The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A well-known manufacturer yesterday said eliminating the 10 per cent duty rate levied on the sector would put the equivalent of “5 per cent of gross sales” back into his business, a sum that could mean the difference between survival and death for some firms.

Andrew Rodgers, chairman of the Bahamas Trade Commission’s manufacturing sub-committee, told Tribune Business that this percentage - equivalent to $50,000 on every $1 million of gross sales - represented a sum being returned to industrial-based companies.

Pointing out that many “would be lucky” to generate such margins in the current economic climate, Mr Rodgers said that if the 10 per cent duty charge on manufacturers’ raw materials and equipment had remained in effect, several would likely have closed operations within the next year.

Speaking after Ryan Pinder, the minister of financial services, yesterday confirmed that the Industries Encouragement Act reforms had been implemented, Mr Rodgers said the tariff’s imposition in the 2010-2011 Budget had effectively wiped out most manufacturers’ profits.

The Bahamas Aluminium Manufacturing Company head said the sector’s profitability was already “very little or non-existent” due to the recession.

Mr Rodgers, though, implied that the Act amendments would not be a ‘cure all’ for the issues facing Bahamian manufacturers by themselves.

He noted that energy costs for many companies translated into a “phenomenal” 8 per cent of gross sales and, when combined with total staff salaries, which usually accounted for an average 25 per cent of sales, Bahamian manufacturers often found that just two line items accounted for sums equivalent to one-third of gross sales.

And, telling Tribune Business he was planning to re-hire the three persons Bahamas Aluminium Manufacturing Company laid-off when the 10 per cent duty - and five-year ‘graduation’ from the Act’s incentives - hit, Mr Rodgers said the company was also looking to introduce a new product line.

He added that the Bahamas needed to retain a manufacturing capacity to both reduce import leakages and create jobs, noting that companies covered by the Industries Encouragement Act and Tariff Act accounted for 12,000-14,000 jobs.

“It’s an excellent revision by the Government, removing this five-year moratorium which the previous government imposed,” Mr Rodgers told Tribune Business. “In the companies I’m involved in, this translates to 5 per cent of gross sales for every $1 million.

“When you consider that for every $1 million in gross sales you’re now getting $50,000 back, and when you take into consideration the economy - it’s terrible, it’s desperate - $50,000 on $1 million, you’d be lucky to make that.”

And he added further: “It’s a lot of money staying in the company. It’s important that people make use of that amount. It could mean the difference between whether they survive or not. If that 10 per cent had remained, you’d be amazed; in a year, one or two would have been out of business.”

While the former Ingraham administration’s approach was to give Bahamian manufacturers “five years to get on your feet, and then pay your fair share”, Mr Rodgers said the duty increase - which coincided with the recession’s peak - effectively wiped out the profit margins for many in the sector.

“Right now, to impose any additional taxes on any business is detrimental, because the profit situation in most companies is non-existent or very little,” he added.

With sales down and expenses up, Mr Rodgers said: “I thank the Government and Mr Pinder on this duty change, taking 10 per cent away, and look forward to working with the Government. It really hurt my company, and it’s going to be a major asset taking this expenditure away at this time.

“The Minister made this clear: It’s just the start. They’re looking at other avenues” to help Bahamian industry and manufacturers.

Acknowledging that the sector faced other challenges beyond taxation and duty policy, Mr Rodgers added: “For three or four companies I am aware of, electricity is 8 per cent of gross sales. That’s phenomenal. For every $1 million of sales, $80,000 is going to energy, which is phenomenal.”

Suggesting that the Government needed to establish a three-tiered electricity rate structure for residential, commercial and industrial BEC customers, where the latter paid a lower rate because their consumption volume was so high, Mr Rodgers said the Act reforms were set to lead to increased employment.

“When the duty was introduced in 2010, within six months I’d let three people go, and now I’m looking forward to hiring them back,” he told Tribune Business.

“I can tell you that within six months I can see myself hiring three people back. The $50,000 I’m going to save hopefully I’m going to put back into the company, and I’m looking now to introduce a new line.”

Noting that Bahamian companies under the Tariff Act and Industries Encouragement Act provided employment for 12,000-14,000 persons, Mr Rodgers said: “It’s not a few people; it’s a lot of people. It’s not a small amount.”

Explaining why it was important for the Bahamas to retain a manufacturing capability, Mr Rodgers said: “It’s important for two things. It’s important for employment and keeping the funds in our country.

“If you manufacture a product and make it here, and it’s sold here, the mark-up on the raw materials stays in the country and does not go overseas. It does not go out of the country. It’s the difference between raw material costs and the finished product, and it stays here.”