By NEIL HARTNELL
Tribune Business Editor
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.