Economy of The Bahamas - Basic Ingredients of The Bahamian Economy

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.

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, PFC Bahamas (formerly Syntex), which recently streamlined its production and was purchased by the Swiss pharmaceutical firm Roche; 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.