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Editorial: Pressing Need For Economic Reform

IN these columns last week, we supported the government’s policy to reform and open up the economy and move towards membership of the World Trade Organization. Today, following the passage through the House of Assembly of the Commercial Enterprises Bill, we address the issue of competition and diversification, together with the ease of doing business, as the keys to achieving economic growth.

It was encouraging to hear from the Prime Minister recently that with a reduction in crime his administration could now focus on economic matters. Incoming governments tend to blame their predecessors for fiscal mismanagement whatever the true state of affairs, but this time we believe the new FNM government’s claims about the financial cupboard being bare as a result of the profligacy and mismanagement of the PLP administration and that major reform of the country’s economic model was urgently required.

In case of any doubt, the International Monetary Fund issued a stern warning recently that, without fiscal consolidation and structural reform that will stimulate growth, The Bahamas’ national debt could become virtually equal to its Gross Domestic Product by 2022. These are the objective views of seasoned economists with no political axe to grind and we ignore them at our peril.

The seriousness of our current economic situation has perhaps been lost on some people but all should welcome the courage of the government in tackling the issue of reform head-on in an effort to stave off economic disaster and to achieve economic growth. We have depended for too long on the two pillars of tourism and financial services and it has become imperative to diversify and become more competitive in order to prevent the nation from going bankrupt.

The Commercial Enterprises Bill is designed to boost the economy by attracting new foreign investment and involvement in the private sector and also improving the ease of doing business. Traditionally, many Bahamians have been deeply suspicious of outsiders becoming part of our domestic economy because of a perceived threat to their livelihood and interests through being swamped by foreigners.

To others, this attitude has amounted to xenophobia and has polarised our society. In the modern world, as a small country we have to interact with others and seek foreign investment for our prosperity – if not survival – as an independent sovereign nation. So a shift in thinking and approach is essential, though it remains the case that Bahamian workers need some protection. The key is to find the right balance.

This Bill may well need some amendment and fine-tuning to accommodate various concerns of the Chamber of Commerce, and issues like the $250,000 threshold should perhaps be re-examined. Given our reputation for bureaucratic inertia, there are doubts, too, about the practicality of a 14-day turnaround for decisions about work permits. But the Bill’s main purpose of introducing competition should be welcomed as a step in the right direction. This is an essential element of a free enterprise system and plays a vital role in improving productivity and driving economic growth because businesses are forced to become more efficient by controlling costs and being more innovative in developing new products at competitive prices which consumers want.

It beggars belief that in our small country there cannot be a bipartisan approach to national investment policy. For the PLP to claim that all the government is doing is to “lay out the red carpet for foreign investors” shows a profound misunderstanding of the need for economic reform if we are to achieve growth and thus protect the standard of living of Bahamians generally which should result from the claimed “trickle down” effect.

Moreover, its leader’s pledge to repeal the Commercial Enterprises legislation if the PLP returns to power demonstrates his political naivety. The PLP’s vote against the Bill on what appears to be ideological grounds to protect local workers is misguided in our view while a commitment to repeal it is unwise, if not foolhardy. The FNM government has an overwhelming majority, so there is no prospect of an early general election and it is impossible to predict what the economic conditions will be in 2022. Such a stance also sends all the wrong signals to potential investors.

Pro-market economists agree that competition is an indispensable spur to efficiency and innovation. Most notable was Nobel Prize-winning American economist Milton Friedman – an adviser to Ronald Reagan and Margaret Thatcher in the 1980s when each presided over successful financial and business reform in their respective countries – who was a strong advocate of the benefits of free and competitive markets as the driving force of economic development.

In all the circumstances, the Commercial Enterprises legislation must be the right way forward for our country as Dr Minnis’s administration seeks to position us to survive and prosper in a globalised economy. But it is important to ensure a proper balance among differing interests by retaining adequate safeguards for our domestic economy against potentially unscrupulous investors while encouraging foreign direct investment as a whole.

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