By NEIL HARTNELL
Tribune Business Editor
The Bahamas’ has an “upside down” economic model that is the “complete reverse” of what exists in most progressive countries, a former attorney general has charged.
Alfred Sears QC, in a recent interview with Tribune Business, branded The Bahamas’ investment regime as “perverse” because it favoured foreign investors and businesses over its domestic entrepreneurs and capital.
Arguing that the country urgently needs “a new economic architecture”, he argued that the current system “penalises” The Bahamas’ own nationals in comparison to overseas developers who enjoy access to greater and more numerous tax breaks and other concessions.
Reiterating his previous calls for “a rational appraisal of the Stafford Sands model because it is based on the wrong assumptions”, Mr Sears called on The Bahamas to develop an investment template that was “transparent, certain and predictable” and designed for its own interests rather than for the likes of the European Union (EU).
While foreign direct investment (FDI) typically lobbies for the same treatment as local investors wherever it goes in the world, a concept known as “national treatment” under rules-based trading regimes such as the World Trade Organisation (WTO), the ex-attorney general said that in this country Bahamian businesses are demanding the same status as foreigners.
“How can we have a system that marginalises and penalises national capital?” he told Tribune Business. “It’s inconsistent with the definition of sovereignty.
“In most places in the world foreign investors are fighting to get national treatment. Here in The Bahamas, it’s nationals are clamouring to be treated like a foreign investor. We have it upside down.
“If I go to the US or Europe, I’m going to ask to be treated as close as possible to national treatment. The system there is designed first and foremost to satisfy the need for incentives and access to public goods among their nationals,” Mr Sears continued.
“This is a perverse system we have. I understand the origins of it: It was designed, conceived and implemented in the colonial context, but we are a sovereign country so must always have regard to sovereignty.”
Mr Sears drew a distinction between nations that were colonised for exploitation, and those that were settled. Pointing to the likes of Canada, Australia and New Zealand as examples of the latter category, he said their economic policies had focused on empowering their own entrepreneurs and providing support for those that sought to export or expand overseas.
“In the Bahamas it’s the complete reverse,” he told this newspaper. “We penalise. You have to pay a premium to search for cheap money [exchange controls]. The Government must appraise the current system and not only where there is an external threat.
“There needs to be a complete overhaul. That is the only way The Bahamas can achieve sustainable development. It must grow a robust, competitive, innovative domestic entrepreneurial group or national capital.”
Mr Sears’ remarks are an extension of his previous arguments that the 60 year-old economic model left by Sir Stafford Sands is now “broken” and inadequate for The Bahamas’ needs, perpetuating an unequal investment incentive regime that favours foreigners over Bahamians and has failed to empower locals.
“I think we need a new economic architecture,” he told this newspaper more recently. “First of all, the ring fencing [preferential tax breaks available to foreign investors that are not accessible to the domestic economy] that previously existed exposed the jurisdiction to charges of unfair practices in The Bahamas’ external financial services sector.
“We’re not going far enough. Simply inventing a corporate tax is not sufficient. The foreign-owned enterprise should be subject to the same taxes as a Bahamian. The financial services institutions in The Bahamas, when they operate in the US, Canada and Jamaica, they have to pay local taxes, and where there are exemptions they apply to qualified persons - local and foreign.
“It’s not penalising foreign investors; it’s penalising your own nationals to satisfy foreign investors. Rather than acting pursuant to a threat, or perceived external threat, there needs to be a rational appraisal of the Stafford Sands model because it is based on the wrong assumptions,” Mr Sears continued.
“We see it in the financial services sector based on taxes. There has to be a realignment that is not based on our response to the Europeans. It has to be based on how we can achieve sustainable economic processes that give citizens and foreign investors - in joint ventures or by themselves - an even playing field of predictability, certainty and transparency in terms of tax incentives and subsidies.”
Mr Sears agreed that it was vital The Bahamas avoided the European Union’s (EU) tax “blacklist” and, at least for the moment, its listing of those nations that pose a risk because of weak anti-financial crime defences.
“It’s important to avoid the negative listings, however illegal they are, because The Bahamas is in such a fragile state that any external disruption will have a devastating impact as we are already on a downward spiral,” he told Tribune Business. “It’s important that we minimise external shocks as we can ill-afford it since we’re in a state of extreme decline.
“There are vital issues that need urgent attention. As long as we delay addressing the critical concerns and coming up with a vision for the future that’s consistent with the needs of a sovereign country will be signing the announcement of our own decline.”