The Commonwealth of The Bahamas is a 760-mile-long archipelago stretching from the south-east coast of Florida to the north-west coast of Haiti. Despite historical and cultural similarities with many Caribbean countries, The Bahamas is actually in the North Atlantic Ocean. Only 29 of its 700 islands are occupied, with the majority of the population clustered around the two largest cities of Nassau and Freeport. The country maintains a stable environment for investment with a long tradition of parliamentary democracy, respect for the rule of law, and a well-developed legal system. Bahamians’ use of English and frequent travel to the U.S. contribute to their familiarity and preference for U.S. goods and services. The Bahamas is a developed country with an educated populace and high per capita GDP of $34,864. The Bahamas relies primarily on imports from the United States to satisfy its fuel and food needs and conducts more than 85 percent of its international trade with the United States. U. S. exports to The Bahamas were valued at $3.01 billion in 2020, resulting in a trade surplus of $2.9 billion in the United States’ favor.
The Free National Movement (FNM) government, elected in May 2017, has sought to manage an economy dealing with the dual, unprecedented economic crises wrought by the passage of Hurricane Dorian in September 2019 and the global COVID-19 pandemic. According to Standard & Poors November 2020 forecasts, The Bahamas’ GDP growth is expected to fall by a 21 percent in 2020, a loss of more than $2 billion compared to 2018’s real GDP of $10.8 billion. Full economic recovery is not anticipated until 2022, subject primarily to the buoyancy of the tourism sector and post-pandemic economic recovery. Both the International Monetary Fund (IMF) and the Inter-American Development Bank (IDB) predict The Bahamas could suffer the most severe economic contraction of all Caribbean countries.
With few natural resources and a limited industrial sector, the Bahamian economy is heavily dependent on tourism and, to a lesser degree, financial services. These sectors have traditionally attracted the majority of foreign direct investment (FDI). Tourism contributes over 50 percent of the country’s GDP and employs just over half of the workforce. Prior to the COVID-19 pandemic, more than seven million tourists, mostly American, visited the country annually. The plummet in tourism has deprived the country of its main source of revenue, and efforts to reopen hotels, resorts, restaurants, and other tourism infrastructure have been stymied by the ongoing pandemic.
The COVID-19 pandemic has reignited questions about the country’s dependence on tourism and vulnerability to external shocks, leading to calls for economic diversification and other sources of foreign exchange. The government and private sector have identified areas for development and investment, including light manufacturing, technology, agriculture and fisheries, extractive industries, and renewable energy. The government has also committed to digitizing its business services and jumpstarting domestic productivity through small and medium enterprises, especially those operating in non-traditional sectors.
The Bahamas maintains an open investment climate and promotes a liberal tax environment and freedom from many types of taxes, including capital gains, inheritance, and corporate and personal income tax. The Bahamas does not offer export subsidies, engage in trade-distorting practices, or maintain a local content requirement, but foreign capital investments must meet a $500,000-dollar minimum before being allowed into the country. The country continues to attract FDI from various parts of the world and has recently benefitted from significant investments in the tourism sector from international companies based in China. Investments from the United States are also primarily in the tourism sector and range from general services to million-dollar private homes and billion-dollar resort developments. U.S. companies have also shown interest in emerging sectors, such as non-oil energy, renewable energy, niche tourism, and digital technology.
Positive aspects of The Bahamas’ investment climate include political stability, a parliamentary democracy, an English-speaking labor force, a profitable financial services infrastructure, established rule of law, general respect for contracts, an independent judicial system, and strong purchasing power with a high per-capita GDP. Negative aspects include a lack of transparency in government procurement, labor shortages in certain sectors, high labor costs, a bureaucratic and inefficient investment approvals process, time consuming resolution of legal disputes, internet connectivity issues, and high energy costs. The price of electricity averages four times higher than in the United States and is driven by antiquated generation systems and a dependence on inefficient fossil-fueled power plants. To remedy energy sector deficiencies, the current government has prioritized infrastructure projects focused on non-oil energy, including a liquid natural gas (LNG) plant and various solar projects; however, the LNG plant is stuck in multi-year negotiations.
Another barrier to investment in the country is the prohibition of foreign investment in 15 sectors of the economy without prior approval from the National Economic Council (NEC). These sectors include commercial fishing, public transport, advertising, retail operations, security services, and real estate agencies, among others. In 2018, the government set a goal of accession to the WTO by the end of 2019, which would require opening at least some of these protected sectors to foreign investment. However, the government later confirmed it was unlikely accession would take place before 2025.
