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The Bahamas

Executive Summary Title

The Commonwealth of The Bahamas is a nation of islands stretching 760 miles from the coast of Florida to the coast of Haiti. Despite historical and cultural similarities with many Caribbean countries, The Bahamas’ proximity to Florida reenforces its close ties to the United States. Only twenty-nine of its 700 islands are inhabited, and the population is clustered around the two largest cities of Nassau and Freeport. The country has a stable investment climate, democratic tradition, respect for the rule of law, and well-developed legal system. Bahamians’ use of English and frequent travel to the U.S. contribute to their preference for U.S. goods and services. The World Bank classifies The Bahamas as a developed country with a high per capita GDP of $25,194. 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 $2.9 billion in 2021, giving the U.S. a trade surplus of $2.5 billion.

The Progressive Liberty Party (PLP) returned to power in September 2021 elections. The landslide victory reflected public discontent over the slumping economy and the government’s handling of the pandemic. Both crises highlighted The Bahamas’ dependence on tourism, vulnerability to external shocks, and lack of economic diversification.

The World Bank classifies The Bahamas as a high-income country, which belies the country’s extreme income inequality. Tourism and related services contribute to over 70 percent of the country’s GDP and employs just over half the workforce. However, Hurricane Dorian (2019) and the COVID-19 pandemic (2020-2021) devastated the economy and forced tens of thousands out of jobs. A survey of the labor force has not been completed since December 2019, yet government and international agencies estimate unemployment at 20 to 25 percent. Although tourism is on the rebound, it has yet to reach the pre-pandemic level of more than seven million mostly American annual tourists. Financial services is the second most important sector of the economy, accounting for 15 percent of GDP.

To diversify the economy, the government has targeted investment in light manufacturing, technology, agriculture, fisheries, extractive industries, and renewable energy. The government has also committed to digitizing business services and jumpstarting domestic productivity through small and medium enterprises (SMEs), especially those operating in non-traditional sectors. Grand Bahama, the most northern Bahamian island, depends less on tourism and has the most diversified economic activity of any island in the country. Its capital, Freeport, is a free trade zone featuring many U.S.-owned businesses.

The Bahamas’ economic future depends on the government’s ability to revive the tourism industry, diversity the economy, attract foreign direct investment, manage debt obligations, and demonstrate fiscal responsibility. Following two years of pandemic-related government borrowing, spending, and tax concessions, the country has seen recent economic growth credited to rebounding tourism and the lifting of COVID restrictions. The government also reports a strong pipeline of investment proposals in tourism, renewable energy, airport and infrastructure development, mining, and agriculture. The government affirms its support for SMEs (representing 85 percent of registered businesses), with $250 million earmarked to fund entrepreneurial developments over five years. The Small Business Development Centre (SBDC), launched in 2018, has prioritized the economic empowerment of women entrepreneurs and the reduction of the income gap between men and women.

The Bahamas has leaned on international financial institutions for loans and thus far rejected offers from foreign governments to prop up its economy. International Financial Institutions (IFIs) have voiced concern about The Bahamas’ reluctance to impose additional taxes to address its 96 percent debt-to-GDP ratio. The country does not have corporate, personal, inheritance or capital gains taxes. The government also faces international pressure to improve aspects of its anti-money laundering policies.

The Bahamas is not a member of the WTO and does not offer export subsidies, engage in trade-distorting practices, or maintain a local content requirement. The country has a strict $500,000 dollar minimum on foreign capital investments. The country attracts FDI and over the past decade has benefitted from significant investments in the tourism sector by PRC-based and backed companies. Since taking office, the government has shown its willingness to engage investors from non-traditional markets such as the Middle East. Investments from the United States are primarily in the tourism sector and range from general services to billion-dollar resort developments. U.S. companies have also shown interest in emerging sectors, such as non-oil and renewable energy, niche tourism, extractive industries, 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 judiciary, and strong consumer purchasing power. 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, a lengthy legal disputes resolution process, internet connectivity issues on smaller islands, and energy costs four times higher than in the United States. The high cost of electricity is driven by antiquated generation systems and inefficient diesel power plants. The current government has prioritized infrastructure projects focused on non-oil energy, including a liquid natural gas (LNG) plant and an onshore LNG regasification terminal. The government is also promoting solar energy, particularly on the smaller islands.

