|The Bahamas Investor Magazine
January 4, 2007
January 4, 2007
It’s been a year of unprecedented change and growth in Grand Bahama—one that’s seen billions of dollars of investment flow into the island’s industrial, tourism and residential sectors.
One of the most high-profile business deals of 2006 was the announcement of the first tenant at the Sea Air Business Centre (SABC), a new 786-acre industrial trans-shipment and distribution park located between Grand Bahama International Airport and Freeport’s deep sea container port. In June, the Grand Bahama Port Authority (GBPA) and Associated Grocers of Florida (AGF) president and CEO Calvin Miller agreed to an $8-million contract for an international wholesale distribution warehouse at the new facility. Dubbed International Distributors of Grand Bahama Limited, the new 100,000-sq-ft warehouse accounts for the first 20 acres of land on the SABC site.
Nestled within a tax-free trade zone, the economic and logistical advantages of the SABC for businesses like Associated Grocers are many. “It’s so close to the US and, in particular Miami, it’s got one of the deepest ports in the northern hemisphere as we understand it and it’s a hub for MSC [Mediterranean Shipping Company, a major supplier of container vessels in Grand Bahama]; they come in and out of here from all over,” notes the new enterprise’s president and CEO, Roy Deffler.
“Because we’re in the free trade zone, we can bring product in and out of here with no duty and no taxes. It benefits us and it also benefits all of our retailers,” he says, noting that Associated Grocers currently exports out of Miami to 42 different countries. “The other benefit is that all of the major manufacturers in the United States have a separate pricing structure for export because they protect their market in the States…. Just using arbitrary numbers, let’s say a case of soup in the States costs you $30. If you brought it over and exported it, it may cost you $22. So there’s usually anywhere between a five to 30 per cent spread in cost. That accomplishes two things: obviously we can buy the same product that we buy in the States better if we bring it over here and conversely, we can make a few pennies on it and then we can pass on a portion of the savings to our retailers.”
In the short term, he says, the company plans to distribute mainly groceries, meat, produce, frozen food, health & beauty care items and general merchandise—“anything that you can purchase in a supermarket in the States.” Going forward, though, their plans are more ambitious and significantly more global in scope. “Our long-term goal is to get a liaison with, in particular, China to bring product in from China to Freeport… Some of it would go to the States and some of it would go to our current export customers. We hopefully will expand that. In fact, we are moving our distribution into the Middle East.”
Hutchison Port Holdings chief executive Chris Gray says the closing of the AGF deal has paved the way for future businesses by showing them what can be done and providing a tangible blueprint to follow. “One of the weaknesses we’ve had is that until Associated Grocers came along, we didn’t have a model that we could show people,” he says. “When Associated Grocers’ warehouse and operation is actually up and running, we will then have something that we can show to potential investors.”
He is confident that there will be many more tenants in different industries, but with similar business models, who will be signing on. “You could have an assembly plant here where, in the case of furniture for example, you could import the materials duty-free, assemble the furniture here … and export it without any sort of export taxes. It does not attract duty until it hits its final destination. If you had to do that in the US, you’d have to pay import duty on the materials that you’re bringing in to assemble the furniture.”
Companies in the white goods business could also benefit from such an arrangement. “Washing machines, refrigerators and these sorts of things could be brought in from the Far East, held here duty free in bond and then consolidated and exported to their final destination in the Caribbean, South America or even the United States,” says Gray.
Freeport’s geographic location makes it an ideal “consolidation centre” for US clients—a hub where containers of different goods are received from various international locations, broken down, sorted, reconsolidated into a separate container and shipped out to another destination. The SABC’s proximity to the US East Coast will also result in significant time savings for US retailers placing orders—in many cases, the difference between receiving a shipment in 72 hours rather than three weeks.
Business attracts business
The AGF deal and the resulting media attention have helped rectify a longstanding lack of awareness on the part of international investors. “I think one of the big problems is that nobody knows that we’re here,” says Gray. “The island has never marketed itself aggressively. We’re the equivalent of a two-hour car drive away from Associated Grocers’ head office in Miami and they didn’t even know we were here until a year and a half ago…. Since Associated Grocers announced their presence here, domestically in the United States, they’ve attracted a lot of attention. The people they’re dealing with—some of their vendors and even some of their customers—have sort of expressed an interest themselves in doing something here.”
