A tepid recovery
Despite not being anywhere near robust, the rate at which the economy of The Bahamas has grown over the past two years isn’t bad, per se, it simply isn’t good enough.
The Department of Statistics recently revealed that the country’s gross domestic product grew by 1.6 percent in 2018.
It’s a figure that falls short of the 2.5 percent the International Monetary Fund (IMF) initially projected, and the 2.2 percent the government projected last November.
Upon learning this, most Bahamians shrugged a collective, “So what?”
Following the release of the underperforming GDP figures, Deputy Prime Minister and Minister of Finance Peter Turnquest released a glowing statement about how positive a development this was after years of essentially flat economic growth.
And, of course, how we all had the current administration to thank for the good news of the “turnaround” and how “our policy mix is effectively placing us on a path of sustained growth”.
It was clear political spin, divorced from the reality of our situation.
The economy of The Bahamas is indeed growing.
However, it is not nearly growing fast enough.
And it is those who drive consumption and growth – the poor and the working middle class small- to medium-sized business owner – who are being impacted the worst.
What Turnquest may never admit, but the correlation between the rate of inflation and the rise in last year’s value-added tax (VAT) rate anecdotally shows, is that the government of The Bahamas has likely caused economic growth to slow due to the dampening effects of the tax hike from 7.5 percent to 12 percent.
Maybe it makes Turnquest sleep better at night to say things are looking up and then take a victory lap that neither he nor this administration has earned.
And perhaps whoever gave him the bad advice to raise regressive consumption taxes when the economy was still in a fragile state feels comfortable looking at one number in isolation as confirmation of their foresight.
But for the majority of Bahamians who are feeling stretched to the limit and worried their quality of life is rapidly diminishing, this latest “good news” of economic growth means very little in real terms.
Investment fund management firm CFAL summed up the key issues at play in our economy in its Quarter 1, 2019 Local Economic Update.
“While the government may be basking in the modest improvements in economic growth, a bigger dilemma is the inability of this growth to translate into a lower unemployment rate and declining debt levels,” CFAL said.
“If the economy is expanding in areas that do not hire Bahamians or affect Bahamians directly, it is unlikely that the unemployment rate will decrease significantly below the structural norms and long-term sustainable growth will continue to be out of reach.”
The fact is that the economy is not meeting the demands of our growing population.
The fact is that it makes no difference how much your economy grows if unemployment is not falling and people cannot comfortably pay their mortgages and spend and save comfortably.
Has the economy added jobs since the Free National Movement (FNM) came to power?
But the FNM had little to do with this success.
The FNM’s May 2017 victory came on the heels of the opening of Baha Mar in April of that year.
This, as has been well documented, had almost nothing to do with them.
The Christie administration, in a massive gamble, successfully navigated the sale of Baha Mar to Hong Kong powerhouse Chow Tai Fook.
It was one of the few things that administration did that actually worked out.
But like petulant children, Prime Minister Dr. Hubert Minnis and Tourism Minister Dionisio D’Aguilar derided the hotel at every turn when it first opened.
Absent any alternative ideas to actually provide beneficial employment, however, they quickly changed their tune and started singing Baha Mar’s praises.
The resort has hired 5,000 people in two years, fulfilling all its promises to the Bahamian people and more.
It has been one of the chief contributors to the economy’s expansion.
Baha Mar’s success has been incredible.
But even in light of that, what we see happening in real terms should raise red flags for economic watchdogs.
If a $3 billion development that hired 5,000 people could not drive the unemployment rate into single digits, it should help many understand just how troubled our economy is.
Squeezing a dry lime
The Bahamas has an antiquated tax and public service model.
The government of The Bahamas never collected a dollar it could not manage to waste on frivolity.
On top of this, The Bahamian economy is subject to shocks and the fortunes of the United States.
Hurricanes, for example, close ports, drying up tourist dollars that fuel the economy; as well as imports whose taxes the government recklessly has built its funding model on.
Storms also cost tens of millions of dollars to remedy, with the compound costs often totaling hundreds of millions of dollars.
The government is unlikely to be able to control the weather for the foreseeable future.
Yet, the feasibility of the government changing the current tax model seems just as out of reach if you listen to successive administrations.
Most average people didn’t care about taxes until the introduction of VAT in January 2015.
Before that, they would lament a little when they brought in goods at the border from shopping trips, etc.
But most Bahamians didn’t feel the customs and excise taxes, or at least didn’t think too much about them, because they were already built into the cost of items when you went to the register.
VAT changed the game for Bahamians.
Firstly, they blanched at being asked to pay more taxes without specifically seeing where the other tax dollars went.
Then, as they saw the cost of goods go up and they had to pay taxes on services for the first time, rage set in.
Despite the rage, as far as the government was concerned, the VAT implementation was a roaring success.
Far more was collected than was projected.
But people on the ground didn’t feel the success.
Unemployment remained above double digits.
GDP growth was anemic.
It is unclear why Turnquest and those in the Ministry of Finance felt that the economy had room to collect even more VAT from a population that was just adjusting to a 7.5 percent increase.
