“WE’VE BUILT IT, THEY CAME , SOME LEFT – HOW DO WE GET THEM TO RETURN?”
By now, most of you are aware that the Grand Bahama Chamber of Commerce’s theme for the year is “Continuation, Collaboration and Competition.” My presentation today will focus on the how continuation and collaborations is essential in order to re-ignite Grand Baham’s economy and make us more competitive.
Some of you may recall the movie “Field of Dreams” when the actor Kevin Costner was surveying a corn field in his back yard as the future site of a baseball field, and a heavenly voice kept repeating the now famous, or I dare say, infamous phrase, since it is so frequently misquoted, “if you build it, he will come,” “if you build it he will come.” I imagine that the late Mr. Wallace Groves heard a similar voice back in the late forties/early fifties when surveying Hawksbill Creek and the surrounding area for the first time. Mr. Groves immediately recognized the strategic value of Grand Bahama’s geographical location and its other positive attributes. Sensitive to the Colonial Government’s desire for increasing the Colony’s revenues, and the promotion of economic development in the “out islands,” I must pause here to ask, do these themes sound eerily familiar to the Government’s current agenda? Mr. Groves and a small group of investors, negotiated with the then Colonial Government of The Bahamas, the Country’s first Public Private Partnership, known as the Hawksbill Creek Agreement, an enduring agreement which served and continues to serve as the blue print for the phased development of the city of Freeport – Grand Bahama’s business nucleus.
Subsequent to the execution of the Hawksbill Creek Agreement, Mr. Groves through a corporate vehicle named the Grand Bahama Port Authority, Limited (GBPA), presided over the transformation of an underdeveloped, deforested, sparsely populated area of Grand Bahama Island, to a burgeoning, metropolis, which fondly became known by names such as, “the nation’s second city,” “the magic city,” and the “industrial capital” of The Bahamas.
To be clear, Mr. Groves’ vision was realized, since not only “did they come” but they came in strong numbers and the businesses attracted were quite diverse. By way of example, between 1958 and 1971, companies such as the Freeport Bunkering Company, Bahamas Cement Company, Grand Bahama Airport Company, The Lucayan Beach Hotel & Monte Carlo Casino, Mercantile Bank & Trust, Freeport Power Company Limited (now the Grand Bahama Power Company), the International Hotel (later renamed the Princess Tower), Syntex, the El Casino, Winn Dixie, Pantry Pride, BORCO, Xanadu Beach Hotel and the King’s Inn & Golf Club (later renamed the Bahamas Princess & Golf Resort) to name a few, all established businesses in Freeport.
In the post independence era, the management and ownership reins at the GBPA, were taken over by the late, Mr. Edward St. George, an Oxford educated barrister, and astute businessman, with a penchant for deal making, and the recently departed and beloved, Sir Jack Hayward, the son of Sir Charles Hayward, who was one of the founding minority shareholders in the GBPA. Under the leadership of these two businessmen, the GBPA continued to attract a diverse group of multi-national companies to Grand Bahama’s shores. These companies included, Hutchison Whampoa Limited, one of the world’s leading container terminal operators and port services provider and the Mediterranean Shipping Company, the world’s second largest container shipping line.
Other notable companies included the Grand Bahama Shipyard (formerly Lloyd Werft Bremerhaven), Polymers International Limited, and Pharmachem Technologies (Grand Bahama) Ltd, now PharmaChem Acquisition Company Ltd. Despite the valiant efforts of Messrs. St. George and Hayward, it was during the post-independence era, that Grand Bahama’s economy begun to steadily decline.
WHY THE DECLINE?
Arguably, the decline of Grand Bahama’s economy in the post-independence era can be attributed to a combination of factors which in my view can be placed in three (3) broad categories, namely, 1) macro-economic, geo-political events and natural disasters, 2) Central Government’s overreach and meddling, and 3) the incompatible role of the GBPA and its affiliate Port Group of Companies as a municipality and private investor respectively. I will briefly elaborate on each of these factors:
MACRO-ECONOMIC, GEO-POLITICAL EVENTS & NATURAL DISASTERS
1) Given the Country’s close links to the United States, macro – economic and or geo-political events which