The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The US has again slammed the Bahamas for “lack of transparency” in government contract bidding processes, with American companies complaining about “undue political interference”.

The US State Department, in its 2015 Investment Climate report on the Bahamas, warns potential American and other investors that there are “significant challenges” to doing business in this nation.

Apart from concerns over the Government’s various procurement and tendering processes, the report cites high energy costs, a “lack of skilled labour” and “cumbersome” government approvals as barriers to investment in the Bahamas.

It adds that the US Embassy in Nassau continues to receive complaints from American companies about the “time consuming” wait for Government permits, which complicates investment decisions and adds to costs.

While acknowledging that the Government has previously refuted concerns over lengthy approvals processes, the US State Department report cites several other issues with the enabling climate for foreign direct investment (FDI) in the Bahamas.

These include:

The “confusing and opaque” nature of government approvals, with many permits and licences open to “discretion” in their award.

The “persistent backlog” of cases in the Bahamian court system, with civil (commercial) actions taking an average of five years to resolve

Foreign investors have complained that Bahamian defendants frequently delay, or ‘string out’, payment of compensation by appealing judgments to higher courts in the judicial system.

The failure to initiate a single prosecution under the Prevention of Bribery Act, despite the “widespread reports of corruption” that have circulated in the Bahamas for decades.

Personal bankruptcy laws in the Bahamas “are antiquated and rarely used”.

While the concerns cited are nothing new, the worry for the Bahamas is that they are coming from the Obama administration – and for the second consecutive year.

The Bahamas relies heavily on foreign direct investment (FDI) to drive its economy and employment, and these concerns from a source such as the US State Department threaten to undermine efforts to attract more foreign exchange capital.

The US also remains the Bahamas’ largest trading partner and a major FDI source for this nation. The sentiments express in the report could send a potentially negative message to both American and other investors who rely on State Department reports to provide a guide on the enabling investment environment they will encounter.

Khaalis Rolle, minister of state for investments, did not reply to Tribune Business voice mails and e-mails seeking comment before press deadline last night.

While the US investment climate report on the Bahamas provided no examples to back up some of its assertions, the recent Bahamas Electricity Corporation (BEC) tender is thought to be one where some US bidding groups have complained about a “lack of transparency”.

“The Embassy continues to receive reports from US companies alleging a lack of transparency and undue political influence with government bidding and procurement processes,” the US State Department report says.

“These processes are governed by the Public Procurement Act, and the Financial Administration and Audit Act of 1973. A minister can approve any purchase up to $50,000. Purchases of equal to or greater than $50,000, but less than $250,000 must be approved by the Minister of Finance, and amounts exceeding USD 250,000 require Cabinet approval.

“The process lacks transparency, there is no requirement to engage in open public tenders, and award decisions are not subject to review. The Government has implemented procurement procedures in the management of funds from international lending agencies, but has not yet implemented best international practices for the management of national finances.”

The US State Department report appears not to acknowledge the changes made to the Financial Administration and Audit Act in 2010. It does, though, give credit to the Christie administration’s pledges to modernise and reform government procurement via an Inter-American Development Bank (IDB) financed project.

Still, the Investment Climate report then states: “Successive governments sometimes review high-profile contracts executed by previous administrations, although government officials assert that the majority of contracts are not reviewed or altered in any way.

“Other areas of concern noted by companies include the discretionary issuance of approvals and licenses from various government authorities. Companies complain that in many instances these approval processes are confusing and opaque, with little to no possibility for review or appeal of a decision.”

While conceding that the Bahamas, despite these alleged flaws, continued to attract “significant foreign direct investment”, the opening page of the State Department’s report hardly amounted to a ringing endorsement of this nation’s qualities.

“There remain significant challenges to investing in the country, including the cost and reliability of electricity, high unemployment combined with a lack of skilled labour, and cumbersome administrative requirements,” the report said.

“US and Bahamian companies alike report that the resolution of business disputes often takes years, and the approval process for foreign investments is cumbersome and often time-consuming. Some US companies have reported….. that often pending decisions linger for long periods, making it difficult to make investment decisions.

“The Bahamian government asserts, however, that the majority of foreign investment applications are processed quickly and without significant issues. Some US and Bahamian companies also complain that the tender process for public contracts is not consistent or transparent.”

The US report conceded, though, that the Bahamas remained “a relatively stable environment” for investment due to the continuity shown by the political and judicial systems.

Yet the courts were not immune from criticism, with the State Department warning: “Judicial courts in the Bahamas face a persistent backlog of cases. Civil cases, on average, take five years to resolve.

“Foreign investors have frequently complained that local defendants are able to delay payment on Bahamian civil judgments in dispute cases due to the lengthy judicial process, which often involves multiple levels of appeal.”

Complaints made to the US Embassy about Bahamian attorneys have largely involved real estate deals, the report said.

“Property disputes can be challenging, sometimes lasting several years in the Bahamian court system,” the US State Department warned. “Some purchasers have reported problems obtaining clear title to property, either because the seller had no legal right to convey, or due to claims to ownership that arose after a purchase was made.”

Then there was the absence of prosecutions under the Prevention of Bribery Act. “The Embassy knows of no prosecutions under the Act. Reports of corruption, including allegations of widespread patronage and the routine directing of contracts to party supporters and benefactors, have plagued the political system for decades,” the US investment climate report warned.

Finally, the report referred to an ‘open secret’, namely that the Bahamas Electricity Corporation (BEC) is seen by all investors and businesses “as an impediment to diversification”.

The US State Department says BEC has “accumulated losses of more than half a billion dollars of debt. This debt has hampered its ability to independently fund the replacement of its decades-old plant and the necessary expansion to meet the needs of the country. These factors have resulted in energy prices in The Bahamas being among the highest in the hemisphere”.