Investment Overview - Bahamas Business Guide

The Bahamas is a politically stable, middle-income, developing country. Following general elections in 1992, The Bahamas experienced a peaceful transfer of power from the center-left Progressive Liberal Party (PLP), which had governed the country for 25 years, to the centrist Free National Movement (FNM).

The Bahamian government maintains the value of the Bahamian dollar on par with the U.S. dollar. The government's primary monetary consideration is the maintenance of sufficient foreign exchange reserves to support the present value of its currency, pay for necessary imports, and finance the repatriation of corporate profits. Although the country's liquidity remained buoyant throughout 1995, in November the Central Bank cautioned local banks to limit lending levels because of concerns that foreign exchange reserves were getting dangerously low. The Bahamian economy rebounded by the end of the fourth quarter, however. The turnaround was sparked primarily by a jump in tourism revenues during that quarter.

Nearly two-thirds of the Bahamas ' Gross Domestic Product (GDP) is derived from tourism. Due to the country's status as a tax haven and off-shore banking center, financial services constitute the second most important sector of the Bahamian economy (after tourism, and excluding the public sector), accounting for just over 10 percent of GDP. Agriculture and industry together account for less than 10 percent of GDP. There is little large-scale agriculture, and most agricultural products are consumed domestically. The country also produces some chemicals and pharmaceuticals for export, along with rum and industrial salt.

Despite its small size, The Bahamas is a major market for American exports to the Caribbean, albeit one that has declined slowly in recent years. With few domestic resources and little industry, The Bahamas imports nearly all its food and manufactured goods. Approximately 55 percent of its imports originate in the United States, and most Bahamian purchases of third-country exports are acquired through American distributors. American goods and services tend to be favored by Bahamians because of cultural similarities and the exposure to heavy domestic American advertising from Florida (which, at its closest point, is only 45 miles away). In addition, the dominant tourist industry prefers to purchase goods with which their clientele, the vast majority of whom are Americans, is familiar.

For its part, the Bahamian government actively encourages the production of locally produced items for use by the tourist industry and promotes import substitution, although with only modest success. While the government has encouraged hotels to use domestically-produced fruits, vegetables, meat, and fish, they have had to rely on uncertainties of small local suppliers, which are restricted by government policies that discourage the growth of large-scale domestic agriculture. As a result, the tourist industry largely depends upon imported foodstuffs.

The Bahamas has much to offer the potential investor: a stable democratic environment, relief from personal and corporate income taxes, timely repatriation of corporate profits, proximity to the United States with extensive air and communication links, a good pool of skilled professionals, and designation under the Caribbean Basin Initiative (CBI), Canada's CARIBCAN program, and the European Union's Lome IV Agreement. The Bahamas officially welcomes foreign investment in tourism and banking, and has declared its interest in agricultural and industrial investment as well as any investments which will generate local employment, particularly in white-collar or skilled jobs. Nevertheless, the Bahamian government and business community have been suspicious of outside investment in non-traditional areas such as industry, and such projects have generally faced a drawn-out approval process and some local opposition. Therefore, the vast majority of successful foreign investments have remained in the areas of tourism and banking. Furthermore, the Bahamian government reserves retail and wholesale outlets, non-specialty restaurants, most construction projects, small hotels, and most small businesses exclusively for Bahamians. Some categories of businesses are designated for possible joint ventures between Bahamians and foreigners.


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