The absence of transparent investment procedures and legislation is also problematic. U.S. and Bahamian companies alike report the resolution of business disputes often takes years and debt collection can be difficult even after court judgments. Companies also describe the approval process for FDI and work permits as cumbersome and time-consuming. The Bahamian government does not have modern procurement legislation and companies have complained the tender process for public contracts is not consistent, and that it is difficult to obtain information on the status of bids. In response, the current government passed a Public Procurement Bill and launched an e-procurement and suppliers registry system to increase levels of accountability and transparency. The Public Procurement Bill was passed in March 2021, but has not yet been fully enacted.
The Bahamas scored 63 out of 100 in Transparency International’s Corruption Perception Index in 2020 (where zero is perceived as highly corrupt and 100 is very transparent). This means The Bahamas is perceived as notably transparent when compared to the 180 countries ranked. However, the country’s scores have dropped eight points since 2012, perhaps indicating an erosion of transparency. The Bahamas still lacks an Office of the Ombudsman to strengthen access to information, nor has it fully enacted its Freedom of Information Act (2017) or appointed an independent Information Commissioner. Although the current government is pursuing legislative reforms to strengthen investment policies, progress on these efforts has been mixed.
Despite its World Bank designation as a high-income country, income inequality is higher in The Bahamas than in other Caribbean countries. This is in part due to The Bahamas’ popularity among wealthy foreigners as a convenient and attractive location to purchase a second home. These privileged, gated communities do not reflect reality for most Bahamians, especially those on less developed islands. The country grapples with high crime, unemployment, and xenophobia directed at irregular migrants from elsewhere in the Caribbean, especially Haiti. Conservative and patriarchal norms sometimes lead to inequality of opportunity, notably for women and migrant children. Women have raised concerns regarding bureaucratic hurdles to register businesses, and difficulty in securing financing. The Small Business Development Centre (SBDC) has made economic empowerment of women entrepreneurs and lessoning the income gap priorities.
|TI Corruption Perceptions Index||2020||63 of 100||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report “Ease of Doing Business”||2020||119 of 190||http://www.doingbusiness.org/rankings|
|Global Innovation Index||2020||N/A||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country (M USD, stock positions)||2018||17.609||https://apps.bea.gov/international/factsheet/factsheet.cfm?Area=250&UUID=aa8d34cd-4c30-485d-aa74-1656d2ff9eed|
|World Bank GNI per capita||2019||33,460||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies towards Foreign Direct Investment
The government encourages FDI, particularly in the tourism and financial services sector. The National Investment Policy (NIP) and the Commercial Enterprises Act (CEA) explicitly encourage foreign investment in certain sectors of the economy: touristic resorts; upscale villas, condominium, timeshare, and second home development; international business centers; aircraft and maritime services; marinas; information and data processing; information technology services; light industry manufacturing and assembly; agro-industries; mari-culture; food and beverage processing; banking and other financial services; offshore medical centers and services; e-commerce; arbitration; international arbitrage; computer programming; software design and writing; bioinformatics and analytics; and data storage and warehousing.
The Bahamas has an investment promotion strategy that includes multiple government agencies working to attract foreign direct investment. The Bahamas Investment Authority (BIA) ( ) takes the lead on administering investment policies, functions as the investment facilitation agency, and acts as a ‘one stop shop’ to assist investors in navigating the cumbersome approvals process. All foreign investors must apply for approval from the BIA. Each administration has consistently supported new investment and has generally honored agreements made by previous administrations. The current government has introduced policies and legislative support for Small and Medium Enterprises (which represent 85 percent of registered businesses), and in 2018 launched the Small Business Development Centre (SBDC). The SBDC provides business advisory services, training, professional development opportunities, incubation services, access to capital, and advocacy for individual businesses. In response to the pandemic and to create opportunities for Bahamian entrepreneurs, the government earmarked $250 million in 2020 for loans and grants over five years to local small and medium enterprises.
