The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian companies will be "put out of business" if exchange controls and bank lending rates are not relaxed before this nation enters liberalised trade regimes.

Robert Myers, a principal with the Organisation for Responsible Governance (ORG), told Tribune Business that local businesses will be "unable to compete" with foreign rivals unless the Government places them on a level playing field by removing such structural obstacles.

With the Bahamas already having signed on to the European Partnership Agreement (EPA) with the European Union (EU), Mr Myers said both the Government and private sector had not been proactive enough in positioning the economy to grow and compete under rules-based trading regimes.

He argued that Bahamian companies must have a chance to "expand into foreign markets" ahead of more local industries being opened up to foreign rivals, especially if this nation proceeds with accession to full World Trade Organisation (WTO) membership.

Speaking after the International Monetary Fund (IMF) last week suggested that the Bahamas implement a low-rate income tax "over the medium term", to compensate for revenues lost as result of EPA and WTO-related tariff reductions, Mr Myers reiterated that tax reform should not be dictated by one factor.

Instead, he argued that any reforms should be geared towards improving the Bahamian economy's competitiveness and that of local businesses.

"We've got to look at our tax structure, but not just to increase government revenues," Mr Myers told Tribune Business. "We've been very reactive towards the EPA and WTO, and not getting out ahead of it to provide opportunities for the private sector and citizens.

"There is no doubt that there is a need to carefully examine our tax structure and monetary policies ahead of the nation's full integration into WTO and EPA. Both ORG and the CRT (the Chamber of Commerce's Coalition for Responsible Taxation) have been encouraging the Government to be far more proactive in meeting these demands, so as to allow Bahamians an opportunity to expand their businesses into foreign markets ahead of foreigners being permitted to unfairly compete with Bahamians in the Bahamas."

Mr Myers specifically added that "exchange controls and the high cost of debt are two significant hurdles that the Government must address as it examines its tax options".

He said the relatively high cost of capital for Bahamian companies, compared to their foreign and regional counterparts, placed them at an immediate competitive disadvantage when bidding for work and projects in this nation and outside.

"If the cost of debt [interest rate] here is 8.5 per cent, and that guy is going out to compete in the Bahamas and regionally, and some guy in Jamaica or Europe is borrowing at 2 per cent, how is that guy going to compete in the WTO and EPA era," Mr Myers asked.

"They (foreigners) can transact internationally, but exchange controls eat up more of our time, slow us down and cost us more of our money. The Government should be looking at ways to get Bahamians to expand our horizons and grow our economy; not just locally, but regionally.

"Let's take advantage of these agreements, and start being proactive, not reactive. I've said to the Government on numerous occasions over the last eight years that they've got to relax exchange controls and improve bank lending rates before that [WTO] happens, otherwise we will not be able to compete and they will put Bahamian businesses out of business. Give us a chance to compete before foreigners come in here."

The Central Bank of the Bahamas has been moving to gradually relax exchange controls, and provide Bahamian businesses with access to foreign currency financing, especially those in sectors seen as having particular development and exchange earning potential.

The Government in April approved measures that will enable Bahamian businesses to access up to $5 million in foreign currency financing every five years, a measure designed to aid small and medium-sized businesses and the "upper end" of the real estate market.

The reforms are targeted at 11 sectors seen as supporting the Bahamas' medium to long-term national development goals, and having a positive impact on the country's foreign exchange earning capability.

Those industries are: Agriculture and fisheries; manufacturing; transport (land, sea and air); tourism (hotels and restaurants); construction and real estate for residential tourism; energy and energy conservation; education; health; telecommunications; ICT; and infrastructure.

"The focus has got to be on the ways to stimulate growth of the private sector, and improve opportunities for citizens to earn more through greater knowledge, productivity and efficiency," Mr Myers told Tribune Business.

"Commercial banks should be aggressively encouraged to reduce interest rates, as this will improve the cost of doing business and stimulate business development. At the same time they must avoid further lending to unqualified borrowers as current bank default rates are too high."