with the aim of maximizing
sustainable economic growth and development with full regard to equity and social
policies. The development and management of the Government Budget is a major aspect of
the Ministry's function.
Ministry of Tourism - Reseach and Statistics Public
Promotion and Development of Tourism, tourism production improvement, relations with
Nassau Tourism and Development Association, tourism publicity and advertisement,
relations with the Hotel Corporation of The Bahamas, relations with Tourism Promotion
Boards, the Welcome Centre, Prince George Dock, relations with the Gaming Board and
Lotteries and Gaming.
Mr. Gary Young
Department of Labor Public
To promote the development and improvement of industrial relations policies, procedures
and practices through the provision of a range of services to employers, trade unions and
employees
Mr. Harcourt Brown; Mr. Tyrone Gibson
Department of Statistics Public
To ensure that the Bahamas Government, Businesses and People are never hampered in
their activities by any inadequacies of statistics, their recent trends or their interpretation:
and in particular, to ensure that the managers of the Bahamian economy in the Ministry of
Finance, Central Bank and elsewhere, never lack adequate statistics nor argue about them.
Ms. Kelsie Dorsett
Ms. Kimberley Rolle; Ms. Bettina Turner; Ms.
Kajana Rolle -
http://statistics.bahamas.gov.bs/
Central Bank of Bahamas Public
To foster an environment of monetary stability conducive to economic development, and
to ensure a stable and sound financial system, through the highest standards of integrity
and leadership.
Mr. Alwyn Jordan http://www.bahamas.gov.bs
Bahamas Investment Authority Public FDI promotion
Operating from the Office of the Prime Minister, the BIA has been designated a “one-stop
shop” designed to simplify investing in The Bahamas. The BIA serves as the administrative
arm of the National Economic Council and Investments Board.
Ms. Joy Jibrilu; Ms. Samantha Rolle http://www.bahamas.gov.bs
Water & Sewerage Corporation Public
The Water & Sewage Corporation is the only water resource authority and regulating
agency for water and sewerage in the Bahamas. Transform the Corporation into an
efficient, customer focused organization that provides quality service and enjoys a
reputation for consistently high performance.
Mr. Glenn Laville www.wsc.com.bs
Utilities Regulation Competition
Authority
We are committed to achieving sustainable competition and promoting consumer
interests, through effective and efficient regulation of utilities and broadcasting.Ms. Katheleen Riviere-Smith http://www.urcabahamas.bs
Bahamas Agriculture Industry
CorporationPublic
BAIC's Mandate is to stimulate and encourage the creation, expansion and promotion of
small and medium-sized Bahamian business and to assist those business in developing and
enhancing profitable opportunities for Domestic and International Trade. This is done by
providing research and feasibility studies, industrial land / Industrial parks for lease at
concessionary rates, access to development funding, access to buyer markets, and business
monitoring and evaluation.
http://www.baic.gov.bs
pg. 72
BAHAMAS: INSTITUTIONS FOR PRIVATE SECTOR DEVELOPMENT
Name Type Vision, Mission and Goal Contact Additional information
College of the Bahamas Education
The University of The Bahamas will be the nation's primary resource for research &
innovation and community engagement. It will meet the educational aspirations of its
students and nurture their creativity. It will promote the values of learning, leadership and
service.
Ms. Cheryl Simms
Atlantis (University) Education Mrs. Adrilla Horton
Nova Southeastern University Education
The Mission of Nova Southeastern University, a private, not-for-profit institution, is to offer
a diverse array of innovative academic programs that complement on-campus educational
opportunities and resources with accessible distance learning programs to foster academic
excellence, intellectual inquiry, leadership, research, and commitment to community
through engagement of students and faculty members in a dynamic, life-long learning
environment
Ms. Juliette Reid
Bahamas Technical and Vocational
InstituteEducation
To provide learning opportunities that enables individuals to be globally competitive and
economically independent.http://www.btvi.org.bs
US Embassy Nassau, Bahamas
Diplomatic Representation,
Political and Economic
Counselor ECOPOL section
The Political/Economic/Commercial Section’s principal mission is to advance U.S. policies
and interests in The Bahamas in order to strengthen democratic institutions and the market
economy, encourage bilateral and regional cooperation in the fight against terrorism and
drug-trafficking, and build partnerships to meet other key areas.
Mr. Alexander Sokoloffhttp://nassau.usembassy.gov/pol_econ_com.
html
pg. 73
V.2 Donors and Other International Entities
The Bahamas: Donor Engagement and Activities in the Past Five Years
Name Program Description Contact Other Additional Information
Domestic Economy Productive Structure
for International
Improvement
International Monetary FundCaribbean Regional Technical
Assistance Center CARTAC
CARTAC is one of the International Monetary Fund’s (IMF’s)
regional technical assistance (TA) centers (RTACs), a model
of TA delivery.
Mr. Arnold McIntyre
TA for Fiscal Revenues, Financial
Sector Supervision, and Capital
Markets and Debt
Major contacts are the Bahamas
Ministry of Finance and The
Bahamas Central Bank
European UnionUK Department for International
Development DFID
DFID is the Development Agency of the United Kingdom. Its
main goal is to promote sustainable development and
eliminate world poverty
Mr Kato KimbugweTA for Fiscal Financial
Management
Counterparts in Ministry of
Finance
Caribbean Development BankPrivate sector development
program (CDB)
The CDB is a regional financial development institution
established in 1969. The purpose of the Caribbean
Development Bank is 'to contribute to the harmonious
economic growth and development of the member countries
in the Caribbean and to promote economic cooperation
among them, having special and urgent regard for the needs
of the less developed members of the region.'
Mr. Warren Smith
Provided some support for
social and economic
development of the Family
Islands and Tertiary Education
Law School for the entire region
Private sector
development division that
provides loans, grants and
equity finance
Canadian International
Development Agency CIDA
CIDA has currently no specific
programs with the Bahamas, but as
part of regional programs with
other Development Institutions
CIDA was formed in 1968 by the Canadian government. It
administers foreign aid programs in developing countries,
and operates in partnership with other Canadian
organizations in the public and private sectors as well as
other international organizations
Ms. Marie T. Legault
The project aims to enhance the
management of public finances in
the Caribbean region through
increased effectiveness of
domestic revenue systems, more
effective and transparent budget
preparation.
Compete Caribbean is a multi-
donor initiative, administered
by the Inter-American
Development Bank (IDB), with
the objective to enhance
sustainable economic growth
through improved
competitiveness.
Ministry of Finance
International Financial Corporation
IFC (World Bank)Credit Bureau Program
The IFC purpose is to create opportunity for people to escape
poverty and improve their lives
TA for the Bahamas Central Band
and regulation
Also it is related to the Bahamas
Development Bank
Inter-American Development Bank Multilateral Investment Fund
The Multilateral Investment Fund (MIF) is an independent
fund administered by the Inter-American Development Bank
(IDB), created to support private sector development in Latin
America and the Caribbean. In partnership with business
organizations, governments, and non-governmental
organizations, MIF's stated goal is to provide technical
assistance and investments to support micro and small
business growth, build worker skills, and to improve markets
and access to finance.
Mr. Tomas MillerTA for Small and Medium
Enterprises
Inter-American Investment
Corporation FINPYME
The IIC’s mission is to promote economic development in its
regional developing member countries by fostering the
establishment, expansion, and modernization of private
enterprises, with the focus on SMEs.
Mr. Michael Apel; Jorge
RoldanTA to SME development
Work with the University of the
West Indies
Organization of American States
Pan-American Health Organization
PAHO, Health Services, Water and
supply
PAHO's main objective is to achieve sustained development
of the health services.Dr. Gerry Eijkermans
Support to the water and
sewage company, focus on
drinking water.
Inter-American Institute for
Cooperation in Agriculture (IICA)
program for agriculture production
and competitiveness. Center for
Strategic Analysis for Agriculture
(CAESPA).
IICA's initiative in the Bahamas aims for the revitalization of
the agriculture sector is an important first step for sustaining
improvement of food security, and diversifying the local
economy.
Mr. Manuel Messina
Support the Ministry of
Agriculture and Marine
Resources (MAMR) and
agriculture stakeholders.
IICA will contribute to the
schools’ agriculture programs
and provided support to young
entrepreneurs, women’s arts
and crafts businesses.
PROJECTS AND PROGRAMS
pg. 74
V.3 Access to Finance
As with all economies, domestic savings play a main role in relation to the availability of credit
for the Bahamian private sector. At the end 2011, credit to the private sector as percentage of the
GDP was approximately 86 percent and the highest among comparator countries. See Graph 49.
Source: Word Development Indicators and Global Financial Development Indicators
As of the end of 2010 deposits as percentage of GDP was 80 percent while bank lending as a
ratio of bank deposits was above 100 percent24
. This suggests that domestic financial institutions
have been able to sustain a significant supply of credit to the private sector, despite an adverse
international context (Graph 50). Domestic financial institutions have increased loans to the
government and the state-owned companies, as total credit rose from approximately 12 percent
of GDP in 2005 to 21 percent of GDP by 2010.
24
“Deposit Money Bank Assets to GDP” are claims on the domestic real nonfinancial sector by deposit money
banks as a share of GDP.
0
10
20
30
40
50
60
70
80
90
Graph 49: Domestic Credit to the Private Sector (as a percentage of GDP)
BHS
A&B
JAI
T&T
pg. 75
Source: Word Development Indicators and Global Financial Development Indicators
In terms of administrative costs and bank efficiency, the interest spread between the average
lending and deposit rate for the Bahamas is the lowest among comparison countries. See Graph
51.
Source: Word Development Indicators and Global Financial Development Indicators
Although intermediation costs are an important incentive for borrowers and lenders, bank returns
on equity and on assets shows large differences. It seems likely that banks incentives and returns
from money intermediation or loans are significantly lower that for other financial transactions.
See Graph 52.
0
20
40
60
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199619971998199920002001200220032004200520062007200820092010
Graph 50: Deposit Money Bank Assets to GDP
ATG BHS BRB JAM TTO
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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Graph 51: Interest Rate Spread
BHS A&B JAI T&T
pg. 76
Source: Word Development Indicators and Global Financial Development Indicators
From the viewpoint and opinions of managers of Bahamian firms regardless of firm size, in 2010
access to finance was not a major obstacle to their businesses. See Graph 53. Only 12 percent of
all Bahamian firms interviewed believe that access to finance is a significant constraint to their
business development. This result contrasts sharply with counterparts in Antigua and Barbuda,
Barbados, Jamaica, and Trinidad and Tobago, where at least 30 percent sustain that access to
finance is an important constraint and challenge. See Graph 54.
0
5
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Graph 52: Banks returns 1995 -2010
LrTDr Spread Net Interest Margin ROA ROE
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Graph 53: Access to Finance as an Obstacle
pg. 77
Source: World Bank Enterprise Surveys (2010)
Finance impacts firms differently along their business cycle and depending upon their large and
small structure. Midsize companies in Bahamas sustain that the second most important constraint
to their business development is finance according to the World Bank Enterprise Survey of 2010.
Bahamian midsize firms sustain their argument on two counts. The first refers to the large need
of working capital for operations, more than for the initial investment which large companies
might not demand locally. According to World Bank survey only 30 percent of all sizes firms in
the Bahamas use bank loans for working capital. See Graph 55. This ratio is the lowest among
country comparators.
Source: World Bank Enterprise Surveys (2010)
The second rationale refers to the exorbitant amount of collateral required by domestic financial
institutions. See Graph 56. Although the required collateral is significant, this may be a symptom
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World LAC A&B BHS BAR JAM T&T
Graph 54: Percentage of Firms Identifying Access to Finance as Primary Constraint
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Graph 55: Percent of Firms using Loans to Finance Working Capital
pg. 78
of other institutional limitations. For instance, the Bahamas has a credit system that does not
check the past creditworthiness of borrowers or effectively measure credit repayment risk.
Source: World Bank Enterprise Surveys (2010)
Required collateral for business credit can reach 230 percent of the amount of the loan in the
Bahamas, for midsize companies can reach 253 per cent and approximately 319 per cent for the
largest firms. The Bahamas shows the highest percentages for required collateral in the Latin
American and Caribbean region.
V.4 Corporate Taxation
In the Bahamas there is no tax on capital gains, corporate earnings, personal income, sales,
inheritance, or dividends. The fiscal system relies heavily on trade and tourism taxes, as there are
neither direct taxes nor value added taxes. In an attempt to avoid some of the negative effects of
trade taxes on investment and economic activity, the government has introduced several special
taxation schemes. As a result of these additional mechanisms, the tax system lacks transparency
and introduces further distortions to the economy.
Although taxation systems in the Bahamas are largely regressive and inequitable, private firms
do not consider tax rates or tax administration to be a major obstacle to their businesses (Graphs
57 and 58). Overall private corporation representatives have expressed that they would rather
see the government collecting more taxes throughout the current system than changing the
taxation regime itself. According to some private institutions, the current system allows the
government to be an effective collector in times of fiscal need.
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World LAC A&B BHS BAR JAM T&T
Graph 56: Collateral Value / Loan Value
pg. 79
Source: World Bank Enterprise Surveys (2010)
As of February 2013, the Bahamian administration has stressed its commitment to improve the
fiscal performance of the country in the medium term and it has embarked on several reforms to
improve public finances. The administration has stated that the Government’s revenue base is
extremely narrow and ill-suited to the expanding needs and demands of modern Bahamian
society. The Cabinet has approved the “White Paper on Tax Reform”25
that provides a road map
for the introduction of a value-added tax (VAT) by mid-2014.
