By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Bahamas’ domestic savings have fallen by 50 per cent as a percentage of gross domestic product (GDP), it was revealed last night, leaving its economy increasingly reliant on foreign direct investment (FDI) for growth.
The ‘State of the Nation’ report, the first phase in the formulation of this country’s 25-year National Development Plan (NDP), revealed how Bahamians’ failure to save is undermining the country’s ability to generate sustainable economic growth and job creation from within.
The report found that gross domestic savings, as a percentage of GDP, had fallen from a high of around 25 per cent in 2002 to just 12.5 per cent in 2012-2013 - essentially halving in only a decade.
The ‘State of the Nation’ study said this had left the Bahamas dependent on FDI to finance economic expansion, making this nation increasingly vulnerable to external events and shocks, such as global recessions.
It pointed out that a stronger domestic savings culture among Bahamians would help to counterbalance FDI, and also offset the decline in foreign capital inflows that has been experienced in recent years.
“One avenue towards strengthening domestic growth would be the improving the culture of savings. As an import-driven economy, much of the previous years’ growth has been partially fuelled by external investment in the economy,” the ‘State of the Nation’ report said.
“Gross National Savings as a percentage of GDP has been on a downward trajectory since 2002, with foreign direct investment (FDI) largely supporting the growth of the economy during the last 10 years.
“Since 2010, however, FDI has experienced a sharp decline, limiting the increased potential of the economy. A strong growth in domestic savings would have a compensatory effect.”
Thus the tendency of Bahamians to spend everything they earn on consumption and the latest consumer goods, as opposed to saving and investing a portion for long-term future returns, is yet another factor limiting this nation’s economic growth.
The ‘State of the Nation’ report also demanded that the Bahamas address growing poverty levels, with one in five Bahamian children between the ages of five and 14 living in poverty.
“Approximately 18 per cent of children under 4 years old, and 20 per cent of children 5-14 years, are living in poverty,” it warned.
“This represents a significant portion of the future population at risk of falling between the cracks and lost economic potential for the country. The lack of education and skills has been highlighted as a leading cause of poverty.”
The poverty rate in the Bahamas jumped to 12.8 per cent in 2013, up from 9.3 per cent in 2001, a rise that means more than one in nine Bahamians has less than that deemed essential for a basic standard of living.
“Forty-five per cent of those persons categorised as poor were gainfully employed but unable to earn enough to take care of their families” the ‘State of the Nation’ report said.
“Of the ‘working poor’ 72 per cent were employed in the private sector, providing some support for the introduction of minimum wage legislation. The Family Islands have a disproportionate share of the poor, with Abaco and Andros and Eleuthera recording the higher rates of 20.3 per cent and 17.3 per cent respectively.”
Some 43,000 Bahamas residents were deemed to be living below the poverty line in 2013, which was set at an income level of $4,247.
Examining poverty’s consequences, the ‘State of the Nation’ report branded it as “insidious” and a drain on the Bahamas’ resources to support those in trouble.
“More importantly, however, poverty can rob the society of productive members who could contribute to its development – particularly if cycles continue through many generations,” the study said.
“Poverty can also contribute to adverse socio-economic impacts such as increased criminal activity, higher pollution levels and the lowering of health outcomes. Much of the increased instances of criminality in the Bahamas can be attributed to the rising levels of poverty as the society becomes more unequal. A College of the Bahamas study of inmates cites poverty as the second leading root cause of crime, exceeded only by the breakdown of the family.
“As the poor are excluded, disenfranchised and marginalised from society, societal bonds (that facilitated the working together for the betterment of society) are broken and higher levels of discord can be expected.
“Poverty also begets poverty, as it can lead to low birth weights and malnutrition, limited access to education and health care, as well as limited job skills and opportunity which can collude to reduce the possibility of rising out of poverty.”
The ‘State of the Nation’ report said the Bahamas’ ability to convert FDI investments “into greater wealth” lagged that of other Caribbean nations.
“The historic global financial and economic crisis, and the protracted impact it has had on the Bahamian economy, has exposed the vulnerabilities inherent in its structure and the developmental challenges that are inhibiting its economic growth,” the study said.
“Despite the country’s still comparatively high per capita income numbers relative to its regional neighbours, the underlying reality is one of deepening inequalities.”
