Focus | The economic growth we need
The Central Bank of The Bahamas believes that our economy will experience almost zero growth this year and return to an “above trend” growth next year; largely due to the impact of Hurricane Dorian. Odds are that the bank is right about this; growth this year may be negative to near zero.
Dorian’s disruption to our economy was massive. The bank’s statement that the economy will return to “above trend” growth, however, warrants some notice.
What has been trend for our economy’s growth? Trend has to do with the general direction a thing is going in or changing. Well, let’s look at the general direction of our growth over the last five years. In 2015 the economy grew by 1 percent; in 2016 by -1.7 percent; in 2017 by 1.4 percent; in 2018 by 1.6 percent; and perhaps 1.8 percent. This gives an average rate over the period of some 0.82 percent, less than 1 percent. An above trend rate then would be above this average of 1 percent, or taking the numbers individually, 2 percent or so.
Given the serious blow to our economy caused by Dorian, positive growth would be welcomed; however, there is a minimum level of growth that we need. The growth we need is definitely “above trend” but it must be better than marginally above trend, and that level must itself then become a trend. The Bahamas needs growth above 2.5 percent, quite frankly, nearer to 3 percent, sustained over a period of five years. This growth must be driven by direct investment – domestic and foreign – generating thousands of permanent jobs, producing a better than 2 percent increase in wages annually, and encouraging expansion of small and medium size business development. It must also be widespread; and not, therefore, concentrated merely in New Providence.
The Central Bank, or some economist, can forecast growth of our economy. In doing so, however, they are merely looking at historic data and planned future developments to divine some probable outcome. On that basis, the Bank says we are looking at flat growth today and better than flat growth next year. The predicted growth will not do. The level of joblessness, financial strain, limited prosperity and pessimistic outlook prevailing in our population will not find relief in “above trend” growth if it is not near to 3 percent.
The question is: From where do we get the growth we need? Frankly, to get such growth we need at least three things. First, we need government policies that favor economic expansion. These policies include extensive direct investment promotion; further liberalization of the Bahamian economy; greater transparency and streamlining of our business processes; more liberal and strategic immigration policies; and more aggressive home ownership programs.
Second, we need private businesses to look aggressively toward greater international partnerships in trade and investment; to modernize their operations through digital technology; to improve their supply chain logistics for better and more cost effective sourcing; to improve massively their customer service procedures; upgrade their investment and training in staff; and share more of their gains with their employees through wage increase, bonuses, social programs and benefits and ownership options.
Third, we need our population to greatly increase its productivity; commit to excellence in its skillfulness; increase learning on a sustained basis; and better manager their personal finances for greater savings and investment.
Over the next few weeks, this column will examine each of these three areas in much greater detail, making a case for why and how we should pursue them. We do not merely want much higher economic growth; we need that growth. If we merely get “above trend” growth that is at or below 2 percent, we had better pray that we get it for the next twenty years, for that it is the only way that it will translate into the level of prosperity able to cut unemployment, increase wages and improve the living conditions of our people; and even then, we have to pray that we get no Dorians, no further tax increases and that inflation remains tamed.
• Zhivargo Laing is a Bahamian economic consultant and former Cabinet minister who represented the Marco City constituency in the House of Assembly.
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