|The Bahamas Investor Magazine
January 4, 2008
January 4, 2008
There are very few countries in the world that do not promote their jurisdiction as an optimal place in which to invest. Any regular reader of Bahamas promotional material and media will likely be able to come up with 10 good reasons to invest here.
In fact, this magazine has itself featured a two-page advertorial outlining key reasons to invest, which include:
• proximity to the US
• a common time zone with New York and Toronto
• a peaceful and stable democracy since 1729
• an independent nation with compliant legislation
• no local taxes on capital gains, inheritance, corporate or personal income
• proactive incentives for investment
• highly trained professionals
• essential public services and
• modern infrastructure and
• an ideal climate and lifestyle.
These are all “great to haves,” but many countries competing with The Bahamas in its core industries of tourism and financial services can boast the same. An investor looking to invest in The Bahamas is seeking more than just the selling points above. The investment has to make commercial sense and provide a suitable return for the risk of making an investment.
While the aforementioned points certainly contribute to the sustainability of a business model, when it comes down to conducting a detailed due diligence, where can The Bahamas really offer a competitive advantage? What is it that makes The Bahamas a more desirable place in which to invest than another country in the Caribbean region, or other international financial centres such as Bermuda or the Cayman Islands? The following is a quick rundown of some of our most distinctive and significant strengths in our two key industries, tourism and financial services, and the synergies generated between the two.
Pure volume of prime real estate.
The Bahamas has an established market with significant opportunity for growth across 700 islands and cays. Recently, the country has been seeing unprecedented inward development in tourism, into the many billions of dollars. Throughout the Bahamian archipelago there lies opportunity for development, preferably sustainable and eco-friendly. A huge amount of beachfront or oceanview real estate remains to be developed. As Donald Trump said, “Real estate is always good as far as I’m concerned!”
A knowledgeable counterpart
Each investment is a negotiation. The government of The Bahamas understands the business intimately and any serious investor with the track record, management team and financial capability to successfully complete a project will be taken seriously. It is normally easier to negotiate with an informed counterpart. The investor woes we sometimes hear tend to come from those who have not fully thought out or presented their plans, have inadequate funding or expertise, or have elevated expectations when it comes to concessions. The Bahamas knows the tourism industry extremely well, easing the load for investors.
No need to reinvent the wheel
There’s an old adage that states: pioneers get arrows in their backs. Fortunately, investors in The Bahamas do not have to be pioneers. The Bahamian portfolio of product is hugely diverse, allowing investors to benefit from an existing infrastructure and a thorough understanding of the offerings by regulators and industry marketers. This product ranges from the magnificent aquatic enticements and casino at Atlantis, to luxury mixed-use resorts such as the One&Only Ocean Club on Paradise Island, Four Seasons in Exuma, Winding Bay in Abaco, the forthcoming Ritz-Carlton on Rose Island and the Conrad in Bimini. Also on offer: a world-famous golf course designed by Ernie Els and Tiger Woods at the Albany Golf & Beach Club. There is also something for those seeking a quieter existence, such as the eco-friendly Tiamo in Andros, bonefishing lodges, and Out Island barefoot experiences.
The geographical product is out of this world; you can see the Bahama banks clearly from outer space. There are few places in the world with beaches and seascapes that can match those in The Bahamas, and certainly there is nowhere else with the sheer expanse of stunning beachfront that The Bahamas possesses. Appropriately, the islands are named after that which makes them so beautiful. Christopher Columbus dubbed the country baja mar (Spanish for shallow water) in 1492, upon observing the huge expanse of sandy shallow-water banks.
An experienced and proud workforce
Labour is not cheap in The Bahamas, but the levels of expertise and experience exceed those in many competitive jurisdictions, as does the friendliness of the Bahamian people. Most Bahamian resorts are staffed primarily by Bahamians who are proud of their product, unlike some competitors whose hotels are staffed by imported labour.
The Bahamas already receives approximately five million visitors annually, and has the air and seaports to manage this traffic effectively. Indeed, the country’s major airport gateway is about to be upgraded with new and renovated terminals in order to handle the expected future increase in passenger traffic. Airport management company Vancouver Airport Services Ltd (also known as YVRAS), has been appointed to see the airport facility through its $300 million expansion programme. The major cruise port, Nassau Harbour, is regarded as one of the most beautiful in the world, with natural harbour flow through, clean water and a large turning basin.
