Island Insights | WTO pt. 2: What does it mean for The Bahamas?
In this segment, a continued look will be taken at The Bahamas’ renewed efforts to ascend to the World Trade Organization (WTO) and the impact it would have on agriculture, light manufacturing and entrepreneurship in the Family Islands and New Providence.
Essentially, WTO is expected to help local producers, exporters and importers exist in a conducive business environment. It is still up to the government to meet certain legislative, social, structural, educational and environmental objectives to achieve greater collaboration between the private and public sectors. Therefore, to a certain extent, the success of WTO hinges on government policies in certain sectors to ensure proper negotiations and regulations are in place before ascending.
A closer look will be taken on how these segments within the economy could be impacted by WTO and what government should or is already doing to facilitate to ensure the best possible outcomes for Bahamians.
Entrepreneurship can be two-fold: small and medium-sized enterprises (SMEs) which target a niche in the local market and then there are innovation driven enterprises (IDE) that aim to target local, global and regional markets. Both can be difficult to achieve in The Bahamas, given the high costs of doing businesses, high labor costs, high costs of utilities, and in some instances, high barriers to entry. However, the accession to WTO should help to encourage innovation and trade across borders, allowing for the startup of more local businesses.
Also, WTO could help to improve barriers that affect the efficiency in the cost of doing business through trade facilitation. Another plus is that IDEs would have an opportunity to grow in The Bahamas and be more actively participating in global trade without discrimination while experiencing fair competition.
On a macro-scale, WTO could eventually (medium to long term) help to boost sustainable job creation and wages and expand innovation throughout all islands of The Bahamas. However, a concern is that potential foreign companies that have larger economies of scale along with easier access to finance, can make it difficult for local businesses to survive in the same space of doing business. Therefore, government should seek to resolve these issues and processes underpinning these matters before WTO comes on board
It was reported that the light manufacturing industry employs an estimated 3,800 Bahamians as of last year. With the accession to WTO, the Bahamas Light Industries Development Council (BLIDC) expressed concerns due to the resulting effect of lower tariffs. If tariffs are lower, Bahamian consumers would be more inclined to bring in goods from outside of The Bahamas instead of purchasing local goods. Members of the BLIDC, along with other smaller business owners in this sector, rely on protective tariffs to remain competitive. Also, as a result of lower barriers to trade, concerns have been expressed about the increase of foreign competition coming into The Bahamas and surviving in industries/sectors that are difficult for Bahamians to either enter or sustain.
However, an economic assessment report by Oxford Economics stated that there would be “no significant” regulatory issues regarding WTO accession in this sector but the main threat is tariff reduction on imports of competing domestic goods. This is a fair assessment considering that The Bahamas has a high standard of living, high cost of utilities, and high costs of doing business. Therefore, lower tariffs mean that consumers believe that they would get a better value for their dollar. This is not always the case but it does have a resounding impact on the choices that Bahamians make when choosing to shop locally or abroad. But business owners (new or existing) in the light manufacturing sector can use this opportunity of revised tariffs to find ways to improve business processes and expand.
The Bahamas already has a somewhat modern infrastructure in terms of ports (cargo vessels and freighters), digitalized switching system, telecommunications, and six major international airports. This means there is always room for growth especially with lower tariffs, resulting in lower overall costs for materials and other startup capital costs. However, there are some costs that manufacturers cannot escape when it comes to facilitating trade, particularly for those businesses that export local products. Those costs include transportation costs (highest barrier to trade), logistics costs, and then information & transaction costs.
Manufacturing businesses on Family Islands would be more exposed to this impact and put more at a disadvantage if negotiations on protective tariffs are not done properly. Therefore, it is important for the government to properly review tariff amendments for WTO so that it is beneficial for both Bahamians consumers and business owners in this sector.
Similarly to the light manufacturing industry, lowering tariffs could have an adverse impact on the agricultural industry in The Bahamas as a result of WTO. In the past decade, this sector has not experienced significant growth mainly because it has not been able to supply fresh produce on a viable commercial scale. However, governments have touted that Bahamas Agriculture and Marine Science Institute (BAMSI) would be a game changer the agriculture sector despite comments from an Inter-American Development Bank (IDB) report suggesting that government reduce fiscal ties within the sector.
Agriculture development and research is key to boost commercial activity in this sector, but it is still in its early stages of transitioning from subsistence farming. A concern regarding WTO would be that lower tariffs could mean that businesses and consumers would continue to import large amounts of fruits and vegetables despite efforts to encourage Bahamians to buy locally. The availability of goods from BAMSI is also another concern for businesses that sell fruits and vegetables on a large scale. However, there are economic benefits to buying local produce such as supporting local businesses, they are more easily accessible, you have access to fresher produce, there is better quality control, it creates/maintains jobs, and is generally more affordable. Once WTO comes on board, the government should consider making it mandatory at a small percentage for businesses to purchase locally. However, this would require sustainable production of crops to sustain demand.
In closing, the selected three sectors are pivotal to economic growth in The Bahamas. Whether the contribution is big or small, it is important that Bahamians get the best deal possible from WTO. There is no attempt being made to say that WTO would not be beneficial to these sectors; however, government should provide more awareness on how it will impact businesses already in these sectors and potential entrants. It is applaudable that nearly 4,000 new Bahamian businesses were registered as of last year and it does speak to economic growth. But the key to success is consistency. With that being said, more research is needed on government’s plans to secure that Bahamians in majority would benefit from these industries with or without WTO.
• Roderick A. Simms II is an advocate for sustainable Family Islands growth and development. Email: him at RASII@ME.com.