Openness to Foreign Investment
On May 7, 2012, The Bahamian electorate returned the Progressive Liberal Party (PLP) to power after five years of governance by the Free National Movement (FNM). During the election period both major political parties campaigned on increasing levels of foreign direct investment and acknowledged the importance of FDI as the key driver of economic development in the Country.
The PLP, led by Perry Christie, also campaigned heavily on returning the majority shareholding in the national telecoms company to state control from Cable & Wireless LLC (DBA Lime Bahamas). This controversial position helped the PLP to win the elections, but generated negative reviews by Moody’s and other international credit agencies. The reversal of the previous government’s position on divesting and liberalizing the telecom sector was described by Moody’s to be ‘erratic’ and damaging to foreign investment and investor confidence in The Bahamas. These actions, inherent structural weakness in the economy, and sluggish U.S. growth have resulted in both Moody and Standard & Poor's downgrading The Bahamas credit rating and overall outlook for 2013.
According to Moody’s, economy of The Bahamas shrank at an average pace of 0.8% annually between 2007 and 2011, and tourism, financial services and construction - the pillars of the national economy - remained weak. These challenges, coupled with a growing public debt, increases in expenditure after the elections, a narrow revenue base and heavy dependence on customs and property taxes led Moody’s to conclude that the prospects for growth in The Bahamas were limited. This and other assessments have not caused major shifts in government policy, but have sparked an aggressive and coordinated pursuit of foreign direct and indirect investment by the Government of the Commonwealth of The Bahamas (GCOB).
To this end the new PLP government has appointed a Minister of State for Investment and created a Ministry of Grand Bahama Island to assist in investment promotion and facilitation. These initiatives with support from the current investment infrastructure have maintained foreign direct investment net inflows above US$500M and encouraged significant partnerships with external investors in the Country. The Bahamas does not give preferential treatment to investors based on nationality and investors have equal access to incentives, which include land grants, tax concessions and direct marketing and budgetary support. The GCOB provides guidelines for investments through its National Investment Policy (NIP), which is administered by The Bahamas Investment Authority (BIA).
The BIA acts as a first point of contact for investors to the country and serves to channel and facilitate investment approvals. The agency is mandated to act as a ‘one stop shop for investors’ and works to assist investors navigate the tedious local approvals process and is the lead agency for the international promotion of the Country as a destination for investment.
The BIA also works to direct investment to specific sectors in the economy through its management of the national investment policy. The NIP provides guidance to policy makers and while it does explicitly ‘reserve’ certain sectors of the economy exclusively for Bahamian participation there have been notable exceptions.
Areas in which the government is partial to Bahamian or resident investment include wholesale and retail operations, commission agencies engaged in the import and export trade; real estate and domestic property management agencies, domestic newspaper and magazine publication; building supplies; construction companies; personal cosmetics/beauty establishments; shallow water fishing; auto and appliance service operations and public transportation. As noted above, there are exceptions to this policy and consideration and approval has been given to foreign nationals, joint venture operations and others that do not meet the criteria outlined by the letter of the NIP. A recent example is the acquisition by the U.S. based Sysco Foods of the largest wholesale food distribution operation in the country.
In 2011, The GCOB amended the NIP to remove restrictions on foreign investment in the restaurant and entertainment businesses and increased the minimum investment requirement by international investors from US$250,000 to US$500,000. This policy change was opposed by current government while in opposition and it is under review despite several pending applications for investments in these sectors.
The NIP outlines available incentives and priority sectors for foreign direct investment. These areas include: tourist resorts, condominiums, timeshare and second home developments; marinas, information and data processing services; assembly industries, high-tech services, ship repair and other services; light manufacturing for export, agro-industries; food processing; aquaculture; banking and other financial services, captive insurance; aircraft services; pharmaceuticals and offshore medical centers. Recent announcements by the government have included strong interest in attracting FDI to non-traditional sectors including alternative energy and agriculture.
The GCOB has legislated incentives to investors in these sectors and aggressively promotes its liberal tax environment and freedom from capital gains, inheritance, withholding, profit remittances, corporate, royalties, sales, personal income, dividends, and payroll and interest taxes.
The Bahamas remains a relatively stable environment for investment with a strong legal system and a long tradition of parliamentary democracy, the rule of law and security of life and personal property.
