by Felicity Johnson
by Felicity Johnson
The Baha Mar saga is an epic and cautionary tale. It is a story of grand ambition, hubris and spectacular miscalculations by three major players now desperately seeking to rescue their reputations amidst the unravelling of one of the biggest single tourism projects ever in the Western Hemisphere.
While none of the players will come out as clear winners, the clear losers from the fallout of the unravelling are the Bahamian people who are watching in horror and anxiety as the country heads toward a possible recession and the potential loss of thousands of jobs.
And while all of the players bear responsibility for the current mess at Baha Mar, the party most responsible for protecting the country’s interests is the government of the day headed by a prime minister even more delusional and grossly incompetent than even his fiercest critics imagined.
The Baha Mar saga will be retold in books and studied in university classrooms. It is a case study in international relations and high finance in the 21st century, bringing together a small country, the Chinese state and a foreign investor in a relationship which began in mutual accord but that descended into recrimination amidst misunderstanding and misjudgement, and emerging questions of greed and mass corruption.
by Larry Smith
by Larry Smith
Back in 2006 most analysts believed little would change in the immediate aftermath of Fidel Castro's departure as Cuba's pre-eminent leader.
At the time, Fidel had just stepped down as president due to failing health, ceding power temporarily to his younger brother Raul, the armed forces chief. Just two years later - in 2008 - he made his resignation permanent.
Two years after that, I visited Havana and had this to say: “As the largest island in the Caribbean, Cuba has mountain ranges, fertile plains and valleys, and a 2300-mile coastline with deep harbours, coral islands and miles of beaches. Cuba also offers a proud history and culture blending Spanish and African influences."
And Havana - with a population of over 2 million - is the Caribbean's major metropolis, as well as Cuba's greatest attraction. In 2010, Cuba already received a million more stopover visitors than the Bahamas. It now has over 60,000 hotel rooms (compared to under 15,000 here), and thousands more are said to be on the way.
At the time of my Havana visit, the competitive threat to Bahamian tourism from the inevitable opening of Cuba to the closed US travel market was still years in the future. But those portentous changes are now much closer to reality.
Castro took control of Cuba in 1959 after an armed revolt against a military dictatorship. One of his first acts was to shut down casinos, brothels and hotels, many of which were owned by American organised crime figures.
When foreign businesses were nationalised, the US imposed trade restrictions. And in 1962 the embargo was formalised, preventing most Americans from visiting an island which is less than 100 miles from Florida. Those international tourists who did come were segregated from the general population.
Cuba settled into a defiant role as a member of the communist bloc. But after the collapse of the Soviet Union in 1991, Castro allowed limited reforms to encourage tourism and earn hard currency. The Clinton administration eased travel restrictions, but they were reinforced by the Bush administration in the 2000s.
In 2010, Raul Castro embarked on a long-term reform of the country's political and economic system. And analysts say Cuba looks much different today than it did in 2006, when Fidel stepped down.
An article in the US magazine Foreign Affairs says: “the emerging Cuba might best be characterized as a public-private hybrid in which multiple forms of production, property ownership and investment, in addition to a slimmer welfare state and greater personal freedom, will coexist with military-run state companies in strategic sectors of the economy and continued one-party rule."
Since the election of Barack Obama and the start of Raul's reform process, relations between Cuba and the United States have improved. A few months after he assumed office in 2009, Obama began rolling back the Bush-era sanctions. And last December, he opened up travel to Cuba as much as his executive authority would allow.
Today, travel service providers can arrange trips to Cuba for US citizens without a government license – but only if the travel conforms with restrictions in current law. General tourism remains banned under the embargo.
A bipartisan group of legislators is pushing for passage of a Freedom to Travel to Cuba Act in the US Congress, but the law is stuck in committee and not expected to be enacted. A full lifting of the embargo will probably have to wait until after the 2017 presidential election.
The American Society of Travel Agents strongly supports normalisation of relations with Cuba, estimating that at least two million more Americans would visit the island by 2017 if restrictions were lifted. Last year, about half a million US residents visited Cuba, mostly Cuban-Americans visiting family.
The key point for us to keep in mind is that, even in its present run-down condition, Cuba manages to earn some $2.5 billion a year from 3 million visitors, and it is seeking to double those numbers. Despite an inefficient, government-operated and expensive product, the island has a lot to offer. It is a competitive threat that we should not ignore.
