By NEIL HARTNELL
Tribune Business Editor
The Bahamas has lost "billions of dollars" through decades of squandering Freeport's special economic zone (SEZ) potential with "collaboration not seen for 50 years" needed to effect a turnaround.
A September 2020 report prepared for the Grand Bahama Port Authority (GBPA) on ways to revive the city and island's economy argued that Freeport had effectively "fallen off the map" of global SEZs or free trade zones despite the Hawksbill Creek Agreement (HCA) providing it with the advantage of being a 'first mover' into this area.
The report, by Cambridge Strategy Group, argues that The Bahamas has failed to fully capitalise on Freeport's status because many of the Hawksbill Creek Agreement's benefits have been "diluted, frustrated or nullified" by the Government and GBPA's fight for control of the city's development.
The consultants added that this had resulted in a complex regulatory and approvals process that deterred private sector investors, while access to essential expatriate worker talent had been "severely curtailed". As a result, the report said the range of businesses able to function competitively in Freeport was "radically smaller" than in rival free trade zones.
The Cambridge Strategy Group's work, prepared as part of the economic revival initiative launched by the GBPA-appointed Revitalization and Economic Expansion of Freeport (REEF) committee (see other article on Page 1B), argued that Freeport needed to develop a fresh, compelling "value proposition" if its SEZ potential is to be restored.
It recommended that the city follow Dubai's lead by developing a "portfolio of SEZs", each targeted at a specific industry, both inside Freeport and elsewhere on Grand Bahama with "loosened Immigration restrictions" applying only to businesses operating in these zones to enable them to import the necessary talent.
SEZ-based companies, the report added, "would not trade with or in the wider Bahamian economy except through Bahamian-owned intermediary businesses, so there would be no possibility of competing with Bahamian businesses or jobs and, in fact, only increased demand for goods and services supplied by Bahamian-owned businesses".
Cambridge Strategy Group recommended that each SEZ or free trade zone, which is a designated area designed to attract investment in job-creating, export-led businesses via a menu of tax breaks and other incentives, have its own brand. The portfolio or cluster approach, it added, would give Freeport the chance for "clear differentiation and the opportunity to scale over time".
Noting that efforts to revive Freeport will face fierce competition, with more than 7,000 SEZs expected to be operating worldwide by 2025, the report also called for "a welcoming culture" to be developed if the city is to flourish.
"A mindset shift is needed from expatriates being perceived as a threat to Bahamian jobs and livelihood (so to be resisted) to being a source of very significant benefit to The Bahamas and its people (so to be welcomed),"it added.
Turning to Freeport's present moribund status, Cambridge Strategy Group said: "For several decades now, Freeport has suffered a succession of major business failures, almost all of which have been attributed to a difficult business operating environment and unacceptably high levels of business risk. This means that those in the global business community who are aware of Freeport have a generally negative perception of its value proposition.
"The above makes it very difficult to attract international businesses of any size or global standing to Freeport, excepting those that find the value proposition offered by Freeport Harbour compelling enough to overlook the disadvantages. It impossible for most kinds of SEZ (as the term is generally understood) to exist in Freeport under current circumstances."
Despite the Hawksbill Creek Agreement providing the framework for one of the world's oldest SEZs, the report added that Freeport did not merit a mention in recent World Bank and United Nations (UN) agency reports on free trade zones.
"A half-century of government efforts to emasculate the HCA and draw Freeport more under the mantle of central Government, and the GBPA responding to protect its interests, has radically reduced Freeport’s attractiveness as an SEZ," Cambridge Strategy Group added.
"The treaty and the GBPA have proved resilient to challenges both legal and extra-judicial, together with gratuitous attacks in the media, but the resulting environment has prevented the GBPA or its business partners from developing anything like the SEZs that now thrive across the world."
It continued: "It is seldom constructive to contemplate what might have happened had other roads been travelled, but the opportunity cost to The Bahamas of not having implemented effective SEZs in Freeport a decade or more ago likely runs well into billions of dollars lost to the Bahamian economy, to jobs not created, to Bahamian businesses not established and grown.
"Obstacles to developing a sustainable SEZ offering in Freeport today are no less formidable than they have been for many years. What has changed, though, is the economic context. Exacerbated by the COVID-19 pandemic, The Bahamas today faces challenges unprecedented in its history.
"The need is dire to very quickly grow the economy, create jobs, reduce the level of national debt and diversify away from the monolithic dependence on tourism. The ability to establish thriving SEZs in Freeport lies at the core of achieving this. An entirely new approach is required, though, which will require constructive collaboration between GBPA and Government on a scale not seen in 50-plus years."
Informed observers are likely to greet Cambridge Strategy Group's findings with little surprise, although some may feel that the report glosses over the failures of the GBPA and its partner, Hutchison Whampoa, to live up to their own governance and developmental responsibilities.