The Bahamas: playing to win

Sherelle Jacobs

The Bahamas, a collection of bejewelled islands off the American Atlantic coast, is one of the richest nations in the Americas in terms of per capita GDP, but its fortunes took a body blow during the global economic crisis. Now it is battling to resume its growth curve

The Commonwealth of the Bahamas, in the Atlantic Ocean, is made up of more than 700 islands, islets and cays. Close to Cuba and Florida, the collection of islands was the haunt of pirates and slave-traders in the 17th century and later became a British plantation colony. Today it has the well-deserved reputation as a ‘paradise playground’ for tourists wishing to enjoy its miles of beaches, its laid-back lifestyle and the fabulous sport fishing possibilities it provides. It has also developed into a major off-shore financial centre.

Economically, it punches well above its weight. Before the global financial crisis, The Bahamas enjoyed the highest per capita income in the Americas and is still among the wealthiest countries in the region. Its 2012 GDP registered US$10.6 billion, with per capita GDP at $30,400 for a population of just 350,000.

The country was ranked 77th out of 185 countries in the 2012 World Bank Ease of Doing Business index. The Bahamas, which is in the process of becoming a member of the World Trade Organization, is also part of the Cotonou Agreement with the European Union and also has an Economic Partnership Agreement (EPA) with the European Community, along with 14 other Caribbean countries.

Tourism and financial services are the key planks of The Bahamian economy. Up to five million tourists visit each year, accounting for around 60 per cent of GDP and employment for half the labour force. Financial services accounted for 36 per cent of GDP in 2011. Other areas of the economy – tiny in comparison but with much potential – include alternative energy and the technical industry. The Bahamas’ modest exports include rum, crawfish, pharmaceuticals and cement.

The country has undergone rapid urbanisation in recent years, as the population moved from small fishing villages to the cities in search of work in the two main industries.

But this reliance on both the financial sector and tourism, especially from North America, meant The Bahamas was badly hit by the global financial crisis. Prior to the credit crunch, the tourism industry was robust and the country was enjoying a construction boom. But by 2009, real GDP growth had dipped to -5.5 per cent. Fortunately, the economy is now in recovery mode – GDP growth has been positive since 2010.

In 2012, its real GDP growth rate had recovered to 2.5 per cent, with the IMF predicting that the economy will grow by 2.7 per cent in 2013. Yet the Bahamas still has a sizeable debt problem. Its public debt in 2012 was almost 50 per cent of GPD. Its public deficit in 2011 was -4.7 per cent. The government is attempting to tackle this issue through a debt reform strategy.

Foreign direct investment (FDI) is also proving a challenge. In 2012, FDI inflows fell by half to $595 million. Unemployment is currently around ten per cent, mainly affecting the young. This has led to a steady trickle of migration to seek better prospects in the United States and Europe.

As part of the recovery, The Bahamian government is trying to boost its core tourist industry. It recently pledged $10 million to market Bahar Mar, a tourist resort development at Cable Beach on the popular New Providence Island, due to open in December 2014. It is also supporting diversification into targeted markets – including medical, sports and religious tourism.

There are already signs that these could take off. American World Clinics, a health care venture, held discussions in April on the possible establishment of a US$ 200 million project to launch the country’s largest medical tourism site, expected to employ around 200 locals after its construction.

Sports tourism is also gaining momentum. It is projected to bring in US$13 million and fill 20,000 hotel rooms in the fiscal year running from 2012-13. The islands hosted a number of lucrative and high profile sporting events this year, including the FIFA Beach Soccer World Cup qualifier in May and the English Premier League soccer exhibition in the same month.

Religious tourism is still embryonic, but The Bahamas has much potential as a go-to destination for Christian spiritual vacations, particularly from the United States. The Bahamas has a smattering of camps which host religious conferences and holidays, but the sector needs developing.

The financial sector is dominated by offshore activities. At the end of 2011, offshore bank assets were 75 times bigger than the country’s GDP. Overall, the sector has recovered well from the global financial turmoil. According to the IMF, The Bahamas does not have to contend with any near term, obvious threats to its financial stability. Onshore banking is liquid, well-capitalised and profitable, the organisation says.

Stress tests indicate that onshore banking can cope with “severe shocks to solvency and liquidity”, according to the IMF’s Financial Sector Stability Assessment for The Bahamas, published in April.

There are robust firewalls that shield the onshore from the offshore sector. Although oversight is better than it was a decade ago, “further strengthening is needed to ensure the financial system remains robust well into the future, particularly in insurance and securities where relatively new legislation is in place, and in pensions, where governing legislation is pending”, according to the IMF assessment.

The Bahamas’ proximity to the US and its inspirational setting could also give it a head-start when nurturing a technical industry. The government supports the growth of this area, partly by setting an example – it is currently implementing an e-government strategy. It is also keen to boost support to small and medium enterprises, which form half of all business activity in The Bahamas.

But they often do not have sufficient access to finance and, in particular, lack technical support. A new policy framework is currently in the pipeline to stimulate the creation and growth of SMEs – due to be tabled in parliament in the autumn.

About the author:

Sherelle Jacobs is a freelance journalist and contributor to African BusinessAfrican Banker and the UK's Financial Times


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