Economy of the Bahamas
Encyclopedia
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 in recent 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.
(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.
s 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.
, restaurant
, and medical supplies; and computer
s 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.
} (2006 est.) - Rank 115
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.
The Bahamas
The Bahamas , officially the Commonwealth of the Bahamas, is a nation consisting of 29 islands, 661 cays, and 2,387 islets . It is located in the Atlantic Ocean north of Cuba and Hispaniola , northwest of the Turks and Caicos Islands, and southeast of the United States...
is a stable, developing nation with an economy heavily dependent on tourism
Tourism
Tourism is travel for recreational, leisure or business purposes. The World Tourism Organization defines tourists as people "traveling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes".Tourism has become a...
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 in recent 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 productGross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
(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
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
.
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
Far East
The Far East is an English term mostly describing East Asia and Southeast Asia, with South Asia sometimes also included for economic and cultural reasons.The term came into use in European geopolitical discourse in the 19th century,...
, Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
, Latin America
Latin America
Latin America is a region of the Americas where Romance languages – particularly Spanish and Portuguese, and variably French – are primarily spoken. Latin America has an area of approximately 21,069,500 km² , almost 3.9% of the Earth's surface or 14.1% of its land surface area...
, and Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
. 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
International business company
An international business company or international business corporation is an offshore company formed under the laws of some jurisdictions as untaxed company which is not permitted to engage in business within the jurisdiction in which it is incorporated...
-type companies had been established. In February 1991, the government also legalized the establishment of Asset Protection Trusts
Asset-protection trust
An asset-protection trust is a term which covers a wide spectrum of legal structures. Any form of trust which provides for funds to be held on a discretionary basis falls within the category. Such trusts are set up in an attempt to avoid or mitigate the effects of taxation, divorce and bankruptcy...
in The Bahamas. In December 2000, partly as a response to appearing the plenary FATF Blacklist
FATF Blacklist
The FATF blacklist was the common shorthand description for the Financial Action Task Force list of "Non-Cooperative Countries or Territories" ; that is, countries which it perceived to be non-cooperative in the global fight against money laundering and terrorist financing...
, 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
Know your customer
Know Your Customer refers to both:* The activities of customer due diligence that financial institutions and other regulated companies must perform to identify their clients and ascertain relevant information pertinent to doing financial business with them* And the bank regulation which governs...
" rules. Other initiatives include the enactment of the Foundations Act in 2004 and the planned introduction of legislation to regulate Private Trust Companies
Trust company
A trust company is a corporation, especially a commercial bank, organized to perform the fiduciary of trusts and agencies. It is normally owned by one of three types of structures: an independent partnership, a bank, or a law firm, each of which specializes in being a trustee of various kinds of...
.
Agriculture
Agriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...
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
Bahamian dollar
The dollar has been the currency of The Bahamas since 1966. It is normally abbreviated with the dollar sign $, or alternatively B$ to distinguish it from other dollar-denominated currencies. It is divided into 100 cents....
on a par with the U.S. dollar. The Bahamas is a beneficiary of the U.S.-Caribbean Basin Trade Partnership Act
Caribbean Basin Trade Partnership Act
The Caribbean Basin Trade Partnership Act is a United States legislative act signed into law on May 18, 2000 by President Bill Clinton as part of the Trade and Development Act of 2000. This latter act, which also included the Africa Growth and Opportunity Act of 2000 , was intended to advance U.S...
(CBTPA), Canada's CARIBCAN
CARIBCAN
The Caribbean-Canada Trade Agreement known as is a Canadian government programme, established in 1986 by the Parliament of Canada...
program, and the European Union's Lome IV Agreement. Although the Bahamas participates in the political aspects of the Caribbean Community
Caribbean Community
The Caribbean Community is an organisation of 15 Caribbean nations and dependencies. CARICOM's main purposes are to promote economic integration and cooperation among its members, to ensure that the benefits of integration are equitably shared, and to coordinate foreign policy...
(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
Nassau, Bahamas
Nassau is the capital, largest city, and commercial centre of the Commonwealth of the Bahamas. The city has a population of 248,948 , 70 percent of the entire population of The Bahamas...
, which produces Heineken
Heineken Pilsener
Heineken is a Dutch beer which has been brewed by Heineken International since 1873. It is available in a 4.6% alcohol variety in countries such as Ireland. It is the flagship product of the Heineken company and is made of purified water, malted barley, hops, and yeast. In 1886 H...
