The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas has been “losing stopover market share” to rival Caribbean destinations ever since the recession hit in 2008, its share of the region’s land-based tourists having fallen by more than one percentage point over a four-year period.

And Moody’s, the Wall Street credit rating agency, warned that the Bahamian hotel/tourism industry’s market share loss was “more pronounced” if Mexico and Central America were factored into the mix.

When ranked alongside other Caribbean nations only, Moody’s said Caribbean Tourism Organisation (CTO) data showed that the Bahamas’ share of total stopover visitors to the Caribbean had fallen from 8.8 per cent in 2008 to 8.1 per cent in 2010, then slid further to just 7.6 per cent in 2011.

In contrast, the Dominican Republic saw its share of Caribbean stopovers rise from 23.9 per cent in 2008 to 24.5 per cent in 2011, while Cuba’s went from 14.1 per cent to 15.4 per cent. Jamaica and Puerto Rico, too, the other nations with a market share larger than the Bahamas, also saw their share of Caribbean stopovers increase over the same four-year period.

What this all suggests is that the Bahamas’ market positioning, as a high-end, high-cost destination, is working against it at a time when price-conscious travellers are constantly seeking cheap deals.

And it also indicates that subsidies/promotional initiatives, such as the $6 million Air Fare Credit programme and room rate discounting by hotels, have failed to totally stem the slide. Moody’s said: “The Bahamas has been losing market share to other Caribbean destinations - the loss is more pronounced if destinations in Mexico and Central America are factored in.

“The erosion of the country’s competitive position explains why tourism revenues have yet to recover to 2007 levels. Average daily tourist revenues are down as hotels and airlines continue to offer deep discounts to attract consumers. Tourism earnings have been depressed also by shorter visits and lower spending per visitor.

“Recovery in tourism has been weak due to low growth in the US and greater regional competition. Total tourist arrivals have been increasing since 2009, but stopover visitors, which generate higher revenues than cruise visitors, are still 12 per cent below their 2007 peak.”

While the $2.6 billion Baha Mar project was set to increase the Bahamas’ total hotel room inventory by 10 per cent when completed in late 2014, Moody’s warned that “its overall economic impact remains ambiguous as additional capacity may cannibalise the market share of existing hotels”.

The Wall Street rating agency forecast that the Bahamian economy would grow by 2 per cent in 2012, with its GDP set to further expand by 2.5 per cent in 2013. The latter estimate is in line with the International Monetary Fund’s (IMF), but both are lower than the Government’s own predictions.

Looking back at the recession, Moody’s said the Bahamian economy’s 2.8 per cent contraction in 2008, followed by a further 4.9 per cent shrinking in 2009, was largely driven by a major fall in private consumption.

That means spending by Bahamian households and individuals which, after contracting by an amount equivalent to 2.6 per cent of GDP in 2008, literally dropped off a cliff in 2009 - falling by a sum equivalent to 7.7 per cent of GDP.

While private consumption rose by just 0.4 per cent in 2010, it contracted again by an amount equivalent to 1.2 per cent of GDP in 2011. Apart from showing just how fragile consumer confidence is, this also reveals the toll taken on Bahamian households by unemployment, underemployment and reduced incomes.

The data supplied by Moody’s also revealed that ‘gross capital formation’, meaning investment, contracted by sums equivalent to 2.7 per cent and 2.5 per cent of GDP, respectively, in 2008 and 2009. It also fell by 1 per cent in 2010, before rebounding to a 2.6 per cent expansion in 2011.

While the Bahamas’ GDP per person was $32,198 in 2011, almost twice the median for other nations with the same sovereign credit rating, ‘Baa1’, Moody’s said this was countered by the country’s limited diversification and “historically low growth rates”.

The Wall Street rating agency also identified construction as directly contributing to the Bahamian economy more than tourism, pegging its share of GDP at 26 per cent. This compared to 25 per cent for tourism, and 12 per cent for financial services.

But, with tourism indirectly accounting for more than 40 per cent of GDP, Moody’s said the Bahamas was “more dependent on the sector relative to its Caribbean peers”. Between 2007-2010, tourism receipts, on average, accounted for 63.6 per cent of this nation’s exports, with St Lucia ranking second at 57.9 per cent

Elsewhere, Moody’s said current account deficits that averaged 13.6 per cent of GDP between 2005 and 2012 were not a major concern, given that they were covered by reserves and foreign direct investment inflows.

And, while there were no major concerns about the Bahamian commercial banking sector, the Wall Street credit rating agency said: “Weak private sector credit growth continues to be a drag on economic activity, particularly in the construction sector.

“Banks have increased holdings of attractively priced government paper, while they clean up their loan books. Delinquent loans remain elevated at 18.6 per cent, and non-performing loans are rising - 13.4 per cent in the 2012 second quarter from 12.7 per cent in 2011.

“We expect credit to be anemic as public funding and foreign direct investment crowd out financing opportunities in the tourism sector, but the likelihood of a government-funded banking recapitalisation remains remote.”

The increase in delinquent mortgages, Moody’s said, had resulted in tighter lending criteria and “subdued residential construction starts”. The value of new housing starts, it added, had dropped by between 30-40 per cent in 2010 and 2011, compared to the 2005-2007 period.