The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Manufacturers yesterday hailed the Government’s decision to eliminate the Customs bond and 45 percent machine parts duty as “a huge benefit” that will help them compete on a more “level playing field”.

Walter Wells, president and chief executive of Caribbean Bottling Company, the local Coca-Cola producer, told Tribune Business that the move will have a “tangible” impact on authorised producers under the Industries Encouragement Act as it will potentially boost cash flow and free-up assets for use in daily business operations.

He spoke after Prime Minister Philip Davis KC, in unveiling the 2024-2025 Budget, revealed that the requirement for authorised manufacturers to post an annual Customs bond is being eliminated along with import tariffs of up to 45 percent on replacement parts needed to sustain business operations.

“Every manufacturer licensed under the Industries Encouragement Act has to establish a bond supported by a bank in an amount that Customs deems appropriate based on the size of your operation,” Mr Wells explained of the current situation.

“It’s renewed every year, you pay the bank a fee every year, and a number of manufacturers have been around for decades paying bills as they should. The question has arisen for years: Why do we need to put a bond in place? The Government agreed that it’s not necessary and all the manufacturers impacted by it are grateful for it.”

Explaining the practical impact, Mr Wells said: “There are two factors. Banks trend bonds like a loan. You have to provide security for it, It could be a lien over the company’s assets, it could be a lien over real estate, it could be a lien over cash. And if Customs needs a bond for $500,000, the bank fee is 2 percent. That’s $10,000 a year.

“On top of that, you may need those assets to secure a loan to fund your business. It creates a barrier for people to obtain funding they may otherwise need to fund their operations and stay in business. It’s a real benefit, a tangible benefit, particularly when starting a business and the first four to five years are the most difficult. You need every benefit you can scrap.

“It’s a huge benefit, especially with somebody starting out, and doesn’t need to have assets tied up in a bond that, for the most part, is not called upon.” Mr Wells said the elimination of import duty on parts and replacement components will be another “huge benefit” for hard-pressed Bahamian manufacturers.

“The Government historically has allowed you to bring in your equipment duty-free,” he added. “You set up your production and manufacturing facility but if you need to service it, particularly when you have machinery with a life expectancy of 15-20 years, you have to service it on a regular basis. The duty on the parts, at some point, actually exceeds the value of the equipment.

“This is a huge benefit to manufacturers. You’ll have some manufacturers who will be quite relieved with that enhancement provided by the Government. It’s a very positive development for manufacturers and I congratulate the Government for having the foresight to do so,” he added.

“One of the primary reasons for concessions was to allow local manufacturers to compete against imported products. If you compete with a manufacturer in Fort Lauderdale, Florida, and they can buy equipment at the same price as you or better, they don’t have to pay import duty on equipment, the parts they utilise, and they have cheaper electricity rates.

“If you have to pay duty on parts or your equipment it makes it very difficult to compete against them. We need a level playing field, and that’s what the Government has done in this instance. Every bit helps. We have just got to keep moving ahead, two steps forward and not too many back. We keep moving in the right direction.”

The Prime Minister, in unveiling the bond and machinery parts duty changes, said the move is an example of how his administration is “breaking down obstacles” to business growth and development. “We want to create greater opportunities in manufacturing, and reduce barriers to entry,” Mr Davis added.

“By encouraging more opportunities in industry and manufacturing in The Bahamas, we not only broaden our economy but we lessen our dependency on imports. Therefore, we are removing the bond requirement for authorised manufacturers under the Industries Encouragement Act. In addition, we are removing Customs duty on parts for machinery for businesses under the same Act.”

He further explained: “They can bring in their equipment duty-free, but if something goes wrong and they have to bring in a part, 45 percent, we are removing duty on parts and machinery. Persons can find the bond, in particular, an obstacle. Banks are requiring cash for the issuance of those bonds.

“They have to pay fees to the bank for [the bond]. That no longer exists. That cash they put up for the bond can be used for operational expenses to grow your business. That’s what we’re about: Finding obstacles to growth and knocking them down.”

Mr Davis said the Government also plans to reform watercraft legislation to strengthen Bahamian ownership in this tourism niche. “We are always working to expand Bahamian ownership in our tourism industry,” he added.

“In this Budget, we are adding a new provision, specifying that only Bahamians may be issued a licence for the commercial operation of all motorised watercraft, including jet skis. The recreational watercraft industry in The Bahamas must be owned and operated by Bahamians.

“This includes ownership and operation of jet skis for hire and other commercial leisure boating activity. Bahamians should get the maximum benefit from our successful tourism industry.” Andoni Lisgaris, the Bahamas Excursion Operators Association’s (BEOA) president, told Tribune Business he would reserve judgment until the legislation was passed into law.

“As far as I’m aware it was already an industry protected for Bahamians, but we can see how that worked,” he said. “We have to wait and see if they go through with it. I’m going to see if they put their money where their mouth is. The same with retail. It’s protected for Bahamians, but go downtown and a lot of the jewellery stores are run by foreigners. I don’t want to get too excited right now.”