Bahama Pundit

Are we in for a Macroeconomic Adjustment?

by Larry Smith

Renowned Bahamas-based financial expert Sir John Templeton once said that the four most dangerous words in investing are: "This time is different."

He was referring to the tendency to predict gloom and doom - often an irresistible urge for pundits.

But with the world economy about to shift gears in some fundamental ways, it is fair to ask (along with analyst James Ledbetter), "are we going to be wearing barrels for clothes and burning Ikea furniture to heat our homes, in a rerun of the Great Depression?"

Of course, we don't need to heat our homes, but air conditioning is just as important. And at the moment our lives depend almost entirely on imports - of everything from clothing to fuel to food. So perhaps we should take a closer look at what may be in store for us down the road.

Globalisation, the EPA and Bahamian Education

by Larry Smith

Globalisation - it means more cross-border travel, trade, information and investment than ever before. But what does it mean for the average Bahamian?

Well, a lot of us are understandably worried. That's because globalisation brings change, which favours the highly skilled and educated, while lower-skilled jobs are often shifted to lower-wage countries.

Although tourism and financial services are already 'globalised' in the Bahamas, our protected domestic economy includes retailing and wholesaling, publishing and the media, fisheries, entertainment, construction, transport and the professions, as well as a small manufacturing sector.

Now we are faced with a number of initiatives that threaten to demolish our cozy and old-fashioned business arrangements. Free trade proponents say we must become part of the global rules-based trading system because the alternative is a system based on power - in which we surely can't compete.

Bahamas Needs A Great Moderniser

by Larry Smith

Listening to political leaders and financial experts these days can give you the creeps. That's because they all give the impression that we are in for a serious economic crunch - when the chips will be down and the chickens will finally come home to roost.

Inter-American Development Bank Chief Luis Alberto Moreno says regional economies have under-invested in infrastructure for years, curbing economic growth in the process. To catch up, we will have to more than double our spending on capital works, and keep spending at that level for a long, long time.

"(Caribbean states) need to spend between 4 and 7 per cent of GDP per year for the next two decades in order to have high-quality infrastructure that can become the backbone of development," Moreno said, in his economic outlook for 2008. That translates into hundreds of millions a year for us.

Of course, the IDB is in the business of financing infrastructure - they loaned out almost $10 billion to regional governments and businesses last year - so maybe we should expect Moreno to be saying that. But he is not alone.

Plan for Nassau Port Move Revealed

by Larry Smith

It may be that the end game to two decades of fruitless efforts to redevelop the city of Nassau is at hand. Then again, it may be that the process will continue until the island's economy and infrastructure finally collapse under their own weight.

A plan to build a new freight port for the island has been put on the table by the Dutch consortium, Ecorys/Lievense. Ecorys focuses on research and policy advice to solve big development issues. Lievense is an engineering firm that specialises in port and reclamation projects around the world.

They were hired last year to assess the financial and technical feasibility of moving Nassau's cargo facilities to the southwest tip of New Providence. Their study was completed in September and a final report was submitted to the government last week.

Bahamas Could Set Renewable Energy Pace

by Larry Smith

A special report by a top US consulting firm says the Bahamas has "abundant untapped resources" to develop a strong renewable energy infrastructure that can cut oil imports, make more capital available for investment and help maintain our leading edge in regional tourism.

The report says solar electricity can be produced here at a cost similar to existing oil-fired generation. Even assuming no government support, the cost per kilowatt hour from rooftop photovoltaic panels would average only 15 cents compared to retail electricity prices of 25 cents a kilowatt that are currently being charged to most Bahamian consumers.

The report was issued by Haley & Aldrich - a New England-based environmental engineering consultancy founded in 1957. According to Vice President Doug Cotton, the firm is working with clients in the Bahamas "who could benefit from the price stability, energy security, and secondary benefits that would be created by widespread adoption of renewable energy production.

"Our interest in helping to promote renewable energy is related to the work we are doing for one of the largest resort development projects on New Providence, and because we are working with some renewable energy companies who have an interest in coming to the Bahamas should there be changes to the present regulatory regime."

The Bahamas and the EU Economic Partnership Agreement

by Larry Smith

If you thought the Caribbean Single Market & Economy was a tough call, try wrapping your mind around the Economic Partnership Agreement we are currently negotiating with the European Union.

