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Ex-Ag: Bahamas Economic Model ‘Broken, In Crisis’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must transform an economic model that is “in crisis” by “shoring up” local entrepreneurs and capital, a former attorney general argued yesterday.

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Alfred Sears

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.”

Comments

jujutreeclub 11 months, 3 weeks ago

After all these changes in Governments, and his being in power for the majority of years, he just realize that this ain't working. Where were he when his party was in Government. Must have been sleeping, because he always look that way. Is this a new revelation from the dreams he had while sleeping.

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BahamaPundit 11 months, 3 weeks ago

I was excited about this article until I read it. He started out great but then reverted to the old tried and true arguments used by people looking for handouts, such as give us Crown Land. He should have explored how Bahamian retailers can compete against Amazon and the fact that foreigners can more easily obtain financing to buy properties for AIRBNB. Instead, he reverts to blame tactics and suck teeth.

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John 11 months, 3 weeks ago

So when he was in government what did he do to fix the Bahamas Economic Model . First it was the ‘white privilege’ where white Bahamians aka Conchy Joes or more specifically ‘da Bay Street boys’ or ‘The white knights ‘ So they had control of the political power in the country. And by controlling politics, they also controlled the economy. They passed laws that were forced on the average Bahamians but laws that they themselves didn’t intend to abide by. Then as the economy grew and expanded some over the hill small (Black ) businessmen got some advantages, mostly through politics, that allowed him to compete and find a niche in the market. So the Bay Street were displeased and displaced, so they invited the foreigners (foreign direct investment) to come in and further compete with and eradication’s the over the hill businesses. The Bay Street White Boys moved to Abaco or away from the Bahamas. Those who remained found they could also not compete and eventually had to close shop. Government in the maintime through ignorance or being goosied to do So continued to heap up and pile up taxes on local businesses and local Bahamians while foreign businesses got all the perks, the exemptions, the tax breaks. Now when one rides around the Bahamas, there are five closed And shuttered businesses for every one that is still open. There are thousands of Bahamians living without electricity. At least one third of all mortgages are at least 90 days past due. Our phone companies are foreign controlled so is BPL and all the major hotels . The cruise ships come and direct their passengers. Now what was your question again?

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John 11 months, 3 weeks ago

Why you think so many white boys get fire or gone to jail under Donald Trump? It’s the economy stupid

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John 11 months, 3 weeks ago

Back in the 60’s and 70’s and even before and after then, the White Bahamian would rather open the Bahamian economy with foreigners before they share it with Black Bahamians. And not only did they not empower Black Bahamians, but they took steps to exclude them or limit their progress. Little did they know this Economic Racism was coming back to bite them in the butt. While the Bahamian economy has grown to value multi billions, only a small portion of it is owned by Bahamians, Black or White. And the white boys can no longer compete with the foreigners and rather than being business owners and employees, they now find themselves working side by side with the black Bahamians in a foreign entity. In fact some are too embarrassed to come back home. So they stay abroad and work.

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Well_mudda_take_sic 11 months, 3 weeks ago

Sears well knows our country's economic model is broken. After all, he and his partners Sebas Bastian and Craig Flowers helped to break it. LMAO

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bogart 11 months, 3 weeks ago

Erry dumb like us d grade pore on da longer soup lines....BEGGIN FROM OTHERS....SUPPORTRD FROM OTHERS......DECADES EXPERTS.. RESULT....shoudda know dat .....DA RICH GETTIN RICHER....Cohorts...cronies...elites...AN...AN....THE PORE GETTIN PORER.........DIABOTICALLY..more pore losing...addicted.....DAS brilliant knowledgable.....experts...DEY BEEN IN POWER WID ALL MEANS AVAILIBLE.....EVEN PROVIDED..DA CHAUFFERED TAX PAYER PROVIDING CAR AN DRIVER.......an da pore worser.....only country wide phenomical....epiphany .significant belly extrfagance..largess is the real time ....taking da scientific researched....complicated....benefit to reduce tax on can Corn beef....grits...that really benefit some still affording ....cooking on lil butane airsol can gas stove to cook watery corn beef $1.97 can grits $1.79 lb....to stretch more...fire engine .to feed ...plento going bed hungry.......shame on experts National flag on dere collar top left hand lapel suit....in chauffered dark tinted window incoggnitito in pore tax paying for cars .......

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John 11 months, 3 weeks ago

Not only do Bahamians not own the economy but they are also the most taxed by the government. They are the ones most choked by the high cost of living in the country and stripped of economic empowerment. Foreigners can still come with an empty briefcase and a scam and leave with millions and owing millions in taxes and and payroll expenses and other bills. At least Pindling had the right idea to preserve property by not letting foreigners hoard it but Ingraham let him swing him into changing that. And the Bahamisation policy was the right one but not properly structured. Foreigners have more control over our power companies, communications, tourism and even law enforcement than ever before in the history of the country.. the current prime minister claims to have investments all over the world, but what incentives has he or his sidekick KP made to allow it to become easier for Bahamians to invest even at home, and own a piece of the rock. The most disgraceful example was how the web shop operates were assaulted and violated. If the government tried that with the casinos or any foreign company , they would have packed their bags and left.

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Well_mudda_take_sic 11 months, 3 weeks ago

Still singing as usual to your numbers boss for your supporter. LMAO

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John 11 months, 3 weeks ago

Maybe I’m singing for racial equality. So what your sour note?

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John 11 months, 3 weeks ago

China graduates over 350,000 engineers last year. That is almost eqoto the population of the Bahamas. How many Bahamian engineers graduated last year? And how many returned home? Time has passed for the country to start looking beyond tourism banking and retail. What other we have here that can be developed into industries. Aragonite? Salt? Pine trees? Conch shells? Sea water? Sandz. There are millions of dollars in grants available to do research and te country needs to take advantage of them

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