January 25, 2022
Beyond Recovery into Growth. A more appropriate theme could not have been chosen for this year’s Bahamas Business Outlook (BBO). What the Prime Minister and the Governor of The Central Bank had to say or ask then was, in my opinion, most instructive, even if at times a lot more was said or asked than the words actually uttered.
A cursory review of subsequent headlines tells an important tale. Regarding the Prime Minister’s contribution the headlines read – “PM to businesses: Its time to embrace transformative change” and “PM urges businesses: Put Bahamas before profits”. The message is clear. There is a need for a shift in thinking, a desire for a new philosophical underpinning to take hold as the urgent need to pursue growth hardens into sharp relief. In the case if the Governor – “Rolle: Brace for inflation, tougher credit access in 2022” and “Pre-COVID output “not good enough”. The message is clear. The performance of the country before the pandemic is inadequate going forward; it will simply not be good enough to support the sustainable “recovery” needed and certainly would be incapable of facilitating much-desired resiliency.
Interestingly other headlines carrying very sobering messages keeps popping up almost every week. One associated with the former Governor and Minister, James Smith reads “Expect hardship” from inflation, interest hikes””; Robert Myers – “Caribbean’s Singapore”: $15B GDP target urged”; and Michael Halkitis, the Minister of Economic Affairs – “Halkitis: US inflation impact could be worse if not for reduced VAT”. Each very potent but taken together you will see the forming of a pattern, the weaving of a story. The Bahamas is in need of growth beyond historical levels but the current environment maintains a high level of uncertainty and there are some critical headwinds before us. How then can we move forward? I believe an exploration of the PM’s questions will provide some clues.
This is not a critique of gloom and doom. It is rather a call to action to firstly realise that the problem we all suspect is the problem we actually have and because we have yet to explore and diagnose it fully, what we have seen so far is but a portion of the entire set of challenges. The country desperately needs to grow. One could argue that this is a rather interesting time for such an argument as growth is near impossible today. Such an argument would only be important if we are wedded to the current state, the current performances, the current strategies, the current thinking and are satisfied with the current outcomes.
It is my view that the most important shift needed, is captured the words of the Prime Minister. “A positive, compassionate, national development. One that meets the needs and aspirations of the many and not just the few… [Where we can] increase growth and improve economic justice and dignity for all. [in an environment which allows] investors to [profitably] focus on projects which lift up the Bahamian people”. There is only one way to achieve this and that is through growth together with a broad suite of economic and structural reforms, unprecedented in the country’s history. Growth for The Bahamas in the near term must confront the obstacles delineated by the Governor in his presentation. There is the haunting prospect of a significant impact from imported inflation given the proportion of goods and service the country imports. The near-term recovery carries with it the deceptive “body back on the job” or “at work” but potential underemployment or downward shifts in income, disruption to personal economies and potentially deep economic scarring. As the Governor aptly pointed out, access to credit will see adverse pressure in 2022 both from institutions natural adjustments to the impact of the pandemic on credit portfolios and likely impact from the implementation of the credit bureau. Access to credit holds important influence for economic performance. Appreciating the local propensity for funding consumption via bank credit, this is an important development for the country.
Studying the presentations by the PM and Governor together is important. On one hand, both are calling for growth but on the other, in different ways, pointing to the perils to achieving it. The Governor highlights the potential impact of the US Treasury policy shift on interest rates. Any increases will have a direct adverse effect on the 43% of the national debt in currency, or at least the portions that are at floating rates. Loan delinquency, while nowhere near amounts feared in the midst of the pandemic, will be a factor, as will reserves. While stated to be adequate there must be concerns for a rapid demand in US currency and therefore a draw on reserves. Bearing in mind that a significant portion of reserves is borrowed. With our now “depleted” borrowing capacity, it is certain policy makers are paying close attention to this. Lack of credit may in this regard be a blessing in disguise, from a country perspective.
So where is the good news you ask. Again, it lies in the words of the PM. At the BBO, he asked a series of questions that I believe hold great clues to what is needed to unlock the potential for the future as we grapple with the vagaries of the moment. If we assume for a moment that the PM was actually laying out a series of positions, having carefully contemplated the state of affairs of the country and decided on the path he wishes to take, we can chip out an important set of policy positions from his question. The PM asked, “What can you do to support especially persons in the family Islands who continue to struggle with high levels of poverty and unemployment?” Family island development and poverty alleviation. “Are you able to look beyond short term narrow profit to see possibilities of broader long term gain?” A more socially responsible business environment. “How can you help top drive down the cost of living to support the commonwealth and common good?” Arresting the cost of living especially for the ordinary citizen.
If we assume that the response to each of these questions by businesses are not to the satisfaction of the PM or any other reasonable and objective person, then the reason I indicate that they are policy positions becomes readily obvious. To secure the desired outcomes the government will have to drive it in some way or the other. If we further assume that the PM is completely committed to the idea of “increase growth and improve economic justice and dignity for all”, then clearly his administration will push to cause this to be so. If one listens closely to the PM, it is not very difficult to conclude that he truly harbours these aspirations. The key challenge faced though is that the answers to these questions will demand facilitation by government and are unlikely to emerge through the simple prompting of the private sector. Fundamentally, this line of thinking sets the tone for serious collaborative efforts between government and the private sector towards national development.
