Economic Trends and Outlook - Bahamas Business Guide


The Bahamian economy will remain dependent upon tourism and financial services (primarily the former) for the foreseeable future. Per capita income--officially estimated at $11,610 in 1995--is among the highest in the region. In 1996, the Bahamian economy grew by 4 percent resulting from a 7.7 percent increase in tourist spending. The economy is also expected to grow by 4 percent in 1997 and 1998 provided tourism trends continue and the country sustains its current rate of development.

Overall growth in the Bahamian economy can be attributed to Sun International's Atlantis Resort and Casino which took over the Paradise Island Resort in 1995 and has provided a much needed boost to the economy. In addition, the government has sold off several hotels which it inherited from the former PLP government, and has attracted five other major hotel investors--The Ruffin Group (Marriott Crystal Palace on Cable Beach), Breezes Super Clubs, Sandals Resort, and RHK Capital Inc. a Canadian company which acquired the Best Western British Colonial Hotel. The Bahamian Government has also adopted a proactive approach to courting foreign investors and has already been on several major investment missions: "road trips" to the Far East and Europe, Latin America and Canada over the past two years. The primary purpose of the trips was to restore the reputation of The Bahamas in these markets. We expect the February 1997 opening of Hutchison Whampoa Freeport Container Transshipment facility to impact the Bahamian economy significantly. Hutchison Whampoa has also purchased three government-owned hotels--the Grand Bahama Beach Hotel, the Lucayan Beach Hotel and Resort, and the Clarion Atlantik Beach Hotel--in Freeport. These acquisitions and the expected major renovations are poised to transform tourism in Freeport, The Bahamas' second major city.

The government reports unemployment at 10.0 percent for 1996. However, The Bahamas appears to have a large but unreported population of under-employed workers. The Bahamian labor force has an estimated 148,000 workers. Bahamian government figures for both consumer prices and employment are rough estimates; the Statistics Department of the Ministry of Finance and Planning is attempting to improve information gathering in these areas.

Despite the Bahamian government's declared interest in economic diversification, particularly through development of the agricultural and industrial sectors, several factors will likely continue to restrict growth in these sectors. These factors include: government inertia, domestic resistance to outside investment perceived as potentially competitive with local business, high labor costs, and competition from other countries in the region.


Tourism: The Bahamas was a vacation destination for over 3.4 million visitors in 1996--an increase of 5.5 percent over 1995 levels. American visitors accounted for 82.1 percent of total stopover arrivals in Nassau and Paradise Island. Tourism and related services account for over 60 percent of GDP--supplying the Bahamian job market, directly and indirectly, with two thirds of the jobs in the Bahamas.

During 1996, the tourism sector continued on a positive growth trend due to increased cruise ship arrivals and an increasingly competitive stopover product which translated into increased earnings. Total visitor arrivals, which fell by 6.0 percent in 1995, rebounded by 5.5 percent to 3,415,858 in 1996, reflecting the buoyancy in cruise traffic and continued, yet moderated, growth in stopover visits. After three consecutive years of decline, cruise visitors recovered by a healthy 9.2 percent to 1,685,668 passengers in 1996, responding partly to the Government's Cruise Ship Incentives Bill enacted in October 1995, along with the ongoing redevelopment of the Port and downtown Nassau areas. Growth in stopover traffic, however, slackened to 2.2 percent from 5.4 percent in 1995 for a total of 1,633,105 visitors, with performance constrained by the closure of a number of hotel properties in Grand Bahama for renovation and refurbishment.

Visitor arrivals to Grand Bahama increased by 3.8 percent, benefiting from growth in sea visitors, but stayover traffic declined by 5.9 percent. Favorable cruise incentives, more effective marketing as separate destinations and increased air linkages with Europe, resulted in a 6.7 percent hike in arrivals to the Family Islands. For New Providence, 1995's 7.0 percent downturn in visitors was reversed to a 5.9 percent gain, comprising a 4.5 percent rebound in the cruise sector and an accelerated 7.4 percent increase in stayovers.

