The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian financial industry’s “immaturity” has created a situation where businesses and productive economic activities are starved of funding, a newly-released study has revealed.

The ‘State of the Nation’ report, the first phase in the formulation of this country’s 25-year National Development Plan (NDP), said high borrower delinquencies and the absence of a Credit Bureau had created a situation where the private sector was “crowded out” from the credit market.

Warning that business and economic expansion were being stifled, the report said: “Consumer and government financing crowd out private sector investment.

“High levels of delinquency, combined with low levels of household savings and the lack of an operating credit information infrastructure, has led to an immature financial sector.

“In turn, productive investment activities are often unable to be funded with financial institutions opting for consumer and government financing.”

The Central Bank of the Bahamas has been working on legislation and the associated infrastructure for this nation’s first Credit Bureau, in a bid to address the deficiencies noted by the ‘State of the Nation’ report.

While it will ultimately enable banks and other commercial lenders to better assess the creditworthiness of all borrowers, a fully-functioning Credit Bureau is still some years away, given the volume of data it will need to assemble.

To strengthen the economy, and at minimal expense and time, the ‘State of the Nation’ report urged the Government to “remove barriers for Bahamian entrepreneurs” by concentrating on the ‘low hanging fruit’.

It identified this, not surprisingly, as making improvements to the ‘friendliness’ or ‘ease’ of doing business in the Bahamas, which has slipped from 55th to 106th in the World Bank’s rankings over the seven-year period between 2009 and 2016.

“A key and relatively inexpensive means of both diversifying and strengthening the Bahamian economy would be to increase its ‘business friendliness’,” the ‘State of the Nation’ report said.

“This review points out several areas in which the Bahamian government could relatively easily, with small policy modifications and/or minor legislative and regulatory amendments, increase the attractiveness of the Bahamas as a place to do business.”

The study argued that the Companies Act 1992 needed to be urgently upgraded, as it was “out of sync with the needs of a growing modern business and a developing capital market”.

The ‘State of the Nation’ report also called for the Bahamas to improve property registration and access to finance, while conceding that initiatives such as the Credit Bureau had made progress in some areas.

“Key changes to protect minority shareholders, enforce contracts and improve bankruptcy and insolvency resolutions are other steps that may be taken,” the study added.

“It is harder to do business in the Bahamas than in many other places. Company formation, for example, takes longer in the Bahamas and is not yet fully automated as it is in competitor jurisdictions.

“Increasing the business attractiveness of the Bahamas is a necessary first step for diversifying the Bahamian economy and providing opportunities for its citizens, especially those who will be entering the work force in the coming years,” the ‘State of the Nation’ document continued.

“This approach is the one taken by a number of small countries, developing as well as developed, to steer their economies on a long-term sustainable growth path. For this to be successful, the Bahamas will need to measure itself against the friendliest countries in which to do business, for example, Hong Kong and Singapore, and not just against other Caribbean and South American countries.”

Privately-owned Bahamian companies were said to comprise 85.3 per cent of the private sector, with their average life expectancy of 24.2 years exceeding the Caribbean region’s 20.9.

The ‘State of the Nation’ report, drawing on recent World Bank and Compete Caribbean studies, said eight key areas had been identified as “obstacles to competitiveness and companies’ growth”.

Chief among these were the costs imposed on Bahamian businesses by crime and corruption, both of which exceeded the Caribbean regional average. Having to compete against the informal economy also placed firms at a disadvantage.

“Firms in the Bahamas indicated spending up to 1.6 per cent of the value of their total sales on measures to secure and protect their business, compared to a regional average of 1.5 per cent,” the ‘State of the Nation’ report said.

“Based on an incidence of graft index (including expectations of giving a gift in order to receive certain services), the Bahamas’ score at 13.4 ranks high compared to the region (6.6) and OECD countries (5.7).”