25
Ministry of Finance (2013) A VALUE ADDED TAX WITHIN A REFORMED TAX SYSTEM, White Paper on
Tax Reform to Secure Adequate Revenues for the Future, Nassau, February, 2013
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Graph 57: Percent of Firms Identifying Tax Rates as a Constraint
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World LAC A&B BHS BAR JAM T&T
Graph 58: Percent of Firms Identifying Tax ADM as a major constraint
pg. 80
As for the Government’s commitment to VAT, the implementation of the tax will be overseen by
a Steering Committee chaired by the Financial Secretary and comprising relevant senior officials
of Government. The Committee will receive regular progress reports on implementation and
will provide guidance. A dedicated VAT Implementation Team will be established, under the
leadership of a senior officer of the Ministry of Finance, to develop a detailed implementation
plan and assure its effective execution. As it represents a significant change in the way of doing
business, the introduction of VAT needs to be explained to the general public to clear up any
uncertainties.
The Bahamian Government will undertake programs to: create awareness among the population;
host consultative sessions with the business sector and the general public on the proposed
changes and operational procedures of VAT; and inform citizens of their rights and obligations
under the new system and the resulting consequences of non-compliance. Individual VAT
registrants will receive individualized support from the Implementation Team to ensure that they
meet all legal requirements. Businesses with existing fiscal concessions under other previous
legislations such as the Hotels Encouragement Act, the Industries Encouragement Act or the
Fourth Schedule of the Tariff Act, will continue to receive those concessions. However, they
will be required to register and pay VAT on imports and domestic purchases. Furthermore, the
legislation will contain transitional arrangements to facilitate smooth VAT implementation and
alternative methods might be employed during the transition to ensure that double tax is not paid
on any product.
As this stage of the tax reform there is not enough data on trade and domestic markets to gauge
the effect on private sector competitiveness. The schedule for VAT application by specific goods
and services has not yet been established. The final impact on the price of goods and services
will depend on the extent of reductions in import tariff rates arising from accession to the WTO
as well. Agricultural products, food and certain other products that currently benefit from duty-
free status under the Tariff Act will also be exempt from VAT. Their prices should be
unaffected by tax reform. Similarly, the services also proposed to be exempt from VAT, such as
health and education services, should experience no direct change in price under a VAT system.
V.5 Business Environment
The World Bank’s Doing Business report ranked the Bahamas in 77th
place globally out of 185
countries surveyed in 2013, and 71th
out of 183 in 2012, according to World Bank’s newest
report. This last report places The Bahamas in 12th
place within Latin America and the
Caribbean. The Bahamas’ ranking has steadily deteriorated since 2009, when it was first
included.
The Bahamas business climate poses numerous difficulties for businesses, according to the
World Bank’s Doing Business Report (2013). Although the country ranks well in resolving
insolvency, trading across borders and paying taxes, average and below-average rankings are
assigned in all other areas. At the same time, all other indicators have deteriorated during the
most recent period. The country (see Graph 59 a and b) is particularly poorly ranked in areas
such as registering property (179th out of 185 countries), enforcing contracts (123th), and
protecting investors (117th
). Bahamas has lost six positions in the 2013 global ranking.
pg. 81
Source: World Bank Doing Business database
Source: World Bank Doing Business database
In addition the Bahamas received a ranking of 83th out of 185 countries for getting credit, 82th
for starting a business, and 68th
for dealing with construction permits. Rankings in these
categories are lower than in previous years.
82 68
43
179 83
117
51
58
123 35
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Starting aBusiness
Dealing withConstruction…
GettingElectricity
RegisteringProperty
Getting Credit
ProtectingInvestors
Paying Taxes
Trading AcrossBorders
EnforcingContracts
ResolvingInsolvency
Graph 59a: Bahamas DB 2013
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100
150
200Starting a Business
Dealing with ConstructionPermits
Getting Electricity
Registering Property
Getting Credit
Protecting Investors
Paying Taxes
Trading Across Borders
Enforcing Contracts
Resolving Insolvency
Bahamas, 2013 Bahamas, 2012
Graph 59b
pg. 82
Source: World Bank Doing Business database
In relation to comparator countries, see Graph 60 and 61, The Bahamas obtained better ranks
than Jamaica and Barbados, but worse than Antigua and Barbuda and Trinidad and Tobago.
Source: World Bank Doing Business database
The Doing Business indicators provide an objective basis for understanding and improving the
regulatory environment for business, and the Enterprise Survey provides a closer overview of
key business environment indicators for the Bahamas. For the year 2010, Bahamian firms
identified and ranked eleven obstacles for business activities. See Graph 62. A significantly
higher proportion of Bahamian businesses identify issues such as an inadequately educated
workforce, customs and trade regulation, practice informal sector, and access to finance as their
key barriers.
0
50
100
150
200
Starting aBusiness
Dealingwith…
GettingElectricity
RegisteringProperty
GettingCredit
ProtectingInvestors
PayingTaxes
TradingAcross…
EnforcingContracts
ResolvingInsolvency
Graph 60: Comparative Doing Business 2013 Antigua and
Barbuda
Trinidad andTobago
Bahamas, The
Barbados
Jamaica
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1020
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405060
7080
90
100
Antigua andBarbuda
Trinidadand Tobago
Bahamas,The
Barbados Jamaica
Graph 61: Ease of Doing Business Country Rank 2013
pg. 83
Source: World Bank Enterprise Surveys (2010)
Crime, theft and disorder, electricity and corruption were identified as moderately sensitive
issues, and finally tax rates, licenses and permits and labor regulations came in at the bottom of
the ranking of key constraints to business. The Bahamas ranks worse than the Latin American
region overall in licenses and permits, customs and trade regulations and an inadequately
educated labor force.
Overall, independent of their size, Bahamian enterprises agree that their major problem is an
inadequately educated workforce. However, access to finance seems to be a particular obstacle
for midsize firms (20-29 employees) and crime, theft and disorder were identified as important
barriers for the largest ones.
Source: World Bank Enterprise Surveys (2010)
0
10
20
30
40Access to finance
Access to land
Business licensingand permits
Corruption
Courts
Crime, theft anddisorder
Customs and traderegulations
ElectricityInadequately
educated workforce
Labor regulations
Political instability
Practices of theinformal sector
Tax administration
Tax rates
Transportation
Graph 62: BAHAMAS Enterprises Survey 2010
0.0
5.0
10.0
15.0
20.0
25.0Access to finance
Access to land
Business licensingand permits
Corruption
Courts
Crime, theft anddisorder
Customs and traderegulations
ElectricityInadequately
educated workforce
Labor regulations
Political instability
Practices of theinformal sector
Tax administration
Tax rates
Transportation
Graph 63: Bahamas Small Firms (5-19)
pg. 84
Source: World Bank Enterprise Surveys (2010)
Source: World Bank Enterprise Surveys (2010)
Independent of the size of the firm, the number one problem is an inadequately educated
workforce and the second is customs and trade regulations, according to the Enterprise Survey.
Whereas issues such as crime, theft and disorder are identified by large firms (see Graph 65 ) as
major constraints, access to finance affects medium-sized enterprises in particular (see Graph 64)
and practices of the informal sector are noted as key barriers for smaller businesses (see Graph
63). Moreover, infrastructure weaknesses including the inadequate supply of electricity and
water can increase costs, disrupt production and reduce profitability for any size of firms. At the
same time losses during trade or exportation are highly significant for any size Bahamian firms
as well.
0.0
10.0
20.0
30.0
40.0
50.0Access to finance
Access to land
Business licensingand permits
Corruption
Courts
Crime, theft anddisorder
Customs and traderegulations
ElectricityInadequately
educated workforce
Labor regulations
Political instability
Practices of theinformal sector
Tax administration
Tax rates
Transportation
Graph 64: Bahamas Medium Firms (20-99)
0.010.020.030.040.050.060.0
Access to finance
Access to land
Business licensing…
Corruption
Courts
Crime, theft and…
Customs and trade…
ElectricityInadequately…
Labor regulations
Political instability
Practices of the…
Tax administration
Tax rates
Transportation
Graph 65: Bahamas Large Firms (100+)
pg. 85
V.6 Technology and Innovation
In 2003, the Government of the Bahamas established as a long-term, broad-based objective to
transform the Bahamian economy into a digital economy as a means of generating viable
opportunities for Bahamians to participate in the global economy. The Bahamas’s strategy
includes the pervasive use of the Internet to engage in activities such as e-commerce, e-learning,
e-health, and e-government services. Although the initial government commitment was to the
expansion of its wide area network connecting all governmental agencies and accelerating the
development of online processes to facilitate business, the results are also positive with
benchmarks for the private sector.
There is a relatively high level of technology use in enterprises and large access to electronic
communications for business. Internet penetration has allowed most enterprises to use e-mail to
interact with clients and suppliers (see Graph 66). A significant proportion of these companies
are also developing a web presence by investing in their own website. Bahamas has the highest
percentages of firms with an internet-recognized quality certification (see Graph 67), while the
percentage of firms with licenced technology is the highest among the four comparable countries
(see Graph 68 and 69). Bahamian companies are ready to adapt new technology and enjoying
promising opportunities for greater innovation with foreign companies.
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Graph 66: Percent of Firms Using the Internet to Interact with Clients and Suppliers
pg. 86
Source: World Bank Enterprise Surveys (2010)
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World LAC A&B BHS BAR JAM T&T
Graph 67: Percent of Firms with an Internet-Recognized Quality Certification
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World LAC A&B BHS BAR JAM T&T
Graph 68: Percent of Firms Using Technology Licenced from Foreign Companies
pg. 87
Source: World Bank Enterprise Surveys (2010)
In 2005, The Bahamas began designing and implementing a Science and Technology (S & T)
plan directed at increasing economic growth, development and prosperity. The Bahamas wrote a
Road Map for the Advancement of Science and Technology to provide direction and guidance for
accelerating national development in these important areas. As such, the Road Map places
emphasis on building national and local capacity within the field of S & T. It also outlines the
benefits of promoting innovation and undertaking the development and advancement of S & T
knowledge, capabilities and systems, on a broad, national scale. The plan is under the authority
of the Science and Technology Committee of The Bahamas, Environment, Science and
Technology (BEST) Commission. The Science and Technology Committee was established in
May 2001 to fill an acknowledged gap in governmental processes regarding the support,
encouragement, management and accelerating the development and growth of science and
technology in the Commonwealth of The Bahamas.
V.7 Trade and Tariffs and Foreign Direct Investment Policies
The Bahamas tariff and trade regime is summarized in the Chart 7 and 8 below.
Source: www.wto.org, ITC Market Access Map.
The Bahamas applies the highest average tariffs to all products generally, including agricultural
and non-agricultural products. Although there is a large discrepancy between the tariffs applied
by the comparator countries Antigua and Barbuda and Barbados, trade tariffs for the Bahamas
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World LAC A&B BHS BAR JAM T&T
Graph 69: Percent of Firms with Own Web Site
Part A.1
Total Ag Non-Ag
Simple average final bound Total
Simple average MFN applied 2011 35.9 23.2 37.8 Non-Ag
Trade w eighted average 2010 20.2 13.4 21.7
Imports in billion US$ 2010 2.8 0.5 2.3
Ag: Tariff quotas (in %)
Bahamas
Tariffs and imports: Summary and duty ranges
Summary Non-WTO member
Binding coverage:
Ag: Special safeguards (in % )
pg. 88
are almost double those of Jamaica and Trinidad and Tobago with the exception of animal and
dairy products. High tariffs are justified by the authorities on two counts – they provide a large
share of fiscal revenues, and also protect the local market. The Bahamas has declared that
wholesale and retail operations cannot be carried out by non-Bahamians.
Chart 8:
Source: www.wto.org, ITC Market Access Map
Graph 70: Compare Average Trade Duties 2011
Bahamas: Import Duties by Product Groups
Bahamas Jamaica T&T
Animal products 11.4 26.5 23.6
Dairy products 9.3 25.2 13
Fruit, vegetables, plants 22.8 23 21.2
Cotton 45 0 0
Other agricultural products 40.2 5.5 5.4
Fish & fish products 31.1 29 29.1
Minerals & metals 39.8 3.9 3.7
Petroleum 0 4.8 4.2
Chemicals 41.8 2.6 2.6
Wood, paper, etc. 34.3 7 7
Textiles 37.4 3.1 3.1
Clothing 34.6 19.8 19.8
Leather, footwear, etc. 34 6.7 6.7
Non-electrical machinery 40.8 1.5 1.7
Electrical machinery 41.2 6.5 6.6
Transport equipment 14.1 6.6 5.8
Manufactures, n.e.s. 33.3 11.2 11.2
Average Tariff 30.06 10.76 9.69
MFN Applied Duties Average
pg. 89
Source: www.wto.org, ITC Market Access Map
The Bahamas is largely dependent upon travel services, exports and foreign investment in
tourism and tourism construction projects and financial services. Its private sector is reliant upon
imported supplies and is protected by high tariffs and regulatory barriers to entry (see Graph 71).
The Bahamas is not a member of WTO and has not entered into large bilateral trade agreements
which would have significant impacted its trade barriers. As shown in Graph 72, customs and
trade regulation is not a major contrain among most of the comparable countries, with the
exception of Antigua and Barbuda. Only one-fifth of the firm considers trade regulation as a
major constrain. Among the mentioned companies, small firms, 5 to 19 employees, are the most
consern about trade regulation.