Going forward, Gray says the momentum that’s been created by positive press and word of mouth could bring the SABC to near full capacity in a decade. “I would like to think that in ten years time we’ll be probably getting near full. It might be a bit ambitious; it’s taken ten years to get our first customer, but I think that business attracts business. As the container port grows, the Sea Air Business Centre will grow with it.”
To support the growth, the Freeport container port is continuing with its extensive multi-phase expansion plan. Phase IV of the expansion is now complete, bringing the port’s total capacity to 1.3 million TEUs (Twenty-foot Equivalent Units). Phase V, a two-year project with a projected price tag of $175 million, is slated to begin in early 2007 and will bring the Port’s TEU capacity to 2.2 million, which represents a nearly 70 per cent increase from current capacity.
Gray says that much of the increased traffic at the port is being “driven by the exploration of world trade, which continues to grow.” Also, he adds, the size of the ships being built today makes Freeport’s harbour, which is one of the deepest along the US Eastern Seaboard, an extremely attractive selling point.
Also expanding is the Grand Bahama Shipyard, which is developing the north end of its facilities to include two more wet berths to accommodate a heavier flow of cruise ships and cargo vessels in for maintenance and repair. The company is also contemplating the creation of a third dry dock.
Change brewing in West End
The changes at the port come amidst a time of similar investment and expansion in Freeport’s industrial sector. In the community of West End, plans for a $15-million beer brewery were announced in mid-2006. The 40,000-sq-ft facility, dubbed Bahamian Brewery and Beverage Company, will be built by James (Jimmy) Sands and will employ approximately 70 people. The facility is expected to be operational by mid-2007 and will begin with domestic distribution before taking its product global—an aim aided by its proximity to Freeport’s container port.
Meanwhile, on the development side, preparations for the construction of the massive $4.9-billion mega-resort Ginn sur Mer, to be located on nearly 2,000 acres of land in West End, are already under way. The brainchild of Ginn Company president and CEO Edward Robert “Bobby” Ginn III, the complex will combine a high-end vacation resort with home and condominium ownership opportunities. This dual business model, characteristic of other Ginn developments, is designed to attract not only a steady influx of tourist dollars but also residential investment from the sizeable population of baby boomers seeking to invest their considerable resources in real estate.
According to the Ministry of Tourism, business models like Ginn’s are tapping into an emerging trend. “These kinds of mixed-use develop-ments are consistent with the trend in global travel, which is toward vacation home ownership,” says Vernice Walkine, director general of the Ministry of Tourism. “The developers coming to The Islands of The Bahamas with this focus are merely responding to consumer demand.” As it currently stands, 70 per cent of all rooms being created in The Bahamas are located in second homes.
With the Florida real estate market becoming increasingly overcrowded and overpriced, Ginn sur Mer is set to deliver what a growing number of middle- and upper-income Americans want: affordable waterfront property in a temperate climate in close proximity to the US East Coast. With its location less than sixty miles off the coast of Florida, travel times to Grand Bahama from cities along the US Eastern Seaboard are short—so short, in fact, that if somebody flies from New York to Miami or New York to Freeport, the difference in time is actually nil.
John Davis, senior vice president of development for the Ginn sur Mer project, says the development’s location and features are making it an attractive investment for US customers. “Our initial clientele is mostly American,” he says. “The first wave is from our database, many of whom were people who had been waiting to buy a piece of property from the Ginn Company in The Bahamas.” Most of the initial 189 lots available on the first parcel of land have already sold for between $850,000 to $1 million each and he predicts that, going forward, “the homes being built will be valued at a minimum of $1 million each.”
Amenities planned for the lavish resort include a Monte Carlo-style casino, private airport, mega-yacht marina and two golf courses designed by Jack Nicklaus and Arnold Palmer, all connected by a grand canal. By generating more than 4,000 jobs, boosting tourist numbers and inviting real estate investment, this multi-billion dollar investment should continue to draw many more millions of dollars in investment for years to come. And when complete, it will represent the largest resort construction project ever undertaken in The Bahamas. For more information on Ginn sur Mer, visit www.ginnsurmer.com.
Freeport advantages at a glance
* Free trade zone approx 50 miles off coast of US
* One of the deepest ports in the northern hemisphere
* New facilities available for warehousing and distribution
* Easily accessible by sea and air
* No taxes on goods imported or exported
* No taxes on profits, capital gains, inheritance
* Temperate climate with 300 days of sunshine per year