The Bahamas looks to diversify as it hosts Afreximbank Annual Meetings

One of the richest countries in the Caribbean per capita, The Bahamas is seeking to attract foreign investment in an effort to diversify its economy. The country currently relies on its buoyant tourism and financial services sectors, but its dependence on foreign visitors was badly exposed by the twin shocks of Hurricane Dorian in 2019 and the Covid-19 pandemic.

A variety of tax and other incentives are on offer, as the government aims to promote the manufacturing and digital technology sectors.

Between 12-14th June, the country will host the Afreximbank Annual Meetings in Nassau as the institution looks to build ties with the Caribbean, in line with its Diaspora Strategy and the African Union’s designation of the African Diaspora as Africa’s sixth region.

History of the islands

In common with other parts of the Caribbean, the original inhabitants of the archipelago were largely wiped out in the early part of the colonial period, which began in 1492 when Christopher Columbus made his first landfall in the Western hemisphere in The Bahamas. As happened elsewhere in the region, captured Africans were brought to the archipelago as slaves to work on plantations under British rule.

The country eventually became independent in 1973, quickly building a thriving economy. The Bahamas is a member of the Commonwealth and the UK’s King Charles remains the head of state, although a referendum along the lines held in other Caribbean island states on becoming a republic could be held in the near future.

The Progressive Liberal Party under new Prime Minister Phillip Davis won the September 2021 general election in the wake of the post-hurricane and Covid economic crises with a focus on attracting foreign investment while setting up a Domestic Investment Board to support Bahamian businesses in participating more fully in the tourism value chain

High income overall

A high-income state, The Bahamas had estimated GDP per capita of $34,224 last year, although there is a high degree of income inequality. The income of a relatively small number of high-net-worth residents pushes up average income and GDP per capita. The debt-to-GDP ratio stood at a fairly high 85% in 2023, partly as a result of pandemic and post-hurricane expenditure, although the new government has pledged to bring this figure down.

Tourism employs about half the labour force, many in fairly low paid jobs, within a population of 400,000, and generates about 70% of GDP. The country of 700 islands, cays and islets is best known as a tropical holiday destination for good reason. It has a mild-to-warm climate, fantastic beaches, abundant sea life and attractive forests. It also benefits from its proximity to the United States, to with it is connected by about 25 flights a day, while flight times with Western Europe range between nine and eleven hours. About 85% of all visitors come from the US, so relations with Washington are of the utmost importance.

Revamping tourism

The government is seeking to revamp the tourism model to focus more on local culture, encompassing community-based, creative, heritage, sports, educational, eco- and medical tourism.

Davis commented: “Our plan for each island will focus on the island’s niche in the tourism market, to promote its unique opportunities. No island will be left behind. Provide access to capital for Bahamians to establish boutique hotels, Airbnbs, cottages, fishing lodges and other tourism products.”

The government also aims to reposition Bahamasair to service international routes and reach new load-share agreements.

Financial services

New measures are also being introduced to support the already substantial offshore financial services industry, including making it easier to grant work permits where no qualified Bahamian can be found to fill the post, and focusing on specific financial niches to build internationally-important expertise, including in fintech, insuretech, supervisory technology (suptech), blockchain and also cryptocurrency, which is already growing.

Financial services currently account for about 15% of GDP; there is scope for this figure to rise. The country also has one of the world’s largest open-registry shipping fleets, and is open for dual registration for vessels already registered in another country, with all vessel categories considered. Bahamian-registered ships get a preferential 28% discount on all port tonnage dues levied in Chinese ports.

The economy and indeed the country as a whole are still recovering from the impact of Hurricane Dorian in 2019, which was the worst natural disaster in the country’s history. The Abaco Islands and Grand Bahama were particularly badly affected. Wind speeds reached 185 miles per hour (nearly 200 kilometres per hour) and 74 people were killed, with $3.4bn in damage was caused. The hurricane caused widespread infrastructural damage and affected tourist numbers, while the economy contracted by 1.36% that year.

While The Bahamas hoped for recovery in 2020, that year turned out to be the worst in the country’s history for economic performance. GDP contracted by a staggering 21.42% as a result of the Covid-19 crisis, highlighting the level of dependence on for – eign visitors who usually arrive by air or on cruise ships. According to the Bahamas National Statistical Institute, the economy rebounded the following year, growing 15.6% Growth returned to pre-2019 levels in 2023, with a steady 2.6% rise in GDP to $12.83bn in real terms and $14.3bn in nominal prices.

The key tourism sector was the fastest growing part of the economy, with a 24% rise in visitor numbers from 7.8m in 2022 to 9.7m last year, resulting in a 26% increase in GDP from accommodation and food services. Construction industry GDP also grew strongly in 2023 at 22%, as reconstruction efforts following the hurricane, while the transport and warehousing sector saw 16% growth.

Seeking foreign investment

The government is now keen to promote exports in order to reduce the country’s reliance on tourism and is particularly keen to attract investment in light manufacturing, technology and also renew – able energy. Combined exports of goods and services increased by $200m or 5% in 2023 but the country has an imbalanced trade relationship with its biggest economic partner. Roughly 85% of imports, valued at $5.6bn in 2022, come from the US, which buys just $1.7bn of Bahamian goods and services in return.

Potential investors benefit from a peaceful and stable democratic environment with a strong commitment to the rule of law, plus a wide range of tax reliefs. However, extra benefits are available in Freeport, which is the biggest city on Grand Bahama, in the far north of the archipelago. Near the city is a huge 223 square mile (578 square kilometre) free trade zone that is guaranteed until at least 2054. This helps make the island’s economy the most diversified in the country and less reliant on foreign visitors. Investors in the zone are exempt from most na – tional taxes and were given additional tax incentives following Hurricane Dorian. The other main commercial centres in the country are on New Providence and the Great Abaco islands.

Promoting intra-regional trade

Trade in goods with other Caribbean nations and other countries in the region is restricted by The Bahamas’ island geographic location but, as a member of the Caribbean Community (CARICOM), the country is working to promote intra-regional trade. This affiliation will also help it benefit from growing trade initiatives between CARICOM and the African continent, with which the country shares obvious historical ties.

The Bahamas also has trade agreements with the US and Economic Partnership Agreements with both the UK and the EU, all of which ease entry to markets on both sides of the North Atlantic, including with some preferential access. The 2022 National Trade Policy aims to diversify the economy through leveraging opportunities from existing trade agreements and preferences.