July 15, 2019
WTO: What it means for the Family Islands, pt. 1
Roderick A. Simms II, The Nassau Guardian
In this segment, The Bahamas’ renewed efforts on World Trade Organization (WTO) accession and how that could impact the Family Islands will be assessed. For the purpose of this discussion, a closer look will be taken at WTO’s impact on tourism, construction and small and medium-sized enterprises (SMEs) on the Family Islands.
While WTO’s agenda is to sustain transparency, collaboration and economic gains via effective trade terms among its members, a small developing island state like The Bahamas with an open economy may not readily be the successor of such benefits. It was pointed out in a recent WTO economic impact assessment on The Bahamas by Oxford Economics that joining the organization would have a “small” impact on the Bahamian economy in the short term while achieving gross domestic product (GDP) growth in the medium term. However, it is no surprise that revenue gains from tariffs would significantly decrease given lower trade barriers. As a result of lower barriers to trade, concerns have also been expressed about the increase of foreign competition coming into The Bahamas and surviving in industries/sectors that are difficult for Bahamians to either enter or sustain.
For the most part, WTO accession is not the same for those of more developed countries because it places a significant amount of demands on a developing country’s resources. The Bahamas is also in a position where it has 14 inhabited islands that are some miles apart, which means that resources differ for outer islands versus more booming island economies such as New Providence, Abaco, Exuma and Grand Bahama. Also, The Bahamas’ economic health is in a poor state prior to joining WTO and has room for improvement in the ease of doing business, infrastructure and human capital skill sets. The economy also relies heavily on tourism and financial services, which are ever-changing industries due to global trends, particularly in a digital era. It also means that these labor-intensive industries (for the most part) can bring about immigration challenges and highlights a labor/skill gap within these sectors.
Therefore, is The Bahamas ready to adapt to WTO rules on the business environment? For SMEs, is it mutually beneficial? Before getting into SMEs, the Family Islands and WTO, the Oxford report raised a crucial point in stating that WTO “does not prevent” a government from “controlling foreign ownership of strategic infrastructure”. With this being said, WTO or no WTO, the government is still the body that implements effective policies and procedures to bring about good business practices and by extension, foster a better environment for both Bahamians and foreigners to do business.
There is also another concern that needs to be addressed regarding SMEs and foreign competition. SMEs in the Family Islands are already prone to higher costs of doing business, an increased use of e-commerce, higher transportation costs and an even higher cost of living when compared to New Providence. Therefore, reduced tariffs as a result of WTO could make it cheaper for goods and services on these islands and possibly drive local consumers to shop more at home. Also, WTO enforces trade facilitation, which is important for businesses to export goods/services with other countries. So while barriers to trade become more open, the ability for Bahamians to do business abroad should also be improved. It is an opportunity here for government to revise costs, time and legalities surrounding exporting to foreign businesses.
However, it does not mitigate from the current situation which stands and that is a very tough business environment for owners and entrepreneurs to survive in. Therefore, it is only natural for someone to be concerned about a well-established international business coming in to do business in The Bahamas. But, as stated in the mentioned report, “WTO does not restrict a government from reserving any area for nationals”. Therefore the business operations reserved for Bahamians should remain and negotiations with international investors should never operate on a “special treatment” basis. This is the first step in creating a transparent and working business environment. It also requires intensive planning and negotiations to ensure that Bahamians are able to compete in the same space as foreigners. Even without WTO, this problem still exists and unless certain layers to do business are removed, funding becomes accessible, processes become more refined and less red tape is enforced, then competing with a foreign entity will always appear to be near impossible.
With the rise of vacation rental homes, The Bahamas is likely to see a rise in construction on Family Islands and in coming years, this could prove to be beneficial to the economic safety of these islands. With WTO coming on board, it is important to know that the Contractors Act 2018, once enacted, would prove to be very beneficial on a regulatory basis. The construction sector should not be hindered from benefiting in an open market but certain negotiations should be put in place first. For the most part, WTO promotes the idea of foreign companies doing business in local markets, which means that construction companies are welcome to do business in The Bahamas for boutique, medium or mega-sized hotels or any other construction project on the Family Islands once they adhere to government guidelines. Given the ease and cost of doing business in The Bahamas, it is difficult to determine whether WTO could allow for a level playing field in the construction industry. Again, this sector would have to be handled carefully by consultants and government to ensure that both local and foreign contractors are mutually benefited. One way of doing this is to stop offering a lot of concessions to foreign construction companies. It is not to say that they are not welcome but at least they will know that The Bahamas operates on a fair basis in terms of taxation, concessions and labor force laws.
If there was a formula to best describe tourism and WTO it would be that tourism equals trade and therefore, sustainable tourism equals sustainable trade. A problem that the Bahamian tourism product faces is that it is becoming less competitive to regional tourist markets. Tourism in The Bahamas should not only be measured by the total amount of visitors but also by penetration. If the cost of coming to The Bahamas is too high, then less tourists are inclined to visit. While the experience and reasons for Family Island tourists may differ, it is still very costly to spend a week on an island. There are cheaper destinations that have similar offerings such as beaches, eco-tourism activities and luxury vacations. There are no major problems facing this industry regarding WTO; rather, WTO could help to boost foreign direct investments (FDIs), particularly on Family Islands which are attractive to investors who are looking to do boutique and luxury hotels. This could turn into a more sustainable economy for outer islands. However, if the government does not properly set in place the right negotiations and concession agreements now, then any investor eyeing The Bahamas would not ideally be beneficial to Bahamians.
The Family Islands are not as developed as other islands such as New Providence, Grand Bahama or Abaco and therefore, the impact of WTO would be different. However, residents in the Family Islands have been faced with prolonged issues regarding the industries discussed. Therefore, the government should seek to resolve these issues and processes underpinning these matters before WTO comes on board. To be clear, WTO is the answer to improving the Bahamian economy, but it does open doors to increased transparency and facilitation between the government and private sector. It is a matter of proper negotiation and ensuring that the government makes the right choices for Bahamians.