The Bahamas - Economy
The Bahamian economy is driven by tourism and financial services. The major challenges to investment in the country include the relatively high cost and uncertain reliability of electricity, high unemployment combined with a limited pool of skilled labor, cumbersome and sometimes opaque administrative requirements, and an escalating crime rate.
The Bahamian labor force is generally considered to be well-educated by international standards, although foreign nationals may be sought after for specialized skills. Wage rates, while lower than in the United States, are higher than elsewhere in the region. Well-qualified accountants and secretaries, and others with skills appropriate to the financial services industry, command a premium wage while wages for low-skilled labor, mostly found in hotels and restaurants, hover around the minimum rate. The minimum wage for private sector employees is USD 5.25 per hour ($210 per week).
Tourism and tourism-related construction and manufacturing provide an estimated 60% of the gross domestic product (GDP). 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 dependence on U.S. tourism and trade, is deeply affected by US economic performance.
The Bahamas experienced an economic downturn as a result of the worldwide economic recession. Tourism numbers dropped significantly during the last quarter of 2008, and approximately 112,000 Bahamians were receiving unemployment benefits as of November 2009. The Bahamas is focusing on construction and other infrastructure projects in an effort to boost the economy and create employment. Future goals include continued development of tourism properties through large-scale private sector investment, including increased Bahamian ownership, redevelopment of the Grand Bahama economy following major hurricane losses in 2004, and the expansion of the robust Bahamian financial sector.
In addition to the decrease in tourism, other economic challenges facing The Bahamas included meeting continued employment demands, jumpstarting a lagging privatization process, and monitoring increasing levels of government debt. Currently, Bahamians do not pay income or sales taxes. Most government revenue is derived from high tariffs and import fees. Reduction of trade barriers will probably require some form of taxation to replace revenues. Government as well as private sector leaders have voiced the need for a value added tax (VAT). The Bahamas is taking steps toward its goal of joining the World Trade Organization. In December 2008 the Bahamian Government signed an Economic Partnership Agreement (EPA) with the European Union (EU).
A number of planned hotel projects have promised to increase economic growth and create short- and long-term employment. The Atlantis Resort and Casino on Paradise Island remains a major tourist draw and an engine of the economy; this resort is currently planning their ‘4th phase’ of upgrades. In March 2009 the ExIm Bank of China formally agreed to $2.6 billion in financing for the major Baha Mar resort project. Parliament also approved the contentious request for 8,150 mostly Chinese laborers to work on the project.
The Bahamian Government also has adopted a proactive approach to courting foreign investors and has conducted major investment missions to Asia, Europe, Latin America, India, and Canada. The government continues to pay particular attention to China to encourage tourism and investment. The Bahamas has now opened an embassy in Beijing; the Chinese are funding the construction of a new $30 million sports stadium in New Providence and are providing more than $100 million in road construction projects. While the FNM government has expressed a desire to increase Bahamian ownership interests in developments, The Bahamas dependence on foreign investment is unlikely to change.
Financial services constitute the second-most important sector of the Bahamian economy, accounting for up to 15% of GDP, due to the countrys status as a tax haven and offshore banking center. The Stop Tax Haven Abuse bill, which has been proposed in the U.S. Congress and which names The Bahamas as one of 34 secrecy jurisdictions, has generated considerable discussion in local media and amongst politicians. Many Bahamians feel the inclusion of The Bahamas in such a bill would result in significant job losses in the financial services sector. As of 2005, the government had licensed 262 banks and trust companies in The Bahamas.
The Bahamas is a “major offshore financial center.” The offshore sector consists mostly of branches or subsidiaries of global financial institutions. The IMF notes that, while oversight of the financial system has improved, the Bahamas is still recognized as a significant tax haven. For example, the Bahamas does not disclose in a public registry information about trusts and foundations, maintain official records of company beneficial ownership, require that company accounts be placed on public record, or require resident paying agents to tell the domestic tax authorities about payments to non-residents.
The Bahamas promulgated the International Business Companies (IBC) Act in January 1990 to enhance the countrys status as a leading financial center. The act served to simplify and reduce the cost of incorporating offshore companies in The Bahamas. Within 9 years, more than 84,000 IBC-type companies had been established. In February 1991, the government also legalized the establishment of Asset Protection Trusts in The Bahamas. In 2000, in response to multilateral organizations concerns, the government passed a legislative package of stronger measures to better regulate the financial sector and prevent money laundering in the countrys banking sector, including creation of a Financial Intelligence Unit and enforcement of "know-your-customer" rules.
Some of these measures have been challenged in Bahamian courts, and the number of offshore banks registered in The Bahamas has declined substantially since 2002. As many as half of the IBCs have also closed shop. 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. These agreements helped The Bahamas avoid placement on the OECD “gray” list of countries that are not compliant with OECD tax information exchange regulations.
Agriculture and fisheries together account for about 1% of GDP. The Bahamas exports lobster and some fish but does not raise these items commercially. There is no large-scale agriculture, and most agricultural products are consumed domestically. Following an outbreak of citrus canker on Abaco in 2005, The Bahamas lost a main agricultural export, and the Ministry of Agriculture banned the export of plant materials from Abaco. The Bahamas imports more than $250 million in foodstuffs per year, representing about 80% of its food consumption.
The Bahamian Government maintains the value of the Bahamian dollar on a par with the U.S. dollar. The Bahamas is a beneficiary of the U.S.-Caribbean Basin Trade Partnership Act (CBTPA), Canadas CARIBCAN program, and the EU’s Economic Partnership Agreement. Although The Bahamas participates in the political aspects of the Caribbean Community (CARICOM), it has not entered into joint economic initiatives, like the CSME, with other Caribbean states.
The Bahamas has a few notable industrial firms: the pharmaceutical firm PFC Bahamas (formerly Syntex); the BORCO oil facility, doing business as Vopak Terminal Bahamas; Sands Beer; and the Grand Bahama Brewery, all in Freeport; and the Commonwealth Brewery in Nassau, which produces Heineken, Guinness, and Kalik beers. Other industries include sun-dried sea salt in Great Inagua, a wet dock facility in Freeport for repair of cruise ships, and mining of aragonite--a type of limestone with several industrial uses--from the sea floor at Ocean Cay.
The Hawksbill Creek Agreement established a duty-free zone in Freeport, The Bahamas second-largest city, with a nearby industrial park to encourage foreign industrial investment. The Hong Kong-based firm Hutchison Whampoa operates the container port in Freeport. The Bahamian Parliament approved legislation in 1993 that extended most Freeport tax and duty exemptions through 2054.
The Bahamas offers attractive features to the potential investor: a stable democratic environment, relief from personal and corporate income taxes, timely repatriation of corporate profits, proximity to the United States with extensive air and telecommunications links, and a good pool of skilled professional workers. The Government of The Bahamas welcomes foreign investment in tourism and banking and has declared an interest in alternative energy, agricultural, and industrial investments to generate local employment, particularly in white-collar or skilled jobs. Despite its interest in foreign investment to diversify the economy, the Bahamian Government responds to local concerns about foreign competition and tends to protect Bahamian business and labor interests. As a result of domestic resistance to foreign investment and high labor costs, growth can stagnate in sectors which the government wishes to diversify.
The country's infrastructure is best developed in the principal cities of Nassau and Freeport, where there are relatively good paved roads and international airports. Electricity is generally reliable, although many businesses have their own backup generators. In Nassau, there are two daily newspapers, several weeklies, and international newspapers available for sale. There also are six radio stations. Both Nassau and Freeport have a television station. Cable TV and satellite also are available locally and provide most American programs with some Canadian and European channels.
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