The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian businesses are facing “a tsunami” in the form of various reforms that will hit them “all at once”, a leading accountant warning this will dampen prospects for reducing unemployment.

Raymond Winder, managing partner at Deloitte & Touche (Bahamas), told Tribune Business the private sector would for the next “two to three years” be too busy adjusting their business models to think about expansion and new hirings.

Pointing out that developments such as tax reform (Value-Added Tax) and accession to full World Trade Organisation (WTO) membership were set to happen simultaneously, Mr Winder said the Bahamas was now paying the price for “delaying” much-needed reforms.

Arguing that the country was “lagging behind” its Caribbean rivals, such as Barbados and Jamaica, when it came to issues such as tax reform and communications industry liberalisation, Mr Winder said the ‘opportunity cost’ was the loss of potential business by being “late to the game”.

He added that this also applied to the Bahamas’ physical infrastructure, noting that the New Providence Road Improvement Project would have cost much less had it been completed - as originally envisaged - in the early part of the 21st century.

And with financial services under continued international regulatory pressures, Mr Winder said the Bahamas had been too slow to react in adjusting its business model, while much-needed reforms to cut bureaucracy and red tape were progressing too slowly.

“The implications of all this are that it’s like a tsunami in terms of what the business community must react to all at once,” the Deloitte & Touche (Bahamas) managing partner told Tribune Business.

“The challenge is, in the short-term, that we’re not going to get the total level of new employment that we want to see because businesses are going to be focused on reacting to these challenges coming down the pipeline - whether they want to stay in business, or change their model.

“For the next two-three years, businesses will look at new business models to operate in the Bahamas with all these changes taking place. That’s going to rob them of new business, and because that’s also going to rob them of time and resources to focus on new business, we’re not going to be hiring many people in this country.”

Noting that the Bahamas had previously spurned the opportunity to implement tax reform when the economy was performing well, Mr Winder said it was now having to introduce VAT at a time when the private sector needed less - not more - taxation.

“The WTO accession process, all these changes in laws, changes to the tax system; that should have been done when the economy was buzzing, not as it is now,” Mr Winder told Tribune Business.

“A lot of things that we should have done earlier are coming back to squeeze us. We need an environment where there is less tax on business, not more.

“Tax reform is a big upheaval to our structure that we should have done some time ago, and now we’re being forced to do it.

“I’m sure the Government is going to revisit the National Health Plan, and that’s going to be another major challenge for businesses to adjust to, in terms of what the impact is.”

The Bahamas’ bid to attain full WTO membership by end-2014 will push this nation into deeper involvement with rules-based trading regimes and a liberalised world.

Many of this economy’s protectionist barriers will be under threat, and the Bahamas opened up further to international competition - both from foreign firms setting up a physical presence here, as well as their products entering the market.

Tax reform is tied closely to this, as WTO entry will require the Bahamas to reduce import tariffs, hence the need to introduce VAT. Overall, full WTO membership will entail a fundamental revision of the Bahamian economy’s structure.

Yet Mr Winder pointed out that the Bahamas first applied for full WTO status back in 2001. He added that had it gone through with the application then, before waiting six-seven years to pick it back up, this nation’s accession terms would likely have been less onerous.

“I think as a country we have lagged behind our competitors and our colleagues in the region in moving forward on very important initiatives for our country that would help in the overall strengthening of the business environment,” Mr Winder, the Bahamas’ former WTO lead negotiator, explained.

“Everyone else in the Western Hemisphere is a part of the WTO, and our delay in not being part of the WTO means that we will come under more stringent procedures and rules that our Caribbean counterparts did not have to join WTO under.”

The region was also ahead on tax reform. Mr Winder said other Caribbean nations had “embraced a more wholesome taxation system”, pointing especially to Barbados and its corporate income tax - an enabler for the numerous double tax treaties it had entered into with major countries.

Focusing on the Canadian banks, in particular, the Deloitte & Touche (Bahamas) chief added: “Here again we’ve been late to the game, and lost out on opportunities where organisations have their biggest books of business in the Bahamas, but their headquarters in Barbados or Trinidad.”

Mr Winder added that the financial services industry had also suffered from a ‘reactive’ approach, and failure to adjust and sense ‘which way the wind was blowing’ in the late 1990s as the G-20/OECD-led initiatives ramped up.

“We’ve spent too much time being a jurisdiction of confidentiality as opposed to being a jurisdiction where there was real physical presence,” he said, contrasting this with Bermuda and the Cayman Islands, and their respective focus on insurance and institutional business.

Suggesting the Bahamas had missed out on opportunities to drive more business here as a result, Mr Winder added: “It took too long to drive the level of participation in our country where there was a real physical presence.

“It took too long to realise the importance of that, and as a result we were not able to take advantage of the period when things were highly dynamic, growing and there were major players wanting to be in the offshore sector.

“Today, a lot of major financial institutions are trying to find ways to reduce their participation, involvement and physical presence in jurisdictions like ours that primarily relied on confidentiality. Now confidentiality is no longer a pillar for attracting business, and we have to put in place others.”

Noting that the Bahamian financial services industry would be under constant international pressure, and referring to the US Foreign Account Tax Compliance Act (FATCA) as taking information sharing “to a new level”, Mr Winder emphasised that he still believed this nation had the workforce, institutions and business platform to be “a player” in the sector.

Yet the industry was being held back by the failure to follow through on regulatory consolidation, even though this had been mulled for years.

“We’re still finding situations where an organisation has to apply to two, three regulators for approvals, instead of having a one-stop shop that reduces the bureaucracy, makes this faster and improves the time taken for institutions to get into business,” Mr Winder told Tribune Business.

The Government has for some time considered creating either a solitary ‘super regulator’ or a ‘Twin Peaks’ model, where all financial services regulators apart from the Central Bank are consolidated into one. The Ingraham administration moved on the latter, bringing all the other regulators into one building, but took the process no further

“The challenge we now have is pulling that together, so that organisations currently in the Bahamas are not frustrated in getting things done. It’s still taking too long for things to happen,” Mr Winder added.

Turning to infrastructure assets, he told Tribune Business that New Providence’s new roads would have cost much less had they been completed 15 years ago, as originally scheduled.

“We’ve waited so long to put these things in place it’s cost us a lot more than it would have cost us. It’s creating a greater challenge for us now,” Mr Winder said.

And, while the Bahamas had been among the first in the Caribbean to look at privatising its incumbent telecommunications carrier, it had taken 13 years to complete the process and open up the sector to competition.

Mr Winder said this meant the Bahamas was lagging behind again, with citizens in other Caribbean nations far ahead in enjoying the better services, technology and pricing that a competitive communications environment had introduced.

He added that the National Training Agency was a ‘back end’ attempt to cure the problems that the Bahamas’ education system should address at the ‘front door’.

And Mr Winder also questioned why the Government’s 2013-2014 Budget had given Bahamians an even greater incentive to shop in Florida, to the detriment of local businesses and the foreign currency reserves.

“We’re going to have to really and truly be innovative and creative, and be able to ride through this period when we have not been receiving the best results,” Mr Winder told Tribune Business.