The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The COVID-19 crisis has given The Bahamas “a fantastic opportunity” to do away with the “protectionism” surrounding foreign direct investment (FDI) and “the merchant elite”, an ex-attorney general urged yesterday.

Alfred Sears QC told Tribune Business that “ring fenced” tax breaks and other concessions granted to foreign investors, but never to Bahamians, and the anti-competitive dominance of certain sectors by a small number of firms, had helped create a culture of “economic dependency” in this nation.

Arguing that The Bahamas will never have a better chance to shatter the status quo, and forge a new economic model for itself, Mr Sears called on policymakers within the government to show “the vision and courage” necessary to seize the moment created by the pandemic.

Predicting that The Bahamas will by August have half of its annual gross domestic product (GDP), due to a combination of Hurricane Dorian and COVID-19, and with a national debt likely around $10bn, he warned that the country will not be able to escape its growing predicament solely through government borrowing.

Instead, Mr Sears called for a national economic strategy based on “resilience and sustainability”. He added that The Bahamas’ near-total dependence on food and fossil fuel imports, which drain an estimated $1.5bn per year combined from The Bahamas’ foreign currency reserves per year, could not continue even if tourism was still bringing in $2.5bn in earnings to counter this.

Urging The Bahamas to counter this dependency through the expansion of renewable energy and greater domestic food production, Mr Sears said the latter needed to forge greater links with a “reconfigured” tourism industry that moves away from the giant “Las Vegas-style” resorts of Atlantis and Baha Mar to a product based more on culture, history and the performing arts.

The former attorney general, adding that COVID-19 must force The Bahamas “to do what we ought to have been doing long time”, said a tourism industry based less on ‘sun, sand and sea’ will also present greater opportunities for Bahamian ownership.

And The Bahamas must also become “much more nimble” through fully embracing the digital economy as a way to improve productivity, governance and efficiency. Acknowledging that the nation’s economic model needs a total overhaul, Mr Sears warned that failing to exploit the disruption presented by COVID-19 would “condemn our country to an indefinite but awful future of dependency”.

This, he added, would involve an International Monetary Fund (IMF) structural adjustment plan being imposed on the country to the extent that it would lose control of its economy, with mass public sector terminations and an end to manufacturing and agriculture subsidies among the consequences.

“In every challenge there are opportunities, and I hope we have the courage and vision to seize them,” Mr Sears told Tribune Business. “In my view The Bahamas will not have the opportunity to go back to business as usual because the global system is being challenged unlike it ever has been since the 1929-1934 Great Depression and World War II.

“That resulted in the Marshall Plan to get the global economy back on track and reconstruct Europe. What has happened, and is happening now, is of that magnitude. As a result of this crisis, The Bahamas by August will have lost half of its GDP.

“It lost $3.4bn in two days in September last year with Hurricane Dorian, and my prediction is we will have an equivalent or greater loss of GDO now as we did under Dorian. By August our debt will have been risen from $8.5bn to $10bn. We will have lost half our GDP, and debt will be at $10bn,” Mr Sears continued.

“Our sovereign rating is already at ‘junk bond’ status. This isn’t a scenario where we will be able to borrow our way out of this crisis. It will have to be a combination of things.”

The former attorney general argued that The Bahamas needed to abandon an economic model based on “protectionism” of foreign and domestic elites, as this had created barriers making it difficult - if not impossible - for new Bahamian entrepreneurs to compete when they sought to enter sectors dominated by a small number of players.

“We’re going to have to move away from mercantilism,” Mr Sears told this newspaper. “The Bahamian economy is dependent on protectionism. It both protects FDI through ring fencing and giving all those concessions to foreign investors, and the merchant elite. It’s non-competitive, and there’s no antitrust laws.”

Citing food retailing, wholesale and the liquor business as examples of industries controlled by relatively few participants, he added: “There’s no competition, and therefore we tolerate tremendous inefficiencies because so many of our markets are protected.

“Monopolies and duopolies basically set the prices among themselves, and are vertically integrated..... I believe that if we cannot see that the old order is gone we will be clawing, trying to hold on to elements of mercantilism and ring fencing FDI, as opposed to creating a more dynamic economy.”

To achieve this, Mr Sears said The Bahamas needed to adopt a development strategy that was based on “resilience and dependency”. At the top of this agenda, he argued, is the need to lower the country’s food (around $1bn) and fossil fuel (nearly $600m in 2019) import bills.

He suggested that these two items alone are consuming “more than half” of The Bahamas’ annual tourism earnings, and “for us to become competitive” the country needed to accelerate the roll-out of renewable energy as well as greater domestic agriculture production.

“Our survival will require that we incentivise domestic food production and manufacturing, and renewable energy,” Mr Sears added. “We also have to move to a digital economy. We are living in a revolution, and if we’re going to become competitive again we’re going to have to be much more nimble to improve the quality of service we offer, efficiency of governance, and our productivity. It requires a major, major overhaul.”

Mr Sears said that when his daughter had recently been in Rwanda, she had been able to pay for taxis and order food from a restaurant when in its capital, Kigali, using her mobile phone.

Citing this as an example of global trends, he added: “This bricks and mortar banking is not competitive. That’s why the Canadian banks are moving out, but as they do it creates opportunities for Bahamians to develop financial services platforms that can provide services to Bahamians on scattered islands. COVID-19 is forcing us to do what we ought to have been doing long time.”

Similarly, Mr Sears said The Bahamas needed to “reconfigure tourism” away from Las Vegas-style resorts that “gobble up all the concessions” towards a model that emphasises heritage and cultural attractions, with a focus on vacation rentals and boutique resorts that are better linked to other sectors so as to boost local ownership.

“Staying in the remnants of the past will only lead us to being in a structural adjustment plan indefinitely under the IMF,” he told Tribune Business. “If we do not seize this opportunity we will condemn our country to an indefinite but awful future of dependency.”