This is supposed to govern our relations with one of the world's economic superpowers for the foreseeable future. But you could probably count on two hands the number of Bahamians who understand half of what is going on.

One reason for that is because our policymakers like to do things in secret. Another reason is that they themselves often don't know much about what is going on, and have no real policy on which to make a judgement.

As Fred Mitchell, the former minister who managed the CSME debate pointed out: "Most (Bahamian) trade matters are decided on an ad hoc basis. Ultimately, the country has to decide how and to what extent...to integrate into the world economy."

True. But that doesn't mean we want Fred - or one or two others like him - deciding these things for us behind our backs. We need to be up front and fully informed about these matters, because they have serious implications for all of us.

Towards a National Energy Policy for the Bahamas

by Larry Smith

For the past couple of years - as fuel prices have soared - government has talked about formulating a national energy policy to help minimise economic and social disruption in the event of a global energy crisis.

The need for such a policy was recently underlined by a major new report from the US National Petroleum Council, which listed some "hard truths" about the global energy future over the next 25 years. The Financial Times of London described the report as "a defining moment in the history of the global energy industry."

That's because the NPC is not some idealistic green lobby. It's a privately funded government advisory body that represents the views of the oil and gas industry. And the current chairman is Lee Raymond, a former chief of ExxonMobil.

"Accumulating risks to the supply of reliable, affordable energy require an integrated national strategy," the NPC report said, adding that any policy to address those risks had to balance economic, security and environmental goals.

On Cultural Production

by Nicolette Bethel

There's a lot of talk about globalization these days.

We talk about it as though it's something new and potentially dangerous. Globalization is coming, we say, as though it's some kind of demonic force that is going to take us over. And we worry about the free movement of people, our ability to compete in the global job market, our ability to stand up and be counted when it comes to the global scene.

We've got a problem.

Because you see, there's at least one area in which we Bahamians (and all Caribbean people) can compete on a global scale.

It's the area of culture.

In Pursuit of OTEC in The Bahamas

by Larry Smith

Well-known shipping expert Bill Bardelmeier spoke to a group of Rotarians last week about getting power from the sea. It's something he's been touting since the 1960s.

A retired marine consultant, Bardelmeier has lived here for half-a-century and was a director of the Bahamas Maritime Authority for over a decade. One of his pet interests is something called ocean thermal energy conversion, and, curiously, there's a lot of local lore behind it.

OTEC is a 19th century idea that uses the sea as a gigantic solar collector, but it has proved difficult to implement - for both technical and economic reasons. Some experts are now saying that its time may have come.

They argue that technical advances and economic changes have made OTEC a cost-effective alternative to fossil fuels for many tropical island communities. And in addition to electricity, these systems offer the bonus of producing fresh water and hydrogen, as well as nutrients for mariculture and agriculture.

Tourism & Anchor Projects in the Bahamas

by Larry Smith

There's been a lot of of caterwauling lately about big foreign resort investments on the out islands. Most of us know them as anchor projects.

Some argue that the hotel industry is just an updated version of the master/slave "plantation economy". Others say our birthright is being sold out. And still others worry about the thoughtless destruction of islands that will never be the same again.

Here are some representative comments gathered from Bahamian news and discussion sites recently:

More Leadership - Not More Oil - Needed to Transform the Energy Economy

by Larry Smith

“I’d put my money on the sun and solar energy. What a source of power! I hope we don’t have to wait until oil and coal run out before we tackle that.” -- Thomas Edison in 1931, the year he died.

Well, many experts argue that - while there is still a lot of coal in the ground - oil is becoming a problem, with most reserves now held by state companies in politically unstable regions.

And oil is what runs our economy, which is why energy concerns are expected to be a central theme of President George W Bush's State of the Union address next week.

According to Al Hubbard, the president's chief economic advisor, the speech will focus on energy independence to the extent that it will 'knock your socks off.' And he told a recent university symposium that "within 30 years, we will have pollution-free and basically free energy."

That's good news - especially coming from a Bush administration expert - because the prospect of adjusting to a shrinking oil supply and creating a low-carbon economy is something the world must come to grips with soon to avoid environmental disaster. But the Bushites have been reluctant to act on this.

