The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must use “a holistic approach, not a knee jerk reaction” to provide long-term sustainable support for its manufacturers, a senior Chamber official telling Tribune Business the former government’s five-year incentives limit policy should have been more nuanced.

Arguing that the Bahamas required a manufacturing/industrial policy that stood the test of time, Winston Rolle, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chief executive, said duty/tax breaks were not a complete answer to the sector’s issues.

Speaking after the House of Assembly passed amendments to the Industries Encouragement Act, which remove the five-year term limit the Ingraham administration placed upon the ability of ‘approved Bahamian manufacturers’ to access incentives that allowed them to import raw materials and equipment duty-free, Mr Rolle said the Bahamas’ relatively high energy costs remained the sector’s “Achilles heel”.

“We tend to make decisions based on political whim as opposed to putting in place processes and policies that can withstand all economic times, not just this economic time and that economic time,” the BCCEC chief executive added.

“We need to ensure we’re providing manufacturers with all the support they need to sustain themselves with or without all these changes in policy.

“My concern is that we put in policies that are sustainable and support manufacturers long-term, as opposed to knee jerk reactions,” Mr Rolle said.

He told Tribune Business that himself and the BCCEC had been working with Bahamian manufacturers on this very issue. The Manufacturers Association had not properly functioned since 2003, he added, and efforts were being made now to revive it.

“I know some of the challenges they’ve had over the last few years just trying to survive,” Mr Rolle told this newspaper. “Any decision to reduce tariff rates to support them, I support 100 per cent, but my concern is that we take a holistic approach, not a knee jerk approach.”

The former FNM government amended the Act in the 2010-2011 Budget, in a bid to ‘graduate’ Bahamas-based manufacturers from receiving these incentives after their first five years.

Apart from increasing tax revenues, the Ingraham administration’s thinking was also to ensure that manufacturers did not benefit from a never-ending ‘welfare/benefits’ system at the Bahamian taxpayer’s expense.

Mr Rolle told Tribune Business that while he agreed with the former government’s move to create timeframe “parameters” for accessing these incentives, it should not have been a blanket, set in stone approach.

The BCCEC chief executive added that the Act should have included a process whereby a Bahamian manufacturer could apply for an extension of the tax incentives beyond the first five years if they had yet to become financially sustainable.

“There’s probably a need to have some parameters in there that would allow a manufacturing company to get started,” Mr Rolle told Tribune Business.

“It was felt five years was sufficient time to get an organisation to the point where they would generate sufficient income to not need the concessions.

“While that’s the right thing to do, there should be a process in there where companies can apply for an extension.”

He acknowledged there was a concern that “to remove completely” the incentive term limits imposed by the former government might “encourage businesses to become more reliant on government welfare as opposed to sustaining themselves. It’s a crutch people can fall on”.

In imposing the five-year limit, the former government also introduced a 10 per cent tariff rate on all raw materials and equipment imported by graduated manufacturers.

The industry, though, has long argued that these incentives are essential to its competitiveness and enabling it to compete with foreign rivals on a ‘level playing field’.

Their overseas competitors, Bahamian manufacturers argue, enjoy much lower energy, raw material and equipment costs, making it hard for them to match up, and endangering the Bahamas’ prospects for retaining an industrial sector.

It was also argued that the Ingraham’ administration’s move came at the worst possible time, in the midst of a deep recession, with the increased taxes and costs only further depressing business levels.

Mr Rolle, meanwhile, said many tariff-related issues would be determined by the Bahamas’ entry into full World Trade Organisation (WTO) membership and other rules-based trading regimes.

He added: “We have to ensure that whatever policies we put in place across the board are consistent for local manufacturers and producers. Foreign manufacturers coming in tend to get a lot more incentives than local manufacturers.”

Energy costs remain “the biggest factor” for Bahamian manufacturers, and Mr Rolle told Tribune Business: “If you talk to any of the manufacturers, that has been their Achilles heel.

“How do they manage with the increase in electricity costs? Manufacturing is labour intensive, or you use technology and machines to offset the cost of labour.

“But, using machines increases electricity costs, and you don’t make any advances in that area.”

The BCCEC chief executive reiterated that other jurisdictions employed different energy fee structures for residential and commercial customers, the latter enjoying lower rates because they were high volume users.