Paradise lost for Bahamians, pt. 3
• This three-part series is from a National Progressive Institute public lecture delivered by Alfred Sears at the University of The Bahamas on March 5, 2019.
The Stafford Sands model is now in crisis.
Nobel Laureate Sir Arthur Lewis, the leader of the theory of economic growth by foreign direct investment, argued that foreign direct investment should be used by Caribbean countries to jump start national capital, through savings and investments by nationals, to ensure more sustainable national development. Foreign direct investment is a welcome component of national development, but it must be complementary (i.e., to obtain exemptions, it should be mandatory that investment in certain areas requires a Bahamian partner).
The current investment architecture, based on outdated assumptions which are inconsistent with a sovereign country and its needs, increases the competitive advantages of foreign investors, who are the exclusive beneficiaries of incentives, concessions and state subsidies.
Most foreign investors will have the benefit of unfettered access to global venture capital and the support of their respective export-import banks. Bahamian investors, on the other hand, do not enjoy those advantages and are prohibited by law from accessing the cheapest venture capital from outside The Bahamas. There is no export-import bank in The Bahamas to incentivize Bahamian enterprises to become regional and international players.
It is easier for foreign investors to do business in The Bahamas than Bahamian investors.
In 46 years of independence, The Bahamas continues to operate according to the assumptions of the Stafford Sands model with a deepening systemic dis-functionality and diminishing competitive position in tourism and financial services. In 2018, the macro picture of the Bahamian economy reflects a broken model:
1. Gross national product, $12.9 billion
2. National debt, $8.2 billion
3. Pension liability, $2.5 billion
4. Projected national deficit 2018-2019, $230 million
5. Projected growth rate 2018-2019, two percent
6. Projected public revenue (16.1 percent of GDP), $2.5 billion
a. Debt servicing
b. Public salaries, pension and gratuities, 60 percent
c. Subventions to state-owned enterprises, $429 million
7. In spite of the opening of Baha Mar resort, unemployment currently stands at 10.7 percent, with youth unemployment at 25 percent. According to the IMF, The Bahamas will have to achieve a growth rate of 5.5 percent over the next five years to achieve a 50 percent reduction in unemployment. However, the projected growth rate for The Bahamas in 2018-2019 is a mere 2.1 percent.
Call for new investment, trade and industrial architecture
Bipartisan consensus is needed around a coherent fiscal, monetary, investment, trade and industrial policy that rationalizes the use of incentives, concessions, crown land, natural resources and state subsidies to give primacy to Bahamian investors and Bahamian/foreign joint ventures in order to create sustainable development throughout the archipelago of the Commonwealth of The Bahamas, with preferences reserved for investment in the most underdeveloped Islands.
Currently the Cabinet, through the National Economic Council operated from the Office of the Prime Minister, facilitates only investment proposals submitted by foreign investors, where incentives are granted way above statutory provisions.
Investment legislation, incorporating existing concession legislation, should be enacted to treat all investors, Bahamian and foreign, in an even, transparent and fair manner. Further, the legislation should set a threshold amount to qualify for concessions, the amount of concessions to be granted by the authority, and above a threshold parliamentary approval; timeline for approval. There should also be a requirement for an EIA and the conduct of public consultation with respect to any proposed development project that would have a significant impact on the environment and the way of life of a Bahamian community. Such legislation would bring certainty and increase public confidence in public administration.
Repeal section 54 of the Conveyancing and Law of Property Act. Remove the unfettered prerogative discretion of the minister for land, usually the prime minister. Enact a national resources legislation to provide for the rational, transparent and accountable use and disposition of all-natural resources, including the two million acres of Crown land to be operated by a public authority, under Cabinet policy supervision and accountable to Parliament.
There should a careful review of both the Quieting of Titles Act and the International Persons Landholding Act, in the context of securing and preserving the land of The Bahamas for access, ownership and use of future generations of Bahamians.
Progressive tax regime
A progressive form of taxation of Bahamians, residents and foreign persons doing business in The Bahamas, inclusive of personal income and corporate tax, is the only basis that there can be a more sustainable stream of public revenue to cover the capital and social needs of The Bahamas.
A system of income tax would more equitably distribute the tax burden rather than the current consumption VAT, custom duties and business licence regimes. Further, the government, through exemptions and write-offs, could incentivize taxpayers to make philanthropic contributions to non-profit entities in The Bahamas; thereby, contributing to the development of the third sector and social enterprises.
Comprehensive environment protection
Enact comprehensive environmental legislation to require public consultation and an EIA of any major project likely to have far-reaching economic, social and environmental consequences before the settlement of a heads of agreement. Exceptionally, agreements-in-principle may be considered for less developed areas.
Social enterprise model
Family island communities can initiate community self-help programs, through non-profits companies or cooperatives, to mobilize resources to create social enterprises to generate employment and address tertiary education, cultural attractions, health and security needs of the community.
This social enterprise model can bring Bahamian residents and second-home owners together in a partnership to generate sustainable economic, social and cultural development in Family Island communities. The One Eleuthera Foundation and its partners, such as the Centre for Technology and Innovation, the One Eleuthera Cooperative Credit Union, the South Eleuthera Emergency Program, the Cancer Society and the Rotary Club, have created a successful social enterprise model in Eleuthera, employing 47 persons, providing cancer screening, emergency fire and medical services, scholarships, training and investing in the economy of Eleuthera.
This template should be encouraged, as a community self-help vehicle, for other Family Islands and New Providence.
Joint public/private sector marketing agency/Ministry of Tourism
Establish a statutory joint public/private tourism marketing agency to market the Bahamian destination, in its diversity, in a coherent manner in accordance with the national development strategy, accountable to Parliament and subject to review by the auditor general.
The current $50 million resort levy, which goes to the promotion boards, should be transferred from the promotion boards, to this agency, along with the bulk of marketing budget of the Ministry of Tourism.
The Ministry of Tourism, in coordination with the Ministry of Youth, Sports & Culture, should then focus on product development and facilitation, which incorporates training and research, facilitate the sourcing of capital and grants for Bahamian investors, technology proficiency, customer service and industry regulation. The Ministry of Tourism should offer a one-stop shop for Bahamian investors who want to invest in the tourism, cultural and entertainment sectors.
Reform local government structures, extended to New Providence, by giving citizens the right to engage in self-governance and a role in economic promotion of districts. Raise revenue and foster economic, cultural, heritage, social and sustainable development in island communities.
Call Bahamians to action: take risks
Bahamians should exercise their sovereign right, in partnership with foreign residents who have homes/stakes in The Bahamas, by stepping forward to recreate sustainable industries in The Bahamas through innovation, imagination and stewardship of the magnificent asset called The Bahamas, which has been entrusted to us.
In the words of Bob Marley, “Emancipate yourself from mental slavery none but ourselves can free our minds.” This land is our land, this paradise, our paradise. Let’s create an investment architecture that gives fair access to all Bahamians to pursue their creative imagination and entrepreneurial dreams, without boundary.
Thank you and God bless the Commonwealth of The Bahamas.
• Alfred Sears is a Queen’s Counsel and former member of Cabinet.