“How will you strive for a more just and inclusive workspace?” How do you plan to ensure your business affords respect and dignity for all workers? What measures will you take to do away with anti-competitive practices? The first two questions are clear attempts at moral suasion toward the above stated objective. The third though is by any analysis very challenging to be outwardly from the government. The fact that it is asked though evidences the existence of arrangements in the economy that are demanding reforms. Anti-competitive rules never emanates from the actors. By their very nature, wherever they exist, suggest a willingness to step outside the moral lines for personal gains. Realizing “growth beyond the normal” that is broad-based and economically equitable will require a definitive policy position supported by a clear and specific legislative agenda.
I believe that these last two questions raised by the PM completes the argument that there is a clear path to growth in the minds of policy makers. “How can your business contribute to and benefit from this vision?” asked the PM. “what entrepreneurial opportunities can be explored produce a more agile, better educated and ultimately empowered population?” A part of that vision is infusing culture “at the heart of our tourism offering…to celebrate and market Bahamian culture as the main tourism product”. This make sense given the import of the tourism sector to the economy and the influence of culture on travel and hospitality. Other Caribbean countries such as of Jamaica, Trinidad, Barbados, Belize shows that culture sells. This however have to be only one part of a broader growth strategy. Ultimately the PM and his administration will likely settle on the need for the reforms and the value they hold for facilitating robust. Let us go back to all the questions asked and assume that the response from the business sector is at best tepid, as they are likely to be given that they immediately exerts negative pressure on existing and potential profits. To get the answers the administration will be left to ask them of itself, reflecting on how they can make them happen, how to become an effective facilitating agent and therefore what policy positions it must settle on and the legislative agenda to be employed to create the shift. With this in mind, the path ahead will not be easy, but I believe there are great opportunities to be exploited, the attainment of which requires early, deliberate and focused action.
I would not be presumptuous to think that I have the capacity to provide advice that would be followed in any unadjusted form. What follows therefore is only a broad mental roadmap I would lay out if I had the chance to engage with brighter minds, in a bid to create a strategic outlook for the way forward.
· Start with a clearly articulated national vision as suggested by the PM in his BBO presentation. Clearly, this will needed to be broader than the cased made then, incorporating more specifically a wider cross section of economic sectors and opportunities.
· Lay out a very clear aspirational path to growth beyond historical norms. This could be, for example, in the vein of the call for a targeted GDP to $15B or becoming the “Singapore of the Caribbean”. We (the entire country) must then shift to start asking ourselves how we can get there, how can we achieve this desire and be committed to confronting the obstacles that lays between where we are now and where we desire to be, rather than embracing a negative outlook or thoughts of why it can’t be done.
· There must be a sober and mature non-partisan engagement and coalescing around a national plan and direction on matters that are considered critical for national development. Truth is, no administration will be able to fix The Bahamas in a single term and consequently without continuity of policies, strategies and plans there is unlikely to be a successful transformation. The best way to secure this continuity, for the sake of country, is to heighten the level of agreement between major parties on critical matters. The Electorate behaviour after 1997 suggests that this is an imperative for national growth and development. It should not be difficult to agree that partisan divide and rapid changes in approaches have left the country's performance less than it ought to be. In issues that will have ubiquitous national impact it is important that we agree on the need for pivoting to new approaches with underlying consensus support. There is a potent lesson from Jamaica in the continuous application of its national development plan across multiple administration change.
· The administration must confront the areas which are challenging but in need of reforms. Areas such as taxation, energy; public sector (recent announcements suggest a step in this direction), social network, national productivity; education (the Minister’s most recent back to school speech signals an intent, a clear understanding of the needs and the depth of the challenges), structural and economic measure to secure effective debt management and economic performance. This is effectively the preparation of the environment to become more facilitative. These reforms and others will be the direct answers to the questions posed by the PM and the creation of systemic strength that help to mitigate against the emergence of the headwind issues noted by the Governor. This is the suite of action that will ultimately prime the economy for growth and thereafter help to build resilience and guard against vulnerabilities and shocks.
The PM’s administration must accept that as challenging as it may be, and that while there will be great tensions between national goals and other interests, that only it, as the government, working as chief facilitator, being the chief driver, chief strategist, being a supportive and inclusive partner and working with other actors, can cause the economy realise growth. The contribution of government to economic activities is simply too significant for it to be otherwise; the economy is too small and highly dependent on government spending for any other view to prevail. The factors that need changing the most to unleash the potential of the economy are too much under the influence government for the questions to be only directed outwardly. The behaviours the PM is seemingly seeking to change are simply too entrenched and advantageous to those benefiting for there to be any reasonable expectations of voluntary shifts, voluntary changes. Change, growth and resiliency are the goals. Reforms, investments, growth, effective debt management, “rainy day” savings (for countercyclical spending during downturns) is the formula but this is only possible with direct, deliberate and intentional efforts.
© Hubert Edwards 2021
Hubert Edwards is the Principal of Next Level Solutions Limited (NLS), a management consultancy firm. He can be reached at email@example.com. Hubert specializes in governance, risk and compliance (GRC), Accounting and Finance. NLS provides services in the areas of enterprise risk management, internal audit and policy and procedures development, regulatory consulting, anti-money laundering, accounting and strategic planning. This and other articles are available at www.nlsolutionsbahamas.com.