The Tribune

By ROB MILLARD

This note was prompted by Dionisio D’Aguilar’s speech, ‘The Freeport Model - Obsolete Relic or Untapped Opportunity’, delivered to the Grand Bahama Chamber of Commerce on 15 May, 2013. I lived in Freeport with my family from 2006 until 2010. In 2008, I was engaged through Barry Malcolm’s consulting firm, Global Fulfillment Services, to conduct a strategic assessment of Freeport’s potential and to develop a conceptual strategy for unlocking it. Our client was seeking to purchase the Grand Bahama Port Authority (GBPA) and Port Group Ltd.

We consulted with a wide range of Bahamians. These varied from grassroots public to businesspeople, religious and other community leaders, and several Cabinet ministers and other national leaders. Our report combined their views with an appraisal of opportunities and constraints facing Freeport in the 21st century, and what would be needed to yield acceptable return on investment for our client. We contracted a Nassau-based consultancy to assess the manpower needs, plus one of the foremost global firms of consulting economists to calculate the economic impact that would likely result. Our conclusions were that, properly configured, Freeport could double the gross domestic product (GDP) of the Bahamas and fundamentally transform the lives of Bahamians.

In 2009, the global financial crisis put an end to that investor’s initiative.

Much has changed in the world since then. Notwithstanding, the development of Freeport into such a valuable national asset for the Bahamas remains an eminently achievable objective. Accomplishing this would require a very different strategy to that which has been tried - and has consistently failed - for the past decades. Albert Einstein is credited with defining insanity as “doing the same thing over and over again and expecting different results”. He could easily have been speaking of Freeport.

Strategy, as a concept, is not difficult. It involves conducting a reliably open-eyed assessment of the opportunities and challenges that exist, and the resources available, then creating a set of objectives that aim to deliver the best results given what one has to work with. Compiling a set of plans to achieve those objectives follows (who is going to do what, how, by when, using what resources?) An important part of this is to identify the obstacles that could hinder the achievement of those objectives, and how to clear the path forward. Then, of course, it is a matter of executing those plans.

What strategic objectives should be set for Freeport? How would they be achieved?

The objectives that were set in 2008-2009 remain as relevant today. The undeniably ambitious goal at that time was to develop Freeport into a sustainable and prosperous business and commercial centre loosely modelled on the free zones of the Middle East, but at a far more manageable scale and with a uniquely Bahamian flavour. In any democracy, popular support is crucial, so we paid particular attention to the likely nationwide benefits. Our economists estimated that a reconfigured Freeport could create 132,000 jobs and an additional $6.5 billion of GDP, propelling the Bahamas to a position of economic leadership and prosperity in the region, and yielding the following very specific, tangible nationwide benefits:

• Generating significant, sustained revenue flows to the national Treasury that could be used for funding a wide range of infrastructure, educational, social welfare and other nation-building projects throughout the country;

• Eliminating unemployment among all Bahamians who wish to work, either as employees or as entrepreneurs in their own businesses, and greatly enhancing the quality and diversity of career options available to Bahamians.

Some might say that existing policies in place already allow this. If this were true, though, then Mr D’Aguilar’s speech would surely have been very different. Bluntly stated, the only companies that can thrive in Freeport today are those that have one or more of the following characteristics:

• Their location in Freeport Harbour provides their source of global competitive advantage (Grand Bahama Shipyard, the Freeport Container Port).

• They are able to populate their workforce almost entirely with the skills sets available in the Bahamian workforce, or that can be easily trained.

• They have enough of a local market to sustain their businesses in Freeport.

By definition, this excludes broad ranges of businesses that require workforces with more complex skills that are either in short supply in, or absent from, the Bahamian workforce. Many of these businesses are the kind that most countries today find highly attractive, and competition to attract them is fierce. They generate strong cash flows. Many typically have a low environmental or sociological impact. Their employees are in short supply and high demand globally, so they are well paid. Their spending contributes significantly to their host economies. Because they are generally well educated, those employees sometimes also contribute richly to their host country’s cultural and intellectual character. They catalyse development of schools, restaurants, shops and other businesses. Sadly, though, most such businesses don’t even have Freeport on their radar.

While I still lived in Freeport, I interviewed a very senior executive in a company with an instantly recognisable brand, about investing in Freeport. That person told me he had spoken to several of his peers in global business, following an earlier conversation between us, and had been “surprised by how uniformly disappointed they all were with their investments in the Bahamas.” In order to create a Freeport that fundamentally transforms the livelihood of all Bahamians, this desperately needs to be turned around. It is obviously disastrous for foreign investors to be “uniformly disappointed”. It is unnecessary. It should not be tolerated.

