The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas will likely have to “tolerate double digit unemployment numbers” for several years, a former finance minister hinting that Baha Mar’s fate is unlikely to be resolved overnight.

James Smith, also a former Central Bank governor, told Tribune Business that the length of recovery from the 2008-2009 recession meant many “discouraged” workers would have drifted out of the labour force since then.

He argued that this, combined with the inability of unskilled high school leavers, numbering between 3,000-5,000 annually, to find gainful employment had created a problem that “takes time to work out”.

And Mr Smith said the ability of Chinese companies to ‘sit on and hold’ real estate investments for many years meant no quick resolution may be in sight for the $3.5 billion Baha Mar project.

He added that Freeport’s Grand Lucayan property illustrated this point as its owner, Hong Kong-based conglomerate Hutchison Whampoa, appeared in no rush to sell despite having to absorb (and fund) multi-million dollar losses for successive years.

Mr Smith’s comments thus suggest that the China Export-Import Bank may be in no rush to offload Baha Mar, especially if it is unlikely to recover its full $2.45 billion loan, which will have major implications for that project’s ability to generate 5,000 jobs and dent the unemployment rate - at least in the short-term.

The October lay-offs of 2,020 Baha Mar workers, which occurred just before the November Labour Force Survey was taken, were blamed - together with the traditional influx of summer school leavers into the workforce - for the 2.8 percentage point rise in the unemployment rate to 14.8 per cent.

“I think the economy has pretty much stabilised, but at a new level,” Mr Smith told Tribune Business in response. “We have to perhaps tolerate double digit unemployment numbers for a couple of years out there.

“Once you have these recessions, and a recessionary fix going on this long, people become discouraged and begin doing things outside the mainstream.

“And, at the other end, you have continual retirements with, at the feeder end, young people coming in with little or no skills and little opportunity to join the labour force. It takes time to work that out.”

A closer look at the numbers published by the Department of Statistics reveals that the Bahamas’ total employed labour force has expanded by just over 20,000 persons or 12.6 per cent since the Christie administration took office in May 2012, growing from 160,650 to 180,820.

This was much-touted by Shane Gibson, minister of labour and National Insurance, but the data reveals that almost half that 20,000 increase comes from the inclusion of Abaco’s 9,630-strong workforce since May 2014.

Abaco was not included in the Labour Force survey in 2012 and 2013, and to include it in the ‘20,000 since we took office’ figure is misleading.

With only data on New Providence and Grand Bahama available on a like-for-like basis, the Department of Statistics figures show that New Providence’s employed labour force has increased by around 6,000 since the Christie administration took office, with Grand Bahama seeing a rise of around 4,500.

Still, the central conclusion is that the Bahamian economy is not growing fast enough to create sufficient jobs for existing workers, let alone the 3,000-5,000 school leavers who join the workforce every summer.

This is born out by the fact that the unemployment figures have remained stubbornly in the ‘double digits’, moving between 27,000 and 31,500, depending on whether the Labour Force survey catches new school leavers.

“I don’t anticipate things getting any worse,” Mr Smith told Tribune Business, “and the rebound will have a lot of additional hotel rooms and increased airlift.

“It’ll be a sort of gradual recovery. Strong companies will survive.”

Mr Smith, who is now CFAL’s chairman, conceded that “it’s difficult to say” when Baha Mar’s fate will be resolved, and the $3.5 billion development’s construction completed and open.

Pointing out that the project’s secured creditor and main contractor were both state-owned Chinese firms, Mr Smith suggested they were unlikely to favour a Western-owned buyer.

“The Chinese have the way of being able to sit on real estate for a very long time, because they don’t have to generate dividends for shareholders,” he told Tribune Business.

“As far as they’re concerned, they’re holding on to the property, and whatever value is on the books, it kind of just stays there.

“We see the place in Freeport [the Grand Lucayan]. That’s been losing money for a couple of years now, but they seem to be able to have it sitting there and there has been no attempt to sell it.”

Mr Smith said much depended on the China Export-Import Bank’s intentions, as apart from a purchaser it could also seek out potential hotel and casino brands, and management companies, to operate Baha Mar on its behalf while retaining ownership.

“It’s too much of a valuable property to sit there idly for a long period of time,” Mr Smith told Tribune Business.