The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must not allow "vested interests and nationalism" to deter it from breaking out of decade-long "stagnation" via broad-based economic reform, a trade expert urged yesterday.

Ramesh Chaitoo, who co-authored the Oxford Economics report on full World Trade Organisation (WTO) membership's likely impact on The Bahamas, told Tribune Business this nation faces significant internal pressures to maintain its economic status quo.

Yet he argued that there was abundant evidence to show The Bahamas is not generating sufficient GDP growth and new jobs through a narrow economic model that has largely remained unchanged for 60 years.

Traditionally reliant on tourism and financial services as its key economic drivers, Mr Chaitoo said The Bahamas and other international financial centres (IFCs) cannot expect to maintain their current business models given the insatiable appetite of developed countries for tax dollars.

The trade policy specialist warned that "a lot of vested interests and nationalism want to keep the same old, same old, but the economy has stagnated for some time so you need other means to stimulate growth".

The Oxford Economics report, released yesterday, said it appeared "low growth rates have become the ‘new norm’ for the Bahamian economy", pointing out that average annual GDP expansion between 2011-2017 averaged a mere 0.6 percent. This represented a "marked slowdown" from the 3.1 percent growth rates achieved prior to the 2008-2009 financial crisis.

"Traditional growth engines of tourism and financial services have been struggling and unemployment remains stubbornly high," the report added, despite the double-digit growth in both stopover and total visitor arrivals to The Bahamas during 2018 and 2019 to-date.

As for financial services, Mr Chaitoo said he expected the regulatory pressures from the likes of the European Union (EU) - which resulted in The Bahamas last year enacting fundamental changes to its business model - to continue with no end in sight.

"I don't think The Bahamas, Vanuatu or Cayman or other international financial centres can expect this business model to continue," he told this newspaper. "I live in Brussels, and every day the Europeans, Canadians and US are looking for every tax dollar they can find from corporate and private citizens.

"IFCs have to restructure the kinds of business they do, and the smart ones have done it already. Mauritius has done it already, a long time ago, and they're doing things other than being a place for foreigners to hide their cash. Barbados is struggling with that to some extent, and The Bahamas will have to rethink at at some point what it does."

While the Prime Minister had last year met with top EU officials in a bid to further protect the Bahamian financial services industry, Mr Chaitoo said the Europeans were "very firm on this issue" notwithstanding the fact that some of its members - such as Malta - engaged in exactly the same type of business as the IFCs that Brussels is targeting.

The Government's decision to seek full WTO membership by a June 2020 target date has already provoked strong resistance from groups such as Bahamians Agitating for a Referendum on Free Trade (BARF) and Bahamians Against WTO, as well as major private sector figures such as Super Value principal, Rupert Roberts.

Several anti-WTO demonstrations have already taken place, and the Oxford Economics report acknowledged there were "legitimate concerns" about WTO's impact - especially for Bahamian manufacturers and small businesses that rely on high tariffs for protection against imported rivals.

Yet with The Bahamas' current economic model not yielding sufficient fruit, Mr Chaitoo and his co-author, Lloyd Barton, recommended that joining the WTO be part of a much broader restructuring and repositioning strategy that created a much-improved business and investment climate in The Bahamas.

"WTO Accession can form part of a successful strategy of structural reform to modernise and liberalise the economy," they wrote. "But there are legitimate concerns amongst the local population around the potential impact of increased international competition on relatively small Bahamian businesses, as well as negative effects on existing trade imbalances and the public finances.

"Decision-makers should manage the levers of market protection and competition in an effort to maximise national economic growth and avoid business and/or sector complacency and inefficiency."

Jeffrey Beckles, the Chamber's chief executive, told Tribune Business yesterday that the report's findings represented "an urgent call to action for The Bahamas". He said the private sector needs to "insist" that the economy's structural weaknesses and bottlenecks be addressed, given that reform in these areas largely depends on the Government.

"It is an urgent call to action for The Bahamas," Mr Beckles said of Oxford Economics' conclusions. "We must insist on a direction for the country, insist we address these deficiencies and insist on economic diversification. It's an urgent call to action, and we must act, and act collectively and with the national interest at heart."

Mr Barton told this newspaper that the study's findings show full WTO membership is not a panacea, or cure-all, for The Bahamas' economic malaise but can be part of the solution if it secures accession terms to its benefit.

"WTO is not going to be a silver bullet for the economy," he emphasised, pointing to areas such as "excessive bureaucracy", the high cost of electricity, legal services and insurance, and labour costs and skills gaps that need to be addressed alongside the separation process.

"They've really come to a head since the financial crisis," Mr Barton said of these deficiencies. "It's becoming quite clear that something needs to change, and the consensus in the business community is that wide-ranging policy reforms are necessary.

"Getting back to WTO, it's not a silver bullet, but if used used alongside local policy reforms, that's how to finally stimulate growth again in this economy."

"What is also clear from our study is that WTO accession alone will not be a panacea for the current problems facing the Bahamian economy," the Oxford Economics study reiterated.

"In order to achieve a sustainable acceleration of growth, policymakers need to embark on a more ambitious and broad-based reform agenda to improve the domestic business environment."