An attractive jurisdiction for lenders
Lenders understand and like The Bahamas. Virtually every development project is financed with some leverage. In a recent survey conducted by KPMG corporate finance, The Bahamas was noted as the most popular destination in the region to lend into by the majority of the banks surveyed. Why? In addition to the reasons noted above, major lenders to the hospitality industry in the region recognize The Bahamas as being a well-established jurisdiction for tourism. Furthermore, non-traditional lenders are financing a variety of Bahamian projects, as The Bahamas has a sufficiently prosperous industry to be deemed a key player by the syndicates in New York, Toronto and elsewhere.
The Bahamas is also a long-established and well-recognized financial services centre with particular competitive strength in the private banking and trust environment, and an extensive suite of related products and services.
The Bahamas is one of the largest private banking locations in the world. According to the Bahamas Financial Services Board website, “The Bahamas is home to some 250 banks and trust companies, of which 125 are subsidiaries of institutions from 28 originating countries. With combined balance sheet assets of $300 billion, and having over $1 trillion in assets under administration, financial services make a significant contribution to the Bahamian economy. The country’s private banking and trust business accounts for nearly four-fifths of its financial services business, which contributes about 20 per cent of gross domestic product.”
The site goes on to note that “The Bahamas also has over 80 insurance companies, with assets approaching $700 million. Seven hundred and twenty-plus investment funds have assets under management totalling in excess of $205 billion. The Bahamian ship registry is one of the world’s most prestigious and currently it is ranked as the third-largest ship registry in the world, with merchant ships representing some 42 million gross tons.”
Investors can therefore gain comfort from the fact that The Bahamas is no newcomer to the industry. A partnership with regulators and government led by the Bahamas Financial Services Board is also a healthy feature of the financial services marketplace that has allowed for innovative ideas such as the SMART fund* and other key legislation to be developed in recent times.
Many high-calibre financial institutions have a significant presence in The Bahamas, including HSBC, Credit Suisse, Pictet Bank & Trust, UBS, SG Hambros, Cititrust, Ansbacher, JP Morgan, Royal Bank of Canada, Scotiatrust and CITCO. This impressive array of reputable institutions means new entrants can feel confident that Bahamian regulators and the professional community understand the financial services business and can provide the necessary support.
Stable and solid growth
The Bahamas adapted extremely quickly and decisively to a significant global shake-up of the financial services industry earlier this decade. This meant a change in the way financial services regulation was administered—a change for the better. The Bahamas is now reaping the benefits, as a spate of new high-profile banks and financial institutions is choosing our islands as an attractive location from which to conduct business. Very recently, for instance, one of the fastest-growing private banking businesses out of Europe, EFG International, set up shop in The Bahamas.
Top-tier service providers
The industry is serviced by the largest global accounting firms, including KPMG, PricewaterhouseCoopers, Ernst & Young and Deloitte & Touche, as well as other mid-tier firms, which have significant on-the-ground resources and are able to tap into global networks to serve their clients effectively. These firms can provide an array of advisory services outside of the traditional audit space. The legal profession also has deep roots and strong connectivity with the major financial services centres.
The Bahamas Financial Services Board says it best: “People power continues to be a key ingredient in providing continuity and consistency of services. The Bahamas has a large skilled labour pool, well educated and committed to professional development, and driven to perform… . An available pool of well-qualified international and Bahamian professionals means The Bahamas can offer long-term working relationships with resident expertise.”
There are several generations who have grown up in The Bahamas during the time that it has been a financial centre, and new ideas and enhancements continue to be made to the product. The industry is growing in a well-managed and orderly fashion, fostering the type of environment that is attractive to sophisticated investors.
A great place in which to invest…
In conclusion, The Bahamas continues to look for ways to build its competitive advantage, develop new products, and better service the needs of tourists and financial services clientele. The foundation has been laid, and the framework put in place, to make The Bahamas an attractive place for investors to grow their assets.
* Short for Specific Mandate Alternative Regulatory Test, SMART funds are a class of flexible investment structures that are not subject to the broad-brush style of rules applied to traditionally regulated investment funds. They are subject only to a degree of supervision deemed appropriate to the mandate of the investment pool and the investors in question.
Simon Townend is a partner at KPMG in The Bahamas and head of their corporate finance activities in the Caribbean region. The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG in The Bahamas.