A Freeport-based QC yesterday warned the Government that it will commit “economic suicide” if it takes an ownership stake in the Grand Lucayan’s rescue.
Fred Smith QC, the Callenders & Co attorney and partner, told Tribune Business that the Minnis administration would be far better advised to pressure Hutchison Whampoa’s real estate arm to either sell or hire a hotel brand/operator to rapidly re-open the property.
He conceded that Freeport’s deepening economic crisis meant the hotel’s re-opening was desperately needed, but suggested that monthly subsidies - rather than a multi-million dollar upfront outlay - would reduce the potential burden on taxpayers.
“This is simply political and economic hara-kiri to buy that hotel,” Mr Smith told Tribune Business. “This is grasping for straws and an unimaginative collapse in government thinking. I do not think that direct government ownership in private enterprise is good for the economy in any circumstances.
“This creates a bag of mischief. It positions government as a competitor to private hoteliers, restaurants, bars and entertainment etc. There should be laws preventing the Government from getting into business.”
Mr Smith is the first prominent Freeport resident to speak out against the Government’s proposed ‘last resort’ rescue plan, as detailed by Prime Minister Dr Hubert Minnis in his national address last week.
While no details have yet been provided, Dr Minnis indicated the Government was in talks to partner with other, unnamed investors and take an equity stake in a group that would ensure the Grand Lucayan’s re-opening in time for the winter 2018 season.
Dr Minnis said the Government viewed this action as similar to the auto and banking industry bail-outs undertaken by the Obama administration and UK government during the 2008-2009 recession.
He added that his administration’s strategy was similar, too: Re-open the Grand Lucayan, turn it around, and then the Government would sell its equity stake to its partner investors or someone else.
The Government’s strategy was backed by Carey Leonard, the former Grand Bahama Port Authority (GBPA) in-house counsel, who took an opposite view to Mr Smith - now his colleague at Callenders & Co.
“If that’s the only alternative the Government has, I support it,” Mr Leonard told Tribune Business. “But they ought to try and have an exit strategy as soon as possible.
“We’ve got no alternative; we’ve got to get that hotel open. Quite frankly, that’s what’s needed.”
However, Mr Smith said the Government’s ‘track record’ in business since the Bahamas became independent suggested that its involvement in the Grand Lucayan’s ownership was not a good idea.
The Government is already providing $429 million in collective subsidies to 25 state-owned enterprises (SOEs) this fiscal year, and the well-known QC warned that the Grand Lucayan, too, could become a continual drain on the Bahamian taxpayer.
“Government’s involvement in business in the Bahamas,” Mr Smith said, “from the days of Hatchet Bay in Eleuthera in the 1970s through to the supreme example, the involvement of the Hotel Corporation in the Lucayan Strip going back to the 1970s and, more recently, Bahamasair and BEC, continues to highlight how tragically incompatible government involvement in the private sector is.
“First of all, it is a wonderful opportunity for corruption. It becomes almost inevitable. Then, of course, government monies are funnelled to subsidise and prop up what are usually failed enterprises.
“Third, you have the financial, economic and political purse and might ranged against smaller hotels, bars, restaurants and entertainers in every conceivable way,” he continued.
“It is the kiss of death to free enterprise for the Government to have any ownership in a private sector company.”
Mr Smith has been contradicted by other observers, including Mick Holding, the Grand Bahama Chamber of Commerce president, and departing Port Lucaya Marketplace tenants, all of whom have argued that Freeport’s economic situation is so dire that the Government must do whatever it takes - including partial nationalisation - to get the Grand Lucayan open, and jobs and business activity flowing.
Yet the QC argued in response: “I completely understand the need to generate business and help to revive the economy in Freeport. I do not consider that the Government buying the Grand Lucayan is the answer.
“I encourage the Government to vigorously pursue Hutchison to find a buyer and, until then, a management company to help to run the Grand Lucayan under Hutchison’s ownership and stabilise the operation.”
Mr Smith conceded that taxpayer subsidies could be needed to underwrite such an arrangement, which was in place until January this year, when Memories withdrew from Grand Bahama due to a dispute with its Grand Lucayan landlord over Hurricane Matthew repairs.
Yet he reiterated: “Government subsidy is preferable to government ownership, and taking on a huge financial and loss-making burden. The history of Freeport is replete with examples of government buying private enterprise, and all of them always fail at the taxpayer’s expense.
“It would be far cheaper to spend $1 million a month than to spend $100-$200 million a month on capital, and then have the recurring burden of ongoing expenditure maintaining that large hotel strip.”
The Grand Lucayan has been losing $10-$11 million annually, and an equity stake will leave the Government on the hook to subsidise its share of those annual losses. Any move to acquire an equity stake would also involve the Government in a hotel business that is extremely volatile, and which it elected to exit in 1992.
Mr Smith added that it would likely take six-nine months to close a Grand Lucayan deal involving government equity participation.
He argued that if the Government wanted to “jumpstart” Grand Bahama’s tourism economy, the Ministry of Tourism and island’s Promotion Board should instead focus on ways to bring more short-stay visitors to the island from south Florida and other areas.