The Bahamas reserves certain sectors of the economy for Bahamian investors. The reserved areas are: wholesale and retail operations (although international investors may engage in the wholesale distribution of any product they produce locally); agencies engaged in import or export; real estate agencies and domestic property management; domestic newspapers and magazine publications; domestic advertising and public relations firms; nightclubs and restaurants except specialty, gourmet, and ethnic restaurants, and those operating in a hotel, resort or tourist attraction; security services; domestic distribution of building supplies; construction companies except for special structures requiring foreign expertise; personal cosmetic or beauty establishments; commercial fishing including both deep water fishing and shallow water fishing of crustaceans, mollusks, fish, and sponges; auto and appliance services; public transportation including boat charters; and domestic gaming. The government does make exceptions to this policy on a case-by-case basis, and the Embassy is aware of several cases in which the Bahamian government has granted foreign investors full market access.
With the exception of these sectors, the Bahamian government 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 government provides guidelines for investment through the National Investment Policy (NIP), administered by the BIA, and through the Commercial Enterprises Act (CEA) administered by the Ministry of Financial Services, Trade & Industry and Immigration. The CEA provides incentives to domestic and foreign investors to establish specific investment projects, including approval of a specified number of work permits for senior posts and the expedited issuance of work permits.
Large foreign investment projects, particularly those that require environmental and economic impact assessments, require approval by the National Economic Council (NEC) of The Bahamas. This process generally requires review by multiple government agencies prior to NEC consideration. Bureaucratic impediments are not limited to the NEC approvals process, and the country continues to lag on international metrics related to starting a business. According to the 2020 World Bank Doing Business rankings, The Bahamas scores 119 out of 190 countries overall, 181 in registering property, 77 in getting construction permits, 152 in access to credit, and 71 in resolving insolvency. All these categories saw a decrease in ratings from 2019 metrics, with the exception of getting construction permits. The Embassy is aware of cases of significant delays in the approvals process, including cases where the Bahamian government failed to respond to investment applications. Despite bureaucratic challenges and the impact of COVID-19, investment continues in tourism, finance, construction, and fast-food franchises.
In response to the losses from Hurricane Dorian and the economic fallout from COVID-19, the government announced efforts to accelerate FDI, including liberalization of requirements for investment and accelerating the review process for proposals. In April 2020, the government also appointed an Economic Recovery Committee (ERC) – a public-private coalition to develop recommendations for government policies to addresses the economic impact of the COVID-19 pandemic. The ERC’s full report can be accessed via .
The ERC’s nearly two dozen recommendations were intended to transform the Bahamian investment regime, remove structural impediments, and incentivize domestic and foreign investment. The government accepted certain recommendations, including the establishment of an entrepreneur visa for persons wishing to work or study from The Bahamas for one year ( ), limiting approvals for projects under $10 million, creating special economic zones on lesser developed islands, and establishing an autonomous agency to oversee a modern investment regime (INVESTBAHAMAS). With this new agency in place, bureaucratic delays, functionality and transparency are expected to improve. The agency will reportedly give priority to high-tech financial products, biotechnology, renewable energy investments, and climate adaptability projects. INVESTBAHAMAS remains in the planning stages.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign investors have the right to establish private enterprises and, after approval, most companies operate unencumbered. Key considerations for approval include economic impact, job creation, infrastructural development, economic diversification, environmental protection and corporate social responsibility. With the assistance of a local attorney, investors can create the following types of businesses: sole proprietorship, limited or general partnership, joint stock company, or subsidiary of a foreign company. The most popular all-purpose vehicles for foreign investors are the International Business Company (IBC) and the Limited Duration Company (LDC). Both benefit from income, capital gains, gift, estate, inheritance, and succession tax exemptions. Investors are required to establish a local company and be registered to operate in The Bahamas.
Other Investment Policy Reviews
The Bahamas ranks 119 out of 190 countries in terms of “ease of doing business” in the 2020 World Bank Doing Business Report. See . The Bahamas is the only Western Hemisphere country not in the WTO, and therefore has never benefitted from a WTO trade policy review. The current government launched accession negotiations with the WTO in April 2019, initially announcing the goal of full membership later the same year. However, the government later described the 2019 target as purely aspirational, confirming it was unlikely accession would take place before 2025. A vocal domestic constituency opposes WTO accession on the grounds that membership will hurt domestic producers and service providers.
Neither the OECD nor UNCTAD have conducted investment policy reviews. The Bahamas achieved the G-20 standard on transparency and cooperation on tax matters, a standard initially advanced by the OECD.
According to the 2020 World Bank Doing Business Index, starting a business in The Bahamas takes 12 days, requires seven procedures, and costs the same for both men and women. In 2017, the Bahamian government streamlined this process and launched an e-business portal, which allowed companies to apply for or renew their business licenses online ( ).