In the World Bank Business Report 2012, The Bahamas improved from 85 to 77 out of 183 Countries worldwide in terms of the ease of doing business and also improved its economic freedom score to 70.1 according to the Heritage Foundation rankings, making its economy the 35th freest in the 2013 index. The authors of the Heritage Foundation report note that the ‘perceived level of corruption has declined significantly and acknowledge efforts by the Country to reduce its tariff rates.’ These reductions include the range of goods to which tariffs are applied as well as the percentage value of the tariffs.
The Bahamas’ regulatory environment is considered by many to be among the top in the western hemisphere, but there are some areas that continue to show weakness including the ease of registering property, trade policy and the prevalence of bureaucracy that undermines the investment environment. The World Bank Report supports this view and ranks the country 179 out of 183 in the world in terms of ease of property registration and 117 in terms of protecting investors. This indicator reflects and is directly linked to the bureaucratic judicial system and a legal process that is lengthy with court cases taking an average of five years to be resolved.
The Bahamas is the only country in the hemisphere that is not a member of the World Trade Organization (WTO), but it continues to receive benefit from a diminishing number of preferential trade agreements including the Caribbean Basin Initiative, Caribbean Basin Economic Recovery Act and the Caribbean Canada Trade Arrangement.
In 2009, the country signed a multilateral trade agreement (MTA) with the European Union, and is accelerating its efforts to accede to membership in the WTO. The new administration has participated in two meetings of the working party for accession and recently announced its intention to implement the necessary policy and legislative changes with an aim to full membership by December 2014. These announcements have included the development of rules of origin regime, a national bureau for standards, competition policy and new laws to protect intellectual property.
Also related to these developments is the government’s proposed reform of the tax system and to further reduce the number of tariff and non-tariff barriers to trade. These barriers coupled with the lengthy bureaucratic approval process hinder investment and undermine the development of a vibrant private sector according to the 2012 Index of Economic Freedom Report.
Decision making in The Bahamas is highly centralized and all investments by foreign nationals are subject to time consuming review and approval by the Cabinet or National Economic Council. Investment proposals must include economic and environmental impact assessments.
World Bank Ease of Doing Business Report 2012-2013
Starting a Business
Corruption Perceptions Index #22
Conversion and Transfer Policies
Individuals and corporations resident in The Bahamas are subject to capital or exchange controls. These controls and the related regulations govern all foreign currency transactions between residents of The Bahamas and residents of foreign countries. The legal basis for the policy is in the Exchange Control Act (1974) and the Exchange Control Regulations. According to the country’s Central Bank the controls are designed to ensure ‘the disciplined use of the country’s foreign currency reserves and to assist in its balance of payments.’ The existence of the controls is not considered major impediments to investment.
As an Article VIII member of the International Monetary Fund (IMF), The Bahamas has agreed not to place restrictions on current transactions, such as payments for imports. In the administration of exchange controls the Central Bank does not withhold approval for legitimate foreign exchange purchases for current transactions and in the interest of facilitating international trade generally delegates this authority to major banks and trust companies.
The current system allows commercial banks (international and local) to be registered by the Central Bank as ‘Authorized Dealers.’ This designation confers authority to administer and conduct foreign currency transactions with residents of The Bahamas; and Private Banks and Trust companies can be designated as ‘Authorized Agents’ and are permitted to act as depositories for foreign securities of residents and to conduct transactions in securities in respect of non-resident companies under their management.
Non-resident investors in The Bahamas must register with the Central Bank. If their projects are financed substantially by foreign currency transferred into The Bahamas, they will be given ‘approved status’ meaning that profits and capital gains can be converted into foreign currency and repatriated. This is done with minimal formalities and without limitations on the inflows or outflows of funds.
Foreign exchange transactions that fall outside of the delegated authority are approved directly by the Central Bank and include; loans, dividends, issues and transfer of shares, travel facilities and investment currency. These are generally routine and addressed at the Exchange Control Counter at the Central Bank or facilitated by correspondence to the Governor of the Central Bank.
Investment in The Bahamas will likely remain subject to exchange controls as policy makers maintain that this is an effective tool to preserve the country’s external reserves, safeguard its capacity to meet its balance of payments and maintain dollar parity with the United States.
Expropriation and Compensation
Property rights are protected under Article 27 of The Bahamian Constitution, which prohibits the deprivation of property without prompt and adequate compensation. There have been recent compulsory acquisitions of property for public use made by GCOB to facilitate the New Providence Road Improvement Project (NPRIP), but in all instances there was satisfactory compensation at fair market value. There is no evidence that the government has ever expropriated a business and it remains unlikely that this will be an instrument of government policy.
