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Fdi ‘Not Having Needed Foreign Reserves Impact’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A leading accountant yesterday agreed that foreign direct investment (FDI) was not boosting the Bahamas’ external reserves to the extent necessary because too much of these capital inflows leaked straight back out.

Raymond Winder, Deloitte & Touche (Bahamas) managing partner, said FDI was only “generating returns” for this nation’s labour market, having precious little impact on other key areas in the economy.

This, he explained, was because FDI developers tended to import the bulk of their construction materials, project managers/lead contractors and other key assets from overseas, rather than use what was available in the Bahamas.

The generous investment incentives given to developers in the form of tax breaks mean that much of these materials are imported duty-free, ensuring the Treasury benefits little upfront, while much of the profits are repatriated from the Bahamas in the form of dividends.

“FDI is not having the kind of impact on our foreign reserves that it ought to because of the fact that the majority of it ends up back outside the Bahamas,” Mr Winder told Tribune Business.

“It’s only the labour component where we are getting some kind of return. The bright spot is that we are seeing improvement in our tourism numbers, but the major driver is the generation of foreign reserves.”

The Bahamas’ foreign currency reserves stood at $810 million in February 2015, but they have been boosted in recent years by one-off transactions, such as the Government’s US$300 million bond issue and privatisation proceeds.

The International Monetary Fund (IMF), in its recent Article IV consultation with the Bahamas, “stressed” the need to boost the foreign currency reserves despite expectations that the current account deficit is set to narrow.

Mr Winder also appears to back Dr Johnathan Rodgers, the well-known ‘eye doctor’, who also suggests that tourism and foreign direct investment (FDI) are failing to generate the necessary foreign currency earnings.

He said the Government’s increased foreign currency borrowings, which have been used to bolster the external reserves, indicate that this nation’s US dollar earnings pool has “shrunk in the past 10 years”.

This, Dr Rodgers suggested, showed that tourism and FDI - the Bahamas’ two traditional foreign exchange sources - were no longer delivering the required returns, while debt in both the Government and private sector continued to increase.

Dr Rodgers attributed this to the fact that foreign ownership dominated the Bahamas’ two major industries, tourism and financial services, which resulted in the majority of this nation’s foreign exchange earnings ‘leaking’ back out again.

He suggested that the only sector benefiting from FDI and the opening of so-called ‘anchor projects’ was Bahamian labour, with the salaries paid resulting in increased consumption that, again, leaked out via import demand.

Arguing that FDI was “not the panacea everyone thinks it is”, Dr Rodgers said the solution was to increase Bahamian ownership of the economy.

And he called for an FDI policy change that mandated foreign investors take on board Bahamian counterparts as equity partners, so that a percentage of the profits/dividends remained in this nation.

Mr Winder, meanwhile, said it was “very important” to the Bahamian economy that projects such as the $3.5 billion Baha Mar development “come on stream” to generate the required foreign reserves and general economic impact.

Comments

hadenoughofthecrap 4 years, 8 months ago

The Bahamian people have been and will always be bamboozled by politicians until the day arrives we elect a new party of non politicians.

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