In other tourism developments, the phenomenal success of Sun International's Atlantis Resort on Paradise Island continues to fuel the Bahamian economy and represents the equivalent of 6 percent of GDP. Sun's assets include 1,870 hotel rooms and 4,000 employees, making it the country's largest single employer other than the government. Sun is currently undergoing a $450 million expansion project to construct another 1200 hotel rooms. RHK recently purchased the historic British Colonial Hotel in downtown Nassau. Rather than competing with the casinos and hotels catering to tourists, RHK will concentrate on running a first rate business center in the heart of Nassau's financial district, under a Four Seasons franchise. Overall, various developers will begin constructing 5000 hotel rooms throughout The Bahamas in 1997 - 1998.

Continuing its efforts to sell off all government-owned hotels, the FNM Government sold three hotels in Grand Bahama to the Hong Kong-based Hutchison Whampoa, joint owners of the Freeport Container Port. Hutchison purchased the Lucayan Beach Hotel and Resort, the Grand Bahama Beach Hotel Holiday Inn and the Clarion Atlantik Beach Hotel. In 1995, the Government signed a heads-of-agreement to sell both the Grand Bahama Beach and Clarion Atlantik Beach hotels to a German company but the sale was never finalized. Hutchison plans to redevelop the hotels and adjacent beach front property into an upscale international resort. The project will cost approximately $100 million. These sales leave the Radisson Cable Beach Hotel in Nassau as the principal publicly-owned hotel in The Bahamas. (There are still two small government-owned hotels on Andros).

All the major cruise lines operating out of Florida make calls in The Bahamas either in Nassau or Freeport, the second city. Within the last year, two cruise lines, Disney and Holland America, have purchased private islands to develop their own ports of call.

In October 1995, the Government passed a controversial law to permit shopping on Sundays when a cruise ship is in port. Previously, nearly 10,000 tourists arrived each Sunday in The Bahamas only to discover that nothing was open, resulting in an estimated annual loss in revenue of $26 million to Bahamian merchants. The Government also embarked on a comprehensive beautification project for Nassau, including planting palm trees and resurfacing sidewalks along downtown Bay Street, and upgrading the docks at Prince George's Wharf.

Seeking to address the decrease in cruise ships overnighting in Nassau, the Government also passed the Cruise Ship (Overnighting Incentive) Act in November 1995, allowing cruise ships to open their stores and casinos while in port. In order to benefit from this act, however, cruise ships must be in port a minimum of 18 hours. Although the Act has not encouraged ships to change their schedules to stay in port on Sundays, they are staying longer and passengers are venturing on shore to sample Bahamian culture and participate in local activities. According to surveys conducted by the Nassau Tourism Development Board, businesses in the downtown area have reported increases in sales as a result of the new incentives.

The Casino Taxation Act was amended in October 1995 to allow for the establishment of small-scale casinos through the reduction of the basic tax and winnings tax rates for casinos of less than 10,000 square feet. The basic tax was reduced from $200,000 to $50,000 for casinos with floor space of less than 5,000 square feet. The tax rises to $100,000 for casinos of 5,000-10,000 square feet. Unlike the winnings tax rate for traditional casinos (25 percent on the first $20 million, all the way down to 5 percent on earnings over $20 million), small casinos pay a progressive winnings tax rate of 10 percent on the first $10 million to gross winnings, and 15 percent thereafter. Although the amendment was made specifically for the establishment of a casino at the Club Med Resort on the island of San Salvador, it sets the stage for licensing small casinos elsewhere.

As a further incentive to draw tourists, the government amended the Lotteries and Gaming Act in October 1995 to allow for sports betting. Gamblers must be physically present at the time of betting, and may bet on "any athletic game or sport taking place within or outside The Bahamas other than horse racing." A sports bar and betting area have already been set up inside the Crystal Palace Casino on Cable Beach to accommodate sports gamblers.