I also interviewed a senior executive at the Jafza Free Zone in Dubai. The parallels between Jafza and what could be in a different Freeport are hard to miss. On the one side lies the massive container port of Jebel Ali. On the other lies the equally impressive Dubai World Central airport, focused heavily on cargo as well as passengers. In between, a logistics and industrial hub covering 18.5 square miles that is already home to 6,400 companies. Dubai is also home to a range of other free zones that are relevant to Freeport - from the international financial centre to healthcare and education free zones, among others. I asked the executive how they go about marketing Jafza. He said they do not need to. When companies visit Jafza in order to evaluate establishing there, he said, they encourage them to go and talk to others that have already done so. This feedback that they receive from existing companies invariably clinches the deal.

What feedback would prospective investors in Freeport receive, were they to talk to companies that have invested in Freeport in the past few years?

To an outsider, it seems that a running battle of attrition has been waged for decades between the GBPA and its owners, trying to optimise their return on investment on the one hand and, on the other hand, successive Government administrations doing all in their power to circumvent and obstruct key provisions of the Hawksbill Creek Agreement (HCA.) Those provisions that could have driven economic growth in Freeport, had interference not occurred, appear to have been emasculated. Many of Freeport’s key assets have been sold off, leading to some unfortunate third party monopolies. Pity the poor GBPA licensees in the middle, trying to do business and survive with regulatory uncertainty, on the one hand, and supply chain inefficiencies and general economic stagnation on the other. Small wonder that so many investors have come to Freeport over the years with hopeful eyes and willing cheque books, only to leave disappointed. A transformational policy change is needed if this is to reverse.

The most important yardstick that sensible investors apply when considering Freeport as a destination is how the city compares with other options as a base from which to drive their success in today’s hyper-competitive markets. Bahamians need to think of their city in the same way as do business executives in New York, London, S�o Paulo or Beijing, who are considering options for their next factory, healthcare facility, hotel, logistics hub or service centre. What needs to happen in order to push Freeport to the top of their lists?

When thinking about the current tourism industry, Grand Bahamians need similarly to suspend their natural loyalty to their home and think with brutal objectivity like tourists (perhaps in Louisville, Kentucky, or Birmingham, England) who are planning a Caribbean holiday. For these tourists, Freeport is also one of many options. It does not have the water parks and casinos of Atlantis, though. It lacks the intrinsic natural beauty of St Lucia or Belize, or the theme parks of Orlando. It has neither the exclusivity of Anguilla, nor the sheer size and range of activities of the mainstream Mexican resorts. Cruise ship passengers must travel by minibus through an industrial area to reach Port Lucaya. Among the tourism services that do exist on the island, standards of service are frequently lower than tourists expect or encounter in competing destinations. What needs to happen in order to push Freeport to the top of the list for high-quality tourists, way beyond Spring Breakers and the 10 per cent of cruise ship passengers that disembark when their vessel docks in Freeport?

Mr D’Aguilar spoke of the need to develop a major tourism facility. That’s probably right, if Freeport’s tourism industry is to survive and thrive alone in a world where Nassau has not only Atlantis but Baha Mar, too, and Cuba’s door is open again to American tourists. Anyone who has read the history of Freeport (and I have) knows that the city’s tourism industry effectively dates from the collapse of the Batista regime and the advent of US sanctions against Cuba. If one researches tourism destinations in the Caribbean region (as we did in 2008) then one discovers that Grand Bahama Island, even then, ranked among the poorest performers in the region for bed-nights and dollars spent per head. Barring an investment of several billion dollars, the evidence simply does not support the proposition that tourism alone can be the salvation of Freeport. There is also no evidence of a vast, untapped market for second (holiday) homes for foreigners, which some suggest exists.

More than ever before, the appropriate solution for Freeport needs to be one that balances tourism with other kinds of commerce and industry that are sustainable on an island such as Grand Bahama. An environment needs to be created in Freeport where they can thrive and grow. Many of those businesses will require appropriately qualified, experienced expatriates drawn from the global talent pool, as well as Bahamians. Such expatriates may typically be high-income rather than high net worth. They would live in Freeport and spend much of their income in Freeport’s shops, restaurants and service businesses for some years, then move on. These local businesses, most of which are, and would, continue to be owned by Bahamians, would in turn prosper. Business travellers would revitalise Freeport’s hotels. Increased demand for utilities and services would justify investment in more capacity and greater reliability. Empty lots along the deserted streets would fill with houses built by Bahamian builders. The shuttered and derelict buildings that characterise this sad and battered city would disappear. With thoughtful planning and careful controls, Freeport could become a model city with world-class architecture and uniquely Bahamian, 21st century character and a global leader in so-called ‘triple bottom line’ (economic, social and environmental) sustainability.

Continuing to hack on with the same old approaches in Freeport that have failed in the past will not deliver successful results in the future. With a fundamentally new approach on the part of the GBPA owners, the Government of the Bahamas and other key stakeholders in the city, though, it would be hard to beat the new Freeport as one of the premier tax-efficient business destinations in the world.