There is no history of significant investment disputes in The Bahamas that directly involve the GCOB, although smaller contractual and other disputes between Bahamians and foreign investors or exporters are increasingly common. The Bahamas is not currently party to an international trade agreement with a dispute settlement mechanism and therefore disputes must be settled within the judicial system of the country. The Bahamian legal system is based on British common law and foreign nationals are afforded full rights in Bahamian legal proceedings. The judiciary, appointed by the Governor General, is independent and there is no evidence of governmental interference with the system. Justice is administered by the Attorney General, the Chief Justice and magistrates. As The Bahamas is a member of the British Commonwealth, the Privy Council in London remains that the final court of appeal.
The judicial system is regarded as relatively free from corruption, but there are consistent allegations of malfeasance by some local attorneys. These claims are supported by recent statements by the President of The Bahamas Bar Association who reported that in 2012 there were 144 reports to the ethics committee of the Association and several instances of attorneys being suspended and two cases of disbarment. Complaints about local attorneys have also been received by the Embassy with the majority of such cases involving real estate transactions.
There have also been complaints about the significant case backlog and delays due to bureaucracy. Civil cases on average take five years to resolve. The lengthy judicial process is sometimes manipulated by local defendants to evade payments of Bahamian civil judgments by deliberately dragging out court disputes, especially in cases involving non-resident plaintiffs.
The Attorney General of The Bahamas has acknowledged the challenge and has implemented a ‘swift justice’ program that aims to improve the system by utilizing video conferencing technology to minimize delays related to court testimony by non-residents. Corporate plaintiffs must generally engage a resident attorney to represent their interests in court. Judgments by British Courts and selected commonwealth countries can be registered and enforced in The Bahamas under the Reciprocal Enforcement of Judgments Act. Court judgments in other countries including those of the United States must be litigated in the local courts and are subject to all Bahamian legal requirements.
Personal bankruptcy laws are antiquated and rarely used or enforced. Companies are regularly liquidated (voluntarily or involuntarily) according to the law. Liquidations are routinely published in accordance with the legislation. Creditors of bankrupt debtors and liquidated companies participate in the distribution of bankrupt debtor’s or liquidated company’s assets according to statute.
The Bahamas has been a member of the International Center for the Settlement of Investment Disputes since 1995 and is also a member of the Multilateral Investment Guarantee Agency. This agency insures investors against current transfer restrictions, expropriation, war and civil disturbances and breach of contract by member countries.
Additionally there are no restrictions on foreign investors negotiating arbitration provisions in private agreements and Order 66 of the Rules of the Bahamian Supreme Court provides rules for arbitration proceedings. The 1958 New York Convention on the recognition and Enforcement of Foreign Arbitral Awards entered into force for The Bahamas on March 20th, 2007.
Duration of local investment/Commercial Disputes
According to the 2012 World Bank ‘Ease of Doing Business Report,’ The Bahamas has two indicators that fall below regional averages. These include the enforcement of contracts, in which the Country ranks 124 out of the 185 Countries surveyed, protecting investors, in which it was ranked 114 and registration of property, in which it was ranked 179. According to the findings of the report, enforcing a contract in The Bahamas takes 427 days on average, at a cost 28.9% of the value of the claim and requires 49 separate procedures to move to conclusion.
Performance Requirements and Incentives
The Bahamas does not maintain formal performance requirements for investments, but policy statements suggest that the government is more inclined to approve projects that can provide proof of funding and will create local employment. Recent agreements negotiated with individual investors indicate an ad hoc approach to performance requirements that are not specifically supported in policy or law.
The Country is an observer in the WTO and does not belong to the agreement on Trade Related Investment Measures (TRIMS). The Country has signed an Economic Partnership Agreement (EPA) with the Countries of the Caribbean Forum of the ACP (CARIFORUM) and the European Union.
Compliance with the terms of the EPA has resulted in reductions to both the range and rate of tariffs being applied to goods originating from countries party to the agreement. While there is no specific discrimination based on rules of origin, if The Bahamas eliminates duties (87%) on goods from Europe there may be an advantage to EU or Cariforum producers over the long term.
