|The Bahamas Investor Magazine
January 4, 2007
January 4, 2007
While North America and Europe have long provided a steady flow of investment capital and tourism revenue into the Bahamian economy, new opportunities in finance, tourism and commerce are opening up with China, India, Latin and South America. As they do, key professionals from the public and private sectors are moving quickly to adapt to the challenges of globalization, pass necessary legislation and encourage new business.
Globally, so called “emerging market economies” continue to evolve and garner a greater share of investor interest. China, for instance, realized GDP gains of 9.9 per cent in 2005. Latin and South American economies are also making strides. According to the Capgemini and Merrill Lynch World Wealth Report 2006, “With the worldwide surge in oil prices helping Brazil, Mexico and Venezuela score profits, Latin America outdistanced global HNWI [high-net-worth individual] growth, increasing its wealthy population by 9.7 per cent last year.”
Industry observers point to the growing number of new debt and equity issues coming out of non-traditional markets as proof that they will continue to grow as a source of assets for investors who have banking relationships in The Bahamas. These growing investment markets are enabling financial services providers in The Bahamas to offer new investment strategies and tools to their existing clients and to offer a whole new segment of HNWIs from these emerging market nations their services and expertise.
With many eager to capitalize on these opportunities, Bahamas Financial Services Board (BFSB) CEO and executive director Wendy Warren says now is the time for the domestic financial services industry to decide if they are willing to “pay the price” for tapping into emerging markets. “The challenge for us from a trends perspective is that Asia is the hot area. Asia is growing at this incredible rate, so if you’re in Asia right now, you can’t but help yourself to grow because there’s just so much money,” she says, adding however, that geography and time zones need to be taken into consideration.
Building bridges with China
One of the most significant areas in terms of both size and spending power is China, a country with a growing population of wealthy individuals who are eager to explore new investment opportunities and travel destinations. Consider that on Forbes’ 2006 China Rich List, 15 Chinese were identified as billionaires with compiled assets of US$38 billion. They were amassing their fortunes by being involved in everything from selling TVs to recycling paper and building condominiums.
When Li Zhaoxing, China’s foreign affairs minister, visited here last May, he noted that he expected ties between China and The Bahamas to strengthen. He also predicted that there would be an increase in investment and trade opportunities between the two countries. Bahamian Prime Minister Perry Christie has called the growing connection between his country and China a “partnership.” He contends that The Bahamas is beginning to reorient its thinking more toward the East. As proof, he notes that trade with China grew from $35 million to $150 million in 2006. Presently, China is establishing itself in Grand Bahama with the objective of manufacturing and assembling their products for distribution in the western hemisphere as the majority of their clients are American or European.
Bahamian businesses and entrepreneurs are continuing to explore opportunities with China, which is now the world’s largest manufacturer. According to Philip Simon, executive director of the Bahamas Chamber of Commerce, it is becoming increasingly common for local businessmen and merchants, even “mom and pop” shop owners, to travel to China and return with merchandise to sell. “China is becoming the new Miami,” he notes with a laugh. But with Bahamian shipping companies like Global United, among other businesses, getting involved with China, commerce and trade between the two nations is predicted to grow, and grow rapidly.
When it comes to exploring new markets, the Bahamas Ministry of Tourism has also become very proactive. Obie Wilchcombe, the Minister of Tourism, is making the most of the tremendous potential the growing Chinese travel market holds for The Bahamas. “We have looked at this important region and, based on our strategy and potential benefits, the People’s Republic of China figures significantly into our plans,” he told participants at a seminar aimed at facilitating connections between the two nations. To capitalize on their objective of a strong partnership with China, the Ministry of Tourism has allocated a large portion of its resources to attracting increased visitor traffic and strengthening ties.
Competition for a share of China’s travel segment is intense. As other travel destinations also look to China for growth, a significant amount of revenue is at stake. According to Ministry of Tourism statistics, the average Chinese tourist spends in excess of $1,000 travelling to a destination, not including expenditures on transportation and lodging. The World Tourism Organization has predicted that by 2020, more than 100 million Chinese nationals will be travelling globally—a remarkable statistic considering that two decades ago, most were prohibited by the government from leaving their own country. In 2005, The Bahamas was added to the list of approved destinations for the Chinese, a step that Wilchcombe feels was significant in fostering efforts to attract them to the shores of the Commonwealth.
Another initiative designed to strengthen ties between China and The Bahamas is a joint trade mission. A trade mission to India is also in the works. India, a manufacturing powerhouse with exceptional investment potential, experienced a GDP gain of 8 per cent over the previous year and is capturing an increasing share of investor interest. It’s another nation that has ranked high on the Capgemini and Merrill Lynch World Wealth Report 2006 and is of great interest to The Bahamas.
According to Chamber of Commerce executive director Philip Simon, in the globalized economy of the 21st century, many businesses are choosing to forego the middleman (who is typically US-based) and deal directly with international manufacturers. They now have the ability to establish direct trade links with manufacturers and this helps create more opportunities for a greater number of businesses and sectors in The Bahamas. “That helps the economy. When [people] can go direct, their earning potential is higher, and so they enjoy better cash flow,” he explains. “The greater the level of cash flow in individual businesses, the better for the overall economy because it becomes more dynamic. It provides more options … more choices.”
