Op-Ed: How to Fix the Bahamas’ Economy

By Mark Turnquest
Op-Ed Contributor

After analyzing The Bahamas’ economic conditions for the past three years and reviewing international watchdog agencies’ (Moody’s, IFC/World Bank, Standard & Poor’s) reports, it is imperative that the public and private sectors focus on small and medium size development (SME) and economic diversification.

It is the only sensible approach to grow our economy in a sustainable manner, increase GDP and the entrepreneurial spirit and reduce unemployment, national debt and crime. In order to correct these problems, there must be a public and private sector partnership which will conduct a strategic analysis on how to make this little country great.

WHAT ARE THE CAUSES AFFECTING THE GROWTH OF THE SME SECTOR?

(1) NATIONAL DEBT
The reality is that the national debt is almost $5 billion (50 percent of GDP). We spend almost 20 percent ($298 million) of our budget on servicing our national debt.

(2) UNEMPLOYMENT
Approximately 40,000 Bahamians are either unemployed, underemployed or are discouraged workers. The unemployment rate in New Providence is 15.1 percent and in Grand Bahama it is 21.2 percent (The Bahamas’ overall is 15.9 percent). There have been 26,000 job losses over the last 5 years.

(3) CRIME
Our crime challenges are tremendously affecting the business community (via break-ins and armed robberies) and we have four years of consecutive murder rate records.

(4) A DECLINE IN COMPETITIVENESS
Several international credit rating agencies have downgraded the Bahamas’ sovereign credit rating and competitiveness in 2011 and suggested that our government raise taxes, formulate some type of value-added tax system, slow down government spending and most importantly, diversify our economy. Unfortunately, the Bahamas has lost its economic competitiveness and creativity in comparison to our Caribbean neighbors in recent years. Our country has regressed in the important categories of: (A) Ease of Doing Business, (B) Starting a Business, (C) Sovereign Credit Rating and (D) the Human Development Index.

(5) INDUSTRIES’ CHALLENGES
Our Tourism product is uninteresting and not exciting; our financial services offer a lack of innovation and our construction boost is benefiting foreigners. These three industries: Tourism, Financial Services and Construction, and related industries, contribute over 90 percent of GDP ($6.5 Billion) and 80 percent of our employment level (152,000). We are still importing over $500 million dollars in agricultural products and our manufacturing sector is stagnated.

(6) ROAD WORKS PROJECT & PROLONGED RECESSION
The SME sector is stagnant and contribution to GDP has deteriorated from 5 percent in 2007 to 3 percent in 2011 because of the Great Recession, failed economic policies, the road improvement project, the money borrowing crunch, a lack of opportunities and a contracted economy.

(7) FAILED ECONOMIC POLICIES
Stakeholders who are responsible for SME Development have failed to improve our economy beyond mediocrity by not developing a Strategic Plan for SME Development. Although over the past seven years (2005- 2011) the public and private sectors collaborated with the intent to provide some form of a SME framework development, e.g. the Domestic Investment Plan, SME Development Act, both have failed to become formulated and now the SME sector is in a hopeless position in mid-2012.

(8) NO FAMILY ISLAND DEVELOPMENT VISION
Each Family Island should be analyzed to determine its economic, social and cultural potential, so that financial and other incentives can be offered to Bahamians who want to open complementary businesses and reside permanently on a Family Island. This initiative will increase the employment rate, improve the infrastructure of the Family Islands, encourage Bahamians to reside there permanently, and entice more domestic and foreign tourists to the various islands. Every redevelopment plan must preserve the natural heritage and cultural resources of each island.

(9) NO SME DEVELOPMENT ACT (SDA)
The SDA, from a domestic perspective, would provide the foundation on which to improve the economic conditions of the Bahamas. From an international perspective, it would attract foreign investors who want to partner with local entrepreneurs in fields such as e-commerce, manufacturing, agriculture, and information technology. These industries are tremendously underserved and underdeveloped. These types of investments would diversify the Bahamian economy, which relies heavily on tourism and financial services. The SDA would revitalize the entrepreneurial spirit in all islands of The Bahamas and will outline policies and initiatives that would assist in the development of SMEs — a major driving force of the economy. All current incentives, concession and legislation that are afforded to small businesses should be modified and encompassed in the SDA.

(10) NO SME DEVELOPMENT CENTRE (SDC).
A new SME development centre must be developed and structured to eliminate financial and non-financial decision making based on political influences when formulating national economic policies. The SDC would establish and identify the roles and responsibilities of a Regulatory and Advisory Board that would oversee the enforcement of the SME Developing ACT (SDA).
Public and private sector executives would be selected to this Board. Members of this Board would be mandated not to make decisions based on political; gender or cultural motives. It would have the authority to make recommendations to modify particulars of the SDA based on economic conditions or the request of stakeholders.

(11) NO NATIONAL FUNDING SCHEME
A $15 to 20 million SME fund needs to be developed by local and foreign investors. Government need to eliminate legislations that make it almost impossible for SMEs to access international funding. In addition, government, local and international lending institutions must partner to extend meaningful financial support to SMEs. Lenders need to focus on packaging loans extended to SME that have built-in accounting management, human resources and marketing support programs at an affordable cost for at least a year.

The newly-elected Progressive Liberal Party government must swiftly attack this economic crisis by developing a National Strategic Plan for SME Development that focuses on sustainable economic growth and economic diversification.

In addition, there must be more public-private partnerships (PPT) when developing economic policies to prevent unnecessary roadblocks for entrepreneurial advancement that are difficult to reverse.

Mark A Turnquest can be contacted at markaturnquest@gmail.com or www.markturnquestconsulting.com.

Note: the opinions expressed in Caribbean Journal Op-Eds are those of the author and do not necessarily reflect the views of the Caribbean Journal.