Economy of the Bahamas
The Bahamas is a stable, developing nation with an economy heavily dependent on tourism and offshore banking. Steady growth in tourism receipts and a boom in construction of new hotels, resorts, and residences had led to solid GDP growth for many years, but the slowdown in the US economy and the attacks of September 11, 2001 held back growth in these sectors in 2001-03. Financial services constitute the second-most important sector of the Bahamian economy, accounting for about 15% of GDP. However, since December 2000, when the government enacted new regulations on the financial sector, many international businesses have left The Bahamas. Manufacturing and agriculture together contribute approximately a tenth of GDP and show little growth, despite government incentives aimed at those sectors. Overall growth prospects in the short run rest heavily on the fortunes of the tourism sector, which depends on growth in the US, the source of more than 80% of the visitors. In addition to tourism and banking, the government supports the development of a "2nd-pillar", e-commerce.
Basic Ingredients of the Bahamian Economy
The Bahamian economy is almost entirely dependent on tourism and financial services to generate foreign exchange earnings. Tourism alone provides an estimated 60% of the gross domestic product (GDP) and employs about half the Bahamian workforce. In 2004, over half a million tourists visited The Bahamas, most of whom are from the United States and Canada.
A major contribution to the recent growth in the overall Bahamian economy is Kerzner International's Atlantis Resort and Casino, which took over the former Paradise Island Resort and has provided a much needed boost to the economy. In addition, the opening of Breezes Super Club and Sandals Resort also aided this turnaround. The Bahamian Government also has adopted a proactive approach to courting foreign investors and has conducted major investment missions to the Far East, Europe, Latin America, and Canada. The primary purpose of the trips was to restore the reputation of The Bahamas in these markets.
Financial services constitute the second-most important sector of the Bahamian economy, accounting for up to 17% of GDP, due to the country's status as an offshore financial center. As of December 1998, the government had licensed 418 banks and trust companies in The Bahamas. The Bahamas promulgated the International Business Companies (IBC) Act in January 1990 to enhance the country's status as a leading financial center. The act served to simplify and reduce the cost of incorporating offshore companies in The Bahamas. Within 9 years, more than 84,000 IBC-type companies had been established. In February 1991, the government also legalized the establishment of Asset Protection Trusts in The Bahamas. In December 2000, partly as a response to appearing the plenary FATF Blacklist, the government enacted a legislative package to better regulate the financial sector, including creation of a Financial Intelligence Unit and enforcement of "know-your-customer" rules. Other initiatives include the enactment of the Foundations Act in 2004 and the planned introduction of legislation to regulate Private Trust Companies.
Agriculture and fisheries industry together account for 5% of GDP. The Bahamas exports lobster and some fish but does not raise these items commercially. There is no largescale agriculture, and most agricultural products are consumed domestically. The Bahamas imports more than $250 million in foodstuffs per year, representing about 80% of its food consumption. The government aims to expand food production to reduce imports and generate foreign exchange. It actively seeks foreign investment aimed at increasing agricultural exports, particularly specialty food items. The government officially lists beef and pork production and processing, fruits and nuts, dairy production, winter vegetables, and mariculture (shrimp farming) as the areas in which it wishes to encourage foreign investment.
The Bahamian Government maintains the value of the Bahamian dollar on a par with the U.S. dollar. The Bahamas is a beneficiary of the U.S.-Caribbean Basin Trade Partnership Act (CBTPA), Canada's CARIBCAN program, and the European Union's Lome IV Agreement. Although the Bahamas participates in the political aspects of the Caribbean Community (CARICOM), it has not entered into joint economic initiatives with other Caribbean states.