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30
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45
50
Average Trade Duties
Bahamas
Jamaica
T&T
pg. 90
Source: World Bank Enterprise Surveys (2010)
As shown in Graph 72, customs and trade regulations are not a major constraint among most of
the comparable countries, with the exception of Antigua and Barbuda. Only one-fifth of the firms
consider trade regulation a major constraint. Small firms with between 5 to 19 employees are the
most concerned about trade regulation.
Source: World Bank Enterprise Surveys (2010)
A useful indicator for the performance of trade services is the Logistic Performance Index (LPI)
of the World Bank. It measures six subcomponents related to the efficiency and the quality of
trade and logistics services associated to shipping, transport and trade. Although not all selected
comparator countries have received LPI scores, the data available shows that the Bahamas has
not ranked significantly far behind Latin America or Caribbean countries such as Jamaica. (see
Graph 73).
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World LAC A&B BHS BAR JAM T&T
Graph 71: Percent of Firms Using Supplies of Foreign Origen
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World LAC A&B BHS BAR JAM T&T
Graph 72: Percent of Firms Identifying Customs and Trade Regulations as a Major Constraint
pg. 91
Source: Logistic Performance Index (LPI), World Bank
Both Domestic and Foreign companies have played a key role in sustaining economic growth
and trade performance, which highlights the complementary role between improving investment
climate policies and trade liberalization or export promotion. Although the regulatory burden on
most foreign firms has been very flexible and adaptive due to a large number of sectorial
incentives, the Enterprise Survey for the Bahamas reported senior management spent less than 5
per cent of their time dealing with issues related to government regulations that affect both
domestic and foreign companies (see Graph 74). This figure is comparable to the responses for
Antigua and Barbuda and Barbados, but larger than for Jamaica. Firms in Trinidad and Tobago
reported significantly higher regulatory time burdens.
Source: World Bank Enterprise Surveys (2010)
0
1
2
3
4LPI Score
Customs
Infrastructure
International shipmentsLogistics competence
Tracking & tracing
Timeliness
Graph 73: Bahamas Logistic Performance Index (LPI)
2012
High I non OECD BHS LAC JAM
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Graph 74: Percent of Senior Management Time Spent on Government Regulations
pg. 92
Although operating licenses (see Graph 75), construction permits (see Graph 76) and imports
licenses (see Graph 77) are identified as bottlenecks by firms, the Bahamas does not rank
significantly worse that it’s Caribbean counterparts and far better than Trinidad and Tobago.
Source: World Bank Enterprise Surveys (2010)
Source: World Bank Enterprise Surveys (2010). Note: No response for A&B.
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World LAC A&B BHS BAR JAM T&T
Graph 75: Days to Obtain an Operating License
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World LAC A&B BHS BAR JAM T&T
Graph 76: Days to Obtain a Construction-Related Permit
pg. 93
Source: World Bank Enterprise Surveys (2010)
V.8 Labor Regulation and Workforce
The labor market is governed by the Fair Labor Standards Act (1970), the Minimum Wage Act
(2001) and related regulation such as insurance and unemployment benefits (April 2009) and a
Migration Law. The Department of Labour within the Ministry of Labour and the National
Insurance are in charge of the enforcement of labor regulations and standards, the provision of
online employment services and the issuance of work permits.
Although labor market regulation and market flexibility are not viewed as a major obstacle or
constraint (see Graphs 78 and 79) to the private sector according to World Bank Enterprise
Survey in 2010, firms do cite the lack of employable skills, wages and productivity as concerns.
The Bahamas labor market shows significant rates of unemployment, the workforce shows
deficiencies of required skills and there is a lack of needed training. (see Graph 80 and 81). In an
effort to fill this gap, almost 37 percent of the Bahamian firms provide training to their
employees. (see Graph 82).
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World LAC A&B BHS BAR JAM T&T
Graph 77: Days to Obtain an Import License
pg. 94
Source: World Bank Enterprise Surveys (2010)
It is important to mention the country’s minimum wage of $4.00 an hour, which is relatively high
compared to other Caribbean countries. Work permits have become a very important issue that is
directly connected to the skills shortage in the Bahamas.
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Graph 78: Percent of Firms Identifying Labor Regulations as an Obstacle
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World LAC A&B BHS BAR JAM T&T
Graph 79: Percent of Firms Identifying Labor Regulations as the Major Constraint
pg. 95
Source: World Bank Enterprise Surveys (2010)
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World LAC A&B BHS BAR JAM T&T
Graph 80: Percent of Firms Citing an Inadequately Educated Workforce as an
Obstacle
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World LAC A&B BHS BAR JAM T&T
Graph 81: Percent of Firms Identifying an Inadequately Educated workforce as the Major
Constraint
pg. 96
Source: World Bank Enterprise Surveys (2010)
Although most companies identified an inadequately educated labor force as their main
constraint, the relative scarcity of qualified labor has been partially alleviated by in-situ job
training. A significant percentage of firms (37 per cent) offer job training to their
personnel. Larger Bahamian firms were able to overcome technology skill gaps by offering
specialized training to their employees.
V.9 Infrastructure, Communications and Energy
Although infrastructure services have been dominated by state-owned entities, the private sector
has started to play an important role in areas such as the newly privatized telecommunications
company. The government has also adopted new supervisory measures regarding economic
regulation. The Utilities Regulatory Competition Authority (URCA) is responsible for oversight
of the telecommunications industry and some public utilities. Overall, indicators for electricity,
water services, transportation and telecommunications services do not show dramatic problems,
although complaints regarding electricity service or tariffs, water supply costs and the reliability
of transportation are slightly worse than for some neighboring countries.
The relatively consistent supply of electricity available to the private sector can be explained in
part by the large proportion of firms that own generators (see Graph 83). However, there are
sectors of the economy that cite electricity supply and tariffs as an important obstacle and
constraint (Graph 84). There are two factors that could explain this somewhat contradictory
result. First, electricity prices adjust for fluctuations in the prices of energy inputs (i.e., liquid
fuels). Indeed, increases in oil prices could have more than a proportional impact due to mark-up
pricing. Secondly, price volatility could reflect the seasonal regulatory adjustments to tariffs that
the state-owned company must apply.
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World LAC A&B BHS BAR JAM T&T
Graph 82: Percent of Firms Offering Formal Training to their Employees
pg. 97
Source: World Bank Enterprise Surveys (2010)
A large segment of the tourism industry complains about high electricity costs, which also
impacts all sectors and is a critical bottleneck to development and growth. Although electricity
costs are structurally more expensive in the Caribbean,26
Bahamas’ electricity cost is about
average. While Jamaica’s commercial electricity costs (US$0.39 per kWh) is more expensive
then the Bahamas, Barbados’ commercials and industrial is less expensive. Moreover,
businesses heavy dependency on self-generation of electricity leads to diseconomies of scale and
in turn additional dependency on imported oil fuels. The high cost of electricity is a widely cited
26
Castalia (2011), pgs 2-3 states that commercial and industrial electricity costs are approximately double that in
Florida. The report includes data for Grand Bahama Power only, based on information from the Caribbean Electric
Utility Service Corporation (CARILEC).
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Graph 83: Percent of Firms Owning or Sharing a Generator
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World LAC A&B BHS BAR JAM T&T
Graph 84: Percent of Firms Identifying Electricity as the Largest Constraint
pg. 98
supply-side obstacle. The Bahamas Electricity Corporation is a state-owned enterprise facing
challenges in the efficient administrative operation, generation and distribution of electricity.
Bahamas’ system faces technical and non-technical losses27
.
Businesses also mentioned telecommunication services as another bottleneck, particularly for
firms operating in the tourism and financial service industries. The Bahamas
Telecommunications Company just recently partially privatized the provision of telephone,
cellular and internet services with very little private competition due to its reorganization and
regulatory reorganization.
Infrastructure-related challenges in transportation (see Graph 85), water supply (see Graph 86)
and communications further constrain the capacity of firms and exporters.
27
Transmission and distribution network losses occur in the lines, substations, and transformers. These losses are
referred to as technical losses. Electricity losses also include non-technical losses, which result from theft and
unmetered consumption. Non-technical losses are caused by deficiencies in billing and meter reading, as well as by
consumption not captured by meters such as theft, meter errors, non-billing and-under billing of legal accounts.
Non-technical losses represent the difference between electricity supplied to customers and electricity billed.
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Graph 85: Percent of Firms Identifying Transportation as a Major Constraint
pg. 99
Source: World Bank Enterprise Surveys (2010)
Delays in obtaining public services affect businesses differently. While electricity connection
delays significantly affect large companies, small firms suffer primarily with
telecommunications connection delays (see Graph 87). Mid-size firms might wait between three
to four months to obtain a telecommunication connection. Although hookups to water lines are
less frequently mentioned, the number of outages per month in the Bahamas is significantly large
for the region and delays in obtaining a connection affects all firm sizes. A month delay for water
hookups particularly affects large construction and hotel operators.
Source: World Bank Enterprise Surveys (2010)
V.10 Environment
The Bahamas contains very diverse terrestrial and marine habitats. The archipelago is blessed
with many sandy beaches, clear warm waters and colorful coral reefs. The tourism industry relies
0
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Graph 86: Average Number of Water Outages Per Month
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Graph 87: Delays to in Obtaining Public Services in the Bahamas (in days)
Electricity Water Fix Phone
pg. 100
heavily on the natural resources of the coastal zone. Ironically development in this sector, as well
as urban and infrastructure expansion, has resulted in many physically changes to the coast. The
Bahamas is a coastal country, with most of its population living within the coastal zone.
Based on inland vegetation, the islands of The Bahamas are classified into three groups: pine
islands (Andros, Abaco, Grand Bahama and New Providence), the coppice islands (Cat Island,
Eleuthera, Exuma, Long Island, Rum Cay and San Salvador) and the more drought-resistant
woodland islands (Acklins, Crooked Island, Inagua, Mayaguana and Ragged Island). Each island
group has its own particular mix of flora and fauna that are well adapted to the terrestrial
ecosystem of their islands.
The geographical distinction in biodiversity is largely in response to the amount of precipitation
received in each region. On an annual basis, the pine islands receive the most precipitation, while
the woodland islands receive the least amount. This climatic variation, along with other factors,
has shaped land use in The Bahamas and consequently the management of solid waste, sewage
and freshwater resources.
The Bahamas vulnerability is due to the fact that it is a low-lying archipelago, The Bahamas is
extremely vulnerable to natural disasters, in particular hurricanes. With an economy based on
tourism, any hazard can impact the well-being of most of the country’s people either through
direct impacts, physical or economic, or through economic linkages. The combination of
population growth and an increasing numbers of visitors places development pressures on the
country’s natural resources.
Such pressures have made it necessary to develop legislation, policies, strategies and
management systems in order to preserve the country’s resources.
Generally, management of environmental issues has been the responsibility of public agencies
such as the Departments of Environmental Health Services (DEHS), Agriculture and Fisheries
and the Bahamas Environment, Science and Technology (BEST) Commission. In addition, there
is increasing growth in the number of non-government organizations (NGOs) becoming
advocates of the environment.
The BEST Commission was established in 1994 with a mandate to provide a comprehensive and
integrated approach to environmental management. The BEST Commission includes the
coordination of the national effort to:
i) protect, conserve and responsibly manage the environmental resources of The
Bahamas;
ii) develop a National Sustainable Development Strategy and related Action Plans;
iii) identify suitable scientific and technological advances that can contribute to the
development of The Bahamas;
iv) propose legislation to enforce the provisions of the National Conservation Plan
environmental policies; and
v) identify and make application for technical assistance and financial grants to meet the
Commission’s responsibilities.
pg. 101
The BEST commission has evaluated and enforced policies and legislation relating to: coastal
environment, marine environment, land, tourism, water, waste management, natural and
technological hazards, nonprofit organizations and international conventions. In addition, within
the Ministry of Tourism two units were created to incorporate environmental management and
awareness into the industry: the Eco-tourism and the Sustainable Tourism units. The Eco-tourism
Unit was established after the Earth Summit (Rio de Janeiro Brazil, 1992) to promote eco-
friendly initiatives. The latter unit was established to implement some of the recommendations
emanating from “A Sustainable Tourism Policy, Guidelines and Implementation Strategy for the
Out Islands of The Bahamas”. Furthermore, the BEST Commission, for example, has
implemented a number of initiatives that addresses the vulnerability and mitigation aspects of
disasters like climate change through the creation of a National Climate Change Committee
(NCCC).The Committee has produced two reports, the first national Communication on Climate
Change in order to develop strategies to implement policies and measures to reduce vulnerability
to the impacts of climate change, and a second report to address issues related to public
education and outreach, national inventory of greenhouse gases, and a vulnerability and risk
assessment associated with climate change.
In today's heightened level of environmental awareness, management by all private firms takes
on even higher levels of importance. Within this trend, in Bahamas for instance, hotels have
responded positively with various environmental initiatives. While these initiatives have resulted
in some increases in environmental management performances particularly in the area of energy,
environmental management efforts are still to be maximized and there is considerable scope for
improvement.
It is evident that cost is a major limiting factor in the environmental soundness of the hotel sector
and also that assistance is needed by way of fiscal and other incentives to catalyze wide spread
use of environmentally sound technologies by the sector. Incentives to spur the use of such
technology are lacking. This is significant in that the majority of hotels in this sector are small,
usually family owned and operated that generally operate on smaller budgets and require longer
investment periods for any type of project. In The Bahamas this priority is even more urgent in
small hotels. This sector should, therefore, play a major part in sustainable tourism and should be
encouraged as much as possible to operate in an environmentally sound manner.
