Published On:Thursday, September 02, 2010

By NEIL HARTNELL

Tribune Business Editor

Bahamian economic recovery will not happen until 2012 unless foreign direct investment (FDI) rapidly rebounds to levels seen two to three years ago, a senior accountant told Tribune Business yesterday, as fears intensified that a rebound - and reduced unemployment - may not occur next year.

Describing foreign direct investment as "the only thing that could create a real stimulus today" for the Bahamian economy, Raymond Winder, managing partner at Deloitte & Touche (Bahamas), said: "When you look at the performance of the US economy, and the performance of our economy, if those numbers do not begin to turn around - spending, income, more activity and so forth - and if we do not have the kind of foreign direct investment we had two to three years ago, I could easily see us coming out of this in 2012, rather than 2011.

"To be in a position to create a real stimulus, the only thing is foreign direct investment. Foreign direct investment is the thing that could be done today that could start to move the economy forward."

The outlook on this score is not comforting. Tribune Business revealed in late July how foreign direct investment inflows to the Bahamas contracted by 41.6 per cent during the 2010 first quarter, falling from $187.5 million to $109.5 million, as net equity inflows fell by $48.1 million to $74.4 million, with real estate purchases declining by $29.9 million to $35.1 million.

And while the Bahamas received $654 million in foreign direct investment in 2009, some 13 per cent of all such flows going to global small island developing states (SIDS), this figure represented a 22 per cent decline upon 2008's $839 million investment inflow, and was also below the $746 million received by the Bahamas in 2007.

Mr Winder's fears were also echoed by the Central Bank of the Bahamas in its latest monthly update on July's economic and financial developments.

Noting the "broad-based weakness in domestic demand", the Central Bank was noticeably more hawkish on the prospects of a Bahamian economic recovery next year, due to increase uncertainty over the strength of the global recovery, especially in the US, our main tourist market.

It added that "the outlook for 2011 is less certain than in prior months, due to mounting evidence of increased fragility in the US growth momentum. This could dampen the short to medium-term performance of the tourism sector, and the timing for a turnaround in domestic demand and an improvement in employment conditions".

The Central Bank is thus dampening hopes of a Bahamian economic recovery taking root in mid-2011, a setback that may further dent Bahamian business and consumer confidence, given that it hints at either a prolonged recession or anemic growth, with high unemployment set to be a reality for some time.

And Paul McWeeney, head of the Clearing Banks Association and Bank of the Bahamas International managing director, added his voice yesterday to those of Mr Winder and the Central Bank (see other article on Page 1B), telling Tribune Business that commercial banks were likely to extend their stress testing models into 2012.

While reasonably optimistic some two months ago that Bahamian commercial banks may have seen the worst in loan delinquencies and asset quality deterioration, Mr McWeeney said he was no longer so sure given the fragility of global economic recovery.

The implications of all this are that the Bahamas needs major investment projects, such as Baha Mar's $2.6 billion Cable Beach redevelopment, more than ever. This was not lost on the Central Bank, which said yesterday: "Upside benefits could accrue to the economy if the proposed large-scale hotel investment projects gain traction in the coming months."

The Ingraham administration will also be warily noting the likelihood of a prolonged recovery that might not happen until 2012, taking it very close to a general election. Governing parties traditionally do not fare well in elections taking place against the backdrop of a recession.

Meanwhile, Mr Winder told Tribune Business that the Bahamas also had "to increase the number of rooms" in the hotel industry if it was to enhance its tourism market position, questioning whether the improving tourism numbers were due partly to a flat room inventory.