The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Foreign direct investment (FDI) inflows into the Bahamian economy fell by one-third in 2019, it has been revealed, signalling it is unlikely to fill the COVID-19 foreign currency vacuum left by tourism.

The just-released World Investment Report 2020 produced by United Nations (UN) agency, UNCTAD, disclosed that FDI inflows to this nation fell by 32.8 percent year-over-year to $637m to reach a level equal to just 20 percent of their peak achieved in 2014 when Baha Mar’s construction was being raced to its completion (unsuccessfully at that time).

“FDI inflows to The Bahamas, the largest host economy among small island developing states (SIDS), shrank by a third to $637m, one-fifth of the peak registered in 2014,” UNCTAD said. “Investment in hotel projects slowed, and construction projects slated to start in 2019 were forced into a delay by Hurricane Dorian.”

While acknowledging that data was not available for The Bahamas, UNCTAD warned that this nation was likely to be especially hard hit by COVID-19 given its traditional high dependency - and that of other SIDS - on reinvested earnings by overseas investors.

“Negative operational results of global multinational enterprises in 2020 will automatically affect FDI in SIDS through reinvested earnings,” UNCTAD added. “Host economies such as Fiji and Solomon Islands, with a high dependency on reinvested earnings, will be hit particularly hard.

“The comparable data for The Bahamas and Mauritius were not available for 2019. However, in both SIDS, reinvested earnings constituted an important part of FDI flows in 2018: 34 per cent in The Bahamas and 60 percent in Mauritius.”

Jamaica, which suffered a smaller 14.1 percent decline in 2019 FDI inflows, outpaced The Bahamas by attracting some $700m from external sources last year. And UNCTAD warned that Latin American and the Caribbean will likely suffer the world’s greatest post-COVID-19 drop in FDI inflows of between 40 to 55 percent in 2020.

“Global FDI flows are forecast to decrease by up to 40 per cent in 2020, from their 2019 value of $1.54tn. This would bring FDI below $1tn for the first time since 2005. FDI is projected to decrease by a further five to ten percent in 2021 and to initiate a recovery in 2022,” UNCTAD added.

All of which creates a picture suggesting that FDI will be unable to sufficiently fill the gap created by the tourism industry shutdown when it comes to attracting enough foreign exchange earnings to support the one:one fixed exchange rate peg with the US dollar.

John Rolle, the Central Bank’s governor, last week called for “urgency” in finding an alternative foreign currency earnings source to tourism. In an indication that the Central Bank is concerned about the external reserves, and exchange rate peg, if the tourism industry does not produce an adequate recovery in 2021, Mr Rolle pointed to FDI as an alternative.

The Bahamas is not short of FDI-financed projects, with Sterling Global Financial’s Hurricane Hole redevelopment and the GoldWynn project at Goodman’s Bay both proceeding. The Prime Minister last month also confirmed that Sterling, which is chaired by David Kosoy, had received preliminary approval to proceed with its $352.2m joint venture with Montage at Matt Lowe’s Cay in the Abacos.

That project is billed as creating 250 full-time jobs and 2,970 posts across the life of the project’s construction. And elsewhere, the Central Bank’s June economic development report detailed the $200m Venetian Village Hotel and Residential Resort on New Providence.

While no details were provided about the developer and their financing, the Central Bank said the project will feature a 150-room condo hotel together with restaurants, commercial office space and medical offices. A 6,000 square foot gaming house is also in the plans for a project that is billed as creating 600 construction and 500 full-time jobs.

The Central Bank also provided details on the $250m TRLU Hills project, which was described as a mixed-use real estate project featuring residential units, a clubhouse, marina, restaurant and retail offerings. Some 250 persons were “expected” to be employed in the construction phase, which includes an international airport on 35 acres of Crown Land said to be valued at $75,000 per acre.

Meanwhile, Rupert Pinder, a University of The Bahamas (UoB) economics lecturer, yesterday told Tribune Business that this nation needed to exploit the COVID-19 pandemic to reform what he described as too often a “lazy” approach to foreign direct investment that failed to attract sufficient “value added” for the Bahamian economy.

“In terms of where we’re at with this over-reliance on FDI, we take a very lazy approach when it comes to putting in place structures to really benefit the domestic economy,” he explained. “In a lot of cases, we invite the foreign investor in and have to play catch-up with policies, structures and infrastructure.

“The investor takes a very myopic view of his project because he’s looking to maximise his return, and he’s not looking at how it impacts the wider economy. All of these things COVID-19 should help us take a look at, including the plan with respect to FDI. The foreign exchange element is one aspect, but there’s a real need to look at the whole value-added proposition.”

Acknowledging that foreign currency earnings are “the lifeblood of the economy”, and “the fuel that gets things moving” on the domestic side, Mr Pinder said The Bahamas needed to look seriously at the value added by FDI especially given the increasing digitisation that has only been accelerated by the COVID-19 pandemic.

“There’s a whole separate industry created by value-added,” he argued, “and we have to look at digital and see how we can create value added and new industries.... What we’ve done in a lot of cases is invite the foreign investor but not been able to maximise the value added because we did not put in place the policies and infrastructure to ensure that.

“We want to attract the investor, give them the keys to the city, the edifice goes up, the hiring is done, and our work is done. We have to ask ourselves how do we maximise the benefits for the economy of this pandemic.

“We have to be selective in the type of investments we attract; it has to be aligned with the environment and sustainable development. We have to look long-term and attract the type of investment we see as necessary for the digital economy.”