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Fdi’S 33% Decline ‘Horrendous Signal’

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Robert Myers

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The 33 percent decline in foreign direct investment (FDI) inflows in 2019 is “an horrendous signal” for The Bahamas’ prospects of replacing tourism’s earnings, a governance reformer has warned.

Robert Myers, the Organisation for Responsible Governance’s (ORG) principal, told Tribune Business that this nation was in danger of “falling asleep at the wheel” over the urgent need to find a new foreign currency earnings source to support the fixed one:one exchange rate peg with the US dollar.

Speaking after the World Investment Report 2020 revealed that FDI inflows to the Bahamian economy last year fell to just 20 percent of the pre-Baha Mar peak in 2014, Mr Myers said: “It’s an horrendous signal. That’s awful, awful. That’s bad news given that it was pre-COVID-19. How are we going to maintain the currency peg if we cannot maintain FDI inflows?

“We’ve got 60 percent of our economy that’s fallen off the cliff, and the remaining 40 percent we’d better pump full of steroids so that we get that moving and create some jobs. The number one way to do that is property and development, that type of FDI, but right now we seem to have fallen asleep at the wheel and nothing good is going to come out the other end.”

K Peter Turnquest, deputy prime minister, directed this newspaper to the work of the government-appointed Economic Recovery Committee when asked what strategies the government planned to employ to boost FDI as part of its search for an alternative foreign currency earnings source to tourism that will help maintain the fixed exchange rate peg.

However, Mr Myers argued that The Bahamas and its economy cannot wait for the committee to complete its work given his personal prediction that FDI inflows are likely to drop another 20-30 percent below last year’s slump in 2020 due to the COVID-19 fall-out.

Describing increased FDI as “absolutely critical” to preserving The Bahamas’ fixed exchange regime, he argued that it should be the equal number one priority for this nation alongside saving lives amid the pandemic.

“That is the number one thing that is parallel to saving lives,” he told Tribune Business. “FDI is as important as saving lives right now because otherwise we will lose the economy and lose the peg, as John Rolle [the Central Bank of The Bahamas] governor has rightly warned. We’ll lose dollar parity.

“Along with saving lives it’s the number one thing, and we should have started three months ago. We’re already a day late and a dollar short. We need to act. Stop talking, start acting. Get people in who know how to act and get things done.

“We’ve got to improve the FDI architecture. Get the Government and the bureaucracy out of the way. Enough of the committees. Get people who know how to act and build businesses and efficiencies. Put people in there who understand the urgency of getting things done, and give them the authority. Along with saving lives is is the number one thing, and should be the number one priority right now.”

The one:one fixed exchange rate peg with the US dollar is the critical foundation supporting the Bahamian economy. Loss of such parity would potentially fuel am inflationary surge due to The Bahamas’ import dependency, resulting in much-reduced living standards and disposable income.

Mr Myers hit out after the just-released World Investment Report 2020 produced by United Nations (UN) agency, UNCTAD, disclosed that FDI inflows to this nation fell by 32.8 percent year-over-year to $637m. That represented a level equal to just 20 percent of FDI’s peak in 2014 when Baha Mar’s construction was being raced to its completion (unsuccessfully at that time).

“FDI inflows to The Bahamas, the largest host economy among small island developing states (SIDS), shrank by a third to $637m, one-fifth of the peak registered in 2014,” UNCTAD said. “Investment in hotel projects slowed, and construction projects slated to start in 2019 were forced into a delay by Hurricane Dorian.”

While acknowledging that data was not available for The Bahamas, UNCTAD warned that this nation was likely to be especially hard hit by COVID-19 given its traditional high dependency - and that of other SIDS - on reinvested earnings by overseas investors.

“Negative operational results of global multinational enterprises in 2020 will automatically affect FDI in SIDS through reinvested earnings,” UNCTAD added. “Host economies such as Fiji and Solomon Islands, with a high dependency on reinvested earnings, will be hit particularly hard.

“The comparable data for The Bahamas and Mauritius were not available for 2019. However, in both SIDS, reinvested earnings constituted an important part of FDI flows in 2018: 34 per cent in The Bahamas and 60 percent in Mauritius.”

Jamaica, which suffered a smaller 14.1 percent decline in 2019 FDI inflows, outpaced The Bahamas by attracting some $700m from external sources last year. And UNCTAD warned that Latin American and the Caribbean will likely suffer the world’s greatest post-COVID-19 drop in FDI inflows of between 40 to 55 percent in 2020.

“Global FDI flows are forecast to decrease by up to 40 per cent in 2020, from their 2019 value of $1.54tn. This would bring FDI below $1tn for the first time since 2005. FDI is projected to decrease by a further five to ten percent in 2021 and to initiate a recovery in 2022,” UNCTAD added.

All of which creates a picture suggesting that FDI will be unable to sufficiently fill the gap created by the tourism industry shutdown when it comes to attracting enough foreign exchange earnings to support the one:one fixed exchange rate peg with the US dollar.

John Rolle, the Central Bank’s governor, last week called for “urgency” in finding an alternative foreign currency earnings source to tourism. In an indication that the Central Bank is concerned about the external reserves, and exchange rate peg, if the tourism industry does not produce an adequate recovery in 2021, Mr Rolle pointed to FDI as an alternative.