In 2020, as part of the business license application process, the government expanded provisional licenses for many small, domestic businesses so the majority would be able to start operations while awaiting formal approval. The government also removed the fee for starting a new business and renewed business licenses in under 48 hours. Foreign companies and most larger businesses are not eligible for provisional licenses, expedited renewals, or new business license fee exemptions.
All companies with an annual turnover of $100,000 or more are required to register with the government to receive a Tax Identification Number and a Value Added Tax Certificate. The lengthy registration processes are generally viewed as an impediment to the ease of doing business.
The Bahamian government neither promotes nor prohibits its citizens from investing internationally, however, all outward direct investments by residents require the prior approval of the Exchange Control Department of the Central Bank of The Bahamas ( ). Applications are considered in light of the probable impact the investments may have on The Bahamas’ balance of payments, specifically business activities that promote the receipt of foreign currency.
6. Financial Sector
Capital Markets and Portfolio Investment
The government encourages the free flow of capital markets, and the Central Bank supports this flow through its regulatory functions. The Bahamas is an Article VIII member of the IMF and has agreed not to place restrictions on currency transactions, such as payments for imports. The Bahamas Securities Commission regulates the activities of investment funds, securities, and capital markets ( www.scb.gov.bs ). The fledgling local stock market, established in 1999, excludes foreign investors but is effectively regulated by the Securities Commission.
There are no legal limitations on foreigners’ access to the domestic credit market, and commercial banks make credit available at market rates. The government encourages Bahamian-foreign joint ventures, which are eligible for financing through both commercial banks and the Bahamas Development Bank ( http://www.bahamasdevelopmentbank.com/ ).
Customarily, the government does not prohibit its citizens from investing internationally. However, all outward direct investments by residents, including foreign portfolio investments, require the prior approval of the Exchange Control Department of the Central Bank of The Bahamas ( www.centralbankbahamas.com/exchange – controls). Applications are assessed by their probable impact on The Bahamas’ balance of payments, specifically business activities that promote the receipt of foreign currency.
In an effort to maintain adequate foreign reserves during the economic crisis brought on by COVID-19, the Central Bank suspended purchases of foreign currency on May 4, 2020 for specific transactions that could drain reserves and jeopardize the country’s ability to maintain a fixed, one-to-one exchange rate with the U.S. dollar. The Central Bank also suspended Bahamian investments in U.S.-dollar denominated investment funds created by local brokers seeking higher returns in overseas markets. The Central Bank warned it was prepared to act swiftly in imposing even harsher restrictions, if necessary, to maintain the country’s fixed exchange rate and to conserve foreign currency reserves. The suspension remained in place throughout 2020 and had not been lifted as of spring 2021.
Money and Banking System
The financial sector of The Bahamas is highly developed and 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, commercial banks, and the state-owned Bank of The Bahamas. These institutions provide a wide array of services via several types of financial intermediaries. The financial sector is regulated by The Central Bank of The Bahamas, the Securities Commission, Insurance Commission, the Inspector of Financial and Corporate Service Providers, and the Compliance Commission.
According to the Central Bank’s Quarterly Economic Review of December 2020, the contraction in domestic credit outpaced the reduction in the deposit base during the fourth quarter of 2020. Consequently, both bank liquidity and external reserves expanded, bolstered by foreign currency inflows from the government’s external borrowings. However, banks’ credit indicators deteriorated during the fourth quarter due to the adverse impact of the COVID-19 pandemic. Further, data from the third quarter revealed a reduction in banks’ overall profitability, reflecting higher levels of provisioning for bad debt.
In the external sector, the estimated current account balance went from a surplus in 2019 to a deficit during the final quarter of 2020. The services account also moved from surplus to deficit, as travel restrictions associated with the COVID-19 pandemic led to a significant reduction in travel receipts. In contrast, the surplus on the capital and financial account increased considerably, owing primarily to an expansion in debt-financed government spending.
In the domestic banking sector, four of the eight commercial banks are subsidiaries of Canadian banks, three are locally owned, and one is a branch of a U.S.-based institution. Continued reorganization by the Canadian banks has severely limited banking services on some of the less populated islands.