Former Bahamas tourism minister Vincent Vanderpool-Wallace, who is now a private consultant and board member of the Caribbean Hotel and Tourism Association, recently helped draft a position paper for the CHTA on Cuba's competitive threat.
The CHTA is a regional federation of 32 national hotel associations with more than 600 member hotels and over 300 allied members. According to its president, Emil Lee of St Maarten, the organisation is not opposed to the lifting of the US embargo, because it would "eliminate a significant barrier to regional cooperation."
But in its position paper the CHTA warned that the opening of Cuba to the huge US travel market would be "the biggest and most disruptive pebble to be dropped into the Caribbean pool in 50 years.” In fact, most analysts conclude that the impact on Caribbean tourism will be “unprecedented."
The CHTA document also sounded a hopeful note that “the coming Cuban disruption just might be the tonic (we) need to build the kind of strategic approaches to tourism development that will yield sustainable results."
As far as the Bahamas is concerned, the impact will be four-fold. First, Cuba will siphon off visitors who have up to now travelled impulsively to the Bahamas from Florida. This market has traditionally provided over 20 per cent of Bahamian visitor arrivals.
Second, the opening of Cuba can be expected to have an immediate impact on the cruise industry, which has been lobbying Caribbean destinations like the Bahamas to develop new products and experiences beyond the traditional sun, sand, sea and t-shirts.
"The likelihood that cruise lines will drop some existing ports to accommodate Cuba visits is real and the proximity of Cuba to the US…can easily impact itineraries to near markets such as the Bahamas,” the CHTA document says.
Third, the airline industry’s willingness to absorb low fares and passenger volumes in order to build routes and market share in Cuba could be disastrous for the region, the CHTA warned, "especially if it also results in US carriers shifting aircraft to new Cuba routes upon the lifting of the embargo."
And finally, the opening of Cuba will also impact the investment outlook for the region. It is likely to have a chilling effect on investment flows as investors take a wait and see position on the opportunities that Cuba may present. But much will depend on the enabling policies of the Cuban government in attracting US capital.
"The fact that Cuba saw over $800 million in hotel-related investments in 2013 is a sobering thought,” the CHTA position paper said. "The Caribbean and its industry will find itself not only competing for American tourists but also for investment dollars.”
According to CHTA chief executive Frank Comito (a former director of the Bahamas Hotel and Tourism Association), "If we continue to operate business as usual, and we all draw from the same pie and Cuba is in the equation...there will be serious economic and employment consequences."
So what does the CHTA recommend? Principally, it urges the creation of a Caribbean Basin Tourism Initiative to help boost investment in regional tourism development. The initiative would promote policy and technical support for the region, in partnership with private sector entities.
“We've developed a draft framework for a regional public-private sector tourism action agenda which would embody some of these elements, but that is still being vetted,” Comito told me. "We’ve advanced the Caribbean Basin Initiative concept as a starting point for collaboration to define together what the actual elements would be."
Among the items that will be reviewed are the removal of visa and travel barriers within the region, the reduction of high air travel-related taxes and fees, speeding up visitor clearance and processing times, and supporting a more co-operative approach among industry stakeholders.
And the CHTA says “we need to look at those factors which have contributed to Cuba's success – product diversity, infusing culture and history into the visitor experience, investments in education and training, competitive pricing, and lower operating costs. We need policies and practices which drive business, and do not drive away business.
"The CHTA believes that by working together, heads of government with heads of industry, hundreds of thousands of tourism-related jobs and hundreds of tourism-related businesses can be created. The indirect impact which tourism has on our broader economies cannot be understated.”
Meanwhile, Bahamas Tourism Director Joy Jibrilu told me she was working with Havanatur to create combination tour packages to both Nassau and Havana. "Folding our arms is not an option, so we will work as partners - not opponents. We have a brand that has global recognition and appeal and we will continue to position ourselves as such.”
by Larry Smith
The Baha Mar resort has been in the works so long that it is easy to forget the way we felt about this massive development at different points along its ponderous trajectory.
The 1,000-acre project was announced in November 2005 - almost a decade ago - as “the largest single-phase development in Caribbean history”. The initial investment was put at $1.6 billion, but it has more than doubled since then.