Financial Services: Financial services, the second major sector of the Bahamian economy consists primarily of banking and mutual funds activity. Financial services accounts for approximately 15 percent of GDP, with the banking share dominating. There were 425 licensed banks and trust companies in the country in 1996, along with 9 retail banks. The gross economic contribution of the sector for 1996 is expected to exceed $160 million. Since 1991, contributions from this sector have increased by an average 6.6 percent or more than $12 million per year. The financial sector employed 3,673 persons in 1996.

Offshore company incorporation continued to flourish under the International Business Companies Act (IBC), which was established in 1989 to enhance the country's status as a leading financial center. The act served to simplify and reduce the cost of incorporating off-shore companies in The Bahamas. IBC's -- "shell corporations" which can be formed in a matter of hours with minimal documentation--have grown from approximately 8,000 in 1990 to currently over 53,000 although many appeared to be single-transaction firms. The Bahamian Government does not release IBC revenue figures but the minimum incorporation cost per IBC is $100. Subsequent amendments to the act include limited liability and limited duration companies.

Following the passage of the Mutual Funds Act in 1995, mutual funds recorded significant growth. From 1995 to November 1996, the number of licensed funds under management in The Bahamas increased from 412 to 488, with the value of funds under management gaining almost 40 percent to $55.0 billion.

In February 1991, The Bahamas also legalized the formation of asset protection trusts. These trusts, used to place the financial assets of wealthy individuals beyond the reach of domestic courts in countries such as the United States, formed a growing portion of Bahamian banking. The FNM has also made efforts to reduce government "red tape" and expedite approval of foreign investment proposals. The Bahamas Investment Authority (BIA) was created in 1992 with this purpose in mind. The BIA will require a full accounting of the environmental impact of new industrial or agricultural schemes and will not approve projects which would be unable to pass U. S. environmental standards.

Another important offshore service, ship registry, is poised for renewed growth under the recently established Bahamas Maritime Authority. Over the last two years, the number of ships on the Bahamian registry was relatively stable at 1,475, with the corresponding tonnage at 25 million.

Manufacturing Industry: The manufacturing industry sector in The Bahamas accounted for only 3 percent of GDP in 1996. Production among offshore manufacturing companies, primarily for the export market, recorded a modest advance in 1996. In particular, salt exports increased by 30.3 percent to $18.1 million and rum and aragonite (a coral sand used in glass manufacturing and beach reclamation) by $2.1 million each, to $5.2 million and $4.9 million, respectively. Production of chemical and pharmaceutical goods declined from $74.2 million in 1995 to $55.6 million in 1996.

The 1954 Hawksbill Creek Agreement established a duty-free zone at Freeport, Grand Bahama, with a nearby industrial park to encourage foreign industrial investment. Most Freeport tax and duty exemptions were extended by legislation in 1993 through 2054. The opening of Hutchison Whampoa's Freeport Container Transshipment facility in February 1997 is expected to impact the Bahamian economy significantly. The container facility should increase employment, create new spin-off jobs in warehousing and storage, component assembly, transportation, and distribution and security services in Freeport.

Agriculture and Fisheries: Agricultural output increased modestly in 1996 based primarily upon expanded poultry production, as crop exports declined. As the Department of Agriculture's survey of crop production was expanded to include more comprehensive data on domestic output, the estimated value of output was significantly higher at $67.6 million vis-à-vis $43.7 million in 1995; crop production accounted for 59.7 percent ($40.4 million) of the total. Agricultural exports, dominated by citrus fruits, declined by 10.5 percent to $12.0 million, as higher prices were offset by reduced quantities. Poultry production rose 12.4 percent to $26.3 million, for 38.8 percent of the sector's value. However, red meat output fell 1.4 percent to $0.9 million.

