By Frederick Smith, QC
BAHAMIANS, like the citizens of young developing nations, place emphasis on the idea of national sovereignty. Gaining independence in 1973 remains a source of pride and our tourism industry continues to boast it is ‘Better in The Bahamas’.
But, all is not well in paradise. The country may possess incredible natural beauty and vast economic potential, but half a century after achieving political autonomy, the citizens find themselves relegated to the status of ECONOMIC PARASITES, subsisting on the periphery of a system that negates their chances of financial success and rules out any notion of meaningful ownership of the economy.
Due to an excessive, oppressive and prejudicial regulatory regime, Bahamians are prohibited from owning any stake in the large-scale tourism projects that underpin the national economy – yet any individual, group or entity based outside The Bahamas can own shares in resort developments located here.
For example, the Atlantis Resort, the largest employer after the government, is owned by a publicly traded Canadian company with some $159 billion in assets. The shareholders of Brookfield profit from the resort’s success – but not a single one of them is Bahamian.
It is nothing short of perverse that we continue to maintain a legal framework which prevents Bahamians from owning a piece of their own economic pie.
Likewise, trillions of dollars in offshore banks are headquartered in this country, yet Bahamians have been condemned to an alternate reality where the concept of abundant affordable capital simply does not exist.
Meanwhile, the development strategy adopted by successive governments, the so-called ‘Anchor Project Model,’ destroys local industry while siphoning off the profits to other jurisdictions. This has a huge impact, especially on Family Islands which already struggle under a regressive tax regime that redirects all revenue to Nassau.
Over the years, there have been rare moments when the enormous economic potential of this country could be glimpsed.
For example, Freeport, the nation’s second city, which boomed from 1955 until the first PLP government broke its back in 1969.
In the heyday of Freeport, every resident, every licensee, every land owner could buy shares in the parent company, Intercontinental Diversified traded on the NY Stock Exchange.
The economic climate was open and participatory. Believe it or not, there was a time when a foreign person did not have to get approval from the Office of the Prime Minister to do business in the Bahamas, particularly in Freeport. The local economy thrived and Bahamians benefitted as a result.
The people who worked and lived in Freeport – both local and foreign – had a real stake, a real interest in seeing this ambitious project succeed.
But beginning in the late 1960s, the central government illegally seized the administrative and regulatory powers reposed in the GBPA under the Hawksbill Creek Agreement, negating Freeport’s attractiveness as a free trade zone and creating a mass exodus of entrepreneurs and capital.
Ironically, after “Bahamianisation”, the GBPA was allowed to convert into a private company, perversely depriving every Bahamian of the opportunity of owning shares.
Almost overnight, Freeport devolved from a thriving, outward looking international trade zone into a crippled, stagnant, semi-deserted trading post with no prospects for meaningful growth.
Don’t get me wrong, Freeport is still home to an international economy. A Chinese company owns the Harbour; American companies own the Shipyard; a Canadian company owns Freeport Power; a French outfit controls Sanitation Services and, of course, the English still own the GBPA and so on. But now, none of the profit goes to Bahamians; instead, it is drained from the pockets of Bahamians, then shipped overseas to the benefit of others.
Freeport is in this sense, a microcosm of what has happened across The Bahamas: citizens have been pushed to the fringes, with all the real profit enjoyed by foreign interests along with their friends in local politics who are always eager to lend a hand in return for a handout.
The result of this depressing scenario has been social and economic alienation; a sense of isolation, detachment and antagonism among regular Bahamians. Citizens do not feel they are beneficiaries of the economy, and rightfully so. They feel cut off and used, mere cogs in someone else’s machine.
Some very big companies and banks are headquartered in this little country, making it a huge profit centre, just not for Bahamians. Yet other countries with far less per capita wealth than the Bahamas actually pave the way for their citizens to benefit from foreign investment.
Indonesia has set initial capital expenditure at $1m for any foreign entity, unless it takes on local partners. A similar law exists in Ghana, where the investor must also commit to hiring a minimum number of skilled local workers.
In Hungary, efforts have been made to increase the public’s share in the value added by large foreign investments, by giving concessions and technical assistance to local suppliers and encouraging large foreign businesses to rely on them.
In the Philippines, certain enterprises whose capital is at least 60% Filipino-owned are entitled to special services such as a streamlined business registration, credit financing and capacity building programmes.
In most countries, citizens are simply allowed to invest in whatever they want, anywhere in the world. The Bahamas joins a handful of Middle Eastern, African and Eastern European states that still adhere to the outdated model of exchange control.