As a more current measure of the environment, Yale University has created the Environmental
Performance Index (EPI). The 2012 EPI adds to the foundation of empirical support for sound
policymaking and breaks further ground by establishing for the first time a basis for tracking
changes in performance over time. The EPI ranks countries on 22 performance indicators
spanning ten policy categories reflecting facets of both environmental public health and
ecosystem vitality.
However, the Environmental Health partial scores, in particular revel information about air and
water conditions, very significant for the whole EPI index. Although these indicators of
environmental health are partial, they are the best available measures for the Bahamas. These
indicators track the resource and pollution impacts of industrialization, such as greenhouse gas
emissions and rising levels of waste. Other challenges are commonly associated with poverty
pg. 102
and underinvestment in basic environmental amenities, such as access to safe drinking water and
basic sanitation. These problems primarily affect developing nations.
The following graphs 88 a and 88b present the overall Environmental Health ranking for the
Bahamas over the period 2000 to 2012.
Source: Environment Performance Index (EPI) partial indicator for environmental health, Yale University
In addition, other available indicator for the Bahamas is carbon dioxide emissions. The Graph 89
shows that The Bahamas is a larger per capita emitter than comparator countries due to use of
fossil fuels for the generation of electricity.
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100EHEH
AIRWATER
Graph 88a: Environmental Health, Water and Air 2000
BHS JAM T&T
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AIRWATER
Graph 88b: Environmental Health , Water and Air 2012
BHS JAM T&T
pg. 103
Source: World Development Indicators, WB
V.11 Gender
The Bahamas is the 36th
performers among 133 countries regarding gender equality worldwide in
2012, in general; and concerning economic participation, educational attainment, health and
survival in particular, see Graph 90. However it grossly falls to the bottom fifteen most gender
unequal countries (122th) in terms of political empowerment among 133 countries tested by the
World Economic Forum. Progress in relation to the gender gap can be assessed using the World
Economic Forum’s Global Gender Gap Report. These reports provide an index that benchmarks
overall gender gaps as well as the dimensions of economic participation, education attainment,
health and survival and political empowerment criteria.
The following graphs provide the rankings for the overall index for the Bahamas in 2009 and
2012, with rankings close to 1 indicating that the country has relatively low gender-based
disparities, except political empowerment.
Graph 90: Bahamas Gender Participation
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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Graph 89: CO2 emissions (metric tons per capita)
BHS ATG BRB JAM TTO
pg. 104
Source: World Economic Forum Gender Gap Report, 2011-2012
In relation to economic participation and opportunities, the Bahamas has a relatively equal
distribution of males and females in labor force participation, earned income and senior officials
and managers. Female participation is significantly higher in professional and technical
professions. The 2012 report sustains that the gender earnings gap is only one third of male co-
worker earnings.
Regarding educational attainment as well as health and survival, women in the Bahamas rank
higher than males in literacy rates and primary and secondary education enrollment. Female
tertiary education enrolment is almost 2.7 times higher than males. Female professional and
technical workers participation is twice than men.
On the other hand the Bahamas was ranked one of the worst 15 out of 133 countries regarding
political empowerment of women. In parliament, women are only 14 per cent of the assembly
and there are four women in ministerial or cabinet positions.
Even though female voters outnumbered male voters in the most recent elections in 2012, the
number of women elected to the legislature remained far lower. Only five women made it into
the House of Assembly out of 38 seats, which represents about 14 per cent of the Assembly.
As part of the Enterprise Surveys conducted by the World Bank in various Caribbean countries
in 2010, gender participation is measured at the level firms and entrepreneurial activities. The
following graph 91 shows that female participation is significantly important for Bahamian
enterprises and women have relatively higher participation percentages than other Caribbean,
Latin America or even high income non OECD countries.
00.20.40.60.8
1Economy
Health
Education
Politics
2009
00.20.40.60.8
1Economy
Health
Education
Politics
2012
pg. 105
Source: World Bank Enterprise Surveys (2010)
On the job female participation in the Bahamas is relatively higher than in comparator countries
for managers and owners, and about on par for full time workers.
Finally, the World Bank survey responses stratified by firm size show that female participation is
significantly higher for small and medium sized firms, and bringing women into the management
of large firms remains a pending challenge.(see Graph 92)
Source: World Bank Enterprise Surveys (2010)
V.12 Crime, Corruption and Informality
The general perception of crime and corruption is an important issue for the development of the
Bahamas due to its relevance for the two major economic sectors of tourism and financial
services. Fortunately, very few firms (as low as 5 per cent) sustain that the judicial courts are a
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HI no OECD LAC A&B BHS BAR JAM T&T
Graph 91: Percent of Female Participation
Manager Ownership FT worker
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Small Medium Large
Graph 92: Bahamas: Female Participation in the Labor Force
Manager Ownership FT worker
pg. 106
major obstacle to conducting business. More alarmingly, a large proportion of enterprises have
experienced bribe request. While crime, theft and disorder seem important for the large
enterprises, medium and small firm are not as concerned, despite the lack of transparency and
discretionary procedures for obtaining licenses and permits. The following graph 93 shows in
more detail the perception of corruption in The Bahamas compared to its neighboring countries.
Graph 93: Corruption Perceptions by the Business Sector
Source: World Bank Enterprise Surveys (2010)
Although the perception in The Bahamas is roughly on par with world responses regarding gifts
to obtain permits and licenses, it ranks better than Jamaica on most of the indicators. The
Bahamas scored worse than both Latin American regional average and Trinidad and Tobago,
regarding the expectation of bribery to obtain construction permits, electrical and water
connections.(see Graph 94)
Graph 94: Expectation of Bribery for Public Utilities Connections
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World LAC A&B BHS BAR JAM T&T
Percent of firmsexperiencing at least onebribe payment request
Percent of firmsidentifying corruption as amajor constraint
Percent of firmsidentifying the courtssystem as a majorconstraint
pg. 107
Source: World Bank Enterprise Surveys (2010)
There is no information for the Bahamas on gifts expected to secure government contracts.
Almost twenty percent of all firms surveyed felt they were expected to give gifts to public
officials “to get things done”, see Graph 95 which could cover a gamut of actions.
Graph 95: Perception of Bribery of Government Officials
Source: World Bank Enterprise Surveys (2010)
In the Bahamas, over half of all firms pay for private security, and almost twenty percent identify
crime, theft and disorder as a major constraint to their business.(see Graph 96)
Graph 96: Private Security and Perception of Crime
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World LAC A&B BHS BAR JAM T&T
Percent of firms expectedto give gifts to get anoperating license
Percent of firms expectedto give gifts to get animport license
Percent of firms expectedto give gifts to get aconstruction permit
Percent of firms expectedto give gifts to get anelectrical connection
Percent of firms expectedto give gifts to get a waterconnection
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World LAC A&B BHS BAR JAM T&T
Percent of firms expectedto give gifts to publicofficials "to get thingsdone"
Percent of firms expectedto give gifts in meetingswith tax officials
Percent of firms expectedto give gifts to securegovernment contract
pg. 108
Source: World Bank Enterprise Surveys (2010)
Approximately 60 percent of Bahamian firms pay for security, compared with averages for LAC
62% and the world 57%. Only Barbados firms spend less than Bahamian firms on security within
the region or among comparators. Nevertheless, the cost of security as a percentage of sales to
Bahamian firms is significantly larger than for comparator countries. (see Graph 97)
Graph 97: Costs of Security, Theft and Vandalism
Source: World Bank Enterprise Surveys (2010)
In a country where corporate taxes do not exist and firm registration costs are 92 percent of the
total costs of starting a business, the incentives for firms to stay informal may be different in the
Bahamas compared to other countries. Some researchers have shown that informal sector activity is
0
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World LAC A&B BHS BAR JAM T&T
Security costs (% of annual sales)
Losses due to theft and vandalism against the firm (% of annual sales)
Products shipped to supply domestic markets that were lost due to theft(% of product value)*
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Percent of firms payingfor security
Percent of firmsidentifying crime, theftand disorder as a majorconstraint
pg. 109
a response to people living in a depressed economy.28 The Bahamian economy exhibits (see Graph
98) some degree of informality, but less than twenty percent of firms surveyed identify practices
of the informal sector as a serious constraint or obstacle to their business.
Source: World Bank Enterprise Surveys (2010)
Informality can pose significant challenges for registered firms, as the informal operators are
able to avoid the high costs of tax compliance. The following Graph 99 shows a notably high
rate of firms starting operations with formal registry in the Bahamas, alongside a perhaps
surprisingly large 67.5 percent of firms noting they compete against informal firms in their
business sector.
28 Andrew Downes (2009)
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Graph 98: Percent of Firms Identifying Practices of Competitors in the Informal Sector as a Major Constraint
pg. 110
Graph 99: Competition with Informal Firms
Source: World Bank Enterprise Surveys (2010)
V.13 Analytical Remarks and SWOT Analysis of PSD
As the highest per capita income country in the Caribbean and one of singular and beautiful
geography, the Commonwealth of the Bahamas has developed a dynamic and diverse private
sector that has sustained its economy and young democracy since independence. The Bahamas
has a number of strengths to help support the continued growth and development of the private
sector, creating opportunities for a larger number investors and entrepreneurs.(see Figure 4)
These strengths include economic stability, stable democracy, an international and dynamic
private sector and the proximity to large markets. Nevertheless threats can be identified as heavy
reliance on a single tourism market, rising levels of national debt, and the stress that economic
development is placing on natural resources. As the SWOT analysis makes clear, the Bahamas
proximity to the United States provides both opportunities and challenges, the latter as economic
cycles in the Bahamas are so strongly coupled with US economic trends.
Although the weaknesses and threats identified in the SWOT analysis below have significant
implications for private sector development, effective and decisive action from public and
private institutions can mitigate or lessen their impact. The Bahamas has announced and started
consultations regarding fundamental economic development issues including tax reform,
economic diversification, clean energy and economic regulation that should be seen as
opportunities for faster and more inclusive development. The success of these consultations
relies largely upon the political will and desire for change expressed on both sides of the
negotiating table.
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World LAC A&B BHS BAR JAM T&TPercent of firms competing against unregistered or informal firms
Percent of firms formally registered when they started operations in thecountry
pg. 111
Figure 4: Bahamas SWOT Analysis of Private Sector Development
Strengths
Economic stability (exchange rate and
inflation)
Stable democracy and legislative institutions
International and dynamic private
sector
Proximity to large markets
Weaknesses
Discretionary trade, tax and economic
regulation
Inadequately educated labor force
Red tape for licenses and permits
Limited support to product development
Low R&D budgets and activities
Opportunities
No corporate tax
FDI in infrastructure development
Dynamic non-traditional exports
and productive sectors
Telecommunications penetration and
services
New geographic areas for investment and
development
Threats
Limited and stressed natural resources
Expensive and ineffective energy, transportation and
utilities infrastructure
Unsustainable public debt burden
Large dependance on sole market for
tourism
pg. 112
CHAPTER II: SELECTING AND PRIORITIZING ISSUES
I. Identifying Critical Issues
In the second part of the team’s data gathering, the Compete Caribbean team carried out a series
of interviews and panel discussions with relevant Bahamian public and private institutions to
discuss private sector development challenges. Interviews were conducted with various public
entities, private firms, representative associations, non-governmental organizations and academia
around these issues.
All groups were selected (see list in annex A) to capture an ample variety of views regarding the
main challenges to private sector development. Interviews were conducted between November
27 and 30, 2012; panel discussions were held on November 28 and 29, 2012 in Nassau.
Although both the interviews and group discussions focused on prioritizing the private sector’s
obstacles, challenges and constraints, the four panel discussions were broader in scope and were
structured in three parts. The first part included a presentation of the “Compete Caribbean”
program along with a description of the PSAR report and donor matrix objectives. In the second
part, the participants were asked to identify and enumerate priorities, constraints and challenges
from their point of view. The third and final part summarized the open round table discussion,
noting comments and counter arguments.
As background, the following Graph 100 summarize the obstacles and challenges to the
Bahamas private sector as captured in the World Bank Doing Business Report for 2013.
Graph 100: Bahamas Doing Business Ranks and Obstacles for PSD
Source: Doing Business Report 2013, WB
82
117
63
179
124 0
50
100
150
200
Starting aBusiness
Dealingwith…
GettingElectricity
RegisteringProperty
GettingCredit
ProtectingInvestors
PayingTaxes
TradingAcross…
EnforcingContracts
ResolvingInsolvency
Ranks
Bahamas, 2013 Bahamas, 2012
0
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Acc
ess
to f
inan
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to la
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sin
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and
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Tax
rate
s
Tran
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Obstacles
pg. 113
As shown in the following graphs separating responses by firm size (see graphs 101-small, 102 -
medium and 103 -large), all firms agree that an inadequately educated labor force is their
primary obstacle, and their third worst that is custom and trade regulation. Regarding the second
most important constraint to doing business, firms disagree. Small firms cite informality as their
concern, medium sized firms cite access to credit and for the large firms it is crime and theft.