Government efforts to assist small farmers included: improving agricultural extension services, imposing import restrictions on a number of items and hosting a series of meetings between hotels and farmers, with a view to improve the distribution and marketing of Bahamian produce within the tourism sector. To assist local banana farmers, the Ministry of Agriculture imposed a restriction on banana imports in mid-October 1995 creating a monopoly for locally grown bananas. In an effort to promote the local crop, the Ministry is providing assistance to local farmers to develop a better grown Bahamian banana in terms of size, appearance, taste and shelf life. The Ministry is, however, allowing hotels to continue importing bananas until the government determines that Bahamian farmers can supply sufficient quantities for the tourist market. The fledgling banana industry received a severe blow from Hurricane Lili in September 1996, but is recovering. The agricultural restriction was also extended in December 1995 to include other varieties of produce in which the Ministry determines that demand can be met by local farmers (e.g. Christmas poinsettias, romaine lettuce, yellow squash, zucchini).

Despite the upswing in agricultural production, the sectors are still struggling to gain a substantial foothold in the import- dominated economy (The Bahamas imports over $250 million in foodstuffs per year, representing about 80 percent of its food consumption.)

The agriculture and fisheries sectors, together account for 5 percent of GDP and employ about 5 of the work force full time (and a far larger portion of the workforce on a temporary basis during the opening weeks of lobster season). Governments formed by both major political parties have, in recent years, announced efforts to expand food production in order to reduce imports and generate foreign exchange. The Government recognizes that in order to become self-sufficient in agriculture, new varieties of crops must be introduced and the caliber of crops released on the market must improve. Therefore, the Bahamian government actively seeks foreign investment aimed at increasing agricultural exports, particularly specialty food items. The government officially lists food processing, mariculture, agro-industries--fruits and nuts, dairy production, winter vegetables--as the areas in which it encourages foreign investment.

The Bahamian Government, which insists that the agricultural sector should employ more Bahamians, has been reluctant to grant work permits to foreign workers even in instances in which it is clear that they would not displace Bahamian workers. Applications for any substantial number of agricultural workers from other western hemisphere nations are almost automatically refused. These policies are unlikely to change. Ironically, agricultural work has historically carried low prestige in Bahamian society and agricultural investors have complained that Bahamian field workers are generally unreliable. In light of this, The Ministry of Agriculture and Fisheries established a Registry of Labor to encourage Bahamians to find jobs with the major growers on the Family Islands. Attitudes towards the registry have been positive thus far. In early January 1995, over 770 Bahamians applied through this registry for temporary farm jobs with an okra farm located in Andros.

Approximately 240,000 acres of prime uncultivated agricultural land and plentiful supplies of fresh water exist throughout the islands but agricultural production still remains primarily in the realm of small-scale farming on the islands of Abaco, Andros, Eleuthera, and Grand Bahama. In the area of mariculture, The Ministry of Agriculture and Fisheries and the Department of Fisheries has declared a renewed commitment to the sustainable and profitable use of Bahamian marine resources. One of the goals of the Department of Fisheries is to develop the commercial industry by promoting the under-utilized seafood products of The Bahamas. The Ministry of Agriculture and Fisheries opened a shrimp hatchery in Nassau in 1993, and another shrimp farm is in operation on Grand Bahama Island.

The fisheries sector also recorded growth, but lower market prices dominated, for a marginal decrease in industry earnings. Although the estimated volume of fisheries exports rose 11.3 percent, average prices receded by 12.5 percent, influencing a 2.4 percent loss in value to $57.6 million. Accounting for 93.0 percent of all exports, lobster sales fell by 3.0 percent to $54.0 million; volume rose 10.6 percent to 5.5 million pounds but the average price per pound eased to $9.89 from $11.28 in 1995. Steady growth in sponging activity resulted in a 19.9 percent gain in value to $1.1 million. Foreign sales of conch meat also rose 14.4 percent to $0.9 million; however, queen helmet shells lost 42.8 percent to $0.7 million while other marine exports rose by 18.5 percent to $0.9 million.

