An economic model for the Bahamas

Adrian Gibson

First published in The Tribune on Friday, July 3, 2009 under the byline, Young Man's View.

THIS week marks the beginning of a new fiscal year, with world economies facing an ever encompassing economic drought and the Bahamian government having to initiate a stimulus package to stand in the gap because global credit markets remain in a state of near paralysis and the country faces a revenue shortfall while hardly being able to boast of having any indigenous capital.

In this seemingly deep and long recession, governments across the globe have been passing stimulus packages to soften the impact of the crisis and create new jobs, save existing ones and maintain, as is the case of the Bahamas, an expensive bureaucracy. In the US, for example, the stimulus package is more than $800 billion. Although the purveyors of socialist doom and gloom are quick to denounce of government's stimulus initiatives, how else do they propose to withstand a global financial meltdown, especially in an economy such as ours that appears to have been built on sand?

According to the Central Bank "the outlook for the Bahamian economy remains weak throughout 2009, with developments expected to be heavily influenced by the responsiveness of the global economy--particularly the US--to the stimulus measures implemented by monetary and fiscal authorities.

Frankly, with reduced consumer spending by tourists and some locals, and investments by foreigners and Bahamian businesses currently in the doldrums, the only area left to stimulate gross domestic product (GDP) is government spending. In the short term, while the stimulus programme will increase the fiscal deficit and the national debt, it will provide for the implementation of a government social safety net, improvements in public sector infrastructure, create numerous construction projects and employment, spawn business opportunities and initiate economic activity.

As the economic storm surges and continues to corrode the Bahamas' badly prepared, waning tourism and financial services industries, Bahamians must raise their standards of service and improve their work ethic and our government, along with social leaders and the private sector, must seek to draft a national plan and an updated and revised economic model for the country in order to ensure our long-term sustainability. The contracting local job market and the closure of businesses has caused the unemployment rate to raise to a troubling 12 per cent. Recent unemployment figures reveal that more than 15,000 Bahamians have either been job hunting without success or have been discouraged from finding a job during the last four years and, as of May/June, there are thousands of new job seekers having just graduated from high school/colleges.

In order to contain the ballooning deficit and strengthen the economy, the government must continue to streamline expenditures and even more, invest in teaching citizens new skills and encourage entrepreneurship. Two of the main factors of production are human capital and entrepreneurship, with the former referring to heightening of the knowledge and skills of workers through education and experience and thereby widen employment opportunities and, as is the case with the latter, to develop new ideas, take financial risks to develop their ideas and coordinate the production and sale of goods and services. Consecutive governments seemingly have failed to notice the value of Japan's re-emergence after being obliterated by a US-dropped nuclear bomb during the Second World War. Japan exemplifies the importance of developing human capital in order to build a sound, flourishing economy. Why doesn't the Bahamas, like Barbados, allow for deserving students to study at the College of the Bahamas free of charge?

Furthermore, the deficit can only be curtailed if the Bahamian government takes serious steps to implement an efficient system to collect hundreds of millions of outstanding tax dollars. Moreover, a heightened revenue collection drive must be taken by government-run companies such as BTC, BEC and Water and Sewerage, and the government must seek to severely penalize those persons engaging in tax fraud or who have evaded customs and other tax collection agencies. The Customs department, the country's chief revenue earner, is thought to have lost millions per annum due to duty avoidance, corruption and erroneous practices. The government must immediately move legislation to close tax loopholes and revenue leakages, particularly to mitigate against those unscrupulous Bahamian companies that use phony invoices and practice under-invoicing and/or set-up wholly-owned US "shell companies", to cheat the government and honest taxpayers of millions of dollars per year.

