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Avoid 'Creative Destruction' For $1bn Gdp Expansion

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas could increase its annual GDP by up to $1 billion if it avoids becoming a "victim of creative destruction", a well-known economic commentator argued yesterday.

Dr Johnathan Rodgers warned Bahamians and the private sector not to "bury your head in the sand" over the rapid technological changes driving economic change in this nation and around the world.

He told the Bahamas Business Outlook conference that this country was "struggling like hell" to evolve into a knowledge-based economy given that it has "none of the elements" needed, and warned that many will struggle with the transformation this requires.

Dr Rodgers envisioned a world where Bahamians used mobile e-wallets to pay for goods and services, and suggested that commercial banks would be "among the biggest losers" in such a transition.

He also predicted the arrival of "e-books" and "virtual teaching methods" in the Bahamas, and the use of "blockchain technology and smart contracts" to purchase local real estate without the legal fees (2.5 per cent of the purchase price) and realtor's commission (6 per cent) currently charged.

The well-known 'eye doctor' said such changes could arrive with bewildering speed, and could amount to what he termed "creative disruption" for virtually the entire Bahamian workforce before the knowledge-based economy's benefits were felt. Tracing the Bahamas' economic history, Dr Rodgers said the country had largely been "a two-horse services economy" that grew thanks to a combination of the Cuban Revolution and bank secrecy.

The former closed Cuba, previously the leading Caribbean destination, to US tourists, while the latter attracted foreign capital from high net worth individuals and companies fleeing high tax rates in their home countries.

"This resulted in a prolonged period of growth that provided opportunities for Bahamians to enjoy a higher standard of living, and greater social mobility," Dr Rodgers said. "During this time it really was better in the Bahamas: We could boast the premier financial services centre in the Caribbean, and really were the envy of the region."

The Bahamas' growth momentum, though, slowed at the turn of the century amid ever-increasing competition from rival 'sun, sand and sea' destinations for the tourist dollar, coupled with the financial services industry's 'blacklisting' and constant international regulatory initiatives designed to combat tax evasion and avoidance.

Dr Rodgers said the International Monetary Fund (IMF) and Inter-American Development Bank (IDB) had recently described the Bahamas as the slowest-growing nation in the Caribbean, and one that had lost significant tourism market share to regional rivals.

And international regulatory pressures had shrunk offshore assets in the Bahamian financial sector from a $575 billion high to $175 billion, with jobs dropping from 5,500 to "less than 1,500".

"The reality is we're presently in a state of economic stagnation, characterised by sluggish GDP growth, high levels of debt, high levels of unemployment and asymmetric wealth. This is why there has been a decline in the standard of living; the rich are richer and the poor poorer," he added.

Dr Rodgers said that while the Bahamas' high cost base, "failure to innovate" and inability to expand its hotel room inventory had all "contributed to economic stagnation", other factors - such as core inflation, exchange controls, the 90 per cent foreign ownership in the hotel and financial services sector, and poor educational achievement - were equally responsible.

"If these causes of economic stagnation are addressed by appropriate policy changes, the GDP of the Bahamas will be increased by $500 million to $1 billion a year," he forecast.

"I've been advocating exchange control abolition for years. I love my wife, but I could have hugged John Rolle when I heard that news this morning (see other article in this newspaper).

"If we want to be first-world and have a higher standard of living, we must strive to participate in a knowledge-based economy."

Dr Rodgers said such economies were built on a country's human capital quality and intellectual property - qualities that many in the private sector have long argued the Bahamas lacks.

He added that the key 'building blocks' were research capabilities; a specialised labour force; and physical and financial infrastructure. However, Dr Rodgers conceded that "none of these elements exist" in the Bahamas, although he described the recently-enacted Commercial Enterprises Bill as a step forward in addressing these weaknesses.

"We need to prepare ourselves for the impact this new economy will have on our lives and standards of living," he warned, "and take advantage of knowledge-based opportunities.

"The most important feature of this knowledge-based economy is that it will be creative destruction. We will all be impacted by it. Don't bury your head in the proverbial sand and say: 'We're Bahamians; it won't happen'. That will be a grave mistake.

"If we vegetate, remain in the status quo, we will disintegrate. Forty per cent will be out of a job or in a different job, and the other 60-70 per cent will have to upgrade your skills on a monthly basis to retain your job or advance," Dr Rodgers continued.

"Some of these things will happen in the next year in the Bahamas, and some will come in the next five years as the Bahamas transitions to a first-world economy. We will have to innovate to survive."