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, real estate agencies, and others. Accession to the WTO, which would require opening at least some of these protected areas to foreign investment, is unlikely to take place before 2025.

The absence of transparent investment procedures and legislation is also problematic. U.S. and Bahamian companies report business dispute resolution often takes years and debt collection can be difficult, even with a court judgment. Companies describe the approval process for FDI and work permits as cumbersome and time-consuming. The government passed a Public Procurement Act and launched an e-procurement and suppliers registry system in 2021. While the registry system is in place, the Public Procurement Act has yet to be fully implemented. Companies complain that the tender process for public contracts is inconsistent, and allege it is difficult to obtain information on the status of bids.

The Bahamas scored 64 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 ranked countries. However, the country’s score has dropped seven points since 2012. The new administration confirmed its intention to amend several good governance laws, including the Public Procurement Act, but has not provided a timeline. The Bahamas still lacks an Office of the Ombudsman and has not fully enacted its Freedom of Information Act (2017). Legislation to support an Integrity Commission and campaign reform have also been delayed. An independent Information Commissioner, supported by technical and administrative staff, was appointed in mid-2021.

The country grapples with high crime, unemployment, and xenophobia directed towards irregular migrants, especially Haitians. Conservative and patriarchal norms sometimes lead to inequality of opportunity, including for women. Women have raised concerns regarding bureaucratic hurdles to register businesses and cited difficulty in securing financing.

Table 1
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 30 of 180 (rank) http://www.transparency.org/research/cpi/overview
Global Innovation Index 2020 N/A https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country (M USD, stock positions) 2020 46,061   https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 26,070 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness to and Restrictions Upon Foreign Investment

2. Bilateral Investment Agreements and Taxation Treaties

The Bahamas has no bilateral investment agreements but has signed tax information exchange agreements with 34 countries, including the United States in 2002. The agreement designates The Bahamas as a qualified jurisdiction and provides U.S. companies tax credits for conventions and related corporate expenses. Tax information exchange agreements signed to date can be accessed via https://www.bahamas.gov.bs/wps/portal/public/International%20Agreements .

The Bahamas was the first country in the Caribbean region to sign the Foreign Account Tax Compliance Agreement (FATCA) with the United States. Since September 2015, The Bahamas has implemented a non-reciprocal, inter-governmental agreement (Model 1B) to satisfy the obligations of the agreement. Additionally, in January 2017, the government implemented the OECD-developed Common Reporting Standard (CRS) through the Automatic Exchange of Financial Account Information Act and has activated exchange relationships with 63 partners ( www.taxreporting.finance.gov.bs/ ).

The Bahamas is a signatory to the 2008 Economic Partnership Agreement between the Caribbean Forum (CARIFORUM) and the European Union, and the 2019 Economic Partnership Agreement between CARIFORUM and the United Kingdom. Both agreements provide for the asymmetric liberalization of trade in goods and services between CARIFORUM and the other signatories and include specific commitments on investments and trade-in services. The Bahamas has not yet ratified either trade agreement, but provisionally applies both.

The Bahamas is a member of the Caribbean Community (CARICOM) but does not participate in the single market, single economy, or the customs union. The Bahamas does not have a free trade agreement with the United States but is a signatory to the US-CARICOM Trade and Investment Framework Agreement (2013).

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

State-owned enterprises are active in the utilities and services sectors of the economy. A list of the 25 SOEs is available on www.bahamas.gov.bs . Key SOEs include Bahamasair Holdings Ltd. (the national airline), Public Hospitals Authority, Civil Aviation Authority, Nassau Airport Development Authority, University of The Bahamas, Health Insurance Authority, Bank of The Bahamas, Bahamas Power and Light (BPL), Water and Sewerage Corporation (WSC), Broadcasting Corporation of The Bahamas (ZNS), Nassau Flight Services, and the Hotel Corporation of The Bahamas.

In April 2019, the government announced plans to introduce a State-Owned Enterprises Bill to impose proper corporate governance and address the risk inefficient SOEs pose to the government’s financial health. The Embassy is unaware of efforts to advance this Bill in 2021. However, a suite of legislation passed in March 2021 aimed at improving the country’s fiscal governance may also improve the performance and accountability of SOEs.

