By NEIL HARTNELL
Tribune Business Editor
The Bahamas must crack down on widespread 'fronting' that threatens to become more "ferocious" once this nation joins the WTO, a governance reformer has urged.
Robert Myers, a principal with the Organisation for Responsible Governance (ORG), told Tribune Business that Bahamians will find themselves in a "subservient economy" unless the Government and private sector move quickly to enforce the law.
He warned that the National Investment Policy, and reservation of certain economic sectors for Bahamian ownership only, was constantly being undermined by local attorneys, accountants and politically-connected persons acting as 'fronts' for businesses that were really owned and controlled by foreign companies/investors.
Fearing that this will further shrink Bahamian economic ownership once this nation becomes a full World Trade Organisation (WTO) member, Mr Myers called on the Government to foster self-regulation throughout the economy's key industries, given that private sector players were best-placed to identify 'fronting' and those operating illegally without the necessary approvals.
"The lackadaisical and inequitable enforcement of the rule of law in this country is already causing problems for small and medium-sized enterprises (SMEs) in the Bahamas," Mr Myers told Tribune Business.
"The Government is allowing projects to come into the Bahamas and is not stipulating that they use local SMEs, thereby enabling these investors - at our expense through the tax concessions - to use foreign competitors. They're not giving local entrepreneurs the opportunity to grow from foreign direct investment (FDI)."
Foreign real estate developers have traditionally brought their own project managers, lead contractors, architects and engineers with them, which has often led to complaints by Bahamian professionals that they are excluded from working on major FDI projects in their own country. Yet Mr Myers suggested a far greater difficulty is posed by foreign competitors entering sectors supposedly reserved exclusively for Bahamian ownership, such as construction, retail, landscaping, restaurants and events management, via locals offering themselves as 'fronts'.
He added that Raymond Winder, the Bahamas' leading WTO negotiator, had acknowledged the existence of 'fronting' - and the challenges it causes for Bahamian entrepreneurs - a recent Chamber of Commerce-organised WTO seminar.
"These are industries by law restricted to Bahamians," he told Tribune Business, "but that is being completely violated by people with no experience or track record fronting for foreign competitors.
"That has already decimated a lot of larger companies. The opportunities for growing SMEs and growing entrepreneurship has been significantly impacted without WTO because people are not adhering to the law.
"There's not a strong hand pushing back against the foreigners coming in with some Bahamian lawyer, Bahamian accountant or some politically-connected person fronting for them. It's damaging our middle class and SMEs."
Darron Pickstock, chair of the Chamber of Commerce's trade committee, voiced similar concerns over 'fronting' and the National Investment Policy during a WTO-related panel discussion at the University of the Bahamas (UoB) last week.
While the Policy covers 12 sectors, Mr Pickstock pointed out that it is just that - a policy, which can be waived and amended by any sitting government. A recent example of the National Investment Policy's waiving was when the former Christie administration permitted Sysco, the major US food services conglomerate, to acquire Bahamas Food Services (BFS) in 2013 from fellow American company, Beaver Street Fisheries.
"We believe that this policy has merit, but is definitely in need of a full review as often the Government does not follow its own policy," Mr Pickstock said.
"Over the years, exceptions have been made in the wholesale sector, and throughout these islands we can see foreign persons bending and breaking the rules; albeit sometimes with the help of Bahamian partners."
Claims of 'fronting' have frequently been hurled around over the years, but proving the allegation has often proven extremely difficult if not impossible. Mr Myers argued that the best cure was to ensure the different industries can adequately self-regulate prior to the Bahamas becoming a full WTO member.
"Let the industries police themselves, as they know who's legitimately in the business and who isn't," he told Tribune Business. "Let the industry professionals police themselves and regulate themselves. That's got to be the focus before WTO.
"They need to get all these things battened up. If you don't, you're going to move people into a subservient economy. In a WTO environment that's [fronting] probably going to become more ferocious. It's going to get much more intense. The Bahamians will find themselves subservient to foreign entities, which will gobble up all the business and put SMEs out of business.
"It's critical each industry has the opportunity to regulate itself. Let's face the music: The Government has not been doing it for 35 years. It turns a blind eye when these complaints are made."
As an example, Mr Myers recalled a recent complaint he heard about a foreign contractor on a Family Island that had not paid National Insurance Board (NIB) contributions for a year, and promptly "hauled ass" when the authorities began to investigate.
"They're not paying Business Licences, they're not paying NIB and are not paying VAT," he said of such cases. "They come into work on a private residence or resort until someone puts heat on them, and then they haul ass.
"It hurts SMEs, hurts the Government's revenues, and the only people laughing are the contractor, service provider and the client. The Government and SMEs get completely screwed."
Mr Myers said the absence of any 'whistleblower protection' legislation added to the difficulties in combating 'fronting'. He explained that his own experience was that Customs and Immigration officers ended up informing the subject of any complaints about both the allegations and identity of the accuser, which inevitably led to the loss of potential work.