Outlining what the knowledge-based transition will involve, Dr Rodgers said "artificial intelligence" will likely eliminate some jobs in the healthcare industry, such as medical and laboratory technicians who currently read the likes of CAT and MRI scans.

He suggested that a similar process would occur in the legal profession, where artificial intelligence will also replace some attorneys and paralegals, thereby "drastically reducing billed hours".

Dr Rodgers said the use of blockchain and smart contracts would also "dramatically reduce real estate transaction costs for consumers", and envisaged the use of captive community insurance policies as a means of lowering catastrophe coverage costs.

The evolution of plug-in electrical cars, Uber and even self-drive vehicles would lower the volume of traffic accidents, he even argued, leading to less need for auto insurance, mechanics and repair shops.

Turning to the tourism industry, Dr Rodgers said the evolution of Airbnb and other vacation rental networks will "help to change the tourism industry ownership structure and redistribute some of his wealth", shifting the sector away from its reliance on hotels - something he described as beneficial.

"The banks will be the biggest losers and consumers the biggest winners," he argued of the movement to a knowledge-based economy. "The impact will be a net transfer of wealth from the banking sector to consumers."

Dr Rodgers said this would be achieved through e-wallets replacing chequing accounts, securitised assets taking the place of savings accounts, and the evolution of peer-to-peer lending and alternative payment mechanisms.

He also urged the Bahamas to attract technology companies and cryptocurrencies by allowing them to raise capital in the Bahamas. Technology start-ups are currently unable to raise more than $1 million via initial public offerings (IPOs) in the US, and Dr Rodgers suggested that the Bahamas lift these restrictions once the necessary disclosure documents were made available.

Initial coin offerings (ICOs), which raise capital for new cryptocurrency ventures, were another market that he urged the Bahamas to target, calling for the Government to impose registration fees and levy a 1.5 per cent fee on the sums raised.

Dr Rodgers urged regulators not to impede the knowledge-based economy evolution, acknowledging that there was a "gap" between how quickly the world was advancing and these bodies.

"What's needed are regulatory tailwinds, not headwinds, to economic growth," he argued. "Politicians will have to further policies in the interests of households, not the 0.01 per cent, and be more accountable and transparent.

"Policymakers must continue to make the necessary policy changes, exchange control relaxation and fiscal tightening, to strengthen economic growth. To not be a victim of creative destruction, we must retool the skill sets of persons to make them employable employees."

Comments

sealice 1 month ago

Doctor wants to get rid of BREA!!

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sealice 1 month ago

Dr Rodgers said the International Monetary Fund (IMF) and Inter-American Development Bank (IDB) had recently described the Bahamas as the slowest-growing nation in the Caribbean, and one that had lost significant tourism market share to regional rivals.

I thought we lost out on our tourism because Obie W is a certified idiot that didn't do anything for tourism or West End?

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realitycheck242 1 month ago

they were to busy talking and dancing are not being innovative.

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realitycheck242 1 month ago

The Bahamas must tap into its best minds worldwide to expand its creative economy..Bahamains around the world should be given incentives with the ease of doing business and allowed to partner with foreign nationals and companies with offers of equity stakes in companies that are going to modernize our economy and introduce technology such as blockchain. large communications companies like BTC and Aliv must constantly improve our technology infrastructure and keep it on the cutting edge so that costly upgrades will be avoided when new products are released. local companies in the technological areas should at this stage of the development cycle be seeking to partner with international tech giants to transfom the Bahamas.and further expand the economy.

On the Demand side, when Bahamians see what is happening in other countries, they will demand the latest and whoever is providing the innovative service or product locally will get the new business. Local ICO's will be critical to the success of these new businesses because they will be the monetary currency that can function with the new innovations as we move to a cashless society. Our chances of transformation are much better because of the passage of the Commercial Enterprises Bill and the incentives it provides.

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Reality_Check 1 month ago

This Johnny-come-lately economist really should stick to lecturing people about their eye problems!

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bogart 1 month ago

Agreed. Is the good doctor registered and certified to give financial advice??

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realitycheck242 1 month ago

In defence of the good doctor.... he is a free thinker who does his research, I am not saying he is an expert in technology but from the terms used in his presentation i can see he studies world trends and the art of whats is possible for the advancement of the Bahamas economy..Persons like myself with a technical background can easily appreciate his presentation.

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ohdrap4 1 month ago

but he is some kind of dilettante who was never as successful in business as his father was.

this is stuff is what radio talk shows are made of.