A Perspective on Bahamian Social Security

by Larry Smith

With all the fussing and fighting about government's proposed national health scheme, we thought a four-dimensional view might be useful.

Our existing social security system was created in 1974, when earlier welfare measures like workman's compensation and old age pensions were pulled together under a new scheme called National Insurance.

Similar programmes had been introduced by Jamaica in 1966, Barbados in 1967, Guyana in 1969 and Trinidad in 1971. And they trace back to the post-war social consensus in Britain, when politicians from all parties in "the mother country" began building a cradle to grave welfare state.

The centrepiece of the British consensus in the late 1940s was a state-run system of social security funded by payroll taxes, together with a national health service funded by general taxes.

Currently, the British NHS spends about $200 billion a year, and ended 2005 a billion dollars in the red. Although it retains wide support, successive governments have tried to inject more choice and competition in an effort to improve patient care and efficiency. In fact, more and more medical services are being outsourced to the growing private health sector in Britain.

Nassau Redevelopment Appears Underway

by Larry Smith

"Nearly all the inhabitants...lived in the ramshackle township called Charles Town, just inside the harbour bar. A huddle of houses without real streets stretched from the waterfront to the...ridge. There was no fort or any public buildings save, perhaps, a small church...where the house called Greycliff was built much later." -- 17th century Nassau as portrayed in Islanders in the Stream by Gail Saunders and Michael Craton.

Driving through town from a trip out west recently was like navigating an obstacle course. The traffic is so chaotic it's a miracle that pedestrians are not slaughtered by the dozen.

Dowdy stores advertise cheap t-shirts to even cheaper cruise ship passengers - these days, hardly anyone else shops on the main drag, whose dirty sidewalks are infested with bums and street peddlers.

Incredibly, the straw market remains a gaping hole in the ground five years after it burned down, while vendors (this government's main constituency) swelter under a makeshift tent. Bay Street east of the Churchill Building has become a no-go zone of derelict shops and ugly freight terminals.

It is increasingly difficult to recall the Nassau that used to be - before the economic decline of the 1980s. Business and political leaders have been talking about reviving the city ever since then, but a tortuous drive through town will convince anyone that nothing much is happening. In fact, things seem only to be getting worse.

Columbus, The Bahamas and the Flat World of the 21st Century

by Larry Smith

It's strange when you think about it, but the fact is that globalisation began right here in the Bahamas - when Christopher Columbus landed on San Salvador 500 years ago.

That event shrank the world and opened trade between the continents. So it's all the more odd that we are now being told the world is not round but flat - in the sense that technology has placed us on the brink of an entirely new era in human history.

This flat earth metaphor is used to good effect by a New York Times columnist named Thomas Friedman, who - in less than 16 months - has published two hardcover editions of his best-selling 575-page book, The World is Flat: a Brief History of the 21st Century.

Friedman is a Pulitzer Prize-winning author of several books on globalisation and his columns reach millions of people. He is best known as a populariser who can lucidly explain complex economic ideas and processes to the rest of us.

The flat world he talks about was created in less than two decades by several developments - beginning with the end of communism in 1989, the coming to life of the world wide web in 1995, the standardisation of workflow software, and the global spread of the Internet made possible by dot.com era over-investment in fibre-optics.

Saving Land and Jobs for Future Bahamians

by Sir Arthur Foulkes

It is all about balance, and the PLP Government seems incapable of getting it right. In the last election PLP campaigners and their allies relied heavily on the accusation that the FNM was selling the country to foreigners.

They were particularly strident in their criticism of the FNM for the concessions given to Kerzner International to get the multi-billion dollar Atlantis development on Paradise Island started so as to rescue the very sick economy the PLP had left behind. Some of them went so far as to use the South Africa race card against the Kerzners.

These days, PLP politicians positively gush when they mention Kerzner and Atlantis because they now realize what trouble this country would have been in without this world class development.

On Developments, Speculation, and the Bahamian Nation

by Nicolette Bethel

I have an uncle who was once Bishop of Nassau, The Bahamas, and the Turks and Caicos Islands. When I was a child, he was Father Eldon, priest of West End, Grand Bahama. I never saw him. He came to Nassau on one or two occasions a year only, because he was living and working and teaching and building in the West End community. He left West End to be made Bishop in 1972, and what he did from there Anglicans other than myself will be able to say better.

