|The Bahamas Investor Magazine
January 15, 2013
January 15, 2013
As the global economic environment evolves, The Bahamas is focusing on a growth strategy where legislative agility, new trade offices in fast-growing markets and financial reforms top the agenda.
A small, open economy, The Bahamas is vulnerable to global events beyond its control. The current economic climate has prompted three forward-looking legislators to explore the creation of new economic pillars to help bolster the economy.
Minister of Financial Services Ryan Pinder, Minister of State for Investments Khaalis Rolle and Minister of State for Finance Michael Halkitis swept into office last year when the Progressive Liberal Party (PLP) won the general election in May.
In the 2012 Speech from the Throne, which accompanied the opening of Parliament, the government underscored its commitment to “the formulation and execution of policies that will encourage private investment … while maximizing job creation and career development for Bahamians in the shortest possible time.”
The new government finance and investment trio of Pinder, Rolle and Halkitis is expected to go a long way in realizing these pledges.
Minister of Financial Services
Before assuming office as a Cabinet Minister last May, Ryan Pinder served as president of OL Private Corporate Counsel Ltd, where he worked as an international tax and commercial consultant. He previously held positions with the US-based commercial law firm Becker & Poliakoff, PA, as a managing shareholder of their Nassau office, and with Boies, Schiller & Flexner LLP, where he practiced as an attorney in Miami.
Now a policymaker, Pinder not only has responsibilities for the country’s second largest industry, but also for the twin Cabinet portfolios of trade and industry. In addition, he is tasked with establishing The Bahamas as a pre-eminent, international, commercial arbitration centre.
“We have a very large portfolio, but we believe that, if implemented correctly, the portfolio responsibilities of this Ministry can go a long way in redefining the economic model and development of this country,” says Pinder, who at 37 is the youngest member of the Cabinet. “We believe that we can provide the future of economic expansion in The Bahamas.”
The post of Minister of Financial Services has been resurrected under the new administration and the sector is facing a time of enormous change. Increased compliance initiatives from international bodies such as the Organisation for Economic Co-operation and Development (OECD) and the enactment of the US Foreign Account Tax Compliance Act (FATCA) are having a dramatic impact on the way offshore financial centres conduct their business.
Pinder is confident that the jurisdiction can be flexible and agile enough to respond to such changes. “Our financial services track record indicates that we are able to legislate new products and respond to industry concerns and desires pretty quickly when compared to the other jurisdictions.”
But what exactly does The Bahamas have to offer? Pinder says that the jurisdiction is ahead of the game in terms of its ability to modify and legislate new products and customize them to industry demands, particularly in regards to emerging markets in Asia and Latin America. Asset managers in these countries, he says, are showing a willingness to set up physical operations outside of their home-base and are taking advantage of the jurisdiction’s most innovative products.
“Our SMART Fund product has been very revolutionary and dynamic. For instance, we’ve been able to create and sculpt a SMART Fund product that’s very attractive to the domestic laws and investors in Brazil. That’s a key area for us to market.”
Pinder also cites the new Bahamas Executive Entity (BEE) as being a result of timely and pioneering legislation that gives The Bahamas the edge.
Adding further strings to the financial services bow, this year the government says it will “revolutionize” the country’s investment fund product with new legislation that’s expected to position The Bahamas’ offering even further ahead of its competitors. “We have the ability to move quickly from a legislative point of view. That’s due to our sovereignty. Our suite of tools is one of the most progressive and advanced anywhere.”
Pinder is also confident that plans to create an international arbitration hub in the jurisdiction can become a reality. The Bahamas, he says, is one of the few countries that has trust disputes arbitration laws on the books. Moreover, according to Pinder, local law provides the clarity that other jurisdictions lack, giving The Bahamas a competitive edge particularly in regions where litigation is prolonged and expensive.
All these initiatives, however, will come to nothing if they are not marketed effectively. Since taking office, Pinder has made it his mission to actively promote The Bahamas at every opportunity, travelling to the UK in the summer and Latin America in the fall to present at conferences and seminars. At home, he continually champions local trade and industry and has been instrumental in the jurisdiction’s efforts to gain international recognition as a member of the World Trade Organization (WTO).
He is quick to stress, however, that real economic growth will only come through the combined efforts of the entire administration. “We are a government that believes in cooperation amongst ministries and not a protectionist type of approach towards our portfolios, especially those of us on the economic side,” he says. “We believe that by working together we can really redefine the economic model.”
Minister of State for Investments
With broad experience and practical skills in business and marketing, Khaalis Rolle provides invaluable leadership as the Minister of State for Investments in the Office of the Prime Minister. Former chairman of the Bahamas Chamber of Commerce and Employers Confederation (BCCEC), Rolle, 40, has been at the forefront of private sector efforts to create industrial conditions favourable for economic prosperity.
“I understand the needs of business, as well as the institutional and regulatory framework that’s needed to develop business,” says Rolle, who from 2007 to 2009 served as the Caribbean region president of the Organization of American States’s (OAS) Inter-America Private Sector Organization. “I understand what people would like to see in order for them to make a decision to invest in The Bahamas.”
Rolle has oversight of the Bahamas Investment Authority (BIA), which facilitates every investment coming into The Bahamas with a foreign component. He has taken over at a delicate time. With financial markets worldwide still rattled, the pool of funds for new investments has shrunk.
The Minister has the task of positioning The Bahamas ahead of its competitors as the place to do business. “In the past, we’ve taken a very passive approach to investment promotion,” says Rolle, who served as chief marketing officer for his own company, Nassau Water Ferries Services Ltd, prior to taking office. “Our approach has been to wait for the investors to come here and then we facilitate them. Investment promotion has been a small component of our activities.”
