The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Customs modernisation is an essential “pre-condition” for developing a logistics/break bulk industry in the Bahamas, with the Department described as “inefficient at best, corrupt at worst”.

Oxford Economics, in a report commissioned by the Bahamas-based Organisation for Responsible Governance (ORG), said local private sector representatives described Customs as a major impediment to developing export-oriented industries in this nation.

The consultants, who have performed work for the Government and numerous Bahamas-based investment projects, cited tariff rate uncertainty and “costly, time-consuming” cargo inspections as major private sector concerns.

“Interviewees repeatedly raised concerns about the operations of the Customs Department, citing inefficiency at best, corruption at worst, and how detrimental this was to any ambition toward increasing exports or modernising the port,” the Oxford Economics report for ORG found.

“In fact, more than one port interviewee argued that improved Customs operations are an important pre-condition to any new investment in break bulk operations.”

The Government has already moved to enhance efficiencies in Customs’ operations, introducing the revised Customs Management Act in 2011, and following this up with the Electronic Single Window (ESW) initiative - a project funded by the Inter-American Development Bank (IDB).

This is designed to eliminate bureaucracy, paperwork, and the potential for fraud and tax evasion by computerising all Customs’ operations and data on a single platform, facilitating international commerce through reduced clearance times and costs.

ORG gave the Government credit for the initiative, but warned against allowing Customs staff to execute the ESW project without oversight, as this “creates opportunity for non-compliance and corruption”.

The Oxford Economics study, meanwhile, suggested: “A commitment to modernising Customs procedures would not only improve the public’s confidence in the integrity of Customs operations; it would also be an important signal that the Government intends to explore smart policy solutions that support and leverage port development.”

As previously reported by Tribune Business, the ORG report urges the Bahamas to exploit existing infrastructure in Nassau and Freeport to target the ‘break bulk processing’ market, where container loads are broken down and repackaged into smaller consignments before heading to their final destination.

Freeport, with its existing harbour and port facilities, and tax advantages under the Hawksbill Creek Agreement, has long been seen as suited for a logistics industry that could exploit trade liberalisation and rules-based agreements that the Bahamas is entering into. However, little has been done to examine such an opportunity.

The ORG report’s interviews with Bahamian private sector representatives, who are not named, cited several policy constraints and bureaucratic obstacles to developing such industries.

“One specific Customs reform often mentioned was the publication of updated and streamlined tariff regulations, so that it is clear which duties will be applied to well-defined specific categories of goods,” the Oxford Economics report said.

“This would make such determinations less likely to be subject to the discretion of an individual Customs agent.”

The study on ORG’s behalf also suggested that the Bahamas employed outdated practices by inspecting 100 per cent of all cargos landed in this nation, something that is likely related to its traditional dependence on import duties as the primary revenue source for the Government.

“Reliance on statistical sampling to test the veracity of the cargo manifest was also mentioned as a best practice common in most other ports, but not in the Bahamas,” the report said.

“In ports with modern sampling techniques, typically 2 per cent of cargo is inspected. By comparison, in the Bahamas nearly 100 per cent of the cargo is inspected, making this a very costly and time-consuming procedure.

“Replacing the manual inspection of all goods transported through the port and movement to an electronic customs format for payment and paper processing would both improve transparency and operational efficiencies.”

The ORG report added that there was “a perception” that the Government would be reluctant to make an investment in Freeport to facilitate the development of a ‘break bulk’ industry, such as the raising and levelling of land, because it would generate minimal tax revenues for the Public Treasury.

“Undoubtedly, the major gain from bulk break would be indirect - it would vastly increase the desirability of the location for light assembly manufacturing,” Oxford Economics conceded.

“But expansion would also increase taxes directly. It would be associated with an increase in the volume of containers passing through Freeport. In addition, break bulk is slightly more labour intensive than other port operations, and so the tax take would increase as a result of an increase in the number of longshoremen and warehouse operators.”

Trumpeting the potential ‘break bulk’ benefits for the Bahamas, the report concluded: “The real benefit of expanded break bulk operations would be in the development of new assembly or light manufacturing plants that might take advantage of the unique combination of deep sea port [in Freeport], proximity to the US, and favourable tax and export treatment.

“Virtually all of the value added created on-site in the Port District would be tax-free in the Bahamas, and likely duty-free entering the US. This is particularly true for a wide range of products made tariff-free for United States entry through the Caribbean Basin Trade Partnership Act (CBTPA).

“Although the Trump administration might take a more hard-line approach to US participation when the agreement comes up for renewal in 2020, as it stands now, operators could realise substantial logistics and tax advantages if break bulk operations expanded to better support manufacture or assembly in the Port district.”