The Bahamas has a few notable industrial firms: the Freeport pharmaceutical firm, PharmaChem Technologies (GrandBahama) Ltd. (formerly Syntex); the BORCO oil facility, also in Freeport, which transships oil in the region; the Commonwealth Brewery in Nassau, which produces Heineken, Guinness, and Kalik beers; and Bacardi Corp., which distills rum in Nassau for shipment to the U.S. and European markets. Other industries include sun-dried sea salt in Great Inagua, a wet dock facility in Freeport for repair of cruise ships, and mining of aragonite—a type of limestone with several industrial uses—from the sea floor at Ocean Cay. Other smaller but more nimble players in the banking industry include Fidelity Bank (Bahamas) Ltd. (FBB) and Royal Fidelity Merchant Bank & Trust Limited (RFMBT). FBB offers a wide range of innovative banking products including loan products with built-in savings plans. RFMBT is the only merchant bank in The Bahamas and is a joint venture with Royal Bank of Canada. It provides investment products and services and attracts the majority of the corporate business deals in The Bahamas, most recently acting as financial advisor and placement agent for the largest Initial Public Offering (IPO) ever in The Bahamas with the IPO of Commonwealth Brewery, a Heineken subsidiary.
The Hawksbill Creek Agreement established a duty-free zone in Freeport, The Bahamas' second-largest city, with a nearby industrial park to encourage foreign industrial investment. The Hong Kong-based firm, Hutchison Whampoa, has opened a container port in Freeport. The Bahamian Parliament approved legislation in 1993 that extended most Freeport tax and duty exemptions through 2054.
The Bahamas is largely an import, service economy. There are about 110 U.S.-affiliated businesses operating in The Bahamas, and most are associated with tourism and banking. With few domestic resources and little industry, The Bahamas imports nearly all its food and manufactured goods from the United States. American goods and services tend to be favored by Bahamians due to cultural similarities and heavy exposure to American advertising.
The Bahamas offers attractive features to the potential investor: a stable democratic environment, relief from personal and corporate income taxes, timely repatriation of corporate profits, proximity to the U.S. with extensive air and telecommunications links, and a good pool of skilled professional workers. The Government of The Bahamas welcomes foreign investment in tourism and banking and has declared an interest in agricultural and industrial investments to generate local employment, particularly in white-collar or skilled jobs. Despite its interest in foreign investment to diversify the economy, the Bahamian Government responds to local concerns about foreign competition and tends to protect Bahamian business and labor interests. As a result of domestic resistance to foreign investment and high labor costs, growth can stagnate in sectors which the government wishes to diversify.
The country's infrastructure is best developed in the principal cities of Nassau and Freeport, where there are relatively good paved roads and international airports. Electricity is generally reliable, although many businesses have their own backup generators. In Nassau, there are two daily newspapers, three weeklies, and several international newspapers available for sale. There also are eight radio stations. Both Nassau and Freeport have a television station. Cable TV also is available locally and provides most American programs with some Canadian and European channels.
The Bahamas has no income tax, corporate tax, capital gains tax, or wealth tax. Payroll taxes fund social insurance benefits and amount to 3.9% paid by the employee and 5.9% paid by the employer. In 2010, overall tax revenue as a percentage of GDP was 17.2%. A value-added tax (VAT) was instituted effective 1 January 2015.
Areas of opportunity
The best U.S. export opportunities remain in the traditional areas of foodstuffs and manufactured goods: vehicles and automobile parts; hotel, restaurant, and medical supplies; and computers and electronics. Bahamian tastes in consumer products roughly parallel those in the U.S. With approximately 85% of the population of primarily African descent, there is a large and growing market in the Bahamas for "ethnic" personal care products. Merchants in southern Florida have found it profitable to advertise in Bahamian publications. Most imports in this sector are subject to high but nondiscriminatory tariffs.
- "Household income or consumption by percentage share"
- highest 10%: 27% (2000)
- "Agriculture - products"
- citrus, vegetables; poultry
- "Electricity - production"
- 2,505 GWh (2007 est.) - Rank 133
- "Electricity - consumption"
- 1,793 GWh (2007) - Rank 133
- "Oil - consumption"
- 26,830 bbl/d (4,266 m3/d) (2006 est.) - Rank 115
- "Oil - exports"
- transhipments of 29,000 bbl/d (4,600 m3/d) (2003)
- "Exchange rates"
The Bahamas has the 47th freest economy in the world according to The Heritage Foundation 2010 Index of Economic Freedom. The Bahamas is ranked 7th out of 29 countries in the South and Central America/Caribbean region, and its overall score is higher than the regional and world averages. Total government spending, including consumption and transfer payments, is relatively low. In the most recent year, government spending equaled 23.4 percent of GDP.