Tax incentives are the most significant incentive to investment in The Bahamas. Currently the GCOB imposes no taxes on income, sales, estates or inheritances in the country and the only direct tax is real property tax. There is national treatment in most instances but locals are not required to pay real property tax on undeveloped land or land outside of the major city centers. Casinos are specially taxed, and there is a US$25 departure tax included in airline tickets. The government has initiated public consultations on the possible implementation of a Value Added Tax.
Other incentives for investment include concessions on import duties, property tax abatement and in some cases land grants for private development. Tariffs are generally high, but as previously mentioned do not discriminate based on country of origin.
The GCOB has acknowledged the need for customs and tax modernization but has been slow in implementing reforms.
Industry and regional specific incentives are offered to any qualifying individual and available under the following legislation:
Details of the these and related legislation is available at http://www.bahamas.gov.bs/
There is no policy of forced localization or a requirement for technology transfers, but there is official encouragement to direct benefits to local producers. This engagement is a part of the negotiations with government and it is not uncommon for an investor to gain greater concessions where there is direct benefit to local business or for an investment in economically depressed regions.
Work permits are generally facilitated for key foreign employees as part of the investment approval process, but government policy generally favors the employment of nationals and residents. Fees for work permits have developed as a revenue measure and, depending on the category of employee, can cost up to ten thousand dollars annually. Work permits for less senior employees and those without specialized skills are generally more difficult to obtain.
Right to Private Ownership and Establishment
Beyond the areas ‘reserved’ for Bahamian participation in the National Investment Policy rights of private ownership and establishment are maintained and respected. A right of establishment is subject to licensing and approval by the relevant authorities but generally foreign and domestic private entities may engage in all forms of remunerative activity. They may also freely establish, acquire, and dispose of interests in their business enterprises.
Protection of Property Rights
The Government of The Bahamas supports and encourages joint venture and partnership investments in some sectors of the economy (see National Investment Policy) and allows 100 percent foreign ownership of an enterprise. All international investments are subject to review by the National Economic Council/Bahamas Investment Authority and can benefit from the incentives as legislated by the government.
The legal system facilitates the investor’s secured interest in both chattel and real property and is recognized and enforced in law. Mortgages in real property and security interests in personal property are recorded with the Registrar General.
Protection of Intellectual Property Rights
The Bahamas is member of the following intellectual property conventions and agreements:
Prior to October 2009, The Bahamas maintained a compulsory licensing system for television broadcasting that allowed Bahamian cable operators to retransmit any copyrighted television programming, including for-pay programming, whether or not transmitted from The Bahamas or outside of The Bahamas and whether or not encrypted. That system provided the legal basis for Cable Bahamas to extract and distribute encrypted copyrighted content from the U.S. satellite providers without having entered into agreements with the content providers.
In September 2009, following consultations with U.S. officials and industry representatives, The Bahamas finally implemented the 2004 amendment to the Copyright Act. The Bahamas had not previously allowed the 2004 amendment to enter into force but once implemented it narrowed the scope of the compulsory licensing regime for the reception and transmission of copyright works broadcast free over the air. The amendment took effect on October 1, 2009.
The 2004 amendment also provides for the protection of copyright and related rights with an exception of computer programs, which are not specifically protected. The government has intermittently increased law enforcement on the sale of counterfeit goods and banned the sale of counterfeit high-end purses in the new Straw Market, opened at the end of 2011.
The Bahamian government is taking positive steps to strengthen IPR protection as part of its WTO accession process and in response to consistent requests from the United States. The Bahamas has also participated in several IPR protection and enforcement training programs and exercises with U.S. Department of Justice, UK officials and is currently receiving technical assistance from the Caribbean Regional Negotiating Machinery (CRNM).
The Bahamas is a member of the World Intellectual Property Organization (WIPO) but has not ratified the WIPO Internet treaties. There is no legislation relating to geographical indications, rules of origin and there are recognized shortcomings in the current industrial design and patents legislation. Towards this end the GCOB has implemented a ‘Plan of Action’ to address these and related issues. Post has received reports that new legislation has been drafted and public consultations are expected in the first quarter of 2013 to address gaps in existing IPR legislation. The goal of the proposed amendments is to provide greater protections to IPR and more stringent penalties for violations. Post anticipates that the new legislation will be submitted to Parliament by mid 2013.
The new legislation will bring The Bahamas into compliance with the terms of the TRIPS Agreement of the WTO and its commitments under the Economic Partnership Agreement. The country continues to collaborate with its regional counterparts (OTN) related to the implementation of the new legislation and has made formal requests for technical and financial support from WIPO for the office of the Registrar General.