Instead of increasing VAT to “pay off” bills the Progressive Liberal Party “ran up”, the last budget exercise was a unique opportunity to talk broader tax and economic reform.
It was an opportunity that was missed.
The government has not collected the VAT it projected it would, though VAT collection has indeed gone up with the rate increase.
The government has so far not collected the customs revenue it projected it would.
The government has so far not collected the real property tax it projected it would.
The government has not collected the gaming tax it projected it would.
The government has also not collected as much in business license fees as it projected it would.
That may change when Turnquest presents the 2019/2020 budget communication before the end of this month, but it likely won’t.
Turnquest himself has admitted that revenue collection would likely come in around $200 million under the projection for fiscal year 2018/2019.
Turnquest may have to come to realize what many economists said when the VAT increase was announced – the money just isn’t there.
Turnquest is looking for money from the poor and middle class working families.
They don’t have it.
The increase in costs of electricity and everyday goods has led people to spend more for less.
It has led the poor and middle class to make harder choices as basic amenities and services have increased due to inflation.
The government of The Bahamas has picked all the limes off the tree of the poor and the working middle class and squeezed them dry.
Meanwhile, the tree of the merchant class flourishes, fat off the capital gains and dividends and corporate profits no administration sees fit to touch.
The rich play a pivotal role in the economy, but they are able to transfer increases in electricity costs and tax hikes to consumers.
Yes, a bad business environment is hurting their prospects as well.
But they will ultimately hurt proportionally less than those who fall below them on the socio-economic ladder.
Greater wealth distribution
This government’s policies have taken their toll on the sector that drives much of the job creation in the country.
While it should have been unleashing the power of the small business and medium-sized business, it added pressure.
As mentioned, there was 1.6 percent real GDP growth in the Bahamian economy in 2018.
By comparison, the U.S. economy grew by 2.9 percent in 2018.
The U.S. economic boom has led to record tourist numbers in The Bahamas.
But that hasn’t translated to commensurate job growth in The Bahamas.
The number of employed people has grown to a record number.
However, the number of people entering the labor force has steadily kept up.
There are over 25,000 unemployed people in the country, according to the November 2018 labor force survey.
However, the government appears to have no plan to tackle this.
The Small Business Development Center (SBDC), a worthwhile creation of this administration, did a deep dive last year into the metrics of the micro, small and medium-sized enterprises (MSME) sector of the Bahamian economy.
The data reveals that MSMEs “represent 98 percent of all registered companies and account for 20 percent of all turnover in the country, meaning 80 percent of the turnover in the country is produced by two percent of companies”, The Guardian’s Chester Robards reported last September.
An MSME was defined as having under $5 million in turnover annually and fewer than 50 employees.
“The data provided by the SBDC also reveals that MSMEs account for 47 percent of total employees, while large companies account for 53 percent. She contended that the disparity between the number of employees in MSMEs and their annual turnover as compared to large businesses, means there appears to be a ‘strain’ somewhere in the sector,” Robards reported.
While the SDBC is a great idea, it isn’t widespread enough to do enough rapidly enough.
SBDC Executive Director Davinia Blair said the goal of the SBDC is “greater wealth distribution among Bahamians”.
This should be the goal of the entire Minnis administration every day of the year.
Wealth in The Bahamas is far too concentrated.
Without sounding too much like a godless socialist, it needs to be more evenly held.
The poor are left with nothing; the middle class, the bare minimum.
Middle class families in The Bahamas should be in a position through their jobs to have robust savings and dynamic options to invest them.
Middle class families can drive economic growth and pick up much of the slack that keeps the unemployment rate steadily high.
If middle class families could invest their savings into opening businesses in an environment where businesses were actually easy to open, and not maddeningly complicated in a tangled bureaucracy, they could hire staff to sustain these businesses.
This could represent hundreds of new businesses and thousands of new hires in a dynamic environment.
That environment could be fostered by the government-controlled power provider lowering energy costs dramatically so that it would not be prohibitively expensive to operate them.
That environment could pick up steam by targeting the rich to pay a more proportionate share of tax revenue and dramatically lowering border taxes and consumption taxes.
Lowering tariffs and making goods more affordable would increase traffic in MSMEs.
Healthy businesses like these could employ many who leave high school and help them to fend for themselves and not eat into their parents’ earnings as they likely approach retirement.
If you take pressure off the poor, despite the gift that keeps on giving of duty-free corned beef, they, too, can save and move into the middle class.
By owning businesses, increasing savings, paying off homes and positioning themselves to transfer wealth to the next generation, many in the middle class will thrive and economic expansion will ensue.
The government should seek to create an environment where ingenuity can find a foothold in an economy that naturally wants to grow.
Growth projections and data mean nothing to voters who see no tangible improvement in their lives.
If this government cannot measurably improve the lives of the majority of the people of The Bahamas in terms of how able they are to take care of themselves and their families, then it is of no meaningful use to anyone and we would all be better off with a different one.