THE IMPORTANCE OF PRIVATE CAPITAL AND ITS ROLE IN A MODERN, POST-PANDEMIC BAHAMIAN ECONOMY
Tourism and financial services represent the twin pillars of the Bahamian economy and are primarily attributable to the relatively high standards of living that we enjoy. Unfortunately, financial services for the last two decades has experienced little growth due to regulatory bureaucracy, in addition to compliance costs. More recently in the last 11 months tourism has grinded to a halt as a result of the global pandemic. This article will give a brief overview of how some of the traditional financial tools utilized to spur the economic development of the Bahamas have proven to be inadequate, and how the emergence of local private investment firms will be critical to a more sustainable future.
Fiscal policy, according to Investopedia “refers to use of government spending and tax policies to influence economic conditions, especially macroeconomic conditions, including aggregate demand for goods and services, employment, inflation and economic growth.” The government’s midyear budget report revealed that the fiscal deficit has widened by a staggering 279.4% to $736.1 million, government revenues plummeted by 39% and the national debt now stands at $9.3 billion. As a consequence, future tax revenues will continue to be disproportionately allocated to satisfy debt obligations as opposed to meaningful investments that can facilitate economic productivity.
Foreign direct investment (FDI) has always been critical to the overall growth of the Bahamian gross domestic product and we should continue to attract capital from reputable, financially stable and innovative sources to accelerate the pace of economic development . It is undeniable that we have benefited from large developments fueled by FDI, but arguably their sheer size in a small island developing nation has cultivated an uneven level of dependence on them, which makes it more difficult to recover from economic shocks (e.g. hurricanes and pandemics) when they inevitably occur. Atlantis and Bahamar will take time to scale up to their pre-pandemic levels due to limited demand, reduced airlift and safety protocols, while thousands of workers remain furloughed.
The Bahamas Agricultural and Industrial Corporation (BAIC), the Bahamas Venture Capital Fund, the Bahamas Development Bank, Small Business Development Center (SBDC) all play a valuable role in assisting entrepreneurs with their start ups and existing businesses in their expansion efforts. Funding for these institutions should continue with more participation from the private sector and more transparency in relation to the success rate of the various projects.
The aforementioned list of economic contributors is non-exhaustive, each of which having had varying degrees of success, and should be continued with the support of the government. Where these initiatives fall short, private capital must fill in the gap. Capital must be organized, structured properly and channeled into the best opportunities on behalf of investors. FDI and government-led initiatives should be complimented by Bahamians who organize themselves and create investment firms and investment funds licensed by the Securities Commission of the Bahamas. Capital must be raised from local and international investors in order to achieve the following:
a) Significant further development of the emerging technology start up and digital entrepreneurial eco-system;
b) Investment in existing businesses in order to assist them transforming their business models to deliver what is required to survive in today’s economy;
c) Investment in agriculture (and agrotechnology products) and food processing in order to decrease our dependence on food imports;
d) Investments into boutique resorts throughout the family islands, lessening our reliance on the mega resorts; and
e) Modernization of our infrastructure by way of public-private partnerships.
Immigration policy can also be reformed by carving out a category for permanent resident applicants to be successfully approved by making a minimum investment to into Bahamas-domiciled investment funds. This would have a broader economic impact beyond real estate and incentivize the development of a community of local alternative investment fund managers that would in turn garner a more dynamic local and cross-border capital markets system.
While not all ventures and projects will be success stories, it will help to foment a cadre of investment professionals with experience of spearheading such initiatives and foster unique skill sets in areas such as investment research, operational due diligence and mergers and acquisitions. Taking this approach, the best and brightest minds will find these private investment opportunities attractive and bring their creative energy, ambition and drive to innovatively diversify the economy.
In order for the modern, post-pandemic Bahamian economy to be sustainable, we must become culturally confident in seeing Bahamians leading and coordinating investments. Private capital on average eventually flows to the best returning investments, which leads to broader and higher growth in addition to higher standards of living. Bahamians legitimately expect at least one gold medal at each Olympics games despite our small size and it is reasonably foreseeable that similar high expectations can develop that Bahamians can effectively manage and invest capital at world class standards.
About the Author – Andrew Rolle, the founder of Mundo Advisors, is an attorney and CAIA charter holder. He currently serves as the President of the Bahamas Investments and Securities Business Association (BISBA) and can be contacted at email@example.com.