The Inter-American Development Bank (IDB) yesterday said it has approved a $200m loan to boost the business climate through increased productivity, innovation and greater diversification.
The multilateral lender said the initiative would support the government-appointed Economic Recovery Committee’s work by aiming to foster the so-called “Blue Economy”, which features sea-based industries such as coastal tourism, fisheries and maritime transport.
The funding, the IDB added, is also designed to support micro, small and medium-sized enterprise (MSME) continuity, while also modernising the institutional and legal framework to protect The Bahamas’ natural resources.
An IDB paper, outlining the rationale for the loan, said: “The Bahamas is an open, undiversified economy that has experienced stagnating growth over the past decades. It is reliant on imports, which averaged 40 percent of GDP over the past five years, of which a third are food and fuel.
“Average real GDP growth has fallen over the past 30 years, reaching 0.8 percent in 2019. A declining trend in total factor productivity (TFP) has contributed to lowering potential output.” The report added that COVID-19 represents the second major economic shock in the past 12 months, following the estimated $3.4bn worth in losses and damage inflicted by Hurricane Dorian.
Using a now-dated estimate of the pandemic’s likely economic impact, the IDB said: “Estimates show that a 75 percent loss in tourism activity between April and December could lead to 26.2 percent loss in GDP in 2020, relative to pre-COVID-19.”
Explaining the initiative’s focus on the so-called ‘Blue Economy’, the IDB added: “The Bahamas’ Exclusive Economic Zone covers 260,000 square miles, of which five percent is land and 95 percent is sea, representing the largest development space for the country. This marine environment, with its biodiversity, has potential for economic diversification through the Blue Economy.
“The Blue Economy is defined as the simultaneous promotion of economic growth, environmental sustainability,and strengthening of ocean ecosystems by optimising the value and exploitation of marine resources.
“In The Bahamas, ‘Blue Economy’ encompasses traditional areas (fisheries, maritime transport and coastal tourism). Although there are no distinct procedures to measure the size of the Blue Economy, it is estimated that The Bahamas is one of the largest fish exporters in the Caribbean and contributes to one percent of the world’s freight shipping.”
The IDB report continued: “Fostering the ‘Blue Economy’ enables diversification into emerging ocean-based activities, including marine aquaculture, safety, biotechnology and renewable energy.
“Realising the economic potential of the Blue Economy requires science, technology and innovation, which is needed to discover the full value of ecosystems and marine genetic resources, and transform those discoveries into high value products and services.
“The Bahamas has committed to a healthy marine environment by creating a network of Marine Protected Areas (MPA), and an expansion plan from 10 percent to 20 percent. The effective management of MPAs is critical for the optimal use of marine resources, and critical to ensure the environmental sustainability of blue economy activities.”
As for the business climate, the IDB report said: “Bahamian firms face challenges with competitiveness. Only 19.73 percent of firms are large (over 100 employees), and only 6.7 percent of large firms, 16 percent of medium-sized firms and 12.7 percent of small firms export.
“Firms experience low productivity (17 percent lower than the Caribbean average), low complexity (industries are not connected) and insufficient innovation (only 22 percent of the firms innovate). These challenges were exacerbated with the COVID-19 pandemic that affected the resilience of MSMEs.
“The informal economy is estimated about 20-30 percent of the economy, and many MSMEs are excluded from ongoing support programmes.”
The $200m loan has a repayment term of 20 years, and a grace period of five-and-a-half years.