By NEIL HARTNELL
Tribune Business Editor
Poor governance and business processes have slashed Bahamian economic growth by an average one percent of GDP every year this century, the Government has admitted.
The first-ever fiscal strategy report, tabled in the House of Assembly on Wednesday, blamed low to negative total factor productivity (TFP) for The Bahamas’ anemic economic growth since the turn of the century.
TFP, which measures technological innovation in both the private and public sectors, and how efficiently inputs to the production process are used, was said to have “almost doubled” its negative impact on real GDP growth to two percentage points in the early 2000s.
This, the report added, undermined foreign direct investment (FDI) and other capital injections into the Bahamian economy, along with the “modestly rising” contribution of labour since the turn of the century.
Acknowledging that real economic growth was “of critical importance” to employment levels and living standards, the fiscal strategy report defined TFP as all factors other than capital and labour that impact GDP.
“Based on studies completed on the subject, TFP has played a central role in the under-performance of the economy since, at least, the early 1980s,” it said. “In the 1990s, for instance, capital and labour together contributed an average of three percentage points to real economic growth, but total factor productivity reduced the actual growth rate by one full point.
“In the early 2000s, the combined contribution of capital and labour was similar, but the negative impact of TFP was almost doubled to two full percentage points.” The Fiscal Strategy Report added that negative TFP growth, and its damaging impact on the Bahamian economy, was identified by the IMF which estimated it had averaged -1 percent of GDP “since at least 2000”.
With capital’s “large positive contribution” having decreased over the years, and labour’s increasing slowly, the Fiscal Strategy Report said these issues explained why the International Monetary Fund (IMF) is forecasting that Bahamian GDP growth will return to its long-run average of 1.5-1.6 percent between 2020 to 2022 following its recent Baha Mar-related boost.
“Clearly, such a relatively weak potential rate of growth is inadequate to the needs of Bahamian society and workers, both those seeking full-time employment and those entering the labour force every year,” the report said.
“As such, beyond policies to improve human and physical capital, efforts must be devoted to addressing the key factors that impinge on the growth of total factor productivity.” While the efficient use of technology was critical, the report reaffirmed how the Government plans to improve The Bahamas’ competitiveness through deregulation and liberalisation, plus improving the ease of doing business.
“Sound public institutions and governance, as well as good management systems, for instance, in respect of the protection of property rights and respect of the rule of law, are also vital,” the Fiscal Strategy Report said.
“Competition, through privatisation and policies to facilitate market entry of new firms, and openness to trade, are critical as well. Trade liberalisation also enhances competition and provides channels for technology transfer from abroad, and capital deepening and foreign direct investment, for their part, enhance the absorptive capacity of the economy through advanced technology spillovers.”
The Minnis administration pledged that the private sector will drive higher economic growth, with “Bahamian investment and creativity, especially that of Bahamian small businesses” targeted as “underpinning” expansion.
“To that end, the Government is moving to significantly improve both the ease of doing business and the business environment, as the goal is to enhance the competitiveness of the Bahamian economy,” the Fiscal Strategy Report said.
“Another key dimension of this goal is to transform and modernise the public sector, including making the SOEs (state-owned enterprises) more efficient and self-sustaining. Through planned membership in the World Trade Organisation (WTO), the Government is also seeking to enhance competition and openness to trade, with the potential for improved efficiency of resource allocation in the Bahamian economy and greater exposure to global technical and business knowledge.”