The point is this. West End, Grand Bahama, was the first place outside of Nassau I heard of as a child, because my uncle lived there. And he loved it with a passion others reserve for the places their navel strings are buried.

I had the opportunity to go to West End for the first time at the end of the 1980s, where I visited a school friend from Freeport and where we drove out to the settlements that had been part of my imagination since I could think for myself, Eight Mile Rock and West End. The drive, as many drives in Grand Bahama were and remained until the flooding of that island during the hurricanes, was long and wooded: pines and their companion palms (mostly the favoured silvertop, the best material for our straw industry) for miles and miles and miles. It wasn’t the most auspicious or beautiful scenery, but it was ours. Not mine, specifically, but Bahamian, Grand Bahamian, and – by extension – my uncle’s.

All that land. Just waiting to be developed.

Counting the Costs of a Government-run Health System in the Bahamas

by Larry Smith

If our new Health Minister is anything to go by, it’s clear the government has decided to take advantage of an upbeat economy to bet the next election on a massive expansion of social services.

“National health insurance is so important that it shouldn't be delayed any longer," Dr Bernard Nottage told the Chamber of Commerce last week, trying to appear large and in charge.

Acknowledging that this would require legislation, he said that would be accomplished within three months: "The final consultation process is going to be intense because we're on a short timeframe.”

The aim is to set up a system of mandatory social insurance as proposed by the government’s Blue Ribbon Commission on healthcare. This calls for a new payroll tax, and will add enormously to our inefficient public sector.

There may be a genuine concern driving this debate, but the obvious political motives should not be allowed to defeat good advice. The goal should be to ensure that whatever system is put in place makes sense, and is not wasteful, foolish or impractical.

On Tourism and Sustainable Development

by Nicolette Bethel

In early June, The Bahamas played host to a conference to discuss tourism and sustainable development. Now I don’t mind telling you that I found that more than mildly ironic — if there’s one thing you can’t say about the current state of the Bahamian tourism industry, it’s that it’s sustainable. The fact that the conference was held in the conference rooms of what was once the largest and splashiest hotel south of Atlantic City only increased the irony for me; I can remember the days when, as the Carnival Crystal Palace, the floors used to light up like a rainbow at night while we Bahamians lit candles in powercuts and fanned ourselves in front rooms hot as the infernal hinges.

Energy Issues for The Bahamas

by Larry Smith

Perhaps coincidentally, the government panel looking into fuel supplies will be reporting soon – just as rising prices are about to bite Bahamian consumers in the butt.

Oil prices surged past $75 a barrel last week, and analysts are forecasting $100-plus prices before the end of the year – up from just $20-30 per barrel a couple of years ago.

Experts say high oil prices are here to stay, due to soaring demand from fast-growing economies like China and India in the face of production limits. Our political leaders haven’t said so yet, but the clear message is that we will all have to find ways to adjust. The only question is whether the adjustment will be short and painful, or longer and easier.

It’s hard to say whether the Fuel Usage Committee’s report will be of any real help in this process. Odds are that it will simply repeat the tired old refrain of more government controls and an expanded public sector – after all, that’s what makes politicians happy. And even if some useful suggestions are made, we will still have to wait for our savvy politicians to act – which is a lot like getting your phone repaired by BTC.

Haitian Labour is Bad for The Bahamas

by Andrew Allen

It is interesting to note how, whenever a Minister of Immigration decides to do the job he’s being paid for and start making life hard for those illegally in the country, Bahamians all suddenly remember how vital Haitian labour is to our economy and society. The only problem with that argument (aside, of course, from its suspicious timing) is that it is totally wrong.

In fact, far from helping our economy, Haitian labour actually retards our workforce and economy in a number of ways, none of which are good for the long-term development of The Bahamas..

Granted, the effects of this retardation may be muted by the general success of the Bahamian economy over the last 75 years, but they are nonetheless very tangible.

Mayaguana and Bahamian Land Development

by Andrew Allen

Bahamians of all political outlooks should be prepared to give credit to a governing party where and when it is due.

In the case of the heads of agreement signed with the I-Group for the development of Mayaguana, this government clearly deserves such credit.

Finally, it seems we will have a large-scale development that is not only a Bahamian/foreign joint partnership, but also involves local family islanders as direct beneficiaries of the master plan.