Transparency of the Regulatory System
While the government does advocate for a market environment where transparency, fair play and equality of treatment are protected under the law, The Bahamas does not currently have standard legislation governing free and fair competition. For example, there is no specific law governing government procurement practices. In practice each branch, ministry or governmental agency may employ any method to select a good or services supplier. The current practices as outlined in the Financial Administration and Audit Act states that any purchase up to US$50,000 can be approved by the Minister. In the case of purchases equal or greater than US$50,000 but less than US$250,000 the Tenders Board, chaired by the Financial Secretary will make recommendation to the Minister of Finance for approval. Amounts exceeding US$250,000 are reserved for Cabinet Approval. The process lacks transparency, there is no requirement to engage in open public tenders and award decisions are not subject to challenge or review. The Government has implemented procurement procedures in the management of funds from international lending agencies, but appears to be reluctant to implement the same for the management of national finances.
Other areas of concern also include the discretionary issuance of approvals and licenses from the National Economic Council and the related Governmental Authorities. In all instances there is a general lack of transparency and there is no standard appeals process.
To encourage and maintain foreign and local investment the GCOB has pledged to implement new investment policies which will simplify the process and reduce ambiguity. The Bahamas Investment Authority exists to assist foreign investors in dealing with the permitting process and efforts are underway to develop a new Investment Act.
The Bahamas does not have legislation or institutions for the development and implementation of national standards. The Government has indicated its commitment to develop a national standards bureau and is receiving technical assistance from the Department of Agriculture and the Caribbean Regional Organization for Standards and Quality.
Efficient Capital Markets and Portfolio Investment
The financial sector of The Bahamas is highly developed and dynamic, providing a wide array of services by several types of financial intermediaries. The Central Bank of The Bahamas and the Financial Intelligence Unit (FIU, December 2000) are the regulatory bodies of the financial sector which consists of savings banks, trust companies, offshore banks, insurance companies, a development bank, a publicly controlled pension fund, a housing corporation, a public savings bank, private pension funds, cooperative societies, credit unions and commercial banks – which dominate financial intermediation.
The free flow of capital to markets is encouraged by the GCOB and supported by the functions of the publicly funded Bahamas Development Bank and the Bahamas Mortgage Corporation. The Small Business Loan Guarantee Program and the Bahamas Venture Capital Fund are initiatives of the previous administration to fund 100 percent Bahamian-owned businesses through debt and equity financing, respectively. These investments have had mixed results but continue to receive priority from the Government. The government has proposed to introduce new legislation to provide technical and financial support for Small and Medium Sized Business Development in early 2013, which will include a reorganization of the Bahamas Development Bank.
Bahamian-foreign joint venture businesses are encouraged by the government and are eligible for financing through both the commercial banks and the Bahamas Development Bank.
The U.S. Government's Overseas Private Investment Corporation (OPIC), the U.S. Export-Import Bank, the Inter-American Development Bank and the Multilateral Investment Guarantee Agency a World Bank Unit that provides direct financing and loan guarantees for foreign investors are active in The Bahamas. The Bahamas also recently agreed to become party to the convention on the settlement of investment disputes.
State-Owned Enterprises (SOE) are active in the utilities and services sectors with a few notable monopolies still maintained by the Government of The Bahamas. There has been a marked reduction in the number of SOE’s in The Bahamas, but to date the following are still maintained and funded by the GCOB on the basis of that they provide essential services or public goods. The SOE’s in The Bahamas are as follows:
The Water and Sewerage Corporation (WSC) and the Bahamas Electricity Corporation (BEC) are the largest public corporations in The Bahamas. Both utility providers operate as monopolies and are supported by legislation. There have been exceptions to the state monopolies and the government has licensed private suppliers of electrical and water and sewerage services. These licenses issued have been for private real estate developments or in areas in the Country for which there is limited government capacity to own and operate the utility. There is a further exception made for the island of Grand Bahama, which has its own licensing authority for the provision of electricity to the entire island.
The Government has taken some positive steps to divest ownership in the area of telecommunications and sold 51%of the Bahamas Telecommunications Company to Cable & Wireless (DBA LIME) in April 2011. The Government retains 49% of the company and is actively working to regain majority ownership. The Government remains committed to liberalizing the sector and has held discussions with other regional telecommunications providers with an interest in providing service in the market.