Comments

Porcupine 2 months, 2 weeks ago

Unfortunately, what is being proposed is to jump back into the failed policies of our current economic system. Had there been more emphasis placed on taking care of the long term interests of Bahamians, instead of the mere numbers of more dollars coming into the country, we would not see the widespread suffering that will soon overtake this country. Sadly, our business gurus and politicians have both bought into the idea that it is just the volume of money coming into our country that matters. Not how it is distributed, or if there is a more sustainable way to insure the continuity of health and welfare of our citizenry. What we see, evident in all of the so-called reformers, here and abroad, is an all to quick call to patch things up so that business as usual, with them at the top, continues. That we have lost our imagination, along with our intellectual edge, are merely the results of decades of poor business and legislative practices. Yes, the government has failed us. No question about that. However, to suggest that all of us will be equally hard hit by this crisis is disingenuous, at best. Some people have options to leave this country, which many will do. Most however, will be faced with dealing with the mess at hand. Interesting that the country of Mauritius was listed along with The Bahamas. Since this report came out, the environmental disaster of an oil spill in Mauritius is in the process of dooming thousands of the poorest people in that country to certain suffering. As one local said, "We live from the sea, we eat from the sea. What now?" And, likewise, our business gurus whose complete time is spent behind a desk and on a computer will simply up and go, while those whose roots are tied to the environment are screwed. Pretty much like here, right? Let's drill for oil. baby, we'll all be rich, or at least taken care of, hey? Same mentality here. Business so-called leaders have the same short=term mentality with regard to what makes the world work. If it is good for them, it must be good for everyone else. These are the "job creators" they have led themselves to believe. If they were really long-term thinkers, who cared about their kid's future in The Bahamas, they would be laser focused on our environment, especially climate change, sea level rise and the death of life on this planet. Instead, they think that money will buy them out of whatever mess they create. I call bullshit.

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ThisIsOurs 2 months, 2 weeks ago

100%. the focus needs to be on promoting Bahamian businesses specifically businesses in growth industries. As you said and I've been saying for years at the first sign of trouble the foreign man will leave. The Bahamians and residents who love this country must be in a position weather the storm and to carry on

I am flabbergasted that this recovery committee is taking 6 months to produce 1 idea. The SBDC has been in operation for 2 years. Thousands of Bahamians have full blown business ideas gathering dust. Has anybody scoured the submissions to see if there are any viable ideas, in growth industries, that if given the correct incubator have a good chance of succeeding? This seems like an OBVIOUS source of ideas. But 6 months and nobody in power has even mentioned it. They used this valuable SBDC resource to instead hand out money to make masks (which is fine if you do the other things too) It makes you believe that they want the ideas for themselves

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Proguing 2 months, 2 weeks ago

The foreign man has not abandoned the Bahamas, at least not yet. The Bahamas will always be dependent on FDI. Bahamians cannot replace the foreign investor because they have no US dollars. You can’t pay for imports in Bahamian dollars. For some reason Bahamians don’t understand this basic fact.

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ThisIsOurs 2 months, 2 weeks ago

Yes. I said Bahamians and "residents" who love the Bahamas.

I recognize there are non Bahamians who've adopted us as home, they will stay. But there are others who are here for financial opportunity, which is great, but the govt should be putting more effort into the groups who will stick out the bad times, thats my point. Remember that I'm talking about givt incentives. If the rich billionaire wants to invest here go ahead, I een hating on Bill Gates, come on down. But the govt should put more effort and monetary incentives into the bedrock of the country Bahamian innovation

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DWW 2 months, 2 weeks ago

I don't see any useful suggestions on alternatives in your diatribe. many can criticize. that is easy, very few can offer real viable solutions.

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Porcupine 2 months, 2 weeks ago

Start with a progressive taxation regime, if you want long-term sustainability. Right now, taxes on the poorest and working class here in The Bahamas will destroy any middle class aspirations any may hold. Eliminate Custom's Duty. We have way too many of our people in Make Work, producing nothing. They spend too much of each day moving things around and twiddling with entries and numbers. Imagine if Customs agents were free to actually help Bahamians, instead of throwing up roadblocks every chance they get. Bring in FDI, sure. But, then not to tax them or their businesses is not a way to make life better for Bahamians. If they have the right to profit from here, for God's sake we should tax them fairly and effectively. If we had Statesmen in our government, none of the current MPs would be in office.

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DWW 2 months, 2 weeks ago

or just tax less and shrink the govt payroll...

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johnmcntsh 2 months, 2 weeks ago

Get your electricity problems fixed. There are few companies that want to invest in a nation where electricity is not a necessity. Infrastructure is a necessity.

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ThisIsOurs 2 months, 2 weeks ago

yep. It's a problem for Bahamian business persons too. #decadesofcorruption

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FrustratedBusinessman 2 months, 2 weeks ago

Most Bahamians are far too arrogant and hardheaded to ever realize that no one wants to inject capital into a country where consistent power or running water is non-existant. Then most of the same set complain when the foreign investors want nothing to do with the Bahamian government, and would just prefer to be left alone and remain as independent as possible.

You will find many sympathetic ears among local business owners here as well, but far too many locals that are just used to having the government give them a freebie in life. If they ever decide to open their own business/pay out of their own pocket to get an income, maybe their eyes will open. Even when the scales are ripped off, the corruption is far too deep to be overcome without significant generational change unforeseen in Bahamian history.

It amazes me

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