Especially encouraging is the proposal to develop "town centres" not just for second home owners, but also for local Mayaguanans.

But what is interesting is that the Prime Minister's televised comments on the good points of the agreement were tantamount to a concession of the dangers inherent in what is taking place in other projects initiated on his watch all over the Bahamas.

Doctors Oppose Bahamas Health Plan

by Larry Smith

The sputtering debate over the government’s proposed national health plan is “as important as religion and more important than politics” according to Bahamian heart surgeon Dr Duane Sands.

And, he added in a talk to the East Nassau Rotary Club recently, Bahamian healthcare goals “will not be achieved with this plan...(which) will likely cause far more damage than ever anticipated.”

According to Dr Sands, a ‘one size fits all’ tax-funded health plan will be a virtual disaster for the Bahamas: “As responsible senior physicians we feel it is our duty to ensure that the plan is either not implemented or is modified substantially.”

The Bahamas & CARICOM: An Update

by Larry Smith

If you thought the Bahamas’ merger with CARICOM’s single market was off the table after last year’s acrimonious debate, think again.

A fact-finding team from the Inter-American Development Bank was here last week on the last leg of a 15-nation tour to update the bank’s regional development strategy. They met with private and public sector leaders, including Ministers James Smith and Fred Mitchell.

Although most analysts are skeptical, Mr Mitchell thinks we need to join the CSME for geopolitical reasons – specifically, to have a stronger hand against the Great White North. But public opinion is solidly opposed to integration, which is why the government backed down last year.

Six larger countries in the region went on to sign the inaugural protocols of the Caribbean Single Market and Economy this past January, and six smaller ones are expected to do so by mid-year. But the Bahamian position is still far from clear.

Settling on a Healthcare Model for The Bahamas

by Larry Smith

Over the past 50 years, the world has moved away from the issue of equitable access to figuring out how to sustain healthcare services in the long-term.

And as the Bahamas is about to embark on a compulsory government-run health plan, there is growing evidence that similar systems elsewhere are already staring at financial disaster.

The social health insurance system that our government is touting is based on the French model, which the World Health Organisation rates as the best in the world. But the French system is imploding:

"Our health system has gone mad," Health Minister Philippe Douste-Blazy told a parliamentary commission a couple of years ago. "Profound reforms are urgent."

Assessing A Bahamian National Health Plan

by Larry Smith

National Health Insurance:
The compassion of the Internal Revenue Service
The efficiency of the Postal Service
All at Pentagon prices!
-American bumper sticker

It was Benjamin Franklin who said: "In this world nothing is certain but death and taxes."

And some jokers would apply this to the government's proposed national health plan, because it is more concerned about raising money than keeping us alive and healthy.

Others complain that the government is introducing socialised medicine - but we already have that. The Ministry of Health currently offers universal access to publicly funded medical care at a cost of some $200 million a year.

The country's three main hospitals (the Princess Margaret, Sandilands and the Rand in Freeport) are run by a public corporation, and there are about a hundred government-operated clinics scattered around the country.

Just under half the population uses these tax-supported facilities, often paying nothing for treatment. The government wants to shift the cost of this healthcare from the Treasury to a new payroll tax levied on the other half of the population - who are already paying through the nose for private insurance and generally don't access the public healthcare system.

Offshore Finance in The Bahamas

by Larry Smith

Years ago, government officials were wont to dismiss out of hand any suggestion that our unregulated offshore sector and strict bank secrecy laws helped real criminals. It was all about taxes, they said.

Referring to US deposits in Bahamian banks, former attorney-general Paul Adderley once said "these figures have excited the Treasury Department...There is money here which may be evading American income tax, and that is perfectly legitimate."

But as the United states and others began to pay more attention to international crime, we turned more belligerent even as our position became less tenable.

Mr Adderley went so far as to blame the entire "nation for sale" drug trafficking scandal (which almost brought down the Pindling government in the mid-1980s) on a "warlike" American plot.

Political Interference in State Corporations

by Andrew Allen

What began four years ago as a troubling sign of political interference with the corporations has now escalated into a pattern of confrontation between members of this government and those charged with managing public institutions.

We can all, perhaps, be thankful to Sidney Stubbs for having given us all an early warning of what to expect.