The restructuring he’s carrying out now will take a different approach. Over the next 12 months, Rolle’s office is expected to join forces with three key government ministries (Financial Services, Tourism and Foreign Affairs). The goal is to actively and aggressively promote investment opportunities available in The Bahamas. “You are not going to be an attractive investment destination if people don’t know about you. Our goal is to be as ubiquitous as possible,” says Rolle. “The Bahamas will be here, there and everywhere.”
Although the logistics are still being ironed out, Rolle is working towards having qualified professionals, who can engage potential investors, stationed at key tourism and foreign affairs offices abroad. In some fast emerging markets this might not be possible, so a second option is to have a third-party partner drive potential investments to The Bahamas, either on a commission or salaried basis.
Although US foreign direct investment (FDI) in the country has fallen over recent years, The Bahamas is seeing “huge” interest from the Far East, while Europe remains “a key player.” According to Rolle, investors are approaching the government with some large-scale proposals, and for the most part, he believes they are executable. Whereas in the past some major projects have failed to materialize, Rolle believes that many of the individuals that the government is now talking with have the funds and determination to see the projects through to completion.
However, Rolle’s advice to investors seeking to do business in The Bahamas is to take a long-term, integrated approach. “I would advise any investor to look at becoming deeply involved in the community. Look at becoming one of the stakeholders, as opposed to someone that is isolated from the surroundings. Look at partnering with local business owners and operators.”
To assess the economic benefits of such investments, Rolle is establishing a database management system for FDI. “I want to reduce the bureaucracy and the manual labour associated with analysing these projects and tracking their benefits throughout the economy,” he explains. “We know what investors produce for us in terms of feasibility studies, but we can’t easily tell on a regular basis where we are on the economic development side of things.”
The government also hopes to implement a sector study approach to FDI through identifying the needs of a particular sector and finding the investor to service the need. “If you’re shooting here, there and everywhere and hoping that you hit one or two targets, chances are the amount of money and energy you are going to spend and the time you are going to waste might not necessarily prove beneficial,” says Rolle. “If we don’t have a well-defined, targeted approach, we’ll continue to spin wheels.”
Ideally, the Minister says, he wants to see The Bahamas move away from its dependence on tourism and financial services by developing other industries and creating economic development that provides a path to a sustainable, high wage economy with opportunities for a large number of citizens and not just a select few.
Minister of State for Finance
A chartered financial analyst, Michael Halkitis has considerable political experience having served as parliamentary secretary in the Ministry of Finance during Prime Minister Perry Christie’s first administration, 2002 to 2007. Then, he assisted the Minister of State for Finance in implementing government policy, with an emphasis on small business development, as well as financial and budgetary matters, including legislation.
In 2007, while in opposition, Christie appointed Halkitis to the Senate. Now, Halkitis has risen in the ranks to Minister of State for Finance. Although the Prime Minister is the substantive Minister, Halkitis is responsible for a wide-ranging portfolio including government finance and borrowing, the Treasury and Customs Departments, The Central Bank of The Bahamas, the Bahamas Development Bank, the first-time homebuyers’ stamp tax exemption programme, public auctions and even the salvaging of treasure from wrecks.
By Halkitis’s analysis, the country’s government finance statistic (GFS) deficit has averaged 3.1 per cent of gross domestic product (GDP), or $250 million, over the last five years, as of 2012. If one-off revenue items, or unexpected revenue windfalls, were excluded, this average would increase by at least $50 million per annum, according to the Minister.
The government collects about 18 per cent of the country’s GDP in tax revenue, totalling $1.56 billion. The government spends about 24 per cent of the country’s GDP, or $2.2 billion, leaving a 6.5 per cent deficit.
“Even though we can pay and we’re not in any risk of being unable to fulfil our obligations, we recognize that if we continue this trend then we will spend more and more of our money just servicing debt,” he notes. “That leaves less money to pay for things like education, healthcare and security.”
There’s no quick fix to correcting the problem. Halkitis’s strategy calls for a short-, medium- and long-term approach that includes closing any tax loop holes and properly administering government revenues that come in the form of customs duties, real property taxes and road traffic revenues. He also wants to tighten control of the government’s budget by reducing wastage in procurements and spending less, as well as growing the economy.
“We know that this programme will take a number of years to see any sort of shrinkage in borrowing, because the government has fixed obligations that it has to pay, such as salaries, pensions, rents and utilities. But, we have to work to keep discretionary spending down,” he says.
To better administer government revenues, Halkitis says his Ministry is overseeing a customs modernization programme. “We understand that the bulk of our revenue comes from customs duties, 60 per cent plus. So, we have in place a programme to modernize the customs department in terms of technology, human resource management and facilitating trade.”
Halkitis says that the Ministry is also in the process of reviewing the operation of the Real Property Tax Department, which is another significant revenue generator, with a view to streamlining the operations and improving tax collection methods.
Up to press time, the government was in the final stages of issuing a discussion paper on tax reform. Local officials and international experts have recognized that the government’s main source of revenue (import duties) runs contrary to world norms and erects a barrier to international trade.
In revisiting the nation’s tax structure the government is hoping to increase tax revenue to around 24 per cent of GDP. It’s still unclear what form the tax reform will take, be it value added, sales tax, or a flat tax. The position of the PLP government is that it does not want to introduce any form of income tax. “The government wants to come up with a system that is more equitable, easy to administer and reaches some of those areas in the economy that have not traditionally been taxed,” says Halkitis. “We want to do all that within the context of not trying to impose traditional taxes on the economy that would cause it to slow down.”
The government, he says, wants to not only have the means to service its debt, but also have in place a strategic debt management programme to see debt levels fall. “We just want to institutionalize those things, so that if, in five years from now, a new administration comes in, they can continue with that strategy.”