The Tribune

• Pandemic reversed 2019’s $311m total trade surplus

• Tourism closure produced unheard of service shortfall

• ‘Piecemeal’ strategy leaves trade below 80% of GDP

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Tourism’s “collapse” at COVID-19’s peak “exposed the fragility” of The Bahamas’ current economic model by producing rare twin goods and services trade deficits worth a combined $1.7bn.

The Bahamas’ draft National Trade Policy, which is due to be discussed at a public consultation tomorrow, discloses that the pandemic-induced economic lockdown and border closures virtually wiped out tourism earnings that had produced a $311m total trade surplus just one year before.

This nation’s economic model has traditionally relied on services exports, chiefly tourism and financial services, to generate foreign currency surpluses to cover the multi-billion dollar annual trade deficits incurred on physical goods. While this system worked reasonably well prior to COVID, the resulting $3.2bn plunge in 2020 services exports created huge shortfalls on both the goods and services sides that combined for an overall deficit “higher than in any recent years”.

Asserting that trade will play a pivotal role in repositioning the Bahamian economy for the post-pandemic “new normal”, the National Trade Policy report said: “In the pre-COVID period, The Bahamas’ large services trade surplus was roughly sufficient, and increasingly so, to counterbalance the goods trade deficit.

“The strong performance of services, in particular the tourism sector, helped The Bahamas to achieve a combined goods and services trade surplus for the first time in 2019, at $311m. However, the COVID-19 pandemic caused a collapse in services exports in 2020 to $1.3bn from $4.5bn a year earlier, less than the services imports of $1.4bn in that year.

“The impact of the pandemic was thus a dual goods and services trade deficit with a combined value of $1.7bn, higher than any deficit in recent years and exposing the fragility of the country’s current trade model, which is based on a very narrow export base.”

The $133m services trade deficit incurred in 2020 represented a major departure from prior year outcomes, which almost always produced surpluses - meaning The Bahamas earned more income than what it spent on importing services - ranging from $1.218bn to $2.637bn between 2016 and 2019.

As an import-dependent country, relying on the outside world for most of what it consumes, the National Trade Policy report said COVID-19 had revealed the vulnerability of a Bahamian economic model that has grown to increasingly rely on tourism - “one of the globally most affected sectors by the pandemic” - to finance these purchases via its annual foreign currency earnings.

“Trade has an important role to play in the new normal,” the report added. “But for this to happen, The Bahamas needs a coherent National Trade Policy which aligns with the broader development strategy, and to avoid a piecemeal approach of uncoordinated and sometimes conflicting measures affecting the country’s exports and imports of goods and services.

“Such a trade policy has so far been lacking in the country, which may at least in part explain the long-term declining trend that trade has played for The Bahamas. Up to the mid-1990s, trade in goods and services was equivalent to more than 100 percent of GDP, compared to the less than 80 percent in recent years.”

Underscoring the near-total reliance on tourism, the National Trade Policy continued: “Up to 2019, travel services accounted for about 90 percent of the country’s total services exports – in 2019, $4.1bn out of $4.5bn. In 2020, the impact of COVID-19 changed the pattern: Travel services exports contracted by 67 percent, from $4.1bn to less than $1bn, and transport services export by 46 percent.

“Data for the first quarter 2021 showed no recovery: Travel services exports stood at $327m compared to $834m in the first quarter of 2020. Conversely, exports of business services remained stable and, as a result, the share of business services in total services exports increased to 16.7 percent, whereas that of travel services decreased to 77 percent.”

Travel exports plummeted to $967m in 2020 compared to the prior year’s $4.1bn, while transportation earnings fell from $82m to $44m. Other business services, though, remained relatively flat at $210m compared to $207m for the prior year, which the report said showed the value in The Bahamas developing a “diversified services export portfolio”.

The National Trade Policy concedes that The Bahamas faces multiple structural weaknesses due to its reliance on imports, as well as an “extremely limited” capacity to export physical goods that are actually made in The Bahamas. “Overall exports of The Bahamas performed well until the outbreak of the COVID-19 pandemic,” the report said.

“They increased steadily from about $400m in 2016 to $537m in 2019, equivalent to an average annual increase of 10.1 percent, but then dropped by 37.7 percent in the COVID-19 year of 2020 to $335m. However, more than half of The Bahamas’ exports are re-exports of products that were previously imported.

“Also, the share of genuine ‘domestic exports’ - exports of goods produced in The Bahamas - decreased from 50 percent in 2016 to 38 percent in 2019. The recovery to 48 percent in 2020 is not necessarily an indication of increased competitiveness but, rather, of the issues faced by the logistics industry and tourism sector in the pandemic year.”

However, the National Trade Policy said this was somewhat offset by the fact export data does not catch sales of Bahamian-made products to tourists while they are in the jurisdiction. “These are registered as domestic sales although, in fact, they constitute (indirect) exports,” it added. “For example, about 75 percent to 80 percent of rum sales are estimated to be to tourists, but statistics show hardly any rum exports.”

A further vulnerability was identified as The Bahamas’ reliance on a narrow range of goods exports, such as polystyrene beads (Polymers International) and fisheries, plus its dependence on just a few overseas markets - chiefly the US, followed by Canada and the European Union (EU).

“The portfolio of goods and services exported by The Bahamas is not diversified. Among goods, in 2019, the top four export products (at tariff line level) accounted for 90 percent of total domestic exports: Spiny lobster tails ($72.6m; 35.8 percent), polystyrene ($67.9m; 33.5 percent), organic chemical compounds containing a pyrimidine ring ($32.3m; 15.9 percent), and sea salt ($10m; 4.9 percent),” the draft National Trade Policy said. 

“Provisional data for 2020 indicates that the pandemic has led to an even stronger export concentration than before. In addition, one of the dominant exports, polystyrene beads, has shown a long-term decline in export value from a maximum of $182m in 2013 to $69m in 2019 and $55m in 2020 – in large part in response to increasing environmental concerns in many markets over the use of plastics packaging and corresponding bans.”

A similar narrow concentration also exists when it comes to The Bahamas’ overseas exports markets. “The Bahamas’ goods trade is concentrated on very few partners,” the National Trade Policy report said. “First and foremost, the US (88 percent of total exports, 74 percent of domestic exports), followed by the EU (6 percent/16 percent). The UK, Canada and Caribbean countries play limited roles, and other countries insignificant ones.”

The National Trade Policy conceded that the “limited productive capacity” of many Bahamian industries was a key reason for the country’s restricted “trade competitiveness”. The performance of manufacturing, and agriculture, forestry, fishing and mining, was described as “weak” with their combined share of national economic output (GDP) falling from 5 percent in 2012 to less than 3 percent by 2020.

Suggesting that it will be impossible to reverse services’ economic dominance, with these activities accounting for 97 percent of GDP, the National Trade Policy nevertheless said the competitiveness of other industries can be improved by tackling the ease and cost of doing business, efficiencies and managerial capacity.

“The country has few natural resources, which are already being used for exportation, as the examples of aragonite, sea salt and sands show and, because of the small size and dispersion across numerous islands, economies of scale cannot be reaped and the potential for agriculture and industry is limited,” the National Trade Policy said.