0.0
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50.0
60.0Access to finance
Access to land
Business licensing andpermits
Corruption
Courts
Crime, theft anddisorder
Customs and traderegulations
ElectricityInadequately
educated workforce
Labor regulations
Political instability
Practices of theinformal sector
Tax administration
Tax rates
Transportation
Graph 101: Bahamas Small Firm Constraints (5-19 employees)
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60.0Access to finance
Access to land
Business licensing andpermits
Corruption
Courts
Crime, theft anddisorder
Customs and traderegulations
ElectricityInadequately
educated workforce
Labor regulations
Political instability
Practices of theinformal sector
Tax administration
Tax rates
Transportation
Graph 102: Bahamas Medium Firms Constraints (20-99 employees)
pg. 114
Source: World Bank Bahamas Enterprise Survey (2010)
These results were shared with the panelists, which stimulated robust and in depth discussions
from the participants. These debates strongly and repeatedly emphasized the most important
obstacles and challenges as:
An inadequately educated labor force, customs trade procedures, access to finance, registry
and permits, limited infrastructure and energy availability and overwhelming read tape as the
most important barriers for businesses.
In addition, other challenges were raised including the lack of transparency for licenses and
permits, property registering, land tilting, dispute resolution and intellectual property rights.
As part of the PSAR method, these meetings and panel discussions served to identify the
following list of obstacles that the private sector is facing:
Lack of a skilled and professional workforce,
Energy costs, electricity,
Lack of infrastructure and effective public services and utilities,
Political motivations for the settings of tariffs and fees for public services,
Lack of transparency in using domestic accounting and international standards,
Environmental standards for land and marine use,
Crime and theft and the related growing illegal economy,
Overwhelming and excessive steps to open, operate and manage firms,
Lack of technical and nonfinancial support to SME enterprises,
The need for a public private dialogue for investment climate and Private Sector
Development,
Access to domestic and international markets
0.0
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60.0Access to finance
Access to land
Business licensing…
Corruption
Courts
Crime, theft and…
Customs and trade…
ElectricityInadequately…
Labor regulations
Political instability
Practices of the…
Tax administration
Tax rates
Transportation
Graph 103: Bahamas Large Firms Constraints (100+ employees)
pg. 115
Bahamas is less involved in discussions about trade, integration and development with
countries by choice
Lack of information about creditworthiness or credit records and assets is a barrier to
credit,
Ineffective, politicized or limited economic regulation for utilities
Gap between knowledge and business practices, and
The lack of a long-term development plan to provide consistency and predictability.
Lack of trust and entrepreneurship, as owners refuse to make alliances and associations,
I.1 Inadequately Educated Workforce
The international economic downturn has not only significantly affected the Bahamas economy
by increasing vulnerability, but has also negatively impacted its labor market through higher
unemployment rates. Although significant inflows of FDI investment have helped the economy
since 2004, domestic unemployment rates have exceeded seven percent and particularly affected
young Bahamians. Unemployed workers less than 30 years old represent approximately 50
percent of all the unemployed. At the same time, large private employer associations and private
businesses maintain there is a lack of skilled workers and a significant gap between the skills
acquired by the labor force and the skills needed by employers. Most private sector
representatives believe this negatively impacts their business prospects and production.
Although traditional productive sectors are able to partially offset this problem through
specialized training programs tailored to their workforce needs, there is no government effort to
widen such programs to a larger scale. Moreover, skilled labor frequently migrate which further
limits the skilled talent pool available domestically. As a result, industry requests for work
permits to import skilled labor continue to rise. Without government intervention, the country’s
private sector predicts high unemployment rates will continue to coexist alongside shortages of
adequately educated workers.
According to a recent survey, the total number of employed workers in the Bahamas is 160,186
people, representing 84.1 percent of the labor force. Employment rates among women are
slightly higher than those of men at 84.3 percent and 83.9 percent, respectively. The total labor
participation rate is 72.1 percent. Employment rates are highest among workers with a university
or tertiary education (92 percent). A large proportion of workers are salaried (86 percent) and 14
percent as self-employed, equivalent to 136,140 and 22,404 workers respectively. Salaried
employment is more prevalent among women and youth. Self-employment is prevalent in Grand
Bahama and among the least educated workers. Approximately 65 percent of total workers have
a written employment contract and 10 percent receive wages below the minimum legal wage,
which notoriously affects the youngest workers between 15 and 24 year old. Throughout the last
decade private sector employment has accounted for at least three-fourths of total employment in
the country.
Tourism-related industries employ most of the labor force, approximately 55 per cent, broken out
by hotels and restaurants (10 percent), retail sales (20 percent), and construction-related activities
(25 percent). The financial sector is the second largest employer, with 25 percent of all
pg. 116
employees. Agriculture, mining, manufacturing and storage and communications employ the
remaining 8 percent of the employed labor force.
Although labor force participation is high in Bahamas compared to other LAC countries, it has
been declining since 2008, likely reflecting the economic downturn. Labor participation was
around 76.3 percent in 2008. By 2011, unemployment had risen to a high of 15.9 percent, and
particularly affects inhabitants of Grand Bahama, with 20 percent unemployment. Other groups
of concern include the no schooling at 29 percent unemployment, in particular people with less
than a completed secondary education with a 25 percent unemployment rate. In comparison,
there was a 7 percent unemployment rate among the most educated with tertiary education.
When stratified by age, youth between 15-24 years of age are significantly more affected with
over a third (33.7 percent) unemployed and migrants from other Caribbean countries registering
an unemployment rate of 22.9 percent. To put this in perspective, the Caribbean migrant
unemployment rate is about 5 times the unemployment rate for the non-Caribbean country
migrants, who are largely work permit holders and experience only a 3.8% unemployment rate.
According to general legal labor regulations, Bahamians normally work 40 hours per week and
the legal working day is 8 hours per day. However recent surveys indicate approximately 16
percent of the workers are under-employed, working less than 35 hours per week. Under-
employment is typically an indication of job difficulties in finding a full time job or large skill
mismatches. According to the recent 2010 Enterprise Survey and other surveys, employers are
heavily involved in providing training and skills to their workers. A large percentage of workers
(51 percent) have received specialized on the job training, both during and before their current
employment. On the job training is higher among men; New Providence workers; university or
tertiary level educated workers; and workers older than 24 years old. Apprenticeship programs
are more prevalent among workers with lower educational attainment, at approximately two-
thirds of that group.
Despite scarce data on labor market and vocational training indicators, the private sector has
consistently raised the issue of significant gaps between the skills required on the job and the
labor skills present in the Bahamian workforce. Independent of their size, Bahamian firms
identify an inadequately educated labor force as the major constraint and obstacle to their
business development. Private sector representatives noted that workforce skills shortfalls are not
effectively covered by private or public training institutions during the Compete Caribbean
consultations in November 2012.
According to some of our interviewees and panelists, the main skills that employers seek in the
workforce are: numeracy and literacy, personal traits such as responsibility, team work, and
communication, and information technology. The lack of information technology (IT) skills was
highlighted by employers in financial services and insurance, while the hotel and tourism
industries emphasized shortages of numeric and literacy skills. Due to the increasing importance
of technology in these sectors, IT skills have been mentioned across the board. In the
construction industry, companies mentioned the need for more air conditioning and refrigeration
mechanics, electricians, carpenters, plumbers and pipefitters, operators of heavy equipment,
supervisors, and construction managers, again commenting on the poor basic skills of potential
workers.
pg. 117
Surveys conducted in 2000 and 2004 have noted that the severity of the skills gaps has
constrained economic growth and restricted the expansion of operations. In 2004 a focus group
conducted by private firm association reaffirmed employers’ concerns that most institutional
training programs fail to meet industry standards. In 2005, the Bahamas Hotel Association
(BHA) revealed that there are training needs at all occupation levels: line entry, mid-level, and
upper management. Finally, the 2010 World Bank Enterprise Survey also indicates that the main
obstacle reported by employers is the skills shortage (34 percent). At the regional level, the skills
shortage is more prevalent in Bahamas than in most Caribbean countries. Among firms, the skills
gap is more prevalent as a main obstacle for medium and large firms, compared to smaller ones.
Of large firms with 100 or more employees, 55% of the firms cite inadequate skills as the most
serious problem for their business, and 40% of employers in firms with 50-99 employees note
that the lack of skills is the main obstacle to running a business in Bahamas. Even small firms
face the skills gap.
During the Compete Caribbean consultations, several training institutions participated in the
panel discussions and interviews. Representatives from the Bahamas Technical and Vocational
Institute (BTVI), College of Bahamas (COB), Atlantis College and Nova South-Eastern
University – Bahamas explained their institutional challenges and ongoing initiatives to close the
skills gap.
Almost all of these vocational institutions pointed to institutional factors as central to the
understanding the persistence of the skills gap in the Bahamas. Workforce training in the
Bahamas needs to be significantly reform to effectively carry out a skills development strategy
for the workforce. Based on this analysis and on consultations with different stakeholders from
the training institutions, the main issues and challenges are: i) courses are out of date due to
cumbersome procedures for updating the training curriculum; ii) the private sector does not have
an institutionalized role to define skills and competencies needed; iii) information on total
enrollment at the post-secondary/tertiary level is virtually absent; iv) there is no autonomous
national accrediting agency in The Bahamas; v) there are no systematic evaluations of the
training system and employment; and vi) public employment services are scarce and at a very
early stages of development.
Overall, the provision of training in the country needs a major reorganization including its
structure, curriculum design, functions and operations to close the gap between the skills
imparted during training and the skills demanded on the job. However, it is important to note that
over the past ten years there has been some progress in updating the provision of vocational
training in the Bahamas despite the absence of a national training strategy. For instance, the
Bahamas Technical and Vocational Institute (BTVI) is the sole public provider of workforce
training and its mandate is to provide training opportunities to school dropouts or the
unemployed seeking to upgrade their skills. Because of the urgent need for higher-level skills in
the country, and the growing gap in the provision of journeyman/technician skills training, the
government has expanded BTVI’s mandate to include customized training and standards-driven
certificates and diplomas.
The College of The Bahamas (COB) has practically eliminated technical programs, focusing
more on the provision of university Bachelor degrees. Its school of Hospitality and Tourism
pg. 118
Studies caters to higher skills sets. For example, it trains chefs and offers bachelors in hotel
management but does not offer programs for entry line positions and mid-level occupations.
Finally, the Ministry of Education has taken steps to introduce information technology (IT) into
the curriculum of public schools. Until and unless the mainstreaming of IT skills occurs, many
students will continue to enter the job market with insufficient IT skills. According to some
panelists, the Bahamas is considering implementing the Caribbean Vocational Qualification and
while exploring that possibility the authorities have studied the model of the National Training
Agency (NTA) of the Trinidad and Tobago agency. The NTA is responsible for coordinating and
facilitating the development of a skilled, competent and innovative workforce.
I.2 Customs and Trade Regulations
Private sector growth and development in the Bahamas is closely linked to international trade
and custom and trade regulations, specifically services export capacity and travel services.
Foreign investment, which has been mostly directed towards tourism projects and financial
services investments, has helped to stimulate economic growth. The externally-oriented private
sector is mostly foreign-owned and operated and particularly concentrated in tourism, financial
and professional services. The domestic private sector is mainly concentrated in import-
substitution activities and the retail sector, and is protected by high tariff barriers and/or
regulatory barriers to entry. Some small non-traditional activities in agriculture and industry have
materialized.
In the past five years, the Bahamas has pursued new integration and liberalization arrangements
such as the Economic Partnership Agreement (EPA) with Europe and beginning the process of
World Trade Organization accession. Successful participation may require negotiating additional
agreements, and making adjustments in the public sector and the economy more generally to the
new context. Although some of the necessary reforms include taxation, competition policy,
intellectual property rights, government procurement, among others, the private sector
suggestions concentrating in strengthening key public institutions such as customs services and
procedures, and market access and clustering facilitation for potential exports.
In terms of strengthening public institutions, reforms must promote efficient inter-agency
coordination among trade agencies and support to the Bahamas Trade Commission as the central
conduit for private sector consultation on trade issues. Creating a modern and integrated customs
system will be critical in order to comply with and reap the gains from a more liberalized trading
environment. Customs modernization must aim to provide a transparent and less discretionary
system to product valuation, nomenclature and origin of goods. Investment in information
technology (IT) solutions throughout the trade cycle is necessary to facilitate trade flows, such as
a Single Electronic Window to comply with origin, standards, and sanitary and phyto-sanitary
measures within a single platform.
An institutionalized public-private sector dialogue is increasingly viewed as a fundamental
element of Bahamas’ future. The development of economic linkages between foreign investors
and domestic sectors will act as an important strategy to diversify the economy, promote private
sector activity, particularly for small and medium enterprises, and support employment growth.
For instance, linking private investors to the domestic agricultural sector through implementation
pg. 119
of standards and modern control techniques to improve quality will enhance SME/cluster
development which in turn will result greater market opportunities.
Effective public private coordination will affect The Bahamas’ competitive position in both
foreign and domestic markets. Currently trade preference erosion in the country’s main export
markets is a concern for many goods exporters, including prominent companies such as
Polymers International, Morton Salt and Paradise Fisheries. Three of the top four export products
to the EU enjoy marked preferential margins – spiny lobster tails, organic chemicals containing
pyrimidine ring and expansible polystyrene. Participation in trade agreements such as the EPA
will continue to afford Bahamian exporters these preferential margins.
Finally, the tourism industry is concerned about losing competitiveness against other markets in
the Caribbean and the eventual opening of Habana, Cuba as a tourist destination. Bahamian firms
note that high utility tariffs in general, and electricity rates in particular, are damaging to
industry. Bahamian firms face a myriad of additional constraints to their competitiveness.
Discretionary and restrictive taxation regimes and high import tariffs can negatively impact
hotels, retailers, restaurants dependent on imported goods. More than 60 percent of all
agricultural products face import tariffs between 25 and 50 percent.