Livestock production accounts for one of the value of agricultural production, as most meat produced in The Bahamas is for domestic consumption. Overall, 516,370 pounds of livestock were slaughtered during 1996. Gladstone Chicken Farm, the main source of fresh poultry in Nassau experienced a second devastating fire on June 7, 1997 after recovering from fire damage on May 2, 1996. The Big Bird Chicken farm opened in Abaco in March 1997. The farm is able to process 30,000 chickens a month. The farm currently employs 40 persons and has plans to expand its processing capacity to 60,000 chickens per month in the near future. In 1996, 19,437,063 pounds of broiler chickens and 4,458,060 dozen layers were slaughtered. The new farm increases the total number of chicken farms in The Bahamas to three.

In an effort to protect domestic agricultural producers, the government requires that a permit be granted to import more than 50 pounds of whole chickens or chicken parts, lamb or mutton, or pork legs, shoulders, or butts into The Bahamas. Permits are also required to import plants, fruits--particularly bananas, vegetables, and cut flowers. Permit applications have occasionally been denied when the government determined that a surplus existed in locally-grown products in the same category.

Construction: According to the 1996 Central Bank statistics, the construction industry experienced a strong recovery in 1996, heavily influenced by externally financed tourism and industrial- related projects. These, together with steady gains in residential investments, including the luxury second homes market, continued to exert a positive influence on economic expansion.

The number of building starts, which is one of the leading indicators of activity in the sector, advanced by 60 (5.8 percent) to 1,100 units and in value by $67.6 million (56.7 percent) to $186.8 million. In the dominant commercial sector, construction starts rose by 13 (14.0 percent) to 106 units; the more than threefold hike in value to $68.9 million was principally linked to a $25 million additional investment in the container terminal development in Grand Bahama and some $14.9 million in outlays on four large scale projects in New Providence. Similarly, residential starts rose by 49 (5.1 percent) to 993 units and in value by $17.5 million (17.5 percent) to $117.7 million. A single public sector project was started in 1996, at an assessed value of $0.3 million vis-à-vis 3 percent valued at $0.9 million in 1995.

During 1996, the number of building completions was higher by 60 (6.3) at 1,031, and the corresponding value by $46.7 million (42.5 percent) at $156.6 million. Although commercial completions fell in number by 29 (19.5 percent) to 116, the associated value rose threefold to $63.3 million. Residential completions increased by 87 (10.6 percent) to number 908 units, with the value strengthening by $13.9 million (17.9 percent) to $91.6 million. Public sector building completions grew by 2 to 7 units, but at a significantly lower value of $1.7 million compared to $11.4 million in 1995. Prospective activity, as signaled by permits issued, suggests continued buoyancy in the construction sector during 1997.


Government budget: The $968 million Bahamian budget for FY 1997-98 focuses on improving health care services, education and training programs, and reducing crime. The proposed budget calls for appropriations of $968 million--$846 million for recurring expenses and $122 million for capital expenses. Health care will receive $105.8 million, an increase of 13 from the previous budget. The Government will spend $22.3 million on education, representing an 18 increase, and $9.3 million for the police force, the court system and the Attorney General's Office, an increase of 14. The 1997-98 budget held no new taxes and no increases in existing taxes. The proposed budget supports the Free National Movement (FNM) Government's campaign promises by providing customs exemptions for construction and development in the Family Islands.

A new tax, which does not directly affect Bahamians, will be levied against foreign employees. The new revenues will be used to pay for vocational training programs. The budget, which runs from July 1, 1996 to June 30, 1997, is the Administration's fifth full year budget.

As a part of the FNM Government's overall strategy to simplify and harmonize customs import duties, the current 123 separate import duty rates were consolidated into 29 rates effective July 1, 1996. With Hemispheric Free Trade looming by the year 2005, the government needs to begin searching in earnest for ways to restructure revenue sources away from duties altogether (i.e. taxes). In the 1997-98 budget speech, the Finance Minister dispelled rumors that The Bahamas would introduce a sales tax or income tax, and stated that the budget contained no new or increased taxes. The Bahamian Government relies almost exclusively on import duties for revenue, a factor which has, so far, affected participation in the planning process for the Free Trade Area of the Americas (FTAA).