The original opening was set for 2010, but five years later it has still not opened. Financing and construction delays keep pushing an opening further and further into the unknowable future.
The story goes way back to the 1990s, when Perry Christie was the lawyer for American investor Phil Ruffin. Christie helped Ruffin buy up a large portion of Cable Beach, including the Nassau Beach and Crystal Palace hotels. In the early 2000s, when Christie became prime minister for the first time, he persuaded Ruffin to sell out to new investors headed by Lyford Cay financier Sarkis Izmirlian.
by Larry Smith
In her examination of the irregularities surrounding the so-called Bahamas Agricultural and Marine Institute on Andros this week, Nassau Guardian news editor Candia Dames said Bahamians have had enough of the government’s negligent handling of the country's affairs.
“The tolerance for our officials’ flippant and arrogant responses to critical issues is waning,” she said. “The culture of slackness (will) only be addressed if there are clear messages that those responsible for abuse are held to account."
Punch columnist Catherine Kelly went further: “You can hear the frustration as Bahamians call in to radio talk shows, trying to articulate why they think everything has gone so horribly wrong for their tiny country...They point to widespread corruption, criminality and violence…Clearly the people are at the breaking point and the Christie administration seems powerless to diffuse the ticking time bomb."
And fellow Punch columnist Nicki Kelly pointed out that “the fire at BAMSI exposed the lies and illegalities that have become a hallmark of this project since it was first conceived.”
by Larry Smith
Health Minister Dr Perry Gomez says the government has contracted Costa Rican-based consultants to help implement the national health plan which will be phased in sometime next year.
Gomez has put Bahamian healthcare spending today at almost 10 per cent of our $8 billion GDP. That represents some $800 million in total annual spending - including public and private as well as overseas health spending. The private sector accounts for about half of this money, experts say.
In 2004 Gomez chaired the commission which recommended that the Bahamas adopt a financing system called social health insurance, which pools payments from all residents to pay for universal healthcare. Individuals could still buy private insurance to cover areas ineligible for reimbursement by the public system.
This is the system operating in many countries around the world, including highly rated models like the French and Singaporean healthcare services. But the bottom line is this: Ideological arguments notwithstanding, experts say there is no single type of system "that performs systematically better in delivering cost-effective healthcare."
According to the 34-nation OECD, both market-based and command-and-control systems have their strengths and weaknesses. "It seems to be less the type of system that matters, but rather how it is managed."
And that is the key to the success of NHI in the Bahamas. Proper management is critical to the future health of our economy, as well as that of our citizens.
by Larry Smith
Bahamians celebrated Greek Fest this past weekend while the new Greek government was feverishly putting together a list of structural reforms it will pursue. Greece is under heavy pressure from the European Union to reform its government in return for financial aid to keep its economy afloat. Here’s a partial list of the Greek reforms—they are equally vital for the Bahamas:
1. Create a new culture of tax compliance to ensure that all sections of society, and especially the well-off, contribute fairly to the financing of public policies.
2. Improve tax collection, broaden the definition of tax fraud and fight evasion.
3. Provide a higher degree of financial and budgetary accountability.
4. Enhance the openness and transparency of tax and customs administration.
5. Strengthen the independence of the public revenues agency while guaranteeing full accountability and transparency of its operations.
6. Review and control spending in every area of government.
7. Review non-wage benefits expenditure across the public sector and reform the public sector wage gird.
8. Modernise the pension system by establishing a closer link between pension contributions and income, and by streamlining benefits.
9. Turn the fight against corruption into a national priority.
10. Reduce the number of Ministries (from 16 to 10), and the number of ‘special advisors’ in general government.
11. Establish a transparent, electronic, real time institutional framework for public tenders/procurement.
by Larry Smith
Greece, as we all know from high school days, was one of the major civilising forces of antiquity. Its modern political history began in the 19th century, when the country was a reluctant province of the Ottoman Empire.
After a bloody rebellion, the Greeks established their own independent state in 1832. More than a century of political instability followed, with the country swerving between a republic, a dictatorship and a monarchy.
In 1967, a military junta kicked out the king and ran the country until 1974, when civilian rule was restored. And since then, electoral politics has alternated between fairly mainstream centre-left and centre-right parties.
