The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian exporters must first prove to the Central Bank that they have been rejected by all domestic financing sources before they will be given approval to seek out alternative funding from overseas.

The draft National Trade Policy, which has been released for consultation, highlights the bureaucracy, red tape and other hurdles that serve as a further disincentive for Bahamian companies to seek out new markets and consumers beyond this country’s borders.

Noting that The Bahamas offers no export financing, insurance and credit guarantees of the sort typically offered by more developed nations, the report pointed out that capital controls such as The Bahamas’ restrictions on access to foreign currency impose a further barrier to local companies and the economy diversifying through trade.

With access to overseas funding granted only when all possible local avenues have been exhausted, the National Trade Policy affirms: “The Bahamas currently has no dedicated export financing support scheme, including export credit, export credit guarantees or subsidised export insurance, in place. In addition, due to the capital controls in place, exporters cannot easily obtain such services from foreign financial services providers.

“Although foreign sources of financing can be obtained, this requires prior application with and approval by the Central Bank. Approval will also only be granted if the business has first tried to obtain the financing domestically, and demonstrates this to the Central Bank in the application - for example, by providing refusal letters by domestic financial services providers.

“This requires additional work and time by exporting businesses. Although some of the commercial banks in principle offer export finance services, these are costly and difficult to obtain for first-time exporters.”

The National Trade Policy continued: “The absence of dedicated export financing, as well as guarantees and related schemes reducing risks for exporters, has a negative effect on exports. It particularly deters businesses without trade experience from entering into exports in the first place, based on risk-benefit considerations. By offering risk sharing, a government-supported export finance and guarantee programme can induce domestic businesses to start exporting.”

Export credit guarantees and insurance are designed to minimise the risk that a company will suffer loss, or not receive full payment for their goods and services, when it exports them to an overseas market. Their provision also helps to provide access to bank and other commercial financing sources at lower interest rates.

However, offering such products and protection could be a step too far for a conservative, risk averse government which is already facing severe fiscal constraints and challenges due to its $11.8bn national debt which has only been made worse by the Dorian and COVID-19 blow-outs. Nevertheless, the National Trade Policy recommends that the Government go ahead in partnership with domestic lenders.

“The Government will develop and establish a programme to provide export credits, export credit guarantees, as well as insurance against export risks,” it proposes. “Collaboration with existing commercial financial institutions will be sought in order to avoid crowding out of the commercial trade finance supply.

“Specific actions to be taken are [to] develop and adopt concept for export credit, export credit guarantee and export insurance schemes [and] implement adopted schemes.” This, it suggests, will require input from the Central Bank and Insurance Commission, as well as the involvement of the likes of the Bahamas Development Bank (BDB) “preferably” working with private sector lenders and insurers.

The National Trade Policy also calls on The Bahamas to review its existing investment incentives and legislation given the complexities created by having multiple Acts and uncertainties over how companies qualify to access them.

“The Government maintains various support schemes for businesses in The Bahamas. These schemes include - but are not limited to - the Industries Encouragement Act, the Agricultural Manufacturers Act, the Spirits and Beer Manufacture Act and the Hotels Encouragement Act. In addition, Chapter 98 of the Tariff Act also provides for exemptions from customs duties for additional groups of products and beneficiaries,” the report says.

“Although in principle these existing incentive schemes have helped (some businesses stated that they have been essential) domestic businesses and compete with import competition and on export markets, they also pose a number of challenges. First, not all businesses are eligible (or register) for the exemptions, and it is not always clearly specified who is eligible or not.

“Also, the lists of inputs or equipment exempted from import duties are not always fully appropriate or up-to-date. Third, and related to the first point, the various encouragement Acts set different conditions to benefit from exemptions as well as provide a different scope for exemptions,” the National Trade Policy added.

“Fourth, the administrative and compliance costs of incentive acts are higher – further exacerbated by the spread of exemptions and benefits across various laws and regulations, involving a range of ministries in the administration – compared to a situation where statutory tariffs were lower.”

Calling on the Government to “streamline the system and enhance efficiency”, the report suggested “a comparative review of all incentive schemes that are in place for domestic businesses, covering their respective scope, approach -whether they list specific items or provide for general exemptions - requirements for and conditions of access to benefit from incentives, and the actual use of the scheme by businesses, resulting in recommendations for alignment and harmonisation, including the possibility of combining schemes”.