“Globalization is driven by trade agreements and technology,” Simon explains, “and technology in particular has allowed us to become even closer together. Not too long ago, China was a very far-off place. It still is geographically, but these days it’s at our fingertips through the Internet. We can actually do business with a country that has a 12-hour time difference quite easily. Bahamian business owners and financial services experts are also seeking to make inroads into areas that could present profitable business opportunities that are more accessible and in closer proximity to the islands.
Neighbours to the south
Latin America’s proximity to The Bahamas makes it an ideal fit for this marketplace—especially for the financial services industry, and by extension, other businesses. According to Jorge Moreira, manager of The Bahamas operations for BluBank Ltd, a Peru-based offshore institution with an office in Panama, The Bahamas offers exactly what Latin American clients are seeking. “What is most valued by the Latin American client is privacy and confidentiality. This is something The Bahamas offers. Another thing that is very important for the Latin American market is a personal relationship and good service,” he says, giving The Bahamas high marks in these key areas. He also points to political, social and economic stability as important factors influencing the choice of The Bahamas as a safe haven for the wealth of Latin American HNWIs.
Beyond managing wealth for Latin American clients, Moreira sees an even bigger potential role for The Bahamas’ financial services industry as a “bridge to Latin America for the rest of the world.” With a growing number of North American, European and even Asian investors interested in exploring the Latin American market, he says, The Bahamas has both the geographic location and the relationships necessary to service the needs of both sides.
The successful ripple effect of such a connection in many other areas of the Bahamian economy is perceived to be without limit.
Focus on captive insurance
Hywel Jones, president of Britannia Consulting Group, sees in Latin America an opportunity for The Bahamas to position itself to service a niche market in captive insurance. He points to the fact that the insurance market in those countries, so tightly controlled in the past, is beginning to open up, creating a real opportunity for The Bahamas.
“The Latin American captive market is relatively virgin [territory]. The amounts aren’t going to be as big as the North American business.” He explains, “Bermuda, which is a very expensive place to do business, will end up pricing itself out of the market.” The Bahamas is also better positioned than other jurisdictions, such as the British Virgin Islands, because of the former’s solid reputation as a wealth management centre.
Although The Bahamas has not boasted an active captive insurance industry for quite some time, according to the BFSB, many of the necessary elements are in place to spur a resurgence. This includes The Bahamas’ innovative legislation and unique product offerings, the high cost of conducting such business in competing offshore jurisdictions such as Bermuda, and increasingly restrictive insurance regulations in many onshore jurisdictions.
The BFSB is satisfied that both the government and the private sector have done what is necessary to facilitate the renewed establishment of The Bahamas as a robust captive insurance centre. Jones agrees, saying that all that remains to be done is to speed up the regulatory process through the allocation of additional resources to make the country as competitive as possible.
Significant strides have already been made to increase efficiency. Since the Office of the Registrar of Insurance Companies was returned to the jurisdiction of the Ministry of Finance, the timeline for processing of applications has been reduced. But Warren says those involved realize this is alone is not sufficient. “The Bahamas Financial Services Board Insurance Working Group has been working assiduously with the Registry and the Ministry of Finance with a view toward ensuring market-sensitive responses to applications. Progress has been made, but we continue to look forward to greater efficiency in the approval process,” she says.
The Bahamas Chamber of Commerce and the Ministry of Tourism have also joined forces to explore new markets. In October of 2006, members of the chamber and tourism officials hosted a trade mission to Panama. One key item on the agenda was to convince Copa Airlines to add Nassau to its list of direct flight destinations, making the trip to The Bahamas less time consuming and more attractive to Panamanians who would no longer be required to take connecting flights through the US. With the vote in the fall of 2006 by Panamanians to rebuild the Panama Canal, the future for trade with nations like The Bahamas, which is in relatively close proximity to this country, is looking very bright.
Ready for action
In Grand Bahama, hopes are high that the new Sea Air Business Centre (SABC), a 786-acre warehousing and distribution facility under construction in Freeport, will bolster the inflow of international trade. Launched in mid-2006, the new operation is ideal as a consolidation centre for foreign goods—a tax-free hub at which orders can be received from various international suppliers, sorted, reconsolidated into different containers and shipped out to retailers without attracting the taxes and duty that would result if the same order were routed through a port in the US. This business model is already in use by Associated Grocers of Florida, which signed on as the first client in the new facility. Representatives of the Grand Bahama Port Authority and Hutchison Port Holdings say that interest from other companies is extremely high. And Philip Simon says that as construction of the SABC progresses and more businesses sign on, trade with new markets will increase.
As The Bahamas advances into the global marketplace, prospects in the areas of finance, business and commerce, tourism, and captive insurance, continue to expand. New international agreements and partnerships can be forged and developed. One thing that emerges is that new markets and opportunities will be created and explored with the archipelago as an active player on the international stage.