While the Government’s monetary and exchange rate policies appeared tailored for economic stability, the ‘State of the Nation’ report said this was not well understood by many Bahamians.
Warning that this “can be a source of conflict”, the study added: “Investment in improving financial and economic literacy within the country would provide greater space for government and civil society to work together for an improved Bahamas.”
Comments
Economist 8 years ago
There is no incentive to save. Look at what, if anything, the banks offer.
The Central Bank allows the banks a huge spread between the lending rate and the savings interest rate.
It the Central Bank closed the gap then the economy would improve.
asiseeit 8 years ago
I would love to save a dollar or two but the sad fact is there is nothing left to save. I have cut out just about everything that can be cut over the last 4-5 years and yet i am just barely holding my head above water. These politicians have fucked this country so hard that everyone I speak with is in the same boat and not one soul has any hope for a brighter future anytime soon. This is what you get when the political class is immoral, unethical, dishonest, corrupt, and their only goal is to retain power. The people at the top are squarely to blame for the state this country is in and they are the only thing holding this country back.
sheeprunner12 8 years ago
Hubert Ingraham was the only Prime Minister who tried to empower citizens by encouraging private sector and government corporate shares available for persons to purchase ....... and Bahamians seem reluctant to invest in local cooperatives and credit unions rather than predatory foreign and local banks .............. we are our own worst investment offenders
John 8 years ago
One time ago schools had a program to encourage students to save. A bank officer would visit the school once a week or biweekly to collect the students savings and mark their passbooks. But today the kids are into expensive cell phone, video games and brand name clothing. And with 42,000 Bahamians living below the poverty line the savings levels should not be surprising. Not too long ago when a young man came of age on the Family Island, if he could not find work locally or if he was not college bound he would come to New Providence to seek employment. He would then send money back to the island to help support his family. Today the cost of living is so ridiculously high in Nassau and the Bahamas in general, if a young man is lucky enough to find a job he barely makes enough to survive much less send money back home, not to mention save any. Taxes on Bahamians are too high. Too many concessions are given to foreigners and foreign businesses. This drives up the cost of living for Bahamians. They can barely survive in this country not to mention save. The economy is still adjusting costs and prices upwards to account for VAT and increases in labor and other costs. And while the costs of fuel and electricity have come down, these adjustments will take much longer to take effect simply because businesses have been operating on the edge for so long. Bhammians are being intentionally excluded from sharing in the wealth of this nation. At least most of them. So should it come as a surprise that they have nothing to save?
bogart 8 years ago
Absolutely amazing. duh. Simple, the govt knows salaries have not risen and costs have risen therefore there is nothing to save. Banks knew this and local loan officers offered up to 95% financing of house and lots package to get what was available to meet loan targets set by foreign offices who the govt seem to allow as foreign headoffices seem to know better than Bahamians. All those marginal mortgage loans given out collapsed the housing market at the slightest breeze, the house insurance business, the construction business, the local businesses who almost always placed you guessed it houses and land as collateral to get business loans, created unemployment as staff got laid off and spirralled back as banks now lay off staff. WOW, sure looks as though we need some more foreigners to tell us why we cannot save but yet the Central Bank can open up the doors for locals to take money to invest abroad. If the majority does not have it then who does? Looks like some have so progressive INCOME TAX here we come and tax credits for those who invest locally and create jobs. More Tax credits for those who invest in Family Islands and especially in industries likely to create employment and you guessed it savings to start more business. Its quite obvious.
John 8 years ago
When Kenred Dorsette went on an ignorant rage and razed the shanty towns his claim was that these were villages created by illegals and constructed illegally. While it may be the case that the shanty towns were illegal and yes they posed a health hazard. But they also provided home and shelter for many Bahamians, especially young Bahamian men of Hatian decent who were trying to venture out on their own and become independent bread winners. The shanty towns represented the hardships that exists in this country, especially amongst young people. How does a young man or woman making $200 a week find housing when the average apartment starts at $600 a month? And where there is lower cost housing the areas are so dangerous to live and so crime ridden the only way to survive there is to become a part of the crime element. Social services has done a great job in offering assistance to persons in need and if Urban Renewal could become more effective in repairing houses in low income areas it will help persons in need of housing.
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