The Central Bank’s strategic goals include responding to the loss of brick-and-mortar banks by implementing digital banking across the country. To this end, the Central Bank introduced the “Sand Dollar” in December 2019, the first central bank-backed digital currency in the world. The introduction of the new currency aims to provide individuals with efficient and non-discriminatory access to financial services. Since its launch, domestic financial and political elites have welcomed the financial inclusion of unbanked and underbanked residents. To date, nine firms (including clearing banks, money transfer services, credit unions and payment service providers) have successfully completed the cybersecurity assessment and been authorized to distribute Sand Dollars within their proprietary mobile wallets.
Although Sand Dollar accounts and transactions are theoretically subject to the same stringent anti-money laundering and Know Your Customer (KYC) safeguards as traditional commercial banks, the Central Bank’s capacity to enforce these safeguards, as well as account audit capabilities, may be limited. Additional information on the Sand Dollar can be accessed via www.sanddollar.bs/ .
Foreign Exchange and Remittances
Foreign Exchange Policies
The Bahamas maintains a fixed exchange rate policy, which pegs the Bahamian dollar one-to-one with the U.S. dollar. The legal basis for the policy is the Exchange Control Act of 1974 and Exchange Control Regulations. The controls ensure adequate foreign exchange flows are always available to support the fixed parity of the Bahamian dollar against the U.S. dollar. The peg removes issues of rate conversions and allows for unified pricing of goods and services for tourists and residents. To maintain this structure, individuals and corporations resident in The Bahamas are subject to restrictions on foreign exchange transactions, including currency purchases, payments, and investments. Similarly, Bahamians cannot make payments or investments in foreign currencies without Central Bank approval.
Exchange controls are not an impediment to foreign investment in the country. The government requires all non-resident investors in The Bahamas to register with the Central Bank, and the government allows non-resident investors who finance their projects substantially from foreign currency transferred into The Bahamas to convert and repatriate profits and capital gains freely. They do this with minimal bureaucratic formalities and without limitations on the inflows or outflows of funds.
In the administration of exchange controls, the Central Bank does not withhold or delay approval for legitimate foreign exchange purchases for currency transactions and, in the interest of facilitating international trade, it delegates this authority to major commercial banks and selected trust companies. International and local commercial banks, which are registered by the Central Bank as ‘Authorized Dealers,’ may administer and conduct foreign currency transactions with residents of The Bahamas. Similarly, private banks and trust companies which are designated as ‘Authorized Agents’ are permitted to act as depositories for foreign securities of residents and to conduct securities transactions for non-resident companies under their management.
The Central Bank directly approves foreign exchange transactions that fall outside of the delegated authority, including loans, dividends, issues and transfer of shares, travel facilities, and investment currency. The government has continued gradual liberalization of exchange controls over the years with the most recent measure implemented in April 2016. The most recent measures delegated increased authority to commercial banks for exchange control and seek to regularize nationals holding accounts in the United States by allowing nationals to open U.S. dollar denominated accounts within the jurisdiction.
There are no restrictions on investment remittances. Foreign investors who receive a Central Bank designation as a non-resident may open foreign currency-denominated bank accounts and repatriate those funds freely. In addition, with Central Bank approval, a foreign investor may open an account denominated in Bahamian currency to pay local expenses. As mentioned, increased authority has been delegated to commercial banks and money transfer businesses.
The Bahamas is one of 25 member countries that make up the Caribbean Financial Action Task Force (CFATF), an organization dedicated to address the problem of money laundering. The organization’s most recent peer review evaluation and follow-up reports can be found at ( https://www.cfatf-gafic.org/index.php/member-countries/the-bahamas ).
Sovereign Wealth Funds
The Bahamian government passed omnibus legislation for the effective management of the oil and gas sector in 2017, which included the creation of a sovereign wealth fund, but has not yet promulgated supporting regulations. Discussions of a possible sovereign wealth fund were reignited when the Bahamas Petroleum Company, an Isle of Man-registered company, began exploratory oil drilling in Bahamian waters. The company confirmed in February 2021 that its exploratory drilling did not produce commercially viable quantities of oil.
The government nevertheless announced plans in January 2021 to accelerate the establishment of a Sovereign Wealth Fund and an accompanying National Infrastructure Fund. The government stressed the funds would derive income from royalty payments from all the country’s natural resources (such as salt, sand, rock and aragonite exports), not just potential earnings from oil exploration. The government suggested both funds would mobilize public assets and private capital to generate hundreds of millions of dollars in infrastructure investments across the country. The government committed to embrace international best practices designed to address issues of transparency, accountability and the governance structure of such funds.