The Commonwealth of The Bahamas is a 760-mile-long archipelago stretching from the south-east coast of Florida to the north-west coast of Haiti. Despite historical and cultural similarities with many Caribbean countries, The Bahamas is actually in the North Atlantic Ocean. Only 29 of its 700 islands are occupied, with the majority of the population clustered around the two largest cities of Nassau and Freeport. The country maintains a stable environment for investment with a long tradition of parliamentary democracy, respect for the rule of law, and a well-developed legal system. Bahamians’ use of English and frequent travel to the U.S. contribute to their familiarity and preference for U.S. goods and services. The Bahamas is a developed country with an educated populace and high per capita GDP of $34,864. The Bahamas relies primarily on imports from the United States to satisfy its fuel and food needs and conducts more than 85 percent of its international trade with the United States. U. S. exports to The Bahamas were valued at $3.01 billion in 2020, resulting in a trade surplus of $2.9 billion in the United States’ favor.
The Free National Movement (FNM) government, elected in May 2017, has sought to manage an economy dealing with the dual, unprecedented economic crises wrought by the passage of Hurricane Dorian in September 2019 and the global COVID-19 pandemic. According to Standard & Poors November 2020 forecasts, The Bahamas’ GDP growth is expected to fall by a 21 percent in 2020, a loss of more than $2 billion compared to 2018’s real GDP of $10.8 billion. Full economic recovery is not anticipated until 2022, subject primarily to the buoyancy of the tourism sector and post-pandemic economic recovery. Both the International Monetary Fund (IMF) and the Inter-American Development Bank (IDB) predict The Bahamas could suffer the most severe economic contraction of all Caribbean countries.
With few natural resources and a limited industrial sector, the Bahamian economy is heavily dependent on tourism and, to a lesser degree, financial services. These sectors have traditionally attracted the majority of foreign direct investment (FDI). Tourism contributes over 50 percent of the country’s GDP and employs just over half of the workforce. Prior to the COVID-19 pandemic, more than seven million tourists, mostly American, visited the country annually. The plummet in tourism has deprived the country of its main source of revenue, and efforts to reopen hotels, resorts, restaurants, and other tourism infrastructure have been stymied by the ongoing pandemic.
The COVID-19 pandemic has reignited questions about the country’s dependence on tourism and vulnerability to external shocks, leading to calls for economic diversification and other sources of foreign exchange. The government and private sector have identified areas for development and investment, including light manufacturing, technology, agriculture and fisheries, extractive industries, and renewable energy. The government has also committed to digitizing its business services and jumpstarting domestic productivity through small and medium enterprises, especially those operating in non-traditional sectors.
The Bahamas maintains an open investment climate and promotes a liberal tax environment and freedom from many types of taxes, including capital gains, inheritance, and corporate and personal income tax. The Bahamas does not offer export subsidies, engage in trade-distorting practices, or maintain a local content requirement, but foreign capital investments must meet a $500,000-dollar minimum before being allowed into the country. The country continues to attract FDI from various parts of the world and has recently benefitted from significant investments in the tourism sector from international companies based in China. Investments from the United States are also primarily in the tourism sector and range from general services to million-dollar private homes and billion-dollar resort developments. U.S. companies have also shown interest in emerging sectors, such as non-oil energy, renewable energy, niche tourism, and digital technology.
Positive aspects of The Bahamas’ investment climate include political stability, a parliamentary democracy, an English-speaking labor force, a profitable financial services infrastructure, established rule of law, general respect for contracts, an independent judicial system, and strong purchasing power with a high per-capita GDP. Negative aspects include a lack of transparency in government procurement, labor shortages in certain sectors, high labor costs, a bureaucratic and inefficient investment approvals process, time consuming resolution of legal disputes, internet connectivity issues, and high energy costs. The price of electricity averages four times higher than in the United States and is driven by antiquated generation systems and a dependence on inefficient fossil-fueled power plants. To remedy energy sector deficiencies, the current government has prioritized infrastructure projects focused on non-oil energy, including a liquid natural gas (LNG) plant and various solar projects; however, the LNG plant is stuck in multi-year negotiations.
Another barrier to investment in the country is the prohibition of foreign investment in 15 sectors of the economy without prior approval from the National Economic Council (NEC). These sectors include commercial fishing, public transport, advertising, retail operations, security services, and real estate agencies, among others. In 2018, the government set a goal of accession to the WTO by the end of 2019, which would require opening at least some of these protected sectors to foreign investment. However, the government later confirmed it was unlikely accession would take place before 2025.
The absence of transparent investment procedures and legislation is also problematic. U.S. and Bahamian companies alike report the resolution of business disputes often takes years and debt collection can be difficult even after court judgments. Companies also describe the approval process for FDI and work permits as cumbersome and time-consuming. The Bahamian government does not have modern procurement legislation and companies have complained the tender process for public contracts is not consistent, and that it is difficult to obtain information on the status of bids. In response, the current government passed a Public Procurement Bill and launched an e-procurement and suppliers registry system to increase levels of accountability and transparency. The Public Procurement Bill was passed in March 2021, but has not yet been fully enacted.
The Bahamas scored 63 out of 100 in Transparency International’s Corruption Perception Index in 2020 (where zero is perceived as highly corrupt and 100 is very transparent). This means The Bahamas is perceived as notably transparent when compared to the 180 countries ranked. However, the country’s scores have dropped eight points since 2012, perhaps indicating an erosion of transparency. The Bahamas still lacks an Office of the Ombudsman to strengthen access to information, nor has it fully enacted its Freedom of Information Act (2017) or appointed an independent Information Commissioner. Although the current government is pursuing legislative reforms to strengthen investment policies, progress on these efforts has been mixed.
Despite its World Bank designation as a high-income country, income inequality is higher in The Bahamas than in other Caribbean countries. This is in part due to The Bahamas’ popularity among wealthy foreigners as a convenient and attractive location to purchase a second home. These privileged, gated communities do not reflect reality for most Bahamians, especially those on less developed islands. The country grapples with high crime, unemployment, and xenophobia directed at irregular migrants from elsewhere in the Caribbean, especially Haiti. Conservative and patriarchal norms sometimes lead to inequality of opportunity, notably for women and migrant children. Women have raised concerns regarding bureaucratic hurdles to register businesses, and difficulty in securing financing. The Small Business Development Centre (SBDC) has made economic empowerment of women entrepreneurs and lessoning the income gap priorities.
|TI Corruption Perceptions Index||2020||63 of 100||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report “Ease of Doing Business”||2020||119 of 190||http://www.doingbusiness.org/rankings|
|Global Innovation Index||2020||N/A||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country (M USD, stock positions)||2018||17.609||https://apps.bea.gov/international/factsheet/factsheet.cfm?Area=250&UUID=aa8d34cd-4c30-485d-aa74-1656d2ff9eed|
|World Bank GNI per capita||2019||33,460||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|