Monetary and credit policy: The Bahamas' primary monetary strategy is to maintain stability and expansion in foreign exchange reserves to purchase essential imports, maintain the parity of Bahamian and American dollars, and finance repatriation of corporate profits. In March 1997 the Central Bank instituted a "credit squeeze" to control public spending. This action was prompted because consumer loans grew dramatically. Deposit costs in the banking industry escalated by 1.5 percent over a five month period. Some local banks increased the interest rate charged on demand loans by 0.75 percent to 10.5 percent effective March 17. Bank officials say that the cost of interest on deposits payable to customers is higher than the Central Bank's prime rate of 6.75 percent. Some bankers want to see the prime rate increased to 7.5 percent and are taking measures to reduce lending levels.

Net free cash reserves at year-end 1996 were $25.6 million. Rates across the range of fixed deposits averaged between 5.3 percent - 5.4 percent, firming on the lower end by almost 75 basis points. On the lending side, the softening in average rates was especially pronounced for overdrafts and other local loans, which in both cases exceeded three percentage points, to 10.86 percent and 8.52 percent . More moderate easing was registered for average residential and commercial mortgage rates to 10.06 percent and 10.87 percent respectively, while consumer loan rates were virtually stable at 14.69 percent.

Recently, there has been talk in the financial sector about eliminating exchange controls. The government has already allowed commercial banks limited exchange control powers. Local financiers believe that eliminating exchange controls will increase investor confidence, facilitate the free flow of currency in and out of the economy, and enable the government to measure accurately the performance of the economy. If The Bahamas were to maintain exchange controls, it would eventually be forced to borrow money from abroad, a task made difficult by the country's rising debt.

Inflation and unemployment: Consumer price inflation, measured as the average variation in the retail price index, declined to 1.1 percent in 1996 from 2.2 percent in 1995.

The Government hopes to reduce unemployment by 5 percent by the year 2002. This will be achieved by: (1) establishing duty free zones on several Family Islands to boost employment in the construction industry; (2) training 3,000 persons, especially young men, at the Bahamas Technical and Vocational Institute. Sun International plans to employ 2,200 persons by the end of 1998 and create an additional 1,000 indirect jobs as a result of its Atlantis expansion program. This will make Sun the largest employer other than the government.

To further reduce unemployment, the Government has established a small business development program to assist small owners with business plans, funding and follow-up. Additionally, the Government plans to introduce a new manufacturing industry encouragement act which will make it easier for persons to establish a business.

The government also plans to divest minority interest in two public utility corporations--The Bahamas Electricity Corporation (BEC) and The Bahamas Telecommunications Corporation (BATELCO). This process may increase unemployment initially, but new spin-off businesses could offset this.


The Bahamas has an import-oriented economy and relies heavily on tourism for foreign exchange. The country's trade increased in 1996 to an estimated $1059.9 million from $939.0 million the previous year as total imports rose by $106.2 million to $1,261.6 million. Merchandise export earnings grew by an estimated $25.8 million (14.7 percent) to $201.7 million. Foreign exchange reserves at the end of 1996 were estimated at $163.0 million.


The Bahamas provides good basic infrastructure for businesses. However, utility rates are considered high compared to the U.S. The divestiture of BEC and BATELCO will eventually reduce rates. Since taking office in 1992, the government has improved some major roads both in Nassau and the Family Islands, implemented changes to alleviate traffic congestion on major roads in Nassau, provided full electricity and improved airports on most Family Islands, and is working with Sun International to construct a second bridge between Nassau and Paradise Island. Generally, there is regular air and sea transportation between the major developed islands and the United States. The telecommunication service is sometimes inadequate but operational enough for most routine correspondence. The mail service is slow both on the islands and between other countries; however, the islands are also serviced by overnight delivery services.


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