Within the past decade, no SOE has returned profits or paid dividends, although SOEs account for significant government expenditure with approximately $419 million budgeted for fiscal year 2021-2022. The government has maintained SOE reforms are integral to its fiscal consolidation plans and confirmed commitments to reduce subsidies by $100 million annually over the next four years. The savings from SOE reform are expected to assist with meeting additional debt servicing obligations.

The government has permitted foreign investment in sectors where SOEs operate and has approved licenses to private suppliers of electrical and water and sewerage services. These licenses have been issued for private real estate developments or where there is limited government capacity to provide services. The city of Freeport on the island of Grand Bahama has its own licensing authority and maintains monopolies for the provision of electricity, water, and sanitation services.

8. Responsible Business Conduct

Local and foreign companies operating in The Bahamas have progressively become more committed to the tenets of responsible business conduct (RBC). Local and foreign companies have led RBC-related initiatives, including educational programs directed at capacity building for specific industries, the maintenance of public spaces, financial and technical assistance to charitable organizations, and commitments to sustainability and environmental responsibility.

There have been no high-profile or controversial instances of corporate violations of human or labor rights, but civil society remains active in bringing attention to social issues. The Bahamas has strong trade unions, and labor laws prohibit discrimination in employment based on race, creed, sex, marital status, political opinion, age, HIV status, or disability.

The Bahamas does not adhere to the OECD Guidelines for Multinational Enterprise.

9. Corruption

The government’s laws to combat corruption by public officials have been inconsistently applied. The law provides criminal penalties for corruption, and the government generally implemented the law effectively when applied. However, there was limited enforcement of conflicts of interest related to government contracts and isolated reports of officials engaging in corrupt practices, including accepting small-scale “bribes of convenience.” The political system is plagued by reports of corruption, including allegations directing contracts to political supporters and providing favorable treatment to wealthy or politically connected individuals. In The Bahamas, bribery of a government official is a criminal act carrying a fine of up to $10,000, a prison term of up to four years, or both.

The current administration has accused the former administration of inappropriate spending and misappropriation of millions of dollars, particularly during the state of emergency issued due to the COVID-19 pandemic. The Emergency Power (COVID-19) Regulations, passed in March 2020, granted widespread powers to the government during the state of the emergency. For example, the legislation allowed the government to bypass normal spending rules and procurement processes, although it did require the government to present Parliament with reports of contracts and pandemic-related funding within six weeks of the expiration of the state of emergency. Despite the state of emergency expiring and being extended several times throughout 2020 and 2021, the former administration failed to report. The Emergency Power Regulations expired for the final time without extension in October 2021.

The new administration has called into question several contracts awarded to companies and individuals by the former administration under the Emergency Power Regulations and has ordered forensic audits of government ministries and agencies. Initial findings suggest significant misappropriation of funds. The former administration admitted it failed to report but denies allegations of corruption. The new administration also accused the former administration of $821 million in undisclosed liabilities and unfunded obligations identified in the former administration’s pre-election report. The former administration denies these allegations, explaining the reporting irregularities were due to differences in accounting methodologies.

As of April 2022, no criminal charges have been filed against members of the former government for these corruption allegations. The current government pledged any decision to prosecute would be supported by independently collected and verified evidence.

The Public Disclosure Act requires senior public officials, including senators and members of Parliament, to declare their assets, income, and liabilities annually. For the 2021 deadline, the government gave extensions to all who were late to comply. The government did not publish a summary of the individual declarations, and there was no independent verification of the information submitted. The campaign finance system remains largely unregulated with few safeguards against quid pro quo donations, creating a vulnerability to corruption and foreign influence.

In September 2021, the government enacted the Public Procurement Act (2021), which overhauls the administration of government contracts to improve transparency and accountability. Senior government officials have called for the legislation to be amended to reflect government capabilities and strengthened with new regulations. Though functional, most agencies with large procurement budgets do not utilize the existing e-procurement portal or registry. Senior Officials purport that the existing e-procurement portal requires modernization to improve functionality.

According to Transparency International’s 2021 Corruption Perceptions Index, The Bahamas ranked 30 out of 180 countries with a score of 64 out of 100. There are no specific protections for NGOs involved in investigating corruption. U.S firms have identified corruption as an obstacle to FDI and have reported perceived corruption in government procurement and in the FDI approvals process.

