Investment Overview – Bahamas Business Guide

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

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.