The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The five-year investment incentive limits previously placed on Bahamian manufacturers “took away a lifeline” when they needed it most, a government minister telling Tribune Business the move failed to increase the Public Treasury’s revenues.

Speaking after the Christie administration abolished the restrictions placed on Industries Encouragement Act incentives, Khaalis Rolle said these “had a catastrophic effect” on the manufacturing sector by dramatically increasing costs at the recession’ peak.

Describing the former Ingraham administration’s policy as “counter-intuitive” given the prevailing economic climate, Mr Rolle added that the Government was working to create an all-encompassing “package” to ease the cost of doing business in the Bahamas.

Telling this newspaper that manufacturers had actually come to Parliament to “say how pleased and happy they were” when the latest amendments were tabled, Mr Rolle said: “The Bill, when last introduced, had a catastrophic effect on their businesses.

“I just find that during difficult periods, it’s counter-intuitive that you’d take a lifeline away - the ability to gain access to raw materials and equipment at concessionary rates.”

In a bid to prevent Bahamian manufacturers existing on what could be perceived as a ‘never-ending welfare system’, funded by the taxpayer, the Ingraham administration amended the Act during the 2010-2011 Budget process to prevent them from receiving tax/duty free concessions for more than five years.

This was intended to ‘graduate’ manufacturers from a government assistance programme to ‘standing on their own feet’, with a 10 per cent tariff rate then applied to these companies’ previously duty-free raw material and equipment imports.

The sector, though, argued at the time that the policy would only increase costs and make them less competitive against foreign rivals who enjoyed much cheaper input factor costs. Essentially, Bahamian producers warned that business volumes and employment levels would decrease.

The Christie government has now granted their pleas, the amendments that passed in the House of Assembly last week abolishing the five-year incentives term limit and 10 per cent import duty rate. As a result, the Industries Encouragement Act regime has been returned to its pre-2010/2011 Budget state.

“It increased costs, but also the cost of capital employed in your business,” Mr Rolle, a former Chamber of Commerce president, said of the former administration’s reforms.

“The corresponding impact on government revenues, I don’t actually see that it took place.”

As for the latest amendments, Mr Rolle said they could only positively impact Bahamian manufacturers, but he conceded that they were only one part of the puzzle when it came to reducing business costs.

“I think it will have a positive. This is still a very difficult time for business owners, particularly in the manufacturing sector, and it’s one step to reducing the burden,” the minister told Tribune Business.

“A number of other issues have to be addressed, including the cost of energy, and we’re working hard to develop a package solution where the cost of doing business is reduced.”

Ryan Pinder, minister of financial services, in the debate on the Industries Encouragement Act in the House of Assembly, cited several cases where manufacturers had been forced to cut jobs or halt expansion plans when the duty-free incentives were lost.

Mr Pinder referred to Deran Thompson, of Bahamas Woodworking Studio, who told him that the incentives lost prevented the expansion of his business and new job opportunities.

“Mr Thompson described how his industrial company, Bahamas Woodworking Studio, upon passage and application of the amendments we debate today, will be able to reinvest the tax concessions back into his business, acquire new machinery, employee additional Bahamians in his business,” Mr Pinder said.

“The more we can encourage Bahamian industry to grow, the more our economy will be diversified, the more employment opportunities will exist for Bahamians.”

Mr Pinder added: “This is not only the story of small Bahamian manufacturers, but also the larger more established and historical manufacturers in the Bahamas.

“One manufacturer described to me his plan to not only manufacture for domestic consumption, but also his expansion plan to manufacture for regional export - plans which were put on hold because of the removal of concessions by the FNM in 2010.

“He told me how because of these amendments today, he can reinvest the resulting available resources into the manufacturing plant, ensuring capacity for the expansion plans to be a regional exporter. This will not only create additional employment opportunities for Bahamians but serve to expand our economy. Just imagine what 10, 100 or 1,000 export manufacturers can do for our economy.”

Ramming home the point, Mr Pinder said another manufacturer - who he also did not name - had placed plant modernisation on hold, “costing the company efficiencies and growth opportunities”

The reinstatement of the incentives “will allow this large and established manufacturer to reinvest in its facilities, increase production, operate with better efficiencies, and ultimately create an operating model that is more profitable, with an ability to grow and, as a result, create additional employment opportunities for Bahamians”.