, Guinness
Guinness
Guinness is a popular Irish dry stout that originated in the brewery of Arthur Guinness at St. James's Gate, Dublin. Guinness is directly descended from the porter style that originated in London in the early 18th century and is one of the most successful beer brands worldwide, brewed in almost...
, and Kalik
Kalik
right|frame|Kalik bottleKalik is a beer brand from the Bahamas. It is made by the Commonwealth Brewery in Nassau which also produces Heineken, Guinness and Vitamalt...
beers; and Bacardi Corp.
Bacardi
Bacardi is a family-controlled spirits company, best known as a producer of rums, including Bacardi Superior and Bacardi 151. The company sells in excess of 200 million bottles per year in nearly 100 countries...
, 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
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
-based firm, Hutchison Whampoa
Hutchison Whampoa
Hutchison Whampoa Limited or HWL of Hong Kong is a Fortune 500 company and one of the largest companies listed on the Hong Kong Stock Exchange. HWL is an international corporation with a diverse array of holdings which includes the world's biggest port and telecommunication operations in 14...
, 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
International trade
International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product...
, service economy
Service economy
Service economy can refer to one or both of two recent economic developments. One is the increased importance of the service sector in industrialized economies. Services account for a higher percentage of US GDP than 20 years ago...
. There are about 110 U.S.-affiliated businesses operating in The Bahamas, and most are associated with tourism
Tourism
Tourism is travel for recreational, leisure or business purposes. The World Tourism Organization defines tourists as people "traveling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes".Tourism has become a...
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.
Business environment
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 telecommunicationTelecommunication
Telecommunication is the transmission of information over significant distances to communicate. In earlier times, telecommunications involved the use of visual signals, such as beacons, smoke signals, semaphore telegraphs, signal flags, and optical heliographs, or audio messages via coded...
s links, and a good pool of skilled professional workers. The Government of The Bahamas welcomes foreign investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
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.
Areas of opportunity
The best U.S. export opportunities remain in the traditional areas of foodstuffs and manufactured goods: vehicles and automobile parts; hotelHotel
A hotel is an establishment that provides paid lodging on a short-term basis. The provision of basic accommodation, in times past, consisting only of a room with a bed, a cupboard, a small table and a washstand has largely been replaced by rooms with modern facilities, including en-suite bathrooms...
, restaurant
Restaurant
A restaurant is an establishment which prepares and serves food and drink to customers in return for money. Meals are generally served and eaten on premises, but many restaurants also offer take-out and food delivery services...
, and medical supplies; and computer
Computer
A computer is a programmable machine designed to sequentially and automatically carry out a sequence of arithmetic or logical operations. The particular sequence of operations can be changed readily, allowing the computer to solve more than one kind of problem...
s 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
Florida
Florida is a state in the southeastern United States, located on the nation's Atlantic and Gulf coasts. It is bordered to the west by the Gulf of Mexico, to the north by Alabama and Georgia and to the east by the Atlantic Ocean. With a population of 18,801,310 as measured by the 2010 census, it...
have found it profitable to advertise in Bahamian publications. Most imports in this sector are subject to high but nondiscriminatory tariffs.
Statistics
- "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"
} (2006 est.) - Rank 115
- "Oil - exports"
- transhipments of 29000 oilbbl/d (2003)
- "Exchange rates"
- Bahamian dollarBahamian dollarThe dollar has been the currency of The Bahamas since 1966. It is normally abbreviated with the dollar sign $, or alternatively B$ to distinguish it from other dollar-denominated currencies. It is divided into 100 cents....
s per US dollar - 1 (2008), 1 (2007), 1 (2006), 1 (2005), 1 (2004)
- Bahamian dollar
The Bahamas has the 47th freest economy in the world according to The Heritage Foundation
The Heritage Foundation
The Heritage Foundation is a conservative American think tank based in Washington, D.C. Heritage's stated mission is to "formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong...
2010 Index of Economic Freedom
Index of Economic Freedom
The Index of Economic Freedom is a series of 10 economic measurements created by The Heritage Foundation and The Wall Street Journal. Its stated objective is to measure the degree of economic freedom in the world's nations....
. 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.