Back in 2002, as part of an exuberant generation of new PLP MPs, Mr Stubbs began throwing around pretensions of power literally within weeks of his appointment as chairman of BAIC.

In a now well-publicised letter, he used shockingly abusive and threatening language against the general manager when their swords crossed over his (the chairman's) summary dismissal of staff members.

Bahamas Should Look to Hawaiian Model of Tourism Development

by Andrew Allen

A five-minute taxi-ride from the Hawaiian capital, Honolulu, lies the resort area of Waikiki, one of the principal hotel/condominium destinations in the world.

As intensively developed as Paradise Island, but on an altogether different scale (Waikiki comprises thousands of acres and boasts a Hilton, a Hyatt and a Sheraton among many, many other recognisable resort names) it differs from our tourist product in a number of respects.

Repercussions of Free Trade for The Bahamas

by Sir Arthur Foulkes

Last week the eyes of the world were focused on Hong Kong where the representatives of 149 countries were meeting in an effort to reach agreement on rules for the further expansion of global trade. The negotiations inside were accompanied by confrontational and violent demonstrations outside.

Not much progress was made in advancing new trade arrangements that would affect hundreds of millions of people around the globe. Indeed some of the complex issues and conflicts involved seem to defy resolution. The European Union’s Peter Mandelson described it as not a failure and not a success.

The Bahamas is not yet a member of the World Trade Organization but we are a member of the African Caribbean Pacific Group which interfaces with the European Union to promote development of ACP countries and trade with their European partners.

On Friday The Tribune published a story based on an interview with Bahamas Minister of Trade and Industry Leslie Miller. According to Mr. Miller, ACP countries have failed to get a further extension of preferential tariffs from 2007 to 2010.

Bahamian Labour Leaders Out of Control

by Larry Smith

"Everyone has the right to work...(and) the right to form and to join trade unions for the protection of (his or her) interests." -- Universal Declaration of Human Rights

“Years ago, ordinary people (supported) Labour to get a better life. Now, they understand that freedom and enterprise under law is better than massive government control over industry and people.” -- former British prime minister Margaret Thatcher

The naked threats from labour leaders in recent weeks are much more than mere bargaining positions in advance of what many believe will be an early election.

They represent a hinge of sorts. We are at a point where hard choices must be made about the future of the country. But unfortunately, the mindset of most Bahamian leaders appears locked in the past. - so much the worse for us.

Saving on Solar

by Larry Smith

The soaring price of fossil fuel is creating new opportunities for alternative energy sources like solar and wind power.

The Economist magazine says global sales of solar panels will reach $11 billion this year, up from $7 billion last year. And wind turbine sales also showed big increases this year.

Although proposals for wind farms and trash incineration plants have languished on official desks for years, the government took a big step this summer by eliminating the 35 per cent Customs duty on solar panels.

Until recently, solar energy systems in the Bahamas made sense mainly for new buildings in isolated islands where power generation is expensive, sporadic or non-existent. For the average homeowner, even an efficient solar water heating system was not usually cost-effective.

But now that the import tax has been removed, installation of these systems makes good economic sense. Solar panels can not only reduce the homeowner's power bills, but also ease the strain on our overloaded electricity grid.

On Why Free Trade Isn't Free

by Nicolette Bethel

There's a lot of talk these days about free trade, market forces, and so on. Even I've talked about it. How can we not? The world is changing, has changed, and unless we change with it, we'll be left behind.

Half a century ago, when colonies were becoming countries and the world's leaders were no longer exclusively of European descent, becoming a nation was the most important step you could take. Gaining a voice on the world stage, being able to apply for membership to international bodies, being able to create and express one's sovereignty -- these were the things people fought for, these were what nations celebrated.

Half a century ago, though, the greatest forces were not economic, but ideological. The world was divided into two major groups. On the one side were the communist countries; on the other, the so-called "free" world.

Protecting the Consumer

by Larry Smith

There are serious concerns about new consumer laws the government wants to enact this year to comply with free trade initiatives. But the government won't listen to the people who make the economy work.

Critics say the laws – as presently drafted – will dilute due process and politicise the marketplace by giving politicians the right to act as judge and jury over trade disputes.

The proposed laws set impractical standards for the supply of goods and services, they say, while exempting the public sector from similar scrutiny. That alone should be enough to make them a laughingstock.