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TheMadHatter 1 month ago

Why the hostility guys?

I don't see anything insulting or out of bounds in his lecture. Maybe some pie in the sky, because i can't imagine our society making such changes.

We currently have a lot of momentum in the direction of drinking, domino playing, and baby making - that will be hard to change.

But, who knows? Maybe one Sunday morning i will drive around Nassau and find all the church parking lots empty, and when i inquire we will learn that everyone was home benefiting from "virtual teaching methods". Our people's minds will have room for technology and finance and not be restricted to only Bible knowledge.

Nothing wrong with Bible knowledge - but two nights a week and twice on Sundays is just too much.

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killemwitdakno 1 month ago

A clearer title might be Modernization could boost GDP by $1B.

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killemwitdakno 1 month ago

You have old controlling fogies who know nothing of this stuff therefore it's passing us by. You have to encourage them to show us that they are attending things to learn about and use these well known technologies. Have an office for tech in chief, modernization officer or something. And instead of ripping off those Tech Summit submitters, reach out to what you liked when you damn know you need what they've got.

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Craig 1 month ago

The Doctor must have read Thomas Friedman's new book, Thank you for being late. Whether we like it or not this is coming and there is nothing we can do about it. Thomas Freidman describes it as using technology and cloud computing to remove the "friction" from our everyday tasks. Uber and Airbnb are perfect examples of the use of rechnology to remove the friction. Its happening in education, financial transactions, real estate, and soon law, medicine and many other areas of life.

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bogart 1 month ago

@the MadHatter. No hostility to the good doctor.

Some OTHER persons cant remember the name are flogging investments that offers a 950% return during the morning radio show this week sometime around the news the ad comes on.

At this particular time one has to be wary.

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banker 1 month ago

I have read the "good doctor's" book on the economy that went to a vanity publisher a few years back. Someone in the office had a copy. It is unreadable drivel - except for maybe dollarization of the economy. This is a man who has failed at every single business that he has ever tried (pizza franchise, real estate, debit card, gambling platform, online newspaper, etc etc) except for perhaps eye-doctoring. He was Bran's DNA financial wizard that didn't pan out in one election and he was replaced by a guy named Youri in the last election.

There is some stuff that does make sense in the motherhood statements, but the "good doctor" hasn't had an original thought in his head. BREA is already calling for payment in bitcoin. The Central Bank is creating a digital currency. The BFSB is looking at Crypto. There are already ICOs being planned in the Bahamas. A day late and a dollar short.

However, I really like the prognosis of Dr. Barry Rassin. At his inaugural speech as president of Rotary International, he outlined how 90% of the Bahamas will be underwater in 50 years due to climate change. Just wait awhile and all problems solved. We are here for a good time, not a long time.

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John 1 month ago

The Bahamas was financially blacklisted because it didn’t pass certain legislation (like the marriage bill, the marital rape bill,and the immigration reform) but while the economy didn’t grow because of this at least it is stable. Countries like Jamaica does not yield to these organizations or the US. Even Haiti has so many nationals living outside the country even US sanctions do not work. Because people send money home to their families. But 2018 will be the year for The Bahamas. Hopefully Minnis will not sell our soul for a dollar.

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Aegeaon 1 month ago

That statement is just.. Pathetic. This is the BAHAMIANS' fault that the country is left in such a broken state. We can't even get money without criminal ventures for decades. This is no work of outsiders, this is our doing for nearly 45 years.

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John 4 weeks, 1 day ago

Meanwhile in the US #governmentshutdown... ‘negotiating with Donald Trump is like negotiating with jello’

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John 4 weeks, 1 day ago

A Bahamian was on a talk show last week saying how she grew her Airbnb business from 1 unit five years ago to 26 units present. Another lady was talking about the problems she had selling her jewelry online. First there was the problem of getting funds without having to pay high fees and conversion. Then there was the problem with a reliable Courior service. The three main services here do not offer bulk rates and do not yet want to negotiate and the high speed postal does not offer insurance or tracking. Estimates are that new vehicles in the US will fall from 18 million to 6 million a year once self drive vehicles and Urber services take full effect. But as economies change and eliminate jobs, other jobs are created. For example while savings accounts in banks may be eliminated Simone will still have to manage e-wealth. At one point at least one country had to stop trading bitcoin because its accounts were constantly getting hacked and cleaned out. And you would be surprised at how many Bahamians have had their accounts hacked and money stolen here. Done mostly be employees of the bank or other customers.

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