Ex-finance minister in diversification 'cringe'

As of Monday, February 17, 2014

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A former finance minister says he “cringes” whenever economic diversification is discussed because this ignores the Bahamian reality and need to “extract more” from the tourism industry.

James Smith, also an ex-Central Bank governor, told Tribune Business that while it always “sounds good beating a nationalist drum”, the Bahamas’ economic structure meant it was heavily reliant on foreign direct investment (FDI) to drive growth.

Given that this nation was not a major producer or exporter, Mr Smith said this, combined with its one:one currency peg, meant the Bahamas was dependent on FDI and tourism to provide the foreign currency that financed its “inputs”.

“I cringe whenever I hear people say ‘diversify’,” Mr Smith told Tribune Business. “We need to extract more from our main industry, and get to its full potential.”

He added that high utility and labour costs, combined with relatively low productivity, meant both workers and owners in the Bahamian tourism industry had “fallen behind competitors in terms of output”.

“A lot can be done there,” the now-CFAL chairman said in terms of tourism industry improvement, noting that the sector was also the Bahamas’ largest private employer.

Describing the Prime Minister’s Mid-Year Budget statement as “quite optimistic”, Mr Smith said Mr Christie’s initial statements had merely served to illustrate the Bahamas’ high FDI dependency.

“I think what was revealing,” he explained, “more than anything else was that the economic growth around here for the last several decades needed a component of FDI, despite what we tell ourselves.

“To the extent we produce very little, we depend heavily on FDI for our inputs, and foreign currency to finance the inputs.”

While many Bahamians and private sector professionals have clamoured for a greater focus on domestic investment, stimulating economic growth through the creation of new Bahamian-owned businesses and expansion of existing ones, Mr Smith is essentially saying this nation cannot escape its FDI dependency - no matter how hard it tries and the level of wishful thinking.

“It’s something we’re beginning to hear more about; why don’t we invest, why don’t we do this,” he added.

“Sometimes, we don’t get appreciation for how important a role foreign currency earnings play in any developing economy. Until we generate more exports, more foreign exchange, it will be difficult to change this.”

Still, Mr Smith said that if all the FDI projects referred to by Mr Christie in his Mid-Year Budget presentation came through, they could drive a sustainable Bahamian economic recovery.

“It would seem that if they come to fruition, they could take us out of the recession in a sustained way,” the former minister of state for finance added.

Mr Christie said on Wednesday that the Bahamian economy’s gross domestic product (GDP) was set to grow by 2.3 per cent this year, and 2.8 per cent in 2015.

He added that the “particularly positive element” of the November 2013 Labour Force Survey was that the unemployment rate dropped from 16.2 per cent in May last year to 15.4 per cent, despite an expansion in the labour force’s size.

“The number of discouraged workers fell by 15 per cent over the six-month period,” the Prime Minister said.

banker 10 years, 2 months ago

Yesterday's man, with yesterday's mind set and no vision. Mr. Smith doesn't realise that conventional tourism is no longer conventional. He still sees tourism as a monolithic product from when it was in the 1960's and you cannot teach an old potcake new tricks.

The entire industry has undergone splintering into niches, and the intense focus of other countries who have realised this, are eating our lunches in those niches. The Seychelles are now the premiere spot for honeymooners. Our reefs are so degraded that they are unfit to be called a choice destination and Bali is winning the diving tourism. Gambling is no longer seen as exotic and there are many casinos in the US. We are selling our same tired product into a burgeoning market full of exotic niches. Mr. Smith is old enough to remember the book "Future Shock" where Professor Alvin Toffler predicted this.

The only way to maximise the tourism product, is to massively invest in infrastructure development, and our country is too broke to do so.

It is not for lack of trying. The ministry of Tourism has tried many initiatives from the All-Inclusive Island to various schemes based in New York, Florida and Canada with marginal results. One cannot make a silk purse out of a sow's ear.

Mr. Smith's statements display exactly the same tired vision of yesteryear that our politicians have. For his edification, I would urge him to examine the diversification thrusts by the Cayman Islands where they have created a special economic zone for knowledge industries that is a huge success. I would point him to the creation of IT and Call Centers in Jamaica who are now taking in-house business away from the Bahamas.

Oftentimes the road to success is the most difficult and painful way, which requires vision, perseverance, courage and moral rectitude -- something that his political party doesn't even know exists. Mr. Smith is part of the problem and has nothing to say about the solution until he educates himself and acknowledges the lack of a moral compass among his political cohorts.

PapaGolf 10 years, 2 months ago

I cringe whenever "smart" people say dumb things. Has Mr. Smith not heard of the warning against putting all your eggs in one basket? If the tourism sector was to go belly up today, he'd be one of the first to lambaste the government for NOT diversifying the economy.

Ladies and gentlemen, THIS is the government's true feelings about national economic development. However, in the long run it is more economically sustainable to: (1) diversify in industries where the country has abundant resources (e.g. agriculture, forestry); (2) create forward and backward linkages in all sectors of the economy (including tourism); and (3) create favourable conditions for Bahamian ownership and empowerment.

sheeprunner12 10 years, 2 months ago

Am wit u PapaGolf .................(4) develop the fricking Family Islands!!!!!!!!!!!!!

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