The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian companies must have a year to "acclimatize" before this nation joins the WTO, a prominent businessman yesterday warning the economy will otherwise "slow" pre-accession.

Robert Myers, a principal with the Organisation for Responsible Governance (ORG), told Tribune Business that the private sector "needs to be placed in a competitive environment at least a year in advance" of joining the World Trade Organisation (WTO) if it is to successfully compete with foreign rivals.

Given the Minnis administration's end-2019 deadline to accede to full membership in the world's trade rules-setting body, Mr Myers said the Bahamas now had less than 10 months "to get its act together" and give businesses enough time to adjust.

Emphasising that much of the economy's "significant structural problems" stem from Government "inefficiency and lack of accountability", the ORG principal added that the public sector's pace of reform to-date suggested it was "impossible" both deal with these issues and ready the private sector in time.And Mr Myers also warned that the economy could stall as companies held-off on job-creating capital projects in anticipation of WTO-induced tariff cuts that could make equipment and material imports much cheaper.

He thus called for certainty over the Government's tax reform plans, and questioned if there would be a WTO 'transition period' where companies received 'rebates' for pre-accession duty payments to place them on a "level playing field" with rivals who had deliberately held off on such imports. "I can tell you that if we are not liberalised ahead of accession we are creating a tremendous threat for Bahamian businesspeople and entrepreneurs," Mr Myers told Tribune Business. "They need to be placed in a competitive environment at least a year before we accede to the WTO.

"Assuming it's the end of 2019, that leaves us 10 months to get our act together. That's very aggressive, but we want to get a level playing field at least a year in advance of accession to get the inefficiencies out of the system.

"We've got significant structural problems caused by inefficiency and lack of accountability, and those have to be overcome before they thrust us into a globally competitive environment," he continued.

"Those structural issues in the Bahamas that make the private sector uncompetitive are largely caused by government inefficiency and lack of accountability, and those have to be overcome to be globally competitive. We've got to get our house in order at least a year ahead of any final WTO accession. The tax-paying private sector is already tapped out."

Mr Myers ran through his previously-identified 'to do' list, including the 'ease of doing business', the cost of electricity and labour, exchange control liberalisation, interest rates and banking regulations.

Emphasising that the Bahamas needed to be at least "competitive with our regional competitors" in all these areas prior to completing the WTO accession process, Mr Myers said providing the private sector with a year-long adjustment 'window' was "not possible" based on a combination of the 2019 target and the Government's progress to-date.

"It took us 18 months to debate VAT, and get the right programme and framework in place," he told Tribune Business. "This is equally as complex. In my opinion, we're not there. We cannot fix these structural issues in 10 months.

"You're talking two-and-a-half years [to complete the accession]. We don't want to drop the barriers and give no adjustment period to local businesses. You've got to give at least a year for local businesses to adjust once you've got those barriers out the way. There's some big, big gorillas in the room when you get into that discussion."

Mr Myers suggested such a 'transition period' would enable the Bahamas to avoid uncertainty that could stall the economy, and prevent 'arbitrage' between pre-accession and post-accession duty rates.

"If I buy a $300,000 piece of equipment, a crane, today for my construction company I'm paying 55-60 per cent in duty on that crane," he explained. "If you say you're liberalising trade in goods and services in a year-and-a-half, is the Government going to pay me back duty on the crane so I'm competitive with the guy that brings in a crane after WTO?

"What am I going to do with that? The $125,000 duty that I've paid, I can't write it off in a year. All of these equipment and construction costs, all these things you're [the Government] doing now, you've got to be careful not to deter people from hiring and expanding now and slowing the economy.

"Anything you do now, and do not get rebates back, makes you less competitive in a global economy. This is why you have to give people a year, year-and-a-half, two years to get acclimatized and deal with these issues."

The Bahamas will have to either eliminate or slash multiple Customs duty rates and tariff lines, as these are seen as 'barriers to trade' under the WTO. However, the Government appears to be some way off in determining which tariffs will be affected and, in any case, this will have to be negotiated with those nations wanting to trade with the Bahamas.

"Any capital expenditure, people are going to be saying: 'Let's not do anything'," Mr Myers explained of his duty uncertainty concerns. "We can't stall the economy, but if you're not going to give credits against what you get in the future, it's going to send the wrong message to industry."

He added that 'economies of scale' meant Bahamian businesses were already at a disadvantage in having to compete against larger foreign rivals in a rules-based, liberalised trading environment.

"We are already going to be at a disadvantage, everybody, on one issue alone and that is sheer economies of scale," Mr Myers told Tribune Business. "It's going to be very difficult for these small island nations to compete with these larger and more sophisticated companies as they have such massive advantages with economies of scale.

"That is very worrying, and needs to be discussed within the Ministry of Financial Services and Trade Commission. It's a significant concern."

Mr Myers said there was "not a single Bahamian company" that would not be considered a small and medium-sized enterprise (SME) in a global context, pointing out that this applied to the likes of AML Foods and Super Value even though they were 'large' for the Bahamian market.

The ORG principal said large foreign companies would be able to use their scale, buying power and lower unit production costs to potentially squeeze out Bahamian companies in their home market, even to the extent of absorbing losses because they were subsidised by profits from elsewhere.

"We have an added concern, which is larger companies in a WTO environment that want to obtain market share, when they're doing hundreds of millions in revenue and want to penetrate your market, they can do so at a loss for a very long time to drive you out the market or eat your lunch," Mr Myers told Tribune Business.

"They can make money in the US, Canada or a much broader business environment, and Bahamians are not going to be able to do that."