Bahamas Caught ‘In The Anchor Property Paradox’


Tribune Business Editor


The Bahamas is suffering from “the paradox of the anchor property”, a well-known doctor believes, with tourism and foreign direct investment (FDI) failing to generate the necessary foreign currency earnings.

Dr Johnathan Rodgers told Tribune Business that 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, he 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.

Traditionally the Bahamas has run multi-billion dollar current account (trade in goods) deficits, which have been balanced by the capital account via tourist/FDI inflows earned by this nation’s services export industries.

However, even Sir William Allen, a former Central Bank governor and finance minister, recently expressed concern over the increasing current account deficits, and whether the Bahamas is earning enough foreign exchange to finance them.

Picking up the same theme, Dr Rodgers said: “The monies that came in from tourism and FDI used to be sufficient to pay for all the imports, but we’ve reached the stage where that is no longer sufficient.

“The Government has to borrow in US dollars to bolster the reserves, but you can’t keep borrowing in foreign currency as it makes your foreign currency debt go up, and makes you vulnerable to externalities.”

The Government borrowed US$300 million in January 2014 via a bond issue, and Dr Rodgers added: “If you have to borrow to bolster the reserves, that not a sensible position to be in, and something has to give.

“You have a very interesting situation that I call the paradox of the anchor property. They employ more people, so there is more consumption, but if GDP is not growing and there is more consumption that before, you end up with less savings and more debt.

“The profits from that project are foreign-owned, and leave the country. They go back out. That’s why there’s got to be more Bahamian ownership in the economy.”

Using Keynesian-style economics to illustrate his point, Dr Rodgers said he had calculated that tourism and financial services generated $2 billion and $1.3 billion in savings for 2014, giving a total of $3.3 billion.

Yet he added that with a fiscal deficit of around $450 million, and a $300 million increase in private sector debt, the Bahamas had still become $750 million more indebted.

This, Dr Rodgers suggested, showed that while the foreign-owned side of the Bahamian economy was “producing all the income”, its locally-owned counterpart was “getting very little share of GDP but consuming everything, and therefore amassing all the debt”.

“Even if you put another 10 Atlantis’s in the Bahamas,” he told Tribune Business, “GDP may go up, but debt is going up and consumption is going up. Savings also go up, but all the debt is accumulated on the Bahamian side.

“No matter what anyone says, the numbers don’t lie. FDI is not the panacea everyone thinks it is.”

Dr Rodgers argued that instead of doling out an estimated $275 million worth of tax concessions and subsidies to investors every year, the Government should instead invest the equivalent into a sovereign wealth fund.

This, he added, would put the Bahamas “in a hell of a lot better position” by allowing the country to take equity positions, and therefore earn profits and dividend income, from major FDI projects.

“We have to change our FDI policy, so that when these investors come to the Bahamas, there has to be a Bahamian equity partner, and not necessarily the Government,” Dr Rodgers told Tribune Business.

Emphasising that his comments were both non-political and non-partisan, he urged the Bahamas to ‘shake off’ the controls imposed by the need for government approval of all foreign investment-related activities.

Suggesting this nation follow Bermuda’s lead, Dr Rodgers called for it to embrace portfolio investments, and foreigners be allowed to buy homes and shares in local companies without first getting government approval.

“If you want to invest in the US, you don’t have to get permission from the US cabinet,” he said, describing the need for Bahamian government approval as “madness, nonsense, ridiculous”.

“Allow people to come in and invest money. The private uses and absorbs capital far more effectively, and that way the money comes in in equity positions, rather than debt. It can be owned by the Bahamian private sector,” Dr Rodgers told Tribune Business.


concerned799 5 years, 5 months ago

I think its more a case of growth (rapid growth) in cruise ship tourism at the price of land based tourism with hotel stays and MUCH higher spend per capita. $60 per capita cruise ship spends do not provide enough inflows to sustain a country which imports near everything! Basic math, you need people to stay in hotels, eat here, pay local workers, pay for everything here and not spend only trivial amounts in the country, and spend the bulk of their money on foreign flagged vessels!!


TheMadHatter 5 years, 5 months ago

Concerned - you have a good point, but I think Dr. Rodgers' point is of a higher caliber. He is talking about the entire mechanism of investment which has to do with hundreds of millions of dollars each year. With respect, you are only talking about a few t-shirts and some hots dogs. Your point, however, is very valid.

Dr. Rodgers', however, is asking for trouble at the end there when he mentions how FDI is all approved by Cabinet. He wants that to be largely taken away from them. Of course, we all know the internal mechanics of how that system works (wink wink), and I doubt there will be any change in that system unless we have another Burma Road sized protest - with a full out march down Bay Street, shut the whole country down for 2 weeks, and have a whole new set of MPs sworn in etc etc etc.

You notice we haven't yet heard back on that story that broke about 2 months ago about the Bahamians that have accounts in the Swiss Bank that is under some kind of lawsuit in the states, and names were named.

You think you'll ever hear the names? You think you'll ever get FDI removed from Cabinet approval? It think the answers to both questions are linked tightly together.

But, you see, the majority of kids coming out of school the last several years with their D averages - have no idea what we're talking about. That is by design. The Govt loves those D average people who they can buy some beer and chicken for every five years so they can "Mark dey X"



ohdrap4 5 years, 5 months ago

Dr. rodgers is the headliner for the newly introduced tribune funnies.


banker 5 years, 5 months ago

Foreign Direct Investment doesn't work as a methodology for nation-building, or building an economy. Ultimately all foreign profits get repatriated, and none of the money sticks to the Bahamian economy, except for the mere pittance in wages. And since the people receiving those wages must buy imported goods to survive (foodstuffs, consumer items), again Bahamian businesses get measly middle-man crumbs from a supply chain that they do not own, control or even have a big enough clout in to influence. Foreign Direct Investment is a way to continuously erode Bahamian standard of living and impoverish the nation.

Dr. Rodgers idea of a sovereign wealth fund is impractical, as it would cost more to operate than the yields of it, because the Bahamian dollar is a non-convertible currency, and all FDI projects require convertible currency capital to purchase and transport the raw materials to build out the projects. If I was a Foreign Direct Investor, there is no way that I would even let the government take an equity position, knowing their track record. I would go elsewhere where I would be given a freer hand to operate.

To put it succinctly and bluntly, Bahamians will never control their own economy because they do not have the expertise and the capital to do it. They are hamstrung by the Bahamian currency. They have not had the opportunity to hone their skills in international entrepreneurship. The human capital available has been value-programmed to be crumb-catchers for the real players in the game, and the national skillset involves leeching little bits of blood from every foreigner who shows up with capital or entrepreneurial skill and subject-matter know-how.

There are no answers in the present framework. Everything suggested is band-aid therapy for a chronic, ultimately fatal disease unless fundamental changes are made. Unfortunately, the government doesn't have the brains, the voting Bahamians are browbeaten by parochial world view and lack of literacy, and those who can think, do not have the perspicacity to navigate around the dysfunctional majority in the Bahamas. Unfortunately, the power brokers in the Bahamas who can effect real change have no desire to do so, because they are thriving in this poor, broken-down country.


Sickened 5 years, 5 months ago

Well said! Let me know when you are getting off this leaky ship 'cause I ga be right behind you!


duppyVAT 5 years, 5 months ago

It was a fallacy then and now ........................ wrong economic model for the undeveloped Family Islands. We can learn something from the Pacific island model for sure.


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