Greece joined the European Union in 1981 and later adopted the euro as its currency. But the 2008 financial crisis changed everything. Today, Greece is the sickest man in Europe, and subject to heavy manners from the Germans, who are the top dogs.
Here’s how the BBC summarised the current predicament:
"Greece was living beyond its means even before it joined the euro. After it adopted the single currency, public spending soared. Public sector wages, for example, rose 50% between 1999 and 2007 - far faster than in most other eurozone countries.
"And while money flowed out of the government's coffers, its income was hit by widespread tax evasion. So, after years of overspending, its budget deficit - the difference between spending and income - spiralled out of control. Moreover, much of the borrowing was concealed."
Debt levels reached the point where the country was no longer able to repay its loans, and was forced to ask for help from its European partners and the IMF in the form of a massive bailout. In return, Greece had to embark on a major austerity drive involving drastic spending cuts, tax rises, and labour market and pension reforms.
Since the financial crisis, economic output has dropped by over a quarter, while unemployment stands at above 27 per cent, and youth unemployment is around 60 per cent. Over a third of the population is at risk of poverty or social exclusion. These are unprecedented levels for any developed economy since the time of the Great Depression.
So a few weeks ago, the despondent Greeks gave 36 per cent of their votes to a radical left-wing anti-austerity party called Syriza, led by Alexis Tsipras, a former student activist. Only two seats short of a majority, Syriza then formed a coalition government with a radical right-wing minority party.
The new government favours the jobless and poor over international creditors who have lent Greece more than $300 billion. Negotiations are underway to square the circle, but more and more analysts foresee a Greek exit from the eurozone and significant collateral damage to the European project.
Greece had made half-hearted attempts at economic and social reform since the 1990s. But, like the Bahamas, taking the hard decisions and avoiding political expediency proved difficult. Today’s tax hikes and other painful adjustments are a consequence of this reform procrastination.
In Greece, the lack of accountability and a non-transparent system of accounts allowed policy makers to reconcile the irreconcilable and avoid meaningful debate over decades. We share the same experience here.
Yet according to Prime Minister Perry Christie in his recent mid-year budget address, the Bahamas has "come through this time of testing just fine" because “we made the tough decisions when we had to, tightened our belts when we had to, and took our medicine when we had to.”
I don’t quite see it that way. Like the Greeks we were forced by international pressure to seek big tax rises. But this 'tough decision' was taken in the face of ongoing and unpunished massive tax evasion. There is no accountability for delinquent Bahamian taxpayers and very little government transparency on anything these days.
Meanwhile, unemployment in the Bahamas is at its highest point ever in recent times, and the number of Bahamians living below the poverty line has increased to just over 11 per cent of the population.
Some years ago now a leading political figure was bluntly told by a senior expatriate banker that there were things that foreign commercial banks could get away with in The Bahamas that they could not get away with in the banker’s home country of Canada. A recent former senior employee of the Central Bank believes that this remains the case.
Canadian institutions have dominated commercial banking in The Bahamas from the inception of this economic sector. Even before it opened branches in parts of what was then considered the boondocks of Western Canada, the Royal Bank of Canada (RBC) opened its first branch in Nassau in 1908.
Almost 50 years later, three other Canadian banks arrived in The Bahama Islands over a three-year period. In 1956 the Bank of Nova Scotia, now Scotiabank, opened a small branch in Nassau, followed in 1957 by the Canadian Imperial Bank of Commerce (CIBC), today operating as First Caribbean International Bank.
Wikipedia reports that in, “1958 Bank of London and South America [ BOLSA], an affiliate of Lloyds Bank, and Bank of Montreal established Bank of London and Montreal as a 50-50 JV with headquarters in Nassau in the Bahamas.”
There have been significant changes in the banking sector. The Bank of Montreal was purchased by the Government of The Bahamas in 1988, becoming the Bank of The Bahamas. Commonwealth Bank is a fully-owned Bahamian entity.
The Canadian commercial banks have contributed to the national and economic development of The Bahamas. Canadians and Canada are generally well-regarded by Bahamians.
Correspondingly, there have been times over the many decades that these banks could have been better corporate citizens. There is a view by various informed observers that public officials, including the Central Bank have often been less than vigorous in pressing for necessary reforms and changes at commercial banks, including in lending practices.