Consider This | Threats to economic development, pt. 1
“One of the greatest threats to our economic development is the archaic educational system to which we subject many thousands of Bahamians.”
When I was invited to address the Rotary Club of New Providence, I was asked to specifically speak on the club’s theme for the month of October: “Economic and Community Development”.
Judging by the questions and answers that followed the address last week, and the post-meeting discussions, my contribution was well-received. Consequently, this author thought it would be appropriate to share the highlights of that address with the readers of this column. Therefore, this week we would like to consider this — what are the threats to economic development in The Bahamas?
Economic development is the process by which the economic well-being and quality of life of a nation, region or local community are improved. The term was used frequently in the 20th and 21st Centuries, but the concept has existed in the West for centuries. “Modernization”, “Westernization” and especially “industrialization” are other terms often used while discussing economic development.
Whereas economic development relates to policy intervention endeavors that aim to improve the well-being of people, economic growth is a phenomenon of market productivity and rise in gross domestic product (GDP). Consequently, economic growth is only one aspect of the process of economic development.
While economists normally view development primarily in terms of economic growth, sociologists have adopted and have emphasized broader, qualitative processes of change and modernization.
Consequently, it is important to distinguish economic development from economic growth on the basis that economic development relates to a sustainable increase in the overall standard of living for individuals, as compared to economic growth which focuses on key performance indicators such as per capita income and rate of inflation which do not necessarily correlate with improvements in the quality of life.
Economic development is a wider concept and has qualitative dimensions. Economic development implies economic growth plus progressive changes in certain important variables, such as health and education, which determine the well-being of the people.
In its broadest sense, national policies of economic development encompass two major areas.
The first is the government’s undertaking to meet broad economic objectives that foster economic growth such as price stability, high employment and sustainable GDP growth. Such efforts include monetary and fiscal policies, regulation of financial institutions, trade and tax policies.
The second set of national policies related to economic development focus on programs that provide infrastructure and services such as highways, parks, affordable housing, crime prevention and K–12 education.
Threats to our economic development
What, then, are some of the threats to economic development in The Bahamas? There are several, some of which are patently clear:
Poor savings rate
First, at the macro level, Bahamians have never enjoyed an impressive rate of personal savings, at least not in recent times. This is a cultural phenomenon, one that was vividly highlighted by Sir Franklyn Wilson in a presentation he gave to the congregation of St. Barnabas Parish on September 27, 2015. During that presentation he observed: “So, on average, we each have become comfortable with spending more than we earned. Year after year.”
He also noted the pernicious effects that the voluntary payroll deductions have had on thousands of civil servants. This is the practice whereby individuals authorize deductions from their monthly government salaries in order to guarantee and repay certain loans. Sir Franklyn admonishes us: “Consider this — I am advised that when the government prepares payroll, 72 percent goes to finance houses and not directly to the employee.
“Think hard about that. The typical government employee is actually seeing only 28 percent of his or her income. From that they must pay for groceries, cooking gas, utilities, costs related to vehicle and education for children. In many instances even rent. Worse still, to get to an average of 72 percent, it means that there are some borrowers where far more than 72 percent of the salary is assigned.”
Sir Franklyn also made the point that there were so many lifestyle changes in the latter years of the 20th Century in The Bahamas, such as the advent of cable TV and cellular phones to mention a few, that changed our consumption habits.
He noted: “Whatever the reason for each change in lifestyle, none appeared to be about cutting back, about thrift or putting away something for a rainy day. Every change created a need for more money.” And less savings.
The absence of personal savings drastically diminishes our individual capacity to invest for the long-term economic development of the country. Hence, the poor saving rate remains a very real and persistent threat to economic development in The Bahamas.
Access to capital
The second significant threat to economic development is access to capital, a lack of which annihilates many viable business ideas and handicaps many feasible investment proposals.
Many good business ideas die on the vine of inadequate funding.
Our banks are the primary source of capital for funding start-ups and business expansions.
The difficulty, in many cases, is that, due to the poor level of saving discussed above, some entrepreneurs do not have the capacity to fund the down payment that banks require and do not have sufficient collateral to finance their venture.
Why is that the case? The sad reality is that there is very limited access to capital for the development of viable business ideas. This, in turn, diminishes the prospects for economic development.
Spirit of independence
In some cases, where Bahamians have the capacity to fund their projects, they tend to go it alone, in a spirit of independence.
On the other hand, in those cases where a person does not have an ability to access funding for business development, either from personal savings or from financial institutions, individuals consider the prospects of seeking investment funding from family and friends.
This endeavor often results in an interesting dilemma. In more cases than not, these attempts at fundraising do not normally result in obtaining the required funds, either because prospective investors lack confidence in the proposed venture or they simply do not have the needed funding themselves.
Also, in many cases, Bahamians of color do not enjoy the cultural interdependency or confidence that is demonstrated by their Chinese and Greek counterparts.
We frequently hear stories of persons in the Greek and Chinese communities assisting their fellow citizens. This is not as frequent or apparent among black Bahamians. This reality is exacerbated by our propensity to go it alone, without the assistance of our countrymen.
Our inability to trust and rely on each other and to translate such confidence into the acquisition of the funding that we need to start or to grow our businesses is a further threat to economic development in The Bahamas.
Access to reliable, empirical data
A fourth threat to economic development is the dearth of reliable, empirical data that can be accessed to inform business decisions, both at the embryonic and various growth stages of development.
While some information has become more available from the Central Bank and the Department of Statistics, too often professionals and entrepreneurs who seek data upon which to inform their business decisions invariably encounter information roadblocks.
This is a significant threat to economic development that must be overcome if prospective Bahamian investors are to be better informed about the industries or sectors in which they intend to invest.
There are at least five other threats to economic development in The Bahamas that we will discuss in the second and final part of this series.
To foster healthy, vibrant economic development in our society, we must first recognize these threats.
We must then craft solutions to thwart the danger posed by these threats to our national well-being so that we can put in place the strong, dynamic strategies for economic development that we need and that our children deserve for a consistent improvement in our quality of life and our ongoing well-being.
• Philip C. Galanis is the managing partner of HLB Galanis and Co., Chartered Accountants, Forensic & Litigation Support Services. He served 15 years in Parliament. Please send your comments to firstname.lastname@example.org.