By NEIL HARTNELL
Tribune Business Editor
The Bahamas must transform an economic model that is “in crisis” by “shoring up” local entrepreneurs and capital, a former attorney general argued yesterday.
Alfred Sears QC, pictured, told Tribune Business that the 60 year-old template left by Sir Stafford Sands was now “broken” and inadequate for The Bahamas’ needs, perpetuating an unequal investment incentive regime that favours foreigners over Bahamians.
Arguing that such a situation is “not a sustainable trajectory” for the Bahamian economy, Mr Sears said The Bahamas could only build resilience by creating an incentive “level playing field” that places local businesses on an equitable footing with their foreign counterparts.
He argued that there were too many “hold overs from the colonial era”, pointing to areas such as the granting of crown land, which were holding The Bahamas back and undermining good governance.
“For there to be sustainable development you have to incentivise your domestic capital,” Mr Sears told this newspaper yesterday. “The foreign direct investment is really here for comparative advantage, and when it’s better elsewhere they’re gone.
“I don’t know of any other country in terms of its cash contribution to the tourism area where it’s entirely ring fenced from the domestic tax policy. There’s billions of dollars granted in concessions, and local entrepreneurs have no access to it.
“Clearly foreign direct investment is welcome and we need it, but we also need for there to be a thriving domestic economy.... If you were in any country, like Trump’s saying, ‘America First’, you would try and shore up as much as possible the national capital. I believe the people who live here should never be at a competitive disadvantage in their economy.”
Addressing the National Progressive Institute, the Progressive Liberal Party’s (PLP) think-tank, on Tuesday night, Mr Sears had argued that the tax breaks, subsidies and other concessions had reached “a point of diminishing return” for The Bahamas.
He said these foregone taxes not only reduced the revenues available to the Government for the delivery of improved public services, but represented a “constraint on national development” due to a tax burden that fell increasingly heavily on Bahamian-owned companies and players in the domestic economy.
Mr Sears pointed to the massive multi-million dollar incentives granted to the tourism industry as one such example, noting that that the likes of Atlantis and Baha Mar receive annual $4m promotional cash subsidies from taxpayers via the Ministry of Tourism in addition to tax breaks and other concessions.
“On an estimated investment of $2.5 -$3 bn, it is conservatively estimated that [Atlantis] receives concessions conservatively valued in excess of $500m, inclusive of exemptions from custom duties, real property tax, stamp duty and casino tax rebate under Hotel Encouragement Act, the Stamp Act and the Heads of Agreement,” he added.
“Atlantis, when refinanced in 2014, was granted a combination of casino tax rebate and marketing contribution of $8m for years 2014 and 2015... On an investment estimated at $3bn, Baha Mar receives concessions conservatively estimated at $500m. In addition, Baha Mar received a $20m contribution from the Government on the relaunch of Baha Mar.”
With other hotel developments such as Resorts World Bimini and The Pointe also receiving multi-million dollar tax breaks and incentives, Mr Sears said: “Over a period of eight years, the cash subsidies from the Government to hotels with Heads of Agreements amounted to over $100m.”
Contrasting this with the experience of locally-owned hotels, he added: “Historically, Bahamian-owned hotels with under 75 rooms find it difficult to qualify for concessions under this Act due to the requirement that they expend 25 percent of the market value of their properties in refurbishment over a period not exceeding two years.
“This requirement, while intended to apply to foreign investors, has had the unintended consequence of penalising Bahamian-owned small hotels.”
Calling for direct action to redress the imbalance between foreign direct investment and the domestic economy, Mr Sears told Tribune Business: “It’s necessary for us to do it affirmatively rather than tinkering here and tinkering there.”
He added that it was ironic that The Bahamas is being challenged, and threatened, over preferential tax breaks granted to foreign investors and non-resident entities by the European Union (EU), which has forced this nation to enact legislation removing such “ring fencing”.
Calling for The Bahamas to look at reforms for its own benefit, the former attorney general said that “for peace, order and good governance internally we need to incentivise national capital, which will be there in good times and bad”.
He argued that other countries geared their investment incentive regimes towards domestic businesses first, and foreign investors, second. Mr Sears said foreign investors coming to The Bahamas typically had access to insurance, guarantees and soft loans provided by their home country’s export-import banks and such like, giving them an automatic competitive advantage over locals.
The exchange control regime also typically restricted capital and financing sources for Bahamian businesses, forcing them to pay a higher price (interest rate) than foreign rivals.
“If we are talking about sustainability, talking about equality, talking about responsible governance, the Privy Council has said time and time again we’re one of the few places in the world where you can get a Heads of Agreement without an approved Environmental Impact Assessment (EIA),” Mr Sears added. “The project can change the life of the community and impact the environment. No man.”
Mr Sears described Crown Land as “a hold over from the colonial era”, with the law giving the minister of land “prerogative power” to determine who should receive grants and leases in the complete absence of any policy and oversight.
Multiple grants and leases have been granted to resort-based development projects, and the former attorney general called for the minister’s power to be removed such and replaced by National Resources legislation that “provides for the rational, transparent and accountable use and disposition of all natural resources, including the 2 million acres of Crown Land, to be operated by a public authority, under Cabinet policy supervision and accountable to Parliament”.
“I want to encourage the public to talk about how we create a new architecture that puts us on a sustainable path,” Mr Sears told Tribune Business. “We need to have the will to transform it and come up with something better for this time and who we are.
“This is not a partisan conversation; it’s a national conversation. Kicking the ball down the road makes it difficult for future generations. This is why we have to look at a progressive form of taxation.”