The tourism industry and the hotel sector have been willing in the past to buy local goods and
services, but they are constrained by poor availability, quality, reliability and logistics. Bahamian
hotels source 75 percent of their vegetable and dairy needs from outside the country; the share is
75 percent for linens, 80 percent for furniture, fixtures and equipment, and 67 percent for
marketing and public relations services. Protectionist policies to promote local activity such as
mandating local participation within approved foreign investments, and protecting local
industries and workers via high import tariffs and restrictions on foreign business ownership,
have proven to be ineffective. According to the 2010 Enterprise Survey, 80 percent of firms use
materials and/or supplies of foreign origin and customs and trade regulations is the third most
important constraint for all firms independently of their size.
I.3 Infrastructure, Discretionary and Unpredictable Regulation
There is great interest in The Bahamas around the role that state-owned enterprises (SOEs) can
play in promoting economic development, the relationship between SOEs and the State as a
shareholder, and the criteria used in assessing options for investing in or disposing of state-
owned enterprises. It is particularly important to the private sector because SOE are engaged in
the provision of essential infrastructure and utility services vital to the competitiveness of the
economy. SOEs operate in electricity, water, telecommunications, airports, and other public
service sectors. While great progress has been made in upgrading the stock of infrastructure, the
Bahamas continues to have significant infrastructure development needs.
Our panelists shared some opinions about the critical role that many SOEs play in the provision
of infrastructure. The SOE sector is also an important sector in its own right as a large employer.
SOEs are generally judged on their ability to provide high-quality, competitively priced
infrastructure and services to enterprises; and their contribution to supporting economic growth
and opportunities for enterprise and innovation.
pg. 120
Often governmental reform platforms are not carried through in subsequent administrations. The
new government can put things on hold or make changes that create serious losses for the private
sector. State owned enterprises are affected from the top down; if government wants
transformation then it will happen. Reform of and within SOEs has to be government driven.
There needs to be a national development plan, to avoid internal contradictions among
governmental agencies.
There is the perception in the Bahamas that the government manipulates tariffs and SOE
management for political reasons. There are claims that monthly utility bills fluctuate due to
arbitrary calculations and inefficient administration of public utilities; that there are no proper
checks and balances to challenge utilities charges; and that SOE administration has a very short
term mentality. Accusations have been made that the private sector works within a loose
regulatory environment for political expediency, making even private contracts uncertain. Some
state-owned companies could expand their services making them leaner and more efficient, but
there is no incentive to do so. Even large international companies face challenges in acquiring
licenses or to provide services.
In light of these arguments and panelist discussions, the followings themes were reviewed from
an enterprise development perspective: 1) the regulatory framework for SOEs; 2) the rationale
for state ownership of SOEs that provide essential infrastructure and services; 3) the structuring
and management of SOEs to ensure that all enterprises can access world class infrastructure and
services at competitive prices; and 4) the basis for making informed decisions regarding further
investments or the potential disposal of state assets.
In recent decades, The Bahamas has relied on a very strict state enterprise model by which SOEs
have total control of prices and tariffs and the provision of services, according to specific
sectorial regulation (although the regulation is sometimes contradictory and unclear). Even
though governments tend to favor regulation and the use of markets to achieve public policy
objectives through a combination of regulation and subsidies, the regulation framework
mandates that public operators such as BEC play the role of service provider and regulator
simultaneously. There is a conflict of interest that does not allow fair competition and results in
onerous tariffs. Moreover, legislation mandates that a certain amount of power has to come from
BEC even if you have your private generator. Therefore, there is no incentive to provide services
in a cost effective manner because a minimum level of market demand is assured.
In the case of The Bahamas, the sale of state owned assets cannot be guided solely by how much
revenue will be raised. It is important to develop clear criteria to select appropriate assets in
water and electricity. It is essential that infrastructure users’ interests are protected by not selling
natural monopoly assets or assets to dominant competitors. It is also vital to ensure that
investment in advanced infrastructure and regional development is promoted, and that regulatory
capabilities are sufficiently advanced to achieve public policy goals in the absence of state
ownership rights. The Bahamas has slowly started with telecommunications privatization almost
two years ago. Although privatization is not an automatic solution to improving the quality of
goods and services or to improve the performance of state-owned enterprises, evidence suggests
that complementing the transaction with policies that promote competition and effective
regulation of the industries in question makes favorable outcomes much more likely.
pg. 121
According to the private sector, public services are unreliable and expensive. Energy costs are
currently a very serious problem for all firms. A large segment of the private sector sustains that
electricity costs now surpass the operational costs of their core business. The BEC reads meters
and selects a high peak rate and sets it for the entire year based on the one time per year reading.
Hotels are paying more now than they did previously when there were two readings per year.
Sometimes the country development strategy and SOE economic strategy conflict because
discretionary tariffs impacts on tourist satisfaction. Satisfaction levels and the likelihood to
revisit are affected by unexpected energy surcharges and other hotel costs that are added on to
the end of visitor stays. The tourism industry is losing competitiveness when this scenario is
compared to all-inclusive hotels in neighboring countries. For instance, small hotels in the family
islands have low occupancy rates year-round and they cannot afford energy efficient measures.
The Bahamas needs to establish a regulatory mechanism which trumps political influence and
discretionary management for tariffs and services. It needs to encourage private sector
participation in public services in order to improve its business climate. The Bahamas Investment
Authority should remove multi-agency impediments to investment procedures and establish one-
stop-shop processes and encourage more public-private synergy. Ultimately, the government
must develop clear criteria to guide the potential sale of state-owned assets or a strategy to
allowed private sector to participation in the provision of public services. One option might be
public private partnerships, according to our panelists.
I.4 Small and Medium Enterprises (SMEs) and Access to Finance
Access to finance and credit is a permanent issue for investors worldwide although it does not
rank high among the Bahamas obstacles to business, with the exception of mid-size firms.
Bahamian firms that employ between 20 and 100 employees rank credit as their second worst
constraint and, according to these companies, capital constraints do exist for SMEs in the
Bahamas.
There is a need for different types of lending. According to the panelists and group discussions,
banks should provide different types of financing - loans for new businesses and loans for
established businesses. There is a need for lending for growth, lending for high-risk projects,
lending for structural development. At the same time, access to finance and lending should be
comprehensive and supported by authorities. The government should have a plan in place with
incentives for credit to flow to underserved sectors and businesses. The government should also
identify as growth firms that can provide jobs and impact GDP, according to succession
planning. Firms should have access to international lenders and foreign exchange control
processes must be streamlined at the Central Bank to access funds internationally with low
interest rates.
At this time, neither commercial banks nor offshore banks have the incentives to supply credit to
domestic firms. Banks operate to maximize shareholder benefits and they will pursue product
lines they believe will turn a profit. Banks are not lending funds unless clients have significant
collateral in land or real estate property. Financial institutions need urgently to implement a
comprehensive system for risk assessment. However a large number of companies in the country
have no equity they can use as collateral for a bank loan. Most Bahamian entrepreneurs are small
pg. 122
and mid-size firms and banks are not yet interested in looking at the potential benefits of these
companies as a target market. Technological and creative projects are not supported because they
are not traditional.
But according to other panelists, Bahamian firms face a range of challenges including access to
credit, but there is no test to prove that financing is really the major problem for small
enterprises. With only a small percentage of businesses surviving more than 5 years, non-
financial support is the bigger need.
Most Bahaman entrepreneurs do not track the firm’s revenues, costs or gross profit, and there is a
generalized practice of mixing personal and business record keeping. There is a need for
technical assistance to teach business owners how to set-up businesses properly and keep track of
records and accounting. There is no platform for personal, professional and business
development; business plans are limited and many times incoherent.
Many firms complain about access to capital, but they have not taken any measures or positioned
themselves on a profitable business path. Some businesses are not structured well enough for
adequate bookkeeping, and owners are reluctant to hand their records over to accountants due to
a lack of trust. Most owners and manager do not understand the credit structure and many
businesses are unsophisticated. Business owners will send their staff for training but refuse to go
themselves. For some interviewees, money provided for business development without technical
assistance to entrepreneurs is money wasted.
The conversations that ensued during the group discussions and interviews gave rise to some
candid observations. Entrepreneurs should go through financial training and management
programs before starting their business. Business associations have launched programs to train
professionals and managers in different sectors. Entrepreneurs who seek help for business plans
expect them to be written for them and when they are questioned about those details by banks,
they cannot answer or defend the information in their plans. Generally, there is no
investment/entrepreneurship plan or ambition (spirit of progress). People are focused on making
just enough money to survive and cover costs, so they don’t look at their activities as building for
the future. Some people feel that when they borrow from the Government that they are entitled
to the funds and do not need to repay. Some have no intention of repaying with anything other
than with votes.
Commercial banks need to make their requirements more transparent so as not to waste their
time or that of the businessperson. An average client does not know the criteria banks apply
when deciding whether to deny or approve loans. Lack of knowledge of the requirements for
banking and financial institutions explain a large part of fund misappropriations and non-
performing results.
The previous administration created the Bahamas Development Bank BDB to supply credit for
growth and development of Bahamian firms, but it acts like other commercial banks. It charges
high interest rates, requires high collateral and extends credit for political motives. Its overall
economic impact has been very limited. Some panelists were cognizant that providing credit
without following up on repayments is self-destructive.
pg. 123
The rise of consumer lending has made home ownership almost possible, but good financial
practices have been eroded and motivated speculative conducts. No limits or requirements of
debt equity ratios or limits over cash flows appear to be imposed. The previous ceiling that
protected credit applicants from taking on a loan that would reduce their net income by more
than 30% is no longer being enforced in credit decisions. Consumer loans stunt people’s ability
to grow and plan financially for the future. Banks should not consider small business loans
without considering the owner’s financial background or financial literacy. The lack of discipline
and prudent financial management has resulted in 6,000 persons in arrears in their mortgages.
Some business people mortgage their homes to finance their businesses which should be
addressed.
According to some venture capital institutions, firm need funding and support. They need both
finance and non-financial support services. When individuals approach them for financing, they
have a business goal in mind but there may be a gap between their knowledge and business
practices. For instance, most potential entrepreneurs or investors realize that their banking
history plays a role in credit decisions but they have few records or proof of their financial needs.
Funds are moving towards equity based financing so lenders can retain some control.
Some singular statements from the panelists are listed below:
Persons seeking funding often lack both technical skills and administrative skills to
prepare business proposals, maintain accounting records, create invoices or any
managerial skills.
Some people don’t understand their own business plans as they didn’t write them, so they
cannot explain them.
Banks hesitate to fund business ventures in the productive sector because those loans
require more evaluation and work than car loans, for example.
There is a need for dialogue on how small businesses entrepreneurs can tap in to non-
traditional sources of funding.
Bundled support to SMEs should include non-financial services such as account management,
information dissemination, training and consulting. Some respondents suggested that banks
should provide a variety of different non-financial tools and services to SMEs to help business
owners and managers develop practical business skills and better grow their enterprises.
Non-financial technical support services needed include: i) account management support
services: client tailored support from banks’ account managers; ii) information dissemination:
knowledge delivered to SMEs via web sites, publications, business centers, and/or interactions
with account managers; iii) training activities and programs: interactive activities designed to
facilitate the learning and development of new and existing skills and improve performance; iv)
consulting services: direct interactions with knowledgeable sources to gain insights and
expertise.
Capital constraints do exist for Bahamian mid-size firms, but:
Capital assistance and technical support need to go hand in hand when dealing with
SMEs.
pg. 124
There is a need for a more balanced view of finances and other areas that impact the
public and the government.
Individuals have to become their own lobbyists in educating ourselves about credit
requirements and creditworthiness.
Training institutions that should be spearheading these types of knowledge transfer using
social media.
Credit bureaus, bankruptcy and foreclosure laws are essential to support business
development.
I.5 Other Private Sector Development Issues
Along with an open agenda for our panelists, other private sector development issues were
mentioned during the discussions. Although the following issues have not dominated all
conversations, they represent important development issues that are an integral part of the private
sector in Bahamas. Issues such as clustering, information communication technology (ICT),
innovation and the overwhelming bureaucracy for licenses and permits, land titling, dispute
resolution and courts were brought up and discussed.
Clustering
In the business dynamic, Bahamians are reluctant to form alliances and associations or to put
resources together to work for the collective good. There is a general perception that alliances
cost a great deal and there is a distrust of efforts to form a unified front. “We need to establish a
dialogue to determine what can work on together, and competition can grow everyone’s pie.”
Firms have no interest and find no value in associations. Bahamians don’t trust each other’s work
and services. Moreover, there is a belief that things are achieved only if politicians are involved.
One panelist said: “If we feel the need to wait on politicians to help us, then we feel no need to
network.” All of these reasons were provided to explain the limited clustering sophistication in
many market segments.
Information Communication Technology (ICT)
Although remarkable efforts have been made to promote ICT, there is a general perception that
ICT both helps and inhibits the business community. The geography of the country presents
unique challenges for information communication technology. For instance, Cable Bahamas
broadband can only reach four islands at this point, and not in every settlement on those islands
has coverage. Creating websites for private sector firms is a challenge due to inconsistent
coverage and broadband accessibility. Nevertheless, despite the high start up costs, some banks
are now providing platforms for e-commerce for businesses to sell online and have the funds
deposited into their accounts. Small hotels in family islands have started to implement websites
and electronic booking.
