By NEIL HARTNELL
Tribune Business Editor
Local contractors have voiced mixed reactions to fears that a WTO-induced 50 percent tariff rate cut on pre-fabricated buildings “puts 40,000 Bahamian construction jobs at risk”.
A March 7 letter, being circulated to “all Bahamian construction industry participants”, warns that cutting the import tariff on pre-fabricated homes from the current 45 percent to 20 percent - as is proposed by The Bahamas’ original World Trade Organisation (WTO) goods offer - presents “serious dangers” for Bahamian contractors and their employees.
Pre-fabricated buildings are largely constructed abroad, and then broken down before being shipped to The Bahamas and other countries in “modules”, which can then easily and quickly be assembled once they reach their destination.
Arguing that the proposed tariff reduction represents a major competitive threat, especially in a stagnant housing market, to local industry by reducing this product’s landed cost, the letter argued: “Foreign manufactured prefab buildings are a direct substitute to traditional homes constructed by the Bahamian construction industry.
“The existing 45 percent import duty protects the domestic construction industry by keeping the landed cost of foreign prefab buildings high. This has prevented foreign prefab manufacturers from undercutting Bahamian contractors and construction companies on price.
“The proposed reduction removes the existing protection by reducing the landed cost of foreign manufactured prefab housing. This should be a very serious concern for the Bahamian construction industry.”
The letter, drawing on statistics from trademap.org, said The Bahamas has imported “an average of $10m worth of prefab buildings per year since 2007, with this sum peaking at $41.929m in 2013.
It suggested that the “opportunity cost” of a consumer choosing to import a pre-fabricated home worth $250,000, rather than have it built from scratch in The Bahamas, was “about $80,000 or a full year of employment for three Bahamian construction workers”.
Besides this loss, the letter writer suggested that $246,000 out of the $250,000 purchase price would flow out of The Bahamas to China or wherever the prefabricated buildings were manufactured, leaving just $3,600 in salaries paid to an average of two Bahamian workmen.
“If the same consumer had hired a Bahamian contractor almost all of the value would remain in the Bahamian economy - only the price paid by the raw material importer for raw materials (cinder blocks, PT pine, plywood) would leave the Bahamas,” the letter added.
“Based on the above example figures, prefab imports into the Bahamas have reduced the number of Bahamian construction jobs available by an average of 120 per year, which is equivalent to $32m lost in salaries over the full 10-year period.
“In 2013, importing prefab reduced the number of Bahamian construction jobs available by 503, which is equivalent $13.44m in salaries for that year alone... These calculations are only with regard to the opportunity cost to the Bahamian workman. They do not include the opportunity cost suffered by Bahamian contractors and other Bahamian business involved in construction.”
The letter concludes by encouraging Bahamian contractors to signal their opposition to the proposed pre-fabricated building tariff cut, and instead call for it to remain at 45 percent to protect Bahamian jobs and companies. An e-mail address calls for signed letters to be sent to an e-mail address, from where they will be submitted to the Ministry of Financial Services, Trade and Industry and Immigration in a bid to push for the goods offer to be changed
Michael Pratt, the Bahamian Contractors Association’s (BCA) president, confirmed to Tribune Business that he had seen the letter-cum-petition, and that it was discussed at the Association’s monthly meeting last week.
He said he had “invited the gentleman” behind the letter, who he did not name, to attend given that Zhivargo Laing, The Bahamas’ chief WTO negotiator, was addressing the meeting.
Emphasising that the BCA had yet to develop a position on the pre-fabricated tariff issue, Mr Pratt said he had personally asked the letter’s author “to think about it from another perspective” when it came to the root causes of the housing/construction market stagnation.
The BCA chief said the biggest impediment was the risk averse posture being adopted by Bahamian commercial banks towards mortgage lending, both for new builds and existing properties, and the stringent qualifying criteria that many buyers were finding it impossible to meet.
Mr Pratt said banks were frequently asking buyers to produce up to 30 percent of the construction/purchase price as an equity downpayment, which often translates into a sum equivalent to $50,000 to $80,000 for a standard home. Few Bahamians have access to such funds from their own resources.
Viewing the prefabricated tariff issue from another angle, Mr Pratt said anything that “brings down the cost of construction” and makes home and property development more affordable could be seen as a plus because it improved the chance of work for contractors.
“Anything that enhances and improves the bottom line for the home owner improve the chances of construction work,” he added. Mr Pratt said the prefabricated homes tariff issue cannot be viewed in isolation from other factors impacting the construction sector, including the higher cost of financing and lack of access to foreign currency for local firms compared to their foreign counterparts.’
“There’s no laws to protect the industry; nothing,” he told Tribune Business. “I have to purchase equipment from the US; I can’t rent it. It’s almost impossible for local contractors to rent equipment and bring it in from abroad. There are numerous disadvantages and impediments to local contractors in competition against foreign contractors.”
Robert Myers, a Bahamian contractor, questioned how competitive pre-fabricated buildings will be given the extra freight costs and logistics required to ship them to The Bahamas.
“I don’t see that as a threat,” he told Tribune Business. “If you’re shipping pre-fabricated modules the sheer freight costs are going to be almost prohibitive versus labour on-site.... It’s such a logistical nightmare to move these things in.
“We should be competitive on labour costs for this type of thing. I don’t see our labour productivity being wildly different to other types of places. Labour efficiency is lower, no doubt, but not double digits lower.”
Mr Myers added that time lags in getting replacements, should pre-fabricated homes arrive in The Bahamas damaged or unusable, were a further impediment to this product given that it could take four to five weeks to secure something new.
“A lot of contractors use local manufacturers because they don’t have that problem,” he added. “You don’t have a 12-week wait; you don’t have that headache.” Mr Myers also warned that pre-fabricated homes would have to meet The Bahamas’ stringent building code standards to ensure they can withstand hurricanes.
The Bahamas has to reduce its average tariff rate from 35 percent to 12 percent when it accedes to full WTO membership, and the letter writer contrasted the protection afforded to Bahamian manufacturers with the prefabricated cut.
They pointed to tariffs on imported mineral water remaining at 100 percent, and those for bleach and mattresses staying at 60 percent, to protect Aquapure, Blanco Beach and Cartwrights Bedding, respectively.
“Despite the fact that the construction industry is already suffering from the negative effects of large scale imported labour, it has not been identified by the government as susceptible to foreign competition,” the letter said.
“Rather than offer protection to the industry, the current goods offer proposes lowering the tariff on foreign imported prefab buildings which are a direct substitute to traditional construction undertaken by Bahamian contractors and Bahamian workmen. This massive tariff reduction will force Bahamian contractors to compete directly with the $112bn prefab manufacturing industry.
“The protection being offered to the Bahamian manufacturing industry will help protect the 4,000 Bahamians employed in that sector. On the other hand, the reduction in the tariff on foreign prefab imports puts 40,000 Bahamian construction jobs at risk.”