Then, we bend over backwards for the foreign investor, grant him millions of dollars in concessions, even as Americans, Canadians, Englishmen, Russians, Mexicans, Brazilians, Mongolians – literally anyone, provided they are not Bahamian – buy shares and profit from the companies operating in The Bahamas.
In other countries, casino taxes represent a huge revenue stream for the local and state governments. For example, in 2014, more than $2 billion in taxes and fees were paid by Nevada hotel-casino operators. Generally, Nevada hotel casinos account for nearly half of state revenue – more than any other industry.
Closer to home, that same year, Jamaica reported an increase in casino tax revenue from J$2.9 billion last year to J$4.1 billion. Recent studies show that casino tax is becoming a stronger generator of government revenue across the region.
Yet in The Bahamas, casino tax goes to central government and/or is waived, or we don’t bother to collect. Family Islands where casinos operate do not benefit. Only the foreign investor benefits and exports the profit abroad.
This is the evil of the Anchor Project model, which holds that attracting foreign developers and making them happy is the single most important economic factor. Everything else – the local environment, culture, the well-being of the community – is a distant second, if considered at all.
So, we give away Crown land for free or next to nothing, grant exemptions on Customs duties, casino tax, real property tax, stamp tax, business license tax, VAT and so on.
Consider what has happened to Bimini. A massive presence on such a tiny island, Resorts World operates like an alien entity, totally disconnected from the Bimini community; a gated plantation where hundreds of foreigners occupy luxury homes and Bahamians enter only to work mostly menial jobs. When their shift is done, they leave and the gates close behind them.
Inside, huge profits are generated for a Malaysian conglomerate and its partners in Miami who have benefitted from “double casino tax break” as The Tribune termed it, under the Christie administration. This effectively meant that in addition to waiving a significant part of the taxes the developer owed, the public also paid for upgrades to the airport and island infrastructure which the resort was originally supposed to cover.
What little the resort does pay in taxes goes to central government in Nassau, and does not benefit the people of Bimini in the slightest. Nor can they own shares in the company and thereby claim some of the profit.
Meanwhile, their marine and terrestrial environment have been destroyed, the bone fishing flats ruined and whole reef systems torn up by the developers, meaning that fishing guides, dive instructors and fishermen – homegrown, self-employed entrepreneurs – are out of work.
They have no choice but to go and apply for modest wages on the Resorts World plantation, but the irony is there are already so many foreign workers that few jobs for Bahamians exist!
Meanwhile, just 90 miles away in south Florida, tourism, housing and urban development schemes all pay city, state and federal taxes to be used for infrastructure, public services, medical care, schools, police, fire and rescue, education entertainment and cultural activities. Those who live and work in the area can invest in these companies if they are publicly traded, and thereby have a stake in the success of these developments and the overall community.
We simply must change our investment and economic model so that Bahamians can own a piece of their own country, a piece of every development, a piece of their own and their children’s future.
If The Bahamas is to make the most of its incredible economic potential, nothing less than a total paradigm shift in the country’s approach to investment, taxation and economic empowerment is required.
In an inclusive, universally beneficial economic model, unions and hotels would not have to constantly be at odds over what amount to scraps for the workers – a bit more holiday, slightly shorter hours, minuscule raises.
Workers could own a piece of the action, as could union funds and co-operative credit institutions; and all could work together towards making the hotel a success. The same goes for industrial harbours, shipyards, power and harbour companies, factories, breweries and virtually any other business likely to attract foreign ownership.
In Freeport, the 1965 HCA Amendment provided for transfer of all infrastructural and local government assets to the residents and licensees so everybody would have a political, social, economic and cultural vested interest in working together for the success of a collective venture.
What we have instead, in Grand Bahama and across the country, is a negative, antagonistic, suspicious atmosphere, where everyone is at odds with each other and only concerned with scraping together what crumbs they can for themselves.
Bahamians are relegated to the status of parasites in our own paradise.
But the Minnis administration has an amazing opportunity to convert this toxic atmosphere into a positive, thriving, opportunistic investment environment. To do so, it must make dramatic legal and policy changes that send a clear message to Bahamians that there is economic freedom and hope on the horizon for each of them personally.
The government should repeal exchange control; make developers pay taxes to local communities; find creative and inclusive alternatives to the Anchor Project model and evolve other policies from the abundant international examples to help The Bahamas become a place where we can work together to make tourism, business, industry and commerce, succeed and grow for the good of all, foreign investor and Bahamians!