The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is targeting the ‘Blue economy’ and agribusiness for economic diversification in an environment where just 22 per cent of Bahamian companies “innovate”.

The Minnis administration’s plans to broaden the Bahamas’ economic base, which also feature ‘IT and the digital economy’ as a third diversification pillar, are revealed in an Inter-American Development Bank (IDB) report that says there is “insufficient innovation activity” in the private sector.’

The Government is seeking the IDB’s assistance to identify opportunities in these three sectors, then develop a ‘road map’ to capitalise on them, despite the “challenges with competitiveness and innovation” identified in the bank’s report.

The document, obtained by Tribune Business, revealed that Bahamian productivity was 17 per cent lower than the Caribbean average based on a competitiveness survey the IDB conducted in 2017.

While some 56 per cent of Bahamian companies were described as “potentially innovative”, the IDB highlighted the higher energy costs and crime levels, poor infrastructure availability and “financial limitations” - together with the regulatory and approvals inefficiencies - that face the private sector as this nation prepares for full World Trade Organisation (WTO) membership by 2019.

“Only 19.73 per cent of firms are large (over 100 employees), and only 6.7 per cent of large firms, 16 per cent of medium-sized firms and 12.7 per cent of small firms export,” the IDB said of the Bahamian private sector’s structure. “Private sector firms also experience low productivity (17 per cent lower than the Caribbean average); low complexity (existing industries are not closely connected and face challenges in upgrading goods or moving to other industries); and insufficient innovative activity (only 22 per cent of firms innovate, and innovation is more prevalent in the manufacturing sector, while 56 per cent of Bahamian firms are potentially innovative).

“Firms in the Bahamas face high energy costs, low infrastructure availability, high crime and financial limitations, as well as a business and innovation climate that requires modernisation.”

Having summarised the challenging climate Bahamian businesses face, the IDB pointed out that the Bahamas’ traditional job and growth drivers - tourism and financial services - were both being squeezed by intense pressures.

While tourism accounts for 45 per cent of GDP and almost half the Bahamian labour force, the report said competition from rival destinations was starting to shrink its market share. And consistent international regulatory pressures, as shown by this week’s European Union (EU) ‘blacklisting’, were keeping the financial services industry off-balance.

“The Bahamas has been losing market share in the Caribbean, and the high operating costs combined with the absence of quality services affect the sector’s competitiveness,” the IDB said of Bahamian tourism. “Since 2012, economic growth has been stagnant, attributed partially to natural disasters and interruption in the completion of Baha Mar.

“The Bahamas is also characterised by a strong geographical concentration of economic activities, which results in very unequal income distribution. Production and services are concentrated in New Providence and the larger islands, while the numerous Family Islands have lagging entrepreneurship and are far from achieving a satisfactory level of agricultural production and exploiting the opportunities offered by the tourism and services industries, while having very fragile ecosystems.”

As a result, the IDB said the Minnis administration was eyeing economic diversification as a way to generate more sustained economic growth for the Bahamas. It was “focusing on the development of complex, sustainable and innovative industries, linked to global value chains with high expected global demand, to support potentially emerging sectors that also respond to the islands’ environmental challenges”.

Outlining the sectors targeted, the IDB said ‘Blue Economy’ initiatives could involve bioWave and bioStream energy produced by the ocean; algae-based textile products and integrated fish farming systems.

“Every year the Bahamas loses 1.99 per cent of its GDP due to climate change shocks, particularly from extreme weather events that cause floods and sea surges,” the report said. “Its high dependency on imports, such as oil and food, impact not only the competitiveness of traditional sectors but also its security as a nation.

“The Bahamas’ sea zone (estimated to be 242,970 square miles) represents a greater significant amount of development space in comparison to the country’s limited land area, yet the potential of oceans as a sustainable and viable avenue for creating more value and long-term economic growth has not been fully explored.

“The harmonisation of ocean-based economic activities with the long-term capacity of ocean ecosystems to support such activities, whilst remaining resilient and healthy, could be the core of a Blue or sustainable ocean economy for the Bahamas.”

As for ‘boutique agribusiness products’, the IDB paper suggested the Bahamas focus on citrus, avocados and mangoes as foods that “present higher productivity and competitiveness”.

“Although agriculture and fisheries contribute only 1.9 per cent to the GDP of the Bahamas, and account for 3 per cent of employment, they are an important source of potential diversification of the economy,” it added.

“Approximately 17 per cent of the total population live in rural areas, and in some rural areas agriculture and fisheries are still the main employment opportunities. Most food (92 per cent) is imported, however, whereas some specific fisheries and vegetables subsectors are export-oriented.

“The role of agriculture and fisheries in trade is more important than in production. Agri-food products represent 15 per cent of total merchandise export earnings. Fish and crustaceans account for over 90 per cent of agri-food exports and are exported to the EU, US and Canada. The volumes and values of fish exports, however, have decreased in recent years.”

The IDB report said agricultural production had “increased significantly” since the turn of the century, even if crops and livestock remain a small part of the overall Bahamian economy.

“The agricultural sector in the Bahamas still faces several challenges, such as high trading costs across borders, high transport costs between islands, lack of human capital and land property rights, management of agrochemicals, lack of information, and exposure to climate change, among others,” the bank said. “These challenges are more adverse in the Family Islands, where the larger potential for the blue economy lies.”

Turning to IT and the ‘digital economy’, the IDB said: “The technological indicators in the Bahamas are low, including subscription to broadband and cellular, publication of scientific papers, the granting of patents and expenditure in technology.....

“Digital technology offers the opportunity to small Bahamian businesses worldwide to use digital platforms to connect with suppliers and customers in other countries and access new markets, overcoming some of the natural constraints.

“Bahamian firms that incorporate digital technologies into their business strategy will be able to drive digital transformation and create new and innovative business models that lead to growth.”