The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Almost $1 billion worth of ongoing investment projects are failing to “translate into economic growth”, Standard & Poor’s (S&P) warned yesterday, with the inevitable tourist market “adjustment” upon opening further delaying Baha Mar’s impact.

The credit rating agency, in its full country analysis on the Bahamas, said that while the Baha Mar impasse would “limit the impact of tourism” on economic growth, there remained “a steady stream” of other projects that were proceeding.

These included the expansion projects at Albany and Baker’s Bay, the $250 million The Pointe development adjacent to the British Colonial Hilton, the annual capital upgrades at Atlantis, and the new Marriott Courtyard and Warwick properties.

However, S&P said: “In total, the projects being developed in the country are worth close to $1 billion. However, some of these projects, which were ongoing from previous years, haven’t translated into economic growth.

“Total tourism arrivals increased by almost 3 per cent in 2014, while air arrivals, which generate the highest spending, increased by almost 5 per cent. In the first seven months of 2015, total arrival growth contracted slightly, by 1 per cent, though air arrivals grew by 5 per cent.

“We expect a similar growth rates throughout 2015, though we don’t expect that this will translate into a large boost to GDP growth, given the relatively small amount of value-added offerings.”

S&P added that securing sufficient incoming airlift capacity, and better connections to the Family Islands, represented a priority for the Bahamas.

“Prior to the delay in the opening of Baha Mar, there were growing concerns that airlift capacity was not sufficient to meet the needs of the anticipated opening, which, together with the opening of a couple of other smaller hotels, would increase room supply in the country by an estimated 20 per cent,” the credit rating agency added.

“Given Baha Mar’s continued opening delay and legal disputes, the first challenge will be increasing the supply of tourists to the country once there is a clearer timeframe for the opening, and then ensuring that there is sufficient airlift to transport the higher supply.

“We believe that it will take time for the tourism market to adjust to this new supply, further delaying the impact that the [Baha Mar] opening will have on the economy.”

S&P also warned that Bahamian economic growth would be further undermined by “structurally high unemployment”, which was sparked when hotels cut staffing levels in response to the 2008 financial crisis.

Despite the improving global economy, the Bahamian jobless rate has remained high, and S&P joined many other observers in suggesting it reflected “structural issues such as skills mismatch and the migration of skilled labour”.

It added: “Despite a recent report by the Department of Statistics that shows unemployment dropped to 12 per cent in May 2015, from almost 16 per cent in November 2014, we believe that much of this increase was due to temporary hiring for local festivals and hiring for the expected opening of Baha Mar.

“However, given the temporary nature of the hiring, as well as the recent placement of about 2,000 Baha Mar employees in a redundancy plan in light of the project’s financial difficulties and uncertain opening date, we expect that unemployment will rise once again by the end of the year.”

S&P warned that given the Bahamas’ currency peg, any further appreciation of the US dollar on global currency markets could further undermine this nation’s cost competitiveness versus rival tourism destinations.

And, whole acknowledging the progress made towards reforming the Bahamas Electricity Corporation (BEC) and wider energy sector, the credit rating agency added that persistent high energy costs continued to inhibit Bahamian tourism.

While agreeing that PowerSecure, BEC’s new manager, may ultimately be able to reduce Bahamian energy costs by one-third, from $0.45 per kilowatt hour (KWh) to $0.30 per KWh, S&P said this was still some way off.

“The reforms needed in the energy sector to improve competitiveness and spark growth are broad and highlight the current inefficiencies and low generation capacity of the country’s existing systems,” S&P said.

“Additionally, without investments in the energy sector, power costs will remain high, exacerbated by transmission and distribution losses, and energy supply will not be sufficient to meet the country’s growing energy consumption needs, causing power outages to continue, weakening the country’s tourism competitiveness.”

However, it argued that Cuba’s tourism threat to the Bahamas may take some time to materialise, especially when it came to convention and stopover visitors.

Suggesting that the communist-run island may pose the greatest short-term danger on cruise tourism, S&P suggested: “The opening of Cuba to US tourists may also further challenge the Bahamas’ tourism model.

“However, we believe the most immediate threat, of cruise destination competition, will have less of an impact on the Bahamian economy than higher revenue-generating business, such as convention business, which we believe will take some time for Cuba to develop.”