The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Cumbersome property registration and business licensing requirements are “deterring private investment”, the Inter-American Development Bank (IDB) has warned, while court costs associated with contract enforcement are equivalent to almost 30 per cent of claim value,

The Bank’s just-released 2013-2017 country strategy for the Bahamas reiterated what may businessmen know, namely that the private sector’s “dynamism” and ability to exploit new opportunities are being stunted by the overall business climate, poor workforce productivity and inability to access financing.

Zeroing in on the Bahamas’ constant slippage in the World Bank’s Ease of Doing Business rankings, with this country now standing 77th out of 185 nations, the IDB said “the most pressing concerns” when it came to the business climate lay in the areas of property registration/administration; business licensing; and contract enforcement.

“Registering property is an opaque and costly process in which several public agencies, sometimes with duplicate responsibilities, must give clearance before activities can be completed,” the IDB said.

“Notwithstanding land registration, security of land tenure is not always assured.”

From a commercial perspective, such issues cause problems when companies/investors seek to use real estate as collateral for securing project financing, a fact not lost on many businessmen.

“Property rights are crucial to the success of any society,” Rick Lowe, an executive with the Nassau Institute think-tank said yesterday.

“If you don’t have sound property rights, you’re asking for trouble.”

The IDB, in particular, flagged the “especially unclear” decision-making process over Crown Land, which accounts for about 70 per cent of all land in the Bahamas.

“While standard administrative procedures are in place, allocation, administration and pricing are done on a largely ad-hoc basis,” the IDB said in relation to the management, and grants/leases, of Crown Land.

And, looking beyond Crown Land to other forms of ownership, the Bank added: “Land tenure security in the country is reduced by overlapping claims and rights to land as a result of property disputes and the lack of a parcel-based cadastral map; uncertainty regarding ownership of land resulting from outdated real property rights systems and information in the registry; and a complex conveyance system for property registration and transfers.”

As for the other key impediments, the IDB report said: “Business registration, and by extension, local entrepreneurship, may also be hampered by legislation that requires certifications from at least four agencies in a process that requires four-12 months.

“Licensing is further complicated by the fact that there are numerous provisions under different Acts, whereby licenses are obtained from different offices with different fees, depending on the type of business activity.”

Basing its next assertion on data from the World Bank report, the IDB said that enforcing contracts in the Bahamas took 49 procedures and some 427 days, while court costs represent 28.9 per cent of the claim value.

And, summing up what this all meant, the Bank said: “These areas of the business climate have the impact of deterring private investment from taking place, and limiting the scope for use of collateral for access to finance.

“The dynamism of the Bahamian private sector to adapt to new developments in the country and benefit from favourable economic opportunities, both within and outside of traditional growth sectors, is hampered by key constraints in the business climate, labour market productivity, and financial sector.”

This, the IDB added exacerbated the problems caused by the Bahamas’ lack of scale, which “rules out many alternative production opportunities”.

It pledged to provide assistance to “rationalise government regulations” in the problem areas.

On the financing side, while the Bahamian financial services industry generated between 15-20 per cent of annual gross domestic product (GDP), the IDB report said its studies had shown that “less than 50 per cent” of small and medium-sized enterprises (SMEs) - which account for 90 per cent of registered businesses - had access to commercial bank loans.

It called for “more direction and action” on the long-heralded plan to restructure small business support services via the creation of the Small and Medium-Sized Enterprises Development Agency (SMEDA), which would “support the dynamism of the sector”.

While the Central Bank’s planned Credit Bureau would help to reduce risk for commercial lenders and eliminate “information asymmetries” on borrower creditworthiness, the IDB said this would not aid SME access to capital.

“Provision of financial and non-financial services, and overall support to SMEs, appear insufficient and ineffective,” the Bank said.

“The public institutions have not been sustainable, with needed yearly government subventions, accumulated deficits and inability to lend because of under capitalisation. This is due mainly to a lack of overarching policy and coordination between the many institutions,and to the target market not being clearly identified.”

As an example of the problems, the IDB said the Government had granted $50 million in loans, and provided $26.6 million worth of subsidies to the Bahamas Development Bank (BDB), by 2007. The Bahamas Agricultural and Industrial Corporation (BAIC) had also received $14.5 million worth of subsidies by 2005.

To solve these problems, the IDB promised to help “reform the financial sector to increase access to financing for domestic firms (particularly MSMEs) and individuals”.

It added: “Lending in this area will aim to improve alignment between the labour supply and the needs of employers, and prepare individuals for self-employment. Training initiatives will be reoriented to reflect the needs of the private sector.”

The Bank said its key focuses would be on the tourism and services sectors, plus “expanding market access for local producers” in industries such as agriculture and crafts.