By NEIL HARTNELL
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.