There is no immediate plan for the divestment of The Bahamas Electrical Corporation and the national flag carrier, Bahamas Air. Privately owned airlines providing service to the market have consistently complained of the market distortions created by the national carrier. The private operators believe that the national airline often uses state funds to create unfair competition in the sector.
The Bahamas Electricity Corporation has similar challenges and is seen by potential entrants and investors into the sector as an impediment to diversification and development of an alternative energy platform. The corporation is the largest provider of electricity in the country and recent losses has hampered it ability to independently fund expansion to meet the needs of the Country. Policy makers remain concerned that liberalizing this market may further exacerbate the financial challenges faced by the Corporation. In response to this concern, the Government has commissioned several studies on how to improve the efficiency of its grid and has invited proposals for the introduction of alternative energy solutions for the Country.
Each SOE has a board of directors chaired by senior politicians and includes board members drawn from the Chambers of Commerce, Trade Unions, party members and the broader civil society. Board memberships are paid and not subject to public vetting. Oversight is under the purview of a member of the Cabinet. Historically these corporations were used to employ the party faithful and with the exception of the Bahamas Telecommunications Corporation few have had sustained profitability.
Corporate Social Responsibility
There is a growing awareness and commitment to Corporate Social Responsibility (CSR) by local and foreign companies operating in The Bahamas. Companies resident in The Bahamas tend to set their own standards for levels of CSR as it is not a requirement by law. There are no fiscal incentives available to companies that choose to demonstrate this responsibility but there are notable positive examples in the Country. CSR related initiatives have been led by international companies and includes educational programs directed to capacity building for specific industries, the maintenance of public spaces and grants to charitable organizations.
The Bahamas has no history of political violence and barring a few incidences leading up to the last general elections the political process is violence free and transparent. These incidences were relatively minor and included damage to political party installations, signage, bill boards and a few reported altercations between opposing party members.
Outside the context of elections, labor disputes have become unruly on occasion and work stoppages and demonstrations are becoming more common in the Country. These incidents are usually confined to the public sector where there are a larger percentage of unionized workers. The recent transition of the telecommunication company to private ownership was marked by industrial action.
In The Bahamas giving a bribe to -- or accepting bribes from -- a Government official is a criminal act under the Prevention of Bribery Act. The penalty under this act is a fine up to US$10,000 or a maximum prison term of four years or both. There has never been a prosecution under the Act and anecdotal evidence suggests there is widespread patronage with contracts routinely directed to party supporters and benefactors.
The Bahamas has been a State Party to the Inter-American Convention against Corruption since signing in 1998 (ratified in 2000), and a party to the Mechanism for Follow-Up on the Implementation of the Inter-American Convention against Corruption (MESICIC) since June 2001.
According to Transparency International’s 2011 Corruption Index, corruption in the public service is perceived to be relatively low. Violent crime has escalated sharply in the last three years and gambling, though illegal for residents, is pervasive under the guise of Internet cafes.
The Bahamas has neither signed nor ratified the U.N. Convention Against Corruption.
Bilateral and Multilateral Investment Agreements
There is no Bilateral Investment Treaty between The Bahamas and the United States. The Bahamas was designated a beneficiary of the Caribbean Basin Initiative (CBI) in 1985 and has an established a tax information exchange agreement. The Tax Information Exchange Agreement with the United States is one of twenty-four that The Bahamas has ratified. In the case of the United States the agreement establishes The Bahamas as a qualified jurisdiction and allows U.S. registered companies to qualify for tax credits for conventions and related corporate expenses in The Bahamas.
The benefits under CBI provide products manufactured in The Bahamas which meet defined rules of origin qualify for duty-free and quota free entry into the United States. The Bahamas has had modest success for exports under the agreement with pundits citing high labor and other production costs being a major impediment to increasing benefits.
The objective of CBI is to promote economic development through private sector initiative in Central America and the Caribbean by expanding foreign and domestic investment in non-traditional sectors, diversifying CBI country economies and expanding their exports. It permits duty free entry of products manufactured or assembled in The Bahamas including the Country’s largest export to the United States, polystyrene beads used in the production of Styrofoam products. The Bahamas continues to use this access guaranteed by waiver from the WTO as an incentive for investments in manufacturing in the domestic economy.
Other Agreements of note include the Economic Partnership Agreement (EPA), CARICOM and CaribCan.
