Relying almost exclusively on Foreign Direct Investment(FDI) to boost The Bahamas’ finances is a “grossly unbalanced” strategy and I am hopeful that as it enters its final few months of this term in office, there will be incentives and policy initiatives by the government purposed to offer more encouragement to smaller, local investors.
What the current state of The Bahamas’ economy?
The economic cycle, unlike the lunar or seasonal cycles, is far from predictable: it doesn’t move in any pattern that one can detect. My sense is that the economic pendulum has changed direction and is now firmly heading in the direction of recovery, albeit an anaemic one. But this is to be expected given that the boom that gave way to the recession in the United States was debt-fuelled. Historically, recoveries that follow a credit crunch are long, slow and have a higher-than-normal probability of bumps along the way.
Most of the main indicators — gross domestic product, planning and work-permit approvals, visitor spending — are improving and the Government’s debt reduction plan is proceeding, more or less, on schedule. The financial services sector, however, is failing to help in the recovery effort: non-performing loans remains stubbornly high, bank lending and bank deposits have shrunk. Lack of lending, whether in the form of debt or equity, to small and medium-sized businesses is arguably the largest single barrier to sustaining a meaningful recovery.
The Government’s approach to stimulating the economy through private spending is somewhat unbalanced in favour of FDI.
Ten small projects of, say, $15 million each are likely to have a greater impact on the recovery effort than reliance on one $150 million project because all one’s eggs aren’t in one basket — it’s a sensible way to manage uncertainty.
We must learn to walk and chew gum at the same time. The overreliance on foreign direct investment diminishes the potential impact of small-scale local investment spending — fast nickels are better than slow dollars. The same reduction in red tape afforded foreign investors should be extended to local entrepreneurs. At the very least, a concierge service that makes it easier to get a local business up and running is needed for local entrepreneurs.
What does the future holds for us?
There are tremendous opportunities available to Bahamians who are willing to wade into the asset market in general and the real estate and equity markets in particular. Pessimism is pervasive, just as optimism was excessive in the run-up to the recession.
At the psychological level, humans are awfully similar to cattle: they blindly follow what everyone else is doing. How else can you explain pre-recession property and equity prices, on the one hand, and recession prices, on the other — we’re essentially talking about the same assets in the same country.
Excessive exuberance during a boom sows the seeds for a bust. We’re presently in a vicious cycle: some people feel that things will only get worse. Maybe I am the eternal optimist. I feel differently. Despite the recession, real estate prices, to a very large extent remains rather stable. That’s not to say there aren’t very good deals in the marketplace. Now is the time to buy. It’s a contrarian view, but this is a strategy that distinguishes successful market players from the crowd.
In ten years or so, many will look back and wonder why they didn’t seize the opportunity to buy assets at today’s prices. This recession has been highly disruptive to the existing distribution of wealth. The recession has opened up economic gaps that will be filled by the business leaders of tomorrow.
To what extent our present economic circumstance impacted income inequality?
Ordinarily, inequality changes very slowly. In democratic societies, one cannot expect to see change in the distribution of income or wealth in anything less than a decade.
Traditional means of dealing with inequality include a minimum or a living wage; financial assistance — conditional assistance has proven particularly effective in The Bahamas; food and housing subsidies; and assistance with electricity bills.
People on low incomes have fewer options in terms of healthcare, education, leisure, etc than middle-or-upper class people.
Low income is often a case of limited capability to earn higher income. Recognition of an individual’s (in) capabilities allows a society to focus on the factors that limit an individual from earning a higher income.
For example, improving a student’s literacy and numeracy will increase the probability that an individual will be able to thrive in modern-day Bahamas. Improving literacy and numeracy are therefore indispensable to raising an individual’s quality of life. We need to improve our BGCSE pass rates to improve our sons and daughters ability achieving basic goals like securing work that will pay a livable income, of participating in political processes or of having access to healthcare.
Much of the frustration of working-class people stems from a conflict between traditional ways of living and ways that people have reason to believe are just, on the one hand, and the demands of a global economy, on the other. The global economy is largely corporate: it is not rooted in a system of natural ethics but instead follows the logic of a balance sheet and a profit and loss statement.
Managing the local economy’s interface with the global economy is fraught with difficulties largely because of the disruptive effects of creative destruction.
The changes associated with creative destruction are imposed not negotiated. Book-keepers were summarily displaced by electronic spreadsheets; backyard mechanics need the latest computer software and equipment to make simple repairs; and high-speed data is making the outsourcing of accounting, customer service, information technology and other business functions a serious option for both international and local businesses.
The next wave of disruption will likely come from corporations like Uber and Airbnb. Uber, a transportation company, could make traditional ways — taxi — of moving visitors and locals around the Island redundant. Similarly, Airbnb poses a serious threat to traditional ways — hotels and guesthouses — of accommodating visitors.
The way in which workers organise themselves through unions and the power they are used to wielding will change dramatically. Similarly, owners will view the challengers’ new business model as grossly unfair.
When looking at economic performance over a decade or more, three factors drive growth: more capital — plant and equipment, better technology, and a growing and better-trained workforce. International growth data suggest that these factors are of equal importance.
If the Government could demonstrate its commitment to economic development without exclusive reliance on outsiders, then perhaps the scepticism over its economic growth policies could be abated.