The antiquated Customs Management Act must be amended to protect the revenue base in Freeport, loopholes in the Business License Act must be closed and casino and local/foreign-owned real property taxes must be collected. According to a 2007 Auditor General report, there was nearly $400 million in outstanding real property taxes owed to the government. This amount has no doubt increased and, if the reigns of revenue collection are tightened, the country could unquestionably achieve a budget surplus.
According to an International Monetary Fund (IMF) report, it was also suggested that the Bahamas' government "strengthen administration of existing property and trade taxes, review FDI (Foreign Direct Investment) incentives and shift the tax base to domestic consumption--endorsing the adoption of a broad-based VAT." In widening our tax revenue base, a value added tax should be implemented locally. This form of taxation has been adopted by 140 countries around the world and would represent a prime candidate for the Bahamas. Frankly, this form of taxation--once effectively administered--would be comprehensive and difficult for persons to circumvent since it must be tacked on to all purchases. As the IMF report suggests, "sustainable revenue-enhancing measures, including VAT, would reduce the national debt by 30 per cent GDP over the medium term."

A corporate tax and taxes on profits, revenues and/or assets under management of international clients/companies must also be levied.

Over the years, consecutive governments have paid lip service to development, entrepreneurship and empowering citizens. Although legislation such as the Industries Encouragement Act, the Tariff Act, the Export Manufacturing Industries Encouragement Act, the Agricultural Manufacturing Act and the Spirits and Beer Act are in place, there has seemingly been a lack of support for industries. While Bahamians are capable of self-sustenance and engaging in viable crop production, there also appears to be a lack of support in the commercial sector for Bahamian foodstuffs, in part due to an inferiority complex that many Bahamians have seemingly adopted when dealing with native produce and successive governments failing to increase the import tariffs particularly in support of items made or grown locally.

The government must promote national youth development programmes and keep young people focused on making their contribution to nation-building. In Jamaica, the government has demonstrated its faith in that country's youth by budgeting for $3 million to be directed to a Youth Empowerment Programme, with set goals to assist new graduates with becoming employed, setting up training seminars to help them manage businesses and providing for youngsters to submit ideas of the kind of enterprise they wish to start. Furthermore, the micro-lending approach adopted by the Jamaicans for the start up of small to medium-sized businesses, and additional monies being set aside to help create and sustain these businesses, should be further adopted by the Bahamas--although the government took a similar approach to lending money in 2007.

The National Training and Retraining Programme was a great initiative undertaken in the 2009/2010 Budget, which also proposes to provide opportunities for persons to expand their skill-sets in areas such as masonry, wielding, carpentry, tile laying, day care, customer service, data processing, computer skills, landscaping, electrical works, language skills landscaping, electrical works, language skills and housekeeping.

As a nation we must move from an economic model that seems stuck in a time-warp, which focuses on year-round tourism and financial services, to a competitive diversified model that expands public revenue and liberalizes our economy.

The allocation of venture capital for entrepreneurs can assist in the diversification of our economy and the establishment of new industries such as food processing, consulting and advisory services, information technology, fisheries processing, off-shore and local research and development setups, canning, pre-packaged native tea/meals/spices/sauces, marine farms and exports, cattle rearing and so on. Whatever happened to the Domestic Investment Board? What role is the Bahamas Development Bank playing during these floundering economic times?

In a country of scarce resources and rampant consumerism, it is high-time that those Bahamians living beyond their means and in constant pursuit of material possessions most likely bought on credit-- be prudent spenders and heed PM Hubert Ingraham's admonition not to "hang (their) hats higher than (they) could reach."

Thus far, it appears that government is demonstrating fiscal prudence in the management of the Bahamian people's money, so as not to endanger our national economic welfare and pass on an unsustainable debt burden to future generations.

The recent budget exercise revealed much about some members of the Opposition who resorted to partisan histrionics instead of proposing constructive and considered alternatives to positions put forward by the government.

With the IMF suggesting that there will be a "difficult transition period" to economic recovery as it is expected to be much weaker and slower than in previous recessions, it is high-time that certain of our elected representatives understand that their election does not certify them to talk foolishness for five years.

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