By NEIL HARTNELL
Tribune Business Editor
The Bahamas must be more willing to open up to foreign direct investment (FDI) in non-traditional areas to have any hope of paying-off rising US dollar debt, a top investment banker is arguing.
Michael Anderson, RoyalFidelity Merchant Bank & Trust's president, told Tribune Business that both the Government and private sector must be less willing to "dictate" where foreign investors place their capital if the country is to smoothly emerge from them fiscal and foreign exchange earnings crisis created by COVID-19.
With tourism inflows having almost completely dried up, Mr Anderson argued that more "accommodating" laws and policies were needed to attract overseas investment as one of the few alternative foreign currency inflows available to The Bahamas in the short-term.
With COVID-19 producing increasing competition among all nations to attract FDI, the RoyalFidelity chief said The Bahamas needed to make itself stand out from the crowd if it ever hoped to attract sufficient foreign currency to service a growing US dollar debt that was increased by a net $352m as a result of the Government's recent $600m bond issue.
"The only way for the country to reduce is US dollar debt, and we do get foreign currency movements from tourism, but to make any significant repayments we need to get a bigger amount of US dollar investment into the country," Mr Anderson said.
"Typically investors go into hotels, but there's not a huge amount of interest in investing in the tourism market here at the moment. We need to open up investment into other areas. There's a tendency here to determine what type of investment is suitable for investors to make, and I don't think we're in any position to make that determination.
"We have to be open to whatever investments investors think are viable, and be willing to make accommodations and open up policies to to accommodate investment in areas other than tourism. To see if we can pass laws and policies to accommodate that as country," he added.
"Investors go where they think they can make the most money, and into the areas they think are most suitable for them. It's not for the Government and private sector here to dictate that. Historically we've tried to limit investors to areas which we think are suitable."
Broadening investment beyond the myopic focus on tourism, Mr Anderson argued, would boost the economic diversification drive as well as potentially generate increased foreign currency inflows to boost the external reserves, help repay the country's US dollar debt and support the one:one currency peg.
With the Government's direct foreign currency debt standing at $2.951bn at end-June 2020, or 36 percent of its total debt, the net $352m increase produced by the $600m offering will have taken the former figure past the $3bn mark.
The Government through its latest borrowing is effectively betting that the economy, and especially tourism-related foreign currency inflows, will recover in sufficient time to enable it to service the increased US$ debt and avoid a significant depletion and rundown of the external reserves that support the one:one currency peg.
"If we start with this idea of taking on a large amount of US dollar debt, and to repay it from tourism earnings, we never seem to catch up," Mr Anderson said, "and are always running a deficit. The only way to catch up is to get US dollar investments into the country to offset some of the debt."