ECONOMY
The Bahamas is driven by tourism and financial services. Tourism and tourism-driven construction and manufacturing provide an estimated 60% of the gross domestic product (GDP). Tourism employs about half the Bahamian work force. In 2008, 4.6 million tourists visited The Bahamas, 85% from the United States. This was a 4.5% decrease in overall visitors when compared to 2007. There are about 110 U.S.-affiliated businesses operating in The Bahamas, and most are associated with tourism and banking. With few domestic resources and little industry, The Bahamas imports nearly all its food and manufactured goods from the United States. American goods and services tend to be favored by Bahamians due to cultural similarities and heavy exposure to American advertising. The Bahamian economy, due to its heavy dependence on U.S. tourism and trade, is deeply affected by U.S. economic performance.
The Bahamas is currently experiencing an economic downturn as a result of the worldwide economic recession. Tourism numbers dropped significantly during the last quarter of 2008, and approximately 1,000 tourism sector employees have been laid off since September 2008. The Bahamas is focusing on construction and other infrastructure projects in an effort to boost the economy and create employment. Future goals include continued development of tourism properties through large-scale private sector investment, including increased Bahamian ownership, redevelopment of the Grand Bahama economy following major hurricane losses in 2004, and the expansion of the robust Bahamian financial sector.
In addition to the decrease in tourism, other economic challenges facing The Bahamas include meeting continued employment demands, jumpstarting a lagging privatization process, and monitoring increasing levels of government debt. Another major challenge for Bahamians will be to prepare for hemispheric free trade. Currently, Bahamians do not pay income or sales taxes. Most government revenue is derived from high tariffs and import fees. Reduction of trade barriers will probably require some form of taxation to replace revenues when the country becomes a part of the Free Trade Area of the Americas (FTAA). As evident by domestic opposition to the Caribbean Single Market Economy (CSME), the advantages of free trade have been hard for the government to sell. Despite some domestic opposition, the Bahamian Government signed an Economic Partnership Agreement (EPA) with the European Union (EU) in December 2008.
A number of planned hotel projects have promised to increase economic growth and create short- and long-term employment. The Atlantis Resort and Casino on Paradise Island remains a major tourist draw and an engine of the economy. The future of the Baha Mar hotel project was called into question after casino operator Harrah's pulled out of the deal in March 2008. However, in March 2009 the ExIm Bank of China formally agreed to finance the stalled project, estimated at $3.2 billion in funding. The government promises to expand Nassau International Airport and has turned over management to private operators. The Bahamian Government also has adopted a proactive approach to courting foreign investors and has conducted major investment missions to the Far East, Europe, Latin America, India, and Canada. The government continues to pay particular attention to China to encourage tourism and investment. The Chinese are funding the construction of a new $30 million sports stadium in New Providence and may provide an addition $100 million in road construction projects. While the FNM government has expressed a desire to increase Bahamian ownership interests in developments, The Bahamas' dependence on foreign investment is unlikely to change.
Financial services constitute the second-most important sector of the Bahamian economy, accounting for up to 15% of GDP, due to the country's status as a tax haven and offshore banking center. The Stop Tax Haven Abuse bill, which has been proposed in the U.S. Congress and which names The Bahamas as one of 34 secrecy jurisdictions, has generated considerable discussion in local media and amongst politicians. Many Bahamians feel the inclusion of The Bahamas in such a bill would result in significant job losses in the financial services sector. As of 2005, the government had licensed 262 banks and trust companies in The Bahamas. The Bahamas promulgated the International Business Companies (IBC) Act in January 1990 to enhance the country's status as a leading financial center. The act served to simplify and reduce the cost of incorporating offshore companies in The Bahamas. Within 9 years, more than 84,000 IBC-type companies had been established. In February 1991, the government also legalized the establishment of Asset Protection Trusts in The Bahamas. In 2000, in response to multilateral organizations' concerns, the government passed a legislative package of stronger measures to better regulate the financial sector and prevent money laundering in the country's banking sector, including creation of a Financial Intelligence Unit and enforcement of "know-your-customer" rules. Some of these measures have been challenged in Bahamian courts, and the number of offshore banks registered in The Bahamas has declined substantially since 2002. As many as half of the IBCs have also closed shop. As a result, the government is considering additional legislation to keep the industry competitive while complying with international standards, including possible reform of the regulatory structure and the signing of more Tax Information Exchange Agreements.
Agriculture and fisheries together account for about 1% of GDP. The Bahamas exports lobster and some fish but does not raise these items commercially. There is no large-scale agriculture, and most agricultural products are consumed domestically. Following an outbreak of citrus canker on Abaco in 2005, The Bahamas lost a main agricultural export, and the Ministry of Agriculture banned the export of plant materials from Abaco. The Bahamas imports more than $250 million in foodstuffs per year, representing about 80% of its food consumption.
