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Resolve Out Island Needs Before Wto

By Roderick A. Simms II

An Advocate for sustainable Family Island growth and development

E-mail: RASII@ME.com

This is an assessment of how The Bahamas’ renewed efforts to become a full World Trade Organisation (WTO) could impact the Family Islands, especially tourism, construction and small and medium-sized enterprises (SMEs).

While the WTO’s professed agenda is to sustain transparency, collaboration and economic gains via effective trade terms among its members, a small developing island state with an open economy such as The Bahamas may not readily access such benefits. It was pointed out in a recent WTO economic impact assessment on The Bahamas, authored by Oxford Economics, that joining the rules-based trading overseer would have a “small” positive impact on the Bahamian economy in the short-term while helping to drive greater GDP growth in the medium term. However, it is no surprise that revenue gains from tariffs would significantly decrease given the need to lower trade barriers. As a result of lower barriers to trade, concerns have also been expressed about increased foreign competition for Bahamian firms in industries/sectors that rely on tariff protection, and the difficulty local firms may subsequently have in sustaining themselves.

For the most part, WTO accession places significant demands on a developing country’s resources. The Bahamas is also in a position where it has 14 inhabited islands, some of which are quite remote. This means available resources for the southern islands differ from those with more booming economies such as New Providence, Abaco, Exuma and Grand Bahama. The Bahamas’ economic health is already in a precarious state prior to joining the WTO, and has room for improvement in the ease of doing business, infrastructure and human capital skill-sets. The economy also relies heavily on tourism and financial services, which are ever-changing industries due to global trends in the digital era. It also means that these labour-intensive industries (for the most part) result in immigration challenges, and highlighting a labour/skills gap within these sectors.

Therefore, is The Bahamas ready to adapt to WTO rules impacting the business environment?

SMEs: Is it mutually beneficial?

Before getting into SMEs, Family Islands and the WTO, the Oxford Economics report raised a crucial point in stating that membership of world trade’s overseer “does not prevent” a government from “controlling foreign ownership of strategic infrastructure”. This being said, WTO or no WTO, the Government is still the body that implements effective policies and procedures to bring about good business practices and, by extension, fosters a better environment for both Bahamians and foreigners to do business. There is also another concern that needs to be addressed regarding SMEs and foreign competition. SMEs in the Family Islands are already prone to higher costs of doing business, higher transportation costs, and an even higher cost of living when compared to New Providence. Therefore, reduced tariffs as a result of WTO could make it cheaper to import goods and services to these islands, possibly driving local consumers to shop more at home. WTO also enforces trade facilitation, which is important for businesses seeking to export goods/services to other countries. So while barriers to trade become more open, the ability for Bahamians to do business abroad should also be improved. There is an opportunity here for the government to revise costs, time and legalities surrounding our export industries.

However, none of this takes away from the very tough business environment that owners and entrepreneurs have to survive in. Therefore, it is only natural for someone to be concerned about a well-established international business coming in to do business in The Bahamas. But, as mentioned in the Oxford Economics report: “WTO does not restrict a government from reserving any area for nationals.” Therefore, the industries currently reserved for Bahamians should remain as is, and negotiations with international investors should never operate on a “special treatment” basis. This is the first step in creating a transparent and working business environment. It also requires intensive planning and negotiations to ensure that Bahamians are able to compete in the same space as foreigners. Even without WTO this problem will still exist. Unless certain obstacles to doing business are removed, funding becomes accessible, processes become more refined, and less red tape is enforced, then competing with a foreign entity will always appear to be near impossible.

Construction

The rise of vacation rental homes is likely to drive an increase in construction on the Family Islands, which could prove beneficial to their economic futures. With WTO coming, the implementation of the Construction Contractors Act 2018 becomes critical. The Bahamian construction industry should not be prevented from benefiting from an open market, but certain provisions should be put in place first.

For the most part WTO promotes the idea of foreign companies doing business in local markets, which means that construction companies are welcome to do business in The Bahamas for boutique, medium or mega-sized projects in the Family Islands once they adhere to government guidelines. Given the ease and cost of doing business in The Bahamas, it is difficult to determine whether WTO will allow for a level playing field in the construction industry. Again, this sector would have to be handled carefully by consultants and government to ensure that both local and foreign contractors are mutually benefited. One way of doing this is to stop offering extensive concessions to foreign construction companies. This is not to say they are not welcome, but at least they will know that The Bahamas operates on a fair basis in terms of taxation, concessions and labour laws.

Tourism

If there was a formula to best describe tourism and the WTO it would be that tourism equals trade and, therefore, sustainable tourism equals sustainable trade. But a problem that the Bahamian tourism product faces is that it is becoming less competitive versus regional tourist markets. Tourism in The Bahamas should not only be measured by the total amount of visitors but also by penetration. If the cost of coming to The Bahamas is too high, then less tourists are inclined to visit. While the experience for Family Island tourists may differ, it is still very costly to spend a week on an island. There are cheaper destinations that have similar offerings such as beaches, eco-tourism activities and luxury vacations. There are no major problems facing this industry regarding WTO. WTO could help boost foreign direct investment (FDI), particularly on Family Islands that are attractive to investors eyeing boutique and luxury hotels. This could turn into a more sustainable economy for these islands. However, if the Government does not properly set in place the right negotiations and concession agreements now, then any investor eyeing The Bahamas will not always benefit Bahamians.

Conclusion

The Family Islands are not as developed as New Providence, Grand Bahama or Abaco, meaning that for them the impact of WTO will be different. Family Islands have been grappling with multiple issues involving the industries discussed, so the government should seek to resolve these problems before WTO comes along. To be clear, WTO by itself is not the answer to improving the Bahamian economy, but it does open doors to increased transparency and facilitation between the government and private sector. It is a matter of proper negotiation and ensuring that the government makes the right choices for Bahamians.

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