The Economic Partnership Agreement was concluded between the CARIFORUM States (CARICOM & Dominican Republic) and the European Community and its member states. The EPA replaces the expired non-reciprocal trade relationship that existed under the Cotonou Agreement between these former European Colonies. The overarching objectives of the EPA are to alleviate poverty in CARIFORUM, to promote regional integration and economic cooperation and to foster the gradual integration of the CARIFORUM states in the world economy by improving their trade capacity and creating an environment conducive to investment. The agreement promotes trade related developments in areas such as competition, intellectual property and public procurement, the environment and protection of personal data.
CARICOM or Caribbean Community was established in 1973 by the then independent Countries of the English Speaking Caribbean. The Bahamas joined in 1985 and has given strong support to the political and social objectives of the agreement, but has opted to only functional cooperate on matters related to economic policy and regional trade. The Bahamas supports the work of CARICOM financially and contributes to the operations of the Caribbean Court of Justice even though it does not recognize the court for settlement of disputes originating from its jurisdiction.
CARIBCAN is an economic and trade development assistance program for Commonwealth Caribbean countries in which Canada provides duty free and quota free access to its national market for the majority of products which originate in Commonwealth Caribbean Countries. The agreement is currently being renegotiated and is expected to be reciprocal with strong support for development initiatives and integration within the region.
OPIC and Other Investment Insurance Programs
Since 1992, the U.S. Overseas Private Investment Corporation (OPIC) has approved two investment projects in The Bahamas. It guaranteed up to US$10.8 million in loans to Uniroyal Chemical Company, Ltd. to assist in the purchase and refurbishment of a plant in Freeport. The Uniroyal plant has since closed. In addition, OPIC committed up to US$1.6 million to Landquest, Ltd., for the development of a cruise ship facility on the island of Eleuthera. The facility at Princess Cay, Bannerman Town, Eleuthera, is currently operational and a major source of employment for residents of the Southern End of the Island.
In 1999, OPIC signed with Citibank to establish a US$200 million Investment Facility for the Caribbean and Central America, as one means of encouraging investment and stimulating economic development. The Caribbean Development Bank, of which the Bahamas is a member, administers the program and provides financing and political risk insurance to viable private sector projects in these emerging markets.
The Bahamas is also associated with the Multilateral Investment Guarantee Agency of the World Bank, which insures investors against currency transfer restrictions, expropriation, war, civil disturbances and breach of contract by member countries.
The labor force grew 3 percent in 2011 to 190,075 and unemployment decreased from 14.2 percent to 13.7 percent over the same period. The labor force in New Providence drove the advancement as Grand Bahama continues to experience challenges with a 2 percent drop off in the overall labor force and just a slight increase in employment from 23,310 to 23,410.
Well-qualified accountants and secretaries, and others with skills appropriate to the financial services industry, command a premium wage. While low skilled labor, mostly found in the hotels and restaurants, basic wage hovers around the minimum rate. Unemployment is slightly higher for adults between the age of 25 and 34. Freeport – the second largest city - has the highest employment rate at 17.4 percent, while Nassau is at 14 percent. Freeport has experienced escalating unemployment due to two devastating storms and the closure of a major resort and casino. Wage rates, while lower than in the United States, are higher than elsewhere in the Caribbean. There is notable concern about the level of immigrant labor and the growing number of undocumented workers.
In the 2000/2001 Government Budget, the Government increased its minimum wage from US$4.12 per hour to US$4.45 per hour for public sector employees. Minimum wage for private sector workers is US$4 per hour. The Fair Labor Standards Act requires at least one 24-hour rest period per week, paid annual vacations, and employer contributions to National Insurance (social security). The Act also requires overtime pay (time and a half) for hours in excess of 40 hours or on public holidays. A 1988 law provides for maternity leave and the right to re-employment after childbirth. A new Minimum Labor Standards Act including the Employment Act, Health and Safety at Work Act, Industrial Tribunal and Trade Disputes Act, and the Trade Union and Labor Relations Act were passed in 2001 and in early 2002.
The Bahamian Constitution specifically grants labor unions the rights of free assembly and association. These rights are exercised extensively, particularly in the hotel industry - where 80 percent of the employees are unionized - and in the state-owned industries. Unions operate without restrictions or Government controls. The right to strike is governed under the Industrial Relations Act, which requires a simple majority of union members to vote in favor of a strike before it can commence. The Ministry of Labor oversees strike votes. Although prolonged strikes are still rare, work slow-downs and rowdy protests occur and workers often use labor actions to force management to act on issues of concern to them. Labor unions and others involved in disputes with foreign-owned enterprises have not been above using the fact of foreign ownership as a lever to gain popular support for their demands.