The Bahamian Government maintains the value of the Bahamian dollar on a par with the U.S. dollar. The Bahamas is a beneficiary of the U.S.-Caribbean Basin Trade Partnership Act (CBTPA), Canada's CARIBCAN program, and the European Union's Lome IV Agreement. Although The Bahamas participates in the political aspects of the Caribbean Community (CARICOM), it has not entered into joint economic initiatives, like the CSME, with other Caribbean states.
The Bahamas
has a few notable industrial firms: the Freeport pharmaceutical
firm, PFC Bahamas (formerly Syntex), which recently streamlined
its production and was purchased by the Swiss pharmaceutical firm
Roche; the BORCO oil facility, also in Freeport, which transships
oil in the region; the Commonwealth Brewery in Nassau, which produces
Heineken, Guinness, and Kalik beers; and Bacardi Corp., which
distills rum in Nassau for shipment to U.S. and European markets.
Other industries include sun-dried sea salt in Great Inagua, a
wet dock facility in Freeport for repair of cruise ships, and
mining of aragonite--a type of limestone with several industrial
uses--from the sea floor at Ocean Cay.
The
Hawksbill Creek Agreement established a duty-free zone in Freeport,
The Bahamas' second-largest city, with a nearby industrial park
to encourage foreign industrial investment. The Hong Kong-based
firm Hutchison Whampoa has opened a container port in Freeport.
The Bahamian Parliament approved legislation in 1993 that extended
most Freeport tax and duty exemptions through 2054.
Business Environment
The Bahamas offers attractive
features to the potential investor: a stable democratic environment,
relief from personal and corporate income taxes, timely repatriation
of corporate profits, proximity to the U.S. with extensive air
and telecommunications links, and a good pool of skilled professional
workers. The Government of The Bahamas welcomes foreign investment
in tourism and banking and has declared an interest in agricultural
and industrial investments to generate local employment, particularly
in white-collar or skilled jobs. Despite its interest in foreign
investment to diversify the economy, the Bahamian Government responds
to local concerns about foreign competition and tends to protect
Bahamian business and labor interests. As a result of domestic
resistance to foreign investment and high labor costs, growth
can stagnate in sectors which the government wishes to diversify.
The country's infrastructure
is best developed in the principal cities of Nassau and Freeport,
where there are relatively good paved roads and international
airports. Electricity is generally reliable, although many businesses
have their own backup generators. In Nassau, there are two daily
newspapers, three weeklies, and several international newspapers
available for sale. There are also five radio stations. Both Nassau
and Freeport have a television station. Cable TV also is available
locally and provides most American programs with some Canadian
and European channels.
Areas of Opportunity
The best U.S. export opportunities remain in the traditional areas of foodstuffs and manufactured goods: vehicles and automobile parts; hotel, restaurant, and medical supplies; and computers and electronics. Bahamian tastes in consumer products roughly parallel those in the United States. Merchants in southern Florida have found it profitable to advertise in Bahamian publications. Most imports are subject to high but nondiscriminatory tariffs.
GDP (2008 est. official exchange rate): $7.564 billion (current); $7.208 billion
(constant).
Growth rate (2008 est.): 0.88% (current); -1.7% (constant).
Per capita GDP (2008 est.): $21,307 (constant).
Natural resources: Salt, aragonite, timber, arable land.
Tourism (2004, including tourism-driven construction and manufacturing): 48% of GDP.
Government spending (current expenditure only 2008): 17.0% of GDP.
Financial services: 11.3% of GDP.
Business services and real estate: 17.7% of GDP.
Construction (2008; 11.4% of GDP): Products--largely tourism-related.
Manufacturing (2008; 3.3% of GDP): Products--plastics, pharmaceuticals, rum.
Agriculture and fisheries (2008; 1.2% of GDP): Products--fruits, vegetables, lobster, fish.
Trade (2007): Exports ($670 million)--mineral products and salt, rum, animal products, chemicals, fruits, and vegetables. Export partners (2007)--U.S. (71%), Canada (5.7%), Netherlands (5.6%), France (4.9%), Germany (2.4%), U.K. (1.5%), South Africa (1.5%), China (1.5%). Imports ($3.104 billion)--foodstuffs and animals, machinery and transport equipment, manufactures, chemicals, mineral fuels. Import partners (2007)--U.S. (87.0%), Curacao (2.8%), Venezuela (2.1%), Puerto Rico (1.4%), Japan (1.1%).