The government does not, as a matter of government policy, encourage or facilitate illicit drug production or distribution, nor is it involved in laundering the proceeds of the sale of illicit drugs.  No charges of drug-related corruption were filed against government officials in 2021.

The Bahamas ratified major international corruption instruments, including the Inter-American Convention against Corruption in 2000, and has been a party to the Mechanism for Follow-Up on the Implementation of the Inter-American Convention against Corruption (MESICIC) since 2001. The Bahamas is not party to the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions.

10. Political and Security Environment

The Bahamas has no history of politically motivated violence and, barring a few incidents leading up to general elections in 2021, the political process is violence-free and transparent. The 2021 incidents were minor and included damage to political party installations and billboards, social media harassment, and altercations between political party supporters.

11. Labor Policies and Practices

The labor force is considered well-educated by international literacy and numeracy standards, and both skilled and unskilled labor is readily available. Although a formal Labor Force Survey has not been completed since December 2019 when the unemployment rate was 10.7 percent, government and international agencies estimate the 2021 unemployment rate at 20 to 25 percent due to the pandemic. The National Statistical Institute expects to complete the next Labor Force Survey in May 2022.

Under normal conditions, wage rates are lower than in the United States but higher than most countries in the region. The minimum wage is $5.25 per hour ($210 per week), although the government is considering increasing the wage to $6.25 per hour ($250 per week). There are significant numbers of documented and undocumented foreign workers. There are 40,000 registered work permit holders in The Bahamas, and the majority are designated as unskilled or semi-skilled. This group is comprised primarily of Haitian nationals.

The Bahamian government has granted special permission to several construction projects to bring in foreign workers. These concessions were negotiated as part of the Heads of Agreement for specific, large-scale investments. In most other cases, the employment of foreigners requires applying for individual work permits. Bahamian labor law governs all workers, both foreign and domestic.

The Fair Labor Standards Act (FLSA) 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 working more than 40 hours a week or on public holidays. A 1988 law provides for maternity leave and the right to re-employment after childbirth. The Minimum Labor Standards Act, 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 early 2002. Foreign workers also have the right to social security benefits after five consecutive years of contributions.

Bahamian law grants labor unions the right to free assembly and association and to bargain collectively. The unions and associations exercise these rights extensively, particularly in state-owned industries. The Industrial Relations Act governs the right to strike, which requires a simple majority of union members to vote in its favor. The Ministry of Labor oversees strike votes and manages overall industrial relations. Industrial unrest occurred throughout 2021 due to the effects of the pandemic and longstanding issues such as outstanding industrial agreements and delayed promotions. Demonstrations were organized by the Bahamas Public Services Union, the Union of Public Officers, the Nurses Union, the Doctors Union, the Consultant Physicians Staff Association, the Bahamas Educators and Managerial Union, Customs, Immigration and Allied Workers Union, the Union of Tertiary Educators, and the Union of Teachers.

In 2016, the government amended legislation to require employers to inform the Minister of Labor in instances where more than ten people were being laid off.

The Bahamas ratified most International Labor Organization (ILO) Conventions and domestic law recognizes international labor rights. The Department of Labor’s Inspection Section has been strengthened to investigate occupational safety and health issues, including both on request and random inspections. The country is committed to eliminating the worst forms of child labor, and the Ministry of Labor has periodically inspected grocery stores and other establishments where child labor in commonplace to ensure the enforcement of laws governing child labor.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) (M USD) 2019 13,164 2019       21,433,000 https://data.worldbank.org/country/bahamas
Foreign Direct Investment Host Country Statistical source USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country (M USD, stock positions) 2020 N/A 2020      46,061 BEA data available at

https://apps.bea.gov/international/factsheet/factsheet.cfm

Host country’s FDI in the United States (M USD, stock positions) 2020 N/A 2020         1,944 BEA data available at

https://apps.bea.gov/international/factsheet/factsheet.cfm

Total inbound stock of FDI as % host GDP 2020   N/A 2020 N/A UNCTAD data available at

https://unctad.org/topic/investment/w

orld-investment-report

Table 3: Sources and Destination of FDI
Data not available.

14. Contact for More Information

Political-Economic Section
U.S. Embassy Nassau
New Providence, The Bahamas
P.O. Box N-8197
Telephone: (242) 322-1181
Email: NassauCommercialDL@state.gov 

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