The Immigration Act requires foreigners to obtain work permits before they can be employed in The Bahamas. The Government will permit foreign employees to work in a technical, supervisory or managerial capacity to initiate and operate industries, provided no similarly qualified Bahamians are available for the job. Foreign business owners are expected to train as many of their Bahamian employees as possible to eventually fill technical and managerial positions. Work permit fees range from US$350 to US$10,000 per year.
Foreign Trade Zones/Free Ports
The 1955 Hawksbill Creek Agreement established Freeport on the island of Grand Bahama. Freeport is the country's second-largest City and has developed as a free trade and economic development zone under private ownership and control of the Grand Bahama Port Authority.
Firms licensed by the GBPA to operate within the 230 square mile free trade zone are granted the right to import equipment and materials duty-free and benefit from the exemption from real property taxes and business license fees ordinarily payable to the central Government. It should be noted that there are fees imposed by the GBPA for businesses operating in Freeport but to date these are not subject to national rules and in some instances lack transparency.
The founders and current owners of the Grand Bahama Port Authority have facilitated the investment of billions of dollars into the infrastructure of the island but have had modest success in creating sustained economic activity. To its credit the GBPA has facilitated the development of a deep-water harbor, container port, and the largest privately owned airport in the region. With the assistance of joint venture partners Freeport is also home to a significant cruise ship terminal, industrial park, and promising a revitalization of Freeport as The Bahamas' leading industrial city.
In 1993, the Government extended the Hawksbill Creek property tax exemptions to 2015 and duty exemptions to 2054, but withdrew real property tax exemptions for foreign individuals and corporations. Renegotiation of this aspect of the agreement between the Government and the Port Authority are expected to begin in early 2014 but there is already local debate as to whether the Government should maintain and extend the benefits of the free zone or return the management of this area to the control of central Government. The issue is receiving attention in the Country’s negotiations to accede to membership within the WTO and questions have been raised related to the operations and independent authority of the owners of Freeport.
The new administration has campaigned on plans to extend the exemptions granted to the Free Zone to the entire island of Grand Bahama.
Additional information is available at www.gbpa.com.
Foreign Direct Investment Statistics and Major Foreign Investments
According to the Central Bank there is a direct link between the level of imports flowing into The Bahamas and foreign direct investments. At the end of the second quarter 2011, net foreign direct investment (FDI) inflows increased by 3.8 per cent to an estimated US$242.8 million. Real estate purchases decreased by US$27.1 million to US$8.7 million and net equity inflows advanced by US$234 million to US$36 million. Net portfolio outflows more than doubled to US$9.4 million supported by gains in net outward investments in equity and debt securities by US$1.9 million and US$3.1 million respectively. While Government statistics do not list overall foreign investment by nationality, the Embassy believes that the largest investors are American, Canadian, Chinese, and South African in origin.
The U.S. Bureau of Economic Analysis reports cumulative U.S. foreign direct investment to The Bahamas is US$31.49 billion. The United Nations Conference on Trade and Development reported Bahamas FDI flows at US$977 million and stock at US$US$9.062 billion in 2010, at 12.8% and 118% of GDP, respectively.
Available indicators of domestic economic activity from the last quarter of 2012 continue to suggest a modest growth momentum, concentrated in tourism and construction-related foreign investment projects. With limited spillover benefits dampened by the persistence of high domestic loan arrears. Total private sector loan arrears rose by US$13.0 million (1.1%) to US$1,224.4 million and by 0.2 of a percentage point.
The Central Bank and government are predicting modest improvement in the domestic economy with incremental gains expected in tourism output based on the ongoing recovery in the United States, along with direct foreign investment in the tourism sector. There is cautious optimism however as volatility in global oil prices and the possibility of austerity measures in the United States could negatively impact growth in the economy.
Contacts for Investment Related Inquires
Bahamas Investment Authority
P.O. Box CB 10990
West Bay Street, Nassau
New Providence, The Bahamas
Telephone: (242) 327-5826
P.O. Box N-8197
U.S Embassy Nassau
New Providence, The Bahamas
Telephone: (242) 322-1181