Innovation
Although innovation is largely appreciated in the Bahamas as vital for potential wealth and
sustainable returns, most panelists believe their culture is to be reactive, not proactive, which in
turn limits innovation. Innovation goes hand in hand with research and development, and to date
pg. 125
there are few institutions that support those activities although the College of Bahamas is a
potential candidate. The rising level of business sophistication will eventually result in new and
innovative services and products, if knowledge and confidence is raised. Some private
institutions such as the Bahamas Chamber of Commerce and the employers’ confederation are
currently working to inspire persons and entrepreneurs to be more innovative through
competitions and similar events.
Overwhelming public sector red-tape and lack of transparency
Regarding business permits and licenses, there is a generalized lack of information and confusion
about the documents required and which governmental offices need to be consulted. In general
there is no coordination among governmental agencies or a clear set of procedures to follow.
Because the Bahamas is such a centrally regulated economy, there is excessive red tape and
standard services or tasks are ineffective. According to our panelists, the state economic role is
overwhelming, too much. The private sector does not find a proactive, helpful environment when
dealing with public agencies. A generalized lack of customer service is a constraint to fulfilling
business permits and licenses. Evidence suggests that registering property and dealing with
construction permits is very complex due to the fact that there is limited clarity on the scale and
scope of the responsibilities for each governmental institution. All of these inefficiencies have
resulted in the duplication of very costly processes.
Regarding intellectual property rights, The Bahamas is a member of the World Intellectual
Property Organization (WIPO), but registration of these rights suffers from the same limitations.
Intellectual property rights must be registered and enforced in the Bahamas under local laws, and
intellectual property is primarily a private right. Registration of patents and trademarks is on a
first-in-time, first-in-right basis, which encourages inventors to apply for trademark and patent
protection prior to selling products or services in the Bahamian market. However legislation
granting greater protections to IPR and more stringent penalties for IPR violations has been
submitted to Parliament by the authorities to bring the Bahamas in line with WTO privations and
Economic Partnership Agreement (EPA) requirements, signed in 2011with the European Union.
Over last decade, despite efforts to improve and accelerate dispute resolutions, contractual and
commercial disputes between Bahamians and foreign investors are possible and common, which
has a negative impact on the business climate. On the positive side, companies can and are
frequently liquidated according to law. Creditors of bankrupt debtors and liquidated companies
participate in the distribution of assets according to statute. The law relating to sales of goods
and some other commercial property are codified in the Bahamas' statutes.
II. Establishing a long term action plan
Although most panelists enthusiastically supported the idea to create a forum or institutionalize a
public private dialogue, some of them reacted cautiously. All understand that the magnitude of
the needed reforms must be done in a manner that helps to build broad consensus and guarantee
long term stability.
Our panelists acknowledged that there is an urgent need to find more public-private synergies. In
light of official announcements from the government, they have suggested taking the partnership
pg. 126
initiative to two potentials forums. The first might be the Constitutional Review Committee
where public-private partners can build a long-term economic plan. The second forum could be
more direct or executive such as the suggested Council of Economic Advisors, which is the
objective of the current administration. The purpose of this Council will be to advise the
government on major issues, particularly those concerning economic growth and stability. A
review of the country’s tax system will be high on the list of matters to be referred to the
Council.
Overall, the participants in the panel, group and individual discussions congratulated the IADB
team for promoting these round tables. They suggested that other countries in the region join
these types of discussions with the Bahamas to hold discussions among Caribbean nations. After
defining and prioritizing the main issues that affect private sector development and agree upon a
national agenda to address these issues, both public and private sector officials must discuss
viable solutions and a timetable for corrective action. Agreement of critical problems should be
reached, along with the identification of solutions and their implementation. This research
discusses some conclusions and suggests some recommendations in the following chapter.
pg. 127
CHAPTER III: CONCLUSIONS AND RECOMMENDATIONS
The Bahamas is regarded as a high-income country with large flows of foreign direct investment
that needs very little support. However, the different private sector representatives, consultants
and academics who participated in our panels and round tables underlined significant private
sector development issues that need to be urgently resolved for The Bahamas to achieve higher
levels of economic and social development. Some Bahamian institutions and a small but growing
list of international institutions have already started working on needed changes.
During the November 2012 panel discussions and interviews, private sector representatives
identified key barriers including:
i) an inadequately educated labor force,
ii) customs, trade regulations, and procedures,
iii) access to finance,
iv) crime and theft,
v) limited infrastructure and expensive public services,
vi) overwhelming public red tape and lack of transparency,
vii) clustering, lack of trust, entrepreneurship and linkages among business, and
viii) information communication technology, innovation courts and alternative dispute
resolution schemes.
Broad-based public-private dialogue and the urgency of an effective macro and micro agenda for
the Bahamas development are two suggested avenues to begin tackling these issues in the
country.
Suggested policy goals and potential agenda issues are identified in the chart at the end of this
chapter. Although the complete and extensive list of issues discussed by our panelists and
interviewees is important, a few are underlined below as conclusions and recommendations of
this research.
I. Improving Education and Workforce Skills
At the same time that the Bahamian government is pursuing measures to increase employment
and improve workforce skills and training, it is necessary to expand coordination of training
programs and skill needs. In addition to ongoing efforts to support education and training
programs, and improving labor market information, accreditation and certification, teacher
training and stakeholder consultation, the private sector recommends industry being brought in to
suggest curricula and refocus training programs by sectors. Industry and training institutions
need a mechanism to improve information about labor demand and supply and to facilitate the
engagement of new graduates.
As previously noted, the private sector is convinced that reforming education in general from
primary to tertiary education and enhancing vocational training with opportunities for four year
degrees and further graduate programs with private sector support is needed. Suggestions
pg. 128
focused on creating a more flexible labor market with dynamic policies on wages and workforce
participation. Although labor regulation is not viewed as a tremendous problem, some issues
remain sensitive such as timely work permits and migration. With regards to migration, a clear
distinction must be made between immigration and emigration policy. Bahamas is facing a lack
of qualified construction workers for whom its government has issued permits, while also losing
skilled professional talent through emigration.
One recommendation is to revamp immigration regulations pertaining to foreign workers.
Although this is a politically sensitive issue, both public and private sector officials agree that the
already existing shortages of qualified labor will intensify. The paucity of timely labor
information prevents the private sector from knowing how many workers are needed by sector.
For example, industry representatives agree that announced construction investments will
increase workforce demand and additional workers will need to be imported. Information on
projected employment demands by approved investment projects could serve as a basis for
revising existing immigration policy, allowing for more flexible, simpler and less discretionary
restrictions on foreign workers.
Training institutions should be encouraged to create venues such as job fairs to open effective
channels for skilled labor to go where it is needed. The ongoing program should reveal
opportunities for additional programs aimed at improved education and training for labor market
effectiveness.
II. Infrastructure Provision and the Private Investment Enabling
Environment
It has been almost a decade since The Bahamas’ government began important projects and
reforms for infrastructure provision. Current existing infrastructure shortfalls are largely due to
the government monopoly in the supply of infrastructure services and incomplete policies to
enable effective private investment participation.
Streamlining the public sector’s decision process for private investment is one of the top
priorities of the current administration. Moving from a highly centralized, discretionary and case-
by case negotiation process towards a more policy oriented, decentralized process should be
expected and supported. Government’s involvement should center on creating and enforcing
appropriate general regulations within an overall development strategy. Although policies and
reforms for an independent regulatory framework were mentioned, there is no comprehensive
policy regarding price liberalization or private-public discussions.
Nevertheless, advocacy and support for the creation of a PPP unit and improved public utilities
management should continue to establish a permanent mechanism of coordination between
public and private institutions. In the past, projects in transportation, telecommunications, energy
and water and sewage were mentioned, although the major problem in these sectors appears to be
the political decision to keep tariffs below cost.
pg. 129
While the government is currently prepared to undertake significant changes in its decision
making process, initial efforts could focus on gradually creating the conditions for change
through the establishment of an integrated and sustainable private investment strategy for The
Bahamas. Two specific proposals for action regarding improvements in the organization of the
public sector to deal with critical aspects of private sector investment are: i) strengthening the
strategic planning function, and ii) establishing a public-private partnership unit within the
Office of the Prime Minister.
Infrastructure and public services are expensive for the private sector. There is significant
interest in The Bahamas in the role that state-owned enterprises (SOEs) can play in promoting
economic development, the relationship between SOEs and the State as a shareholder, and the
criteria used in assessing options for investing in or disposing of state-owned enterprises. While
progress has been made in upgrading the infrastructure stock, the Bahamas continues to have
significant infrastructure development needs. Our panelists shared some opinions about the
critical role that many SOEs play in the provision of infrastructure.
The followings themes were reviewed from an enterprise development perspective: 1) the
regulatory framework wherein they operate; 2) rationale for State ownership in SOEs of essential
infrastructures and services so as to best achieve their objectives; 3) the structuring and
management of SOEs to ensure that all enterprises can access world class infrastructure and
services at competitive prices; and 4) provide a basis for making informed decisions as to further
investments or the potential disposal of state assets.
Over last decades, The Bahamas has relied on a strict state enterprise model where the SOE has
total control of prices and tariffs and the provision of services, according to sectorial regulation
that is sometimes contradictory and unclear. Although governments have tended to favor
regulation and the use of markets to achieve public policy objectives through a combination of
regulation and subsidies, the regulatory framework mandates that public operators such as BEC
should be the provider and the regulator at the same time. This leads to an inevitable conflict of
interest that prohibits fair competition and results in onerous tariffs. Moreover, legislation
mandates that a certain amount of electrical power must be provided by the BEC even if the
consumer owns a private generator. These kinds of restrictions remove incentives for SOEs to
provide services in a cost effective manner, as market demand becomes inelastic to price
changes.
In the case of The Bahamas, the sale of state owned assets cannot be guided on the sole basis of
how much revenue will be raised. It is important to develop clear criteria to select appropriate
assets in water and electricity. It is essential that infrastructure users’ interests are protected by
not selling natural monopoly assets or assets to dominant competitors. It is also vital to ensure
that investment in advanced infrastructure and regional development is promoted, and that
regulatory capabilities are sufficiently advanced to achieve public policy goals in the absence of
ownership rights.
The Bahamas needs to establish a regulatory mechanism which trumps political influence and
discretionary management for tariffs and services. It needs to encourage private sector
participation in public services in order to improve its business climate. The Bahamas Investment
Authority should remove multi-agency impediments to investment procedures and establish one-
pg. 130
stop-shop processes and encourage more public-private synergy. Ultimately, the government
must develop clear criteria to guide the potential sale of state-owned assets or a strategy to
allowed private sector to participation in the provision of public services. One option might be
public private partnerships, according to our panelists.
III. Financial Support for SMEs and Entrepreneurial Development
As previously mentioned, some private firms have said they face barriers in accessing credit but
data show there is considerable short-term liquidity in financial institutions and public
institutions exist that are dedicated to providing support to the productive sector. In the 2010
Enterprise Survey, medium size companies were the most likely to have identified access to
finance as their main obstacle and a key factor to be addressed in order to improve their ability to
do business. Private sector representatives point out that access to credit must be provided along
with non-financial support services to be effective.
The Bahamas lacks an integrated approach to support lending to the private sector. Credit
products should be comprehensive and cover all stages of financial business needs. The
provision of non-financial services should include business development activities such as
strategic planning, how to develop a sound business plan, credit negotiation and building a strong
credit history. As in many other countries, the private sector expects development agencies and
banks in the Bahamas to add technical assistance to their services to boost the business prospects
of their SME clients. Some respondents cite the lack of business skills and of familiarity with
credit practices and legal and regulatory requirements to be among the major obstacles to SME
development.
There is a need for different types of lending. According to the panelists and group discussions,
banks should provide different types of financing - loans for new businesses and loans for
established businesses. There is a need for lending for growth, lending for high risk projects,
lending for structural development. At the same time, access to finance and lending should be
comprehensive and supported by authorities. The government should have a plan in place with
incentives for credit to flow to underserved sectors and businesses. The government should also
identify as growth firms that can provide jobs and impact GDP, according to succession
planning. Firms should have access to international lenders and foreign exchange control
processes must be streamlined at the Central Bank to access funds internationally with low
interest rates.
Currently neither commercial banks nor offshore banks have the incentives to supply credit to
domestic firms. Banks operate to maximize shareholder benefits and they will pursue product
lines they believe will turn a profit. Banks are not lending funds unless clients have significant
collateral in land or real estate property. However a large number of companies in the country
have no equity they can use as collateral for a bank loan. Most Bahamian entrepreneurs are small
and mid-size firms and banks are not yet interested in looking at the potential benefits of these
companies as a target market. Technological and creative projects are not supported because they
are not traditional. With only a small percentage of businesses surviving more than 5 years, non-
financial support is the bigger need.
pg. 131
Most Bahaman entrepreneurs do not track the firm’s revenues, costs or gross profit, and there is a
generalized practice of mixing personal and business record-keeping. There is a need for
technical assistance to teach business owners how to set-up businesses properly and keep track of
records and accounting. No platform exists that provides a holistic package of support for
personal, professional and business development; business plans are limited and many times
incoherent.
Overall capital constraints do exist for a large number of private sector entrepreneurs and
specially SMEs for mid-size Bahamian firms, but:
i) Credit and technical support need to go hand in hand when dealing with SMEs.
ii) Individuals have to become their own advocates in educating themselves about credit
requirements and creditworthiness.
iii) Training institutions should be spearheading awareness campaigns through social
media and other modern channels of communication; and
iv) Revised policy is essential for credit bureaus, bankruptcy and foreclosure laws.
IV. Other Issues
In addition to the key constraints to private sector development previously mentioned,
opportunities exist in a few specific areas that have the potential to significantly improve the
investment climate. Issues such as commercial arbitration, environment and land use and titling
are part of the private sector agenda. The private sector faces very slow and expensive judiciary
processes that could be streamlined by a new arbitration and conciliation system, or the creation
of an arbitration center. Although the following issues have not dominated all conversations,
they represent important development issues which are integral part of the private sector in
Bahamas. Issues such as clustering, information communication technology (ICT), innovation
and an overwhelming bureaucracy (red tape) for licenses and permits, land titling, dispute
resolution and courts fall into this category.
Clustering
There is a tendency for Bahamian businesses to refuse to form alliances and associations or pool
resources to work for the collective good. There is a general perception that alliances are costly.
A dialogue should be established to determine where firms can work together and where
competition can increase benefits for all parties. There is the perception that Bahamians are
skeptical of each other’s work and services. Moreover, there is a belief that things can only be
accomplished if politicians are involved. One panelist said: “If we feel the need to wait on
politicians to help us, then we feel no need to network.” Effective promotion of business
clustering remains a pending task.
Information Communication Technology
Although remarkable efforts have been taken to promote ICT, there is a general perception that
ICT both helps and inhibits business development. The country’s geography presents unique
challenges for information communication technology and connectivity. For instance, Cable
Bahamas broadband can only reach four islands at this point, and not in every settlement on
pg. 132
these islands is covered. Widespread use of websites for private sector firms is a challenge due to
inconsistent coverage and uneven broadband accessibility. Nevertheless, banks are now
providing platform for e-commerce for businesses to sell online and have the proceeds of their
sales deposited to their accounts. Small hotels on family islands have started to use websites and
electronic booking.
Innovation
Although innovation is largely appreciated in Bahamas as vital for potential wealth generation,
panelists believe their culture is more reactive than proactive, which in turn it limits innovation.
Innovation goes hand in hand with research and development, and to date there are few
institutions working in this field. The College of Bahamas is one of these institutions.
The rising level of business sophistication will eventually result in new and innovative services
and products, but achieving this goal requires knowledge and entrepreneurial confidence. Some
private institutions such as the Bahamas Chamber of Commerce and the Employers’
Confederation are working to inspire persons and businesses to be more innovative through
competitions and other venues.
Excessive bureaucracy (public red-tape) and a lack of transparency in the requirements for
obtaining business permits and licenses is a problem.
Environment and Land Use
An important requirement for the development of the private sector is an appropriate framework
for environmental regulation. Efforts are needed to develop adequate information systems and
the generation, compilation and processing of environmental information. This will provide an
appropriate baseline to guide policy as well as the integration of these capabilities with the
government’s decision-making processes and development strategy. Topics such as innovation
and science and technology can be incorporated to the agenda of the BEST commission of the
Ministry of Education and Environment. Academic institutions are involved in promoting
science and technology but financial resources limited results and programmatic continuity.
Land use policy and administration issues seriously impact agriculture and coastal management.
Sectors such as fisheries would greatly benefit from efforts to streamline land grants, sales and
concessions. Although land registration systems aimed at replacing the current registry with a
standard title system and at modernizing the registration process have been seen as policies
relevant primarily for foreign investors, they are also important in domestic marine development,
the agriculture sector and fishing exports.
To summarize, the following policy matrix introduces a long list of suggested issues for
discussion to promote private sector development.
pg. 133
Policy Matrix
BAHAMAS PSAR: SUGGESTED GOALS, COMMENTS AND RECOMMENDATIONS
IDENTIFIED OBSTACLES OR
CONSTRAINTSSUGGESTED AND PROPOSED GOAL POTENTIAL AGENDA ACTIONS
1) Improve labor statistics and information.
2) Identify labor demand and skills by sector, facilitating labor
mobility.
3) Adjust curricula and training at all levels of education, starting with
the IDB inspiration program.
4) Establish new and expand existing sectorial labor training programs.
5) Support job fair and related activities at terciary institutions with
private sector companies and associations.
6) Discuss immigration and emigration policy with the private sector,
especially work permits.
7) Support initiatives that involve the private sector. The recently
created National Training Council is one example.
Create a public private office to advise on
trade negotiations, trade advantages and
opportunities.
1)Inform stakeholders on WTO accession procedures and evaluate
potential impacts.
2)Simplify custom administrative procedures and duty payments.
Strengthening of private sector
institutions across all regions and family
islands.
3) Establish a transparent and easy access mechanism for custom
concessions and duties.
4) Evaluate the impact of contraband and illegal trade.
Expand private public coordination for labor
training programs. Education and training
institutiones should connect with industry
to identify skills needed in the workforce.
Establish an institutional program or
mechanism to support dialogue and
exchange information about the supply
and demand for labor.
Inadequately educated labor force
Customs, trade regulation and procedures
Eliminate cumbersome and unclear
procedures for foreign trade, exports and
imports
pg. 134
BAHAMAS PSAR: SUGGESTED GOALS, COMMENTS AND RECOMMENDATIONS
IDENTIFIED OBSTACLES OR
CONSTRAINTSSUGGESTED AND PROPOSED GOAL POTENTIAL AGENDA ACTIONS
1) Support the creation of business plans and strategic planning for
potential borrowers.
Write details and specific guidelines and
toolkits for financial and non-financial
services.
2) Develop toolkits for creating, operating and managing firms.
3) Create a credit culture for repayment and strong creditworthiness.
Establish a credit bureau.
Facilitate further development of off-
shore financial services by improving
transparency and monitoring.
4) Provide finance and credit at different stages of firm development
(comprehensive lending).
5) Encourage financial institutions to provide transparent information
about the credit award process and requirements.
6) Need to restructure the Bahamas Development Bank (BDB) and
evaluate impact of EVF and Loan Guarantee Programs.
1) Convoke private and public institutions to coordinate action
regarding security in downtown Nassau and Freeport.
2) Provide new and visible security around resorts and hotels.
3) Improve order by better traffic signaling around congested areas.
Access to finance
Establish a mechanism to support private
sector finance. Credit evaluation must be
comprehensive, including past credit risk
and reporting creditworthiness.
Upgrade all security corps and
mechanism for tourism security.Crime and theft
Improve civil security mechanisms in public
and access areas. The Bahamas is mainly a
tourist destination.
pg. 135
BAHAMAS PSAR: SUGGESTED GOALS, COMMENTS AND RECOMMENDATIONS
IDENTIFIED OBSTACLES OR
CONSTRAINTSSUGGESTED AND PROPOSED GOAL POTENTIAL AGENDA ACTIONS
New regulatory framework avoiding
political influence and conflict of interest
1) Separate the roles between normative bodies and enforcement
entities. Also remove utility operators from normative functions.
2) Establish clear and transparent mechanisms for tariffs and rates,
avoiding discretionary charges or corruption.
Promote better and more effective
regulation of public utilities and private
participation in the provision of public
services.
3) Establish a series of mecanisms for private sector participation in
infrastructure and public services, including dialogue and PPP
investments.
4) Promote public-private partnerships for services and infrastructure
projects.
1) Streamline licenses and permits.
2) Open information about public procurement and foreign worker
licenses.
3) Streamline public utilities inspections.
4) Encourage the identification of corrupt acts (whistle-blower).
5) Introduce the concept of administrative accountability for civil
servants.
6) Introduce mechanisms for consumer and client protection.
Limited infrastructure and expensive
public services, energy and electricity
costs.
Create a regulatory institution or system
with a mandate for all public utilities and
services.
Overwhelming public red tape
(bureaucracy) and lack of transparency.
Develop a national plan for public
transparency under complementary
concepts such as one stop shop and
processes with fewer steps.
Develop a mechanism for both civil
servant and private party awareness.
Both sides must be informed of the
process required.
pg. 136
BAHAMAS PSAR: SUGGESTED GOALS, COMMENTS AND RECOMMENDATIONS
IDENTIFIED OBSTACLES OR
CONSTRAINTSSUGGESTED AND PROPOSED GOAL POTENTIAL AGENDA ACTIONS
Create an Open Forum with private
sector associations, universities and
other interested stakeholders.
1) identify public and private institutions involve in private sector
development.
2) Promote the establishment of a system or mechanism for
networking or sharing information to "grow the pie".
Improve economic management capacity
and corporate governance for all firm
sizes.
3) Request better public agency coordination and one stop shops for
registering, customs and support.
4) Identify business opportunities in large projects and investments,
looking for synergies and linkages.
Support and enhance private sector
capacity for research and development,
ITC and innovation.
5) Large and small firms must participate periodically information
about business and potential threats.
6) Create a development center for small and medium enterprises
(SMEs).
7) Establish an academic or university center for ICT and science and
technology, following the Bahamas Environment, Science and
Technology (BEST) comission proposals.
Land titling - agricultureImprove land tenure and titling
administration.1) Open access to crown land for agriculture development.
Tax reform
Need for comprehensive public finance
management. Taxation is not
progressive, too narrow, difficult to
manage and provides insufficient
revenues.
2) Tax revenues can be increased under the current regime with more
effective administration and expansion of the base. No need to
change regime due to FDI disincentive.
Courts and legal administrationDispute resolution costs are enormous
and the process is very slow.
3) Establish non judicial mechanism for resolutions of commercial
disputes.
Protection of intellectual property rights
needed for investment.
4) Trade related intellectual property (TRIPs) treaty in WTO
negociations and IPR issues.
Innovation and ICTSet an academic mechanism for Science
and Technology development
5) Advance progress on the road map for technology and science with
BEST commission.
Source: Author elaboration based on round table and panel discussions held during November 2012, arranged courtesy of the IDB representation in Nassau, New Providence.
Ineffective clustering and lack of trust
leads to underdeveloped
entrepreneurship and few linkages
among business.
Create a holistic institutional framework to
coordinate private sector development
support.
Other themes
pg. 137
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Annex A: LIST OF PARTICIPANTS
1) Mr. Paul Winder, BFSB Chairman - ATC Trustees (Bahamas) Ltd.
2) Mrs. Tiffany Norris-Pilcher, BFSB Treasurer – Ernst & Young
3) Mr. Brian Jones, BFSB Secretary – UBS Bahamas Limited
4) Mr. Gary Young, Sr. Director Research & Statistics, Ministry of Tourism
5) Ms. Cheryl Simms, Vice President of Finance, College of the Bahamas
6) Mr. Franon Wilson, Bahamas Real Estate Association
7) Ms. Kathleen Riviere-Smith, CEO, Utilities Regulation Competition Authority
8) Mr. Michael Cunningham, Chairman, Bahamas Entrepreneurial Venture Fund
9) Mr. Sean Brennen, Fund Administrator, Bahamas Entrepreneurial Venture Fund
10) Mrs. Joy Jibrilu, Director, Bahamas Investment Authority
11) Ms. Samantha Rolle, Project Manager, Bahamas Investment Authority
12) Mr. Winston Rolle, Chairman, Bahamas Chamber of Commerce
13) Mrs. Juliette Reid, Regional Director, Nova Southeastern University - Bahamas
14) Mr. Glen Laville, General Manager, WSC
15) Mrs. Karon Williams-Barrot, KPMG
16) Mr. Reece Chipman, Bahamas Institute of Chartered Accountants
17) Mr. Harcourt Brown, Ministry of Labour
18) Mr. Tyrone Gibson, Ministry of Labour
19) Mrs. Adrilla Horton, Director of Atlantis University, Atlantis
20) Mr. Don Gray, Shakedd & Co.
21) Mr. Kareem Hanchell, SDC Bahamas
22) Mr. Don Demeritte, EPS Consultants
23) Ms. Janica Deveaux, Ventemiamon Accounting
24) Ms. Tonya Adderley, Contact Excellence Consultants
25) Mr. Andrew Edwards, Principal Consultants Group Ltd.
26) Mr. Mark Turnquest, Outreach Sales and Marketing
27) Mr. Jamico Brice, Kan Consultants
28) Mr. Frank Comito, Vice President, Bahamas Hotel Association
29) Mr. Alexander Sokoloff, Economic and Commercial Officer, US Embassy
30) Mr. Charles Pratt, Manager, Grand Bahama Port Authority
31) Ms. Mercynth Ferguson, Executive Director, Grand Bahama Chamber of Commerce
32) Mr. Alwyn Jordan, Senior Economist, Central Bank of the Bahamas
33) Ms. Kimberley Rolle, Department of Statistics
34) Ms. Bettina Turner, Department of Statistics
pg. 142
Annex B: COMPARABLE COUNTRIES
The selection of country comparators was made to deliberately focus on Caribbean neighbors.
The comparator countries selected for the Commonwealth of the Bahamas are: Antigua and
Barbuda, Barbados, Jamaica, and Trinidad and Tobago. The rationale for the selection of these
countries is:
i) Antigua and Barbuda’s economic and political institutional framework is similar to
the Bahamas, despite their geographical distance.
ii) Barbados and the Bahamas share several characteristics such as their economic
structure, income level and institutional structure. However they apparently serve
different export markets. Barbados has stronger trade linkages with Europe than does
the Bahamas.
iii) Jamaica is a larger country with a large domestic market than for the Bahamas and, at
the same time, it shares institutional and historical characteristics.
iv) Trinidad and Tobago and the Bahamas share a similar level of income and key
institutional characteristics. However, Trinidad and Tobago is a net exporter of
hydrocarbons and industry although Bahamas industry represents approximately 15
percent of its GDP at this time. Trinidad and Tobago is also substantially less
dependent on the tourism sector.