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Business optimism up but profits fall for 57%

Central Bank of the Bahamas.

Central Bank of the Bahamas.

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Despite 57 percent of businesses suffering a decline in first-half profits, a Central Bank survey has found that nearly-two-thirds believe the economy will improve during 2019’s final months.

The findings, released as part of the regulator’s analysis of developments during the six months to end-June, gave a mixed picture of both the Bahamian private sector’s performance and outlook for the remainder of the year.

John Rolle, the Central Bank’s governor, described the results as “varied” and added: “Most surveyed businesses noted higher costs in their operations but stable to improved operating conditions.

“The outlook held by most firms was for stable to further improved conditions over the remainder of 2019, with lowered inflation expectations and healthier employment outcomes than in the first half of 2019.”

Increased operating costs are likely to have been driven by a combination of the VAT rate increase to 12 percent; the “pass through” effects of higher global oil prices in terms of energy and transportation costs; and potentially higher import prices driven by the US-China “trade war” and tariff hikes.

“Many businesses responded that the average cost of inventory, goods and services, wages and investments have increased during the last six months,” the Central Bank report on the survey said.

It added that 68 percent of companies surveyed had seen an increase in total wages and operating costs, with 57 percent experiencing a rise in average inventory costs. Some 45 percent had endured increases in the prices of goods and surveys, with 50 percent reporting that the cost associated with making investments had also grown.

The overall impression from the Central Bank’s findings was that the economy and trading conditions remain tough for most Bahamian companies, especially those in the domestic economy, although many have been able to hold the line on staffing and employee hours.

“Just over half of respondents (57 percent) noted a decline in profits, while 24 percent noted an expansion,” the Central Bank revealed of its survey size. “Sixty-eight percent and 55 percent, respectively, of businesses reported that average weekly hours and the total number of employees remained relatively the same.”

A further 71 percent of companies said debts owed to banks and other creditors remained unchanged, indicating that few have generated sufficient earnings to deleverage their balance sheets.

Yet against this backdrop “businesses were largely optimistic about the upcoming six months”, according to the Central Bank, “although many expect prices will continue to rise” - something that will not be warmly greeted by consumers already grappling with the high cost of living.

The survey found that 63 percent were optimistic of an improvement in overall business conditions during the 2019 second half, with 14 percent anticipating “no change” and a further 18 percent expecting the overall climate to “worsen”.

A further 50 percent expect domestic private sector employment to increase during the final six months of 2019, with 30 percent anticipating staffing levels will be unchanged and the remaining 20 percent predicting unemployment will worsen.

As for inflation, some 40 percent of businesses expect this to increase, with 35 percent predicting “no change” and the other 25 percent a reduction. This follows a 2019 first half in which 76 percent of companies interviewed endured inflation’s impact through cost increases, with 10 percent saying there was no impact and the final 14 percent disclosing that prices decreased.

When it came to the overall Bahamian business climate, 45 percent of respondents said there was “no change” and 32 percent said it had become “worse”. Just 23 percent saw an improvement, which stands in contrast to the seeming surge in business confidence for the 2019 second half.

Finally, 41 percent of Bahamian companies experienced “no change” in domestic employment conditions during the 2019 first half, with 32 percent seeing an increase and 27 percent suffering a decrease.

While cautioning that the survey was not representative of the entire business community due to the “small sample size”, the Central Bank said a cross-section of companies and individuals “covering most of the sectors of importance” had been included.

Mr Rolle, meanwhile, said efficiency rather than jobs was the most important measure of success for the domestic commercial banking industry, and suggested there was “considerable room” for improvement in the former.

“We don’t want our domestic financial system to be measured just on the number of people working in the sector,” he explained. “We want to look at how efficient the sector is. There is considerable room to be more efficient.”

The emphasis on efficiency, the Central Bank governor said, was necessary because of the commercial banking industry’s importance as a source of savings intermediation and the hub around which monies move.

As for the international financial services industry, Mr Rolle acknowledged that while there had been a reduction in the size of bank and trust company balance sheets as the sector adjusted to “tax transparency” and the new international regulatory environment, the Central Bank was more focused on how many institutions were transitioning to a physical presence in this nation.

“Just to look at the balance sheet can give an inaccurate perception of what is happening,” Mr Rolle explained. He added that consolidation at the head office level, involving mergers and acquisitions, had also affected the number of bank and trust company licensees in The Bahamas.

Comments

DDK 3 years ago

Basically Business Bites!

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SP 3 years ago

Exactly what criteria was used to conclude "the outlook held by most firms was for stable to further improved conditions over the remainder of 2019"? What stimulus is expected to happen to influence these supposed "improved conditions"?

I certainly do not see anything on the horizon that could even remotely stabilize or improve economic conditions in the medium to long terms.

John Rolle needs to stop the soapboxing nonsense with meaningless flowery words and catchphrases, and truthfully expound on the last eight years of this "secret depression" the country has suffered and it's real effects on businesses, the economy, and the populace!

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DDK 3 years ago

The truth from the politicians WOULD be refreshing but I don't think they can manage it.

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John 3 years ago

If you increase a tax by 60 percent in an economy where there is no growth, then there will be a corresponding decrease in spending to compensate for the tax increase. And if that tax is increased along with other taxes and along with other business inputs like transportation, freight, salaries and electricity, then there can be a greater, or even drastic reduction in consumption. So will government be better before or after the tax increase? For certain if the tax increases lead to more businesses shutting down and more persons becoming unemployed then the tax increase was unfavorable. And if consumers anticipate additional tax increases, higher prices and more loss of jobs then their low confidence level will also lead to less spending. Some will argue that people buy more when they expect future price increases, but in the cases of consumers on a strained budget spending will remain relatively in elastic simply because they don’t have the funds to go shopping after cheaper prices or ‘stocking up.’ As for future confidence that the economy will pice up, this is relative. Both consumers and businesses were hoping for a turn around in the economy since the recession hit in 2008. And whenever there is a little spurt in the economy, something like a increase in taxes, Hurricane or power outages come and knock away the positive benefits. As a matter of fact a tropical disturbance is head our way even as we speak

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TalRussell 3 years ago

Any comrade management team walking into for profit corporation's boardroom - expressing optimism about profits falling by 57% - would've been booted up rectums clear off property, yes, no ... sounds like kinds optimism shareholders have become accustom to hearing over at BOB ....

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John 3 years ago

Facts are government sent too many negative shockwaves into the economy that affected business profitability and consumer spending. Was it (government) chasing after additional revenue that did not exist? Would tax breaks and other incentives have been more effective in jumpstarting the economy and creating more growth and yes, more revenue for government? Seems that government tightened its belt around a skeleton economy and proceeded to strangle it even more, it not to death. So what now? Sit and wait for rigor mortis to set in or try other means to recessitate?

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proudloudandfnm 3 years ago

They've been saying it'll get better for years. When will the idiotic thinking in this country stop? Not one thing has been done to improve the economy. If anything this FNM is doing more to harm it than anything else. Adding to the beauracracy (however you spell that damned word), raising taxes on us, raising costs on maritime, letting GB suffer with absolutely no plan, stupid idea like banning shark feeding, the list goes on and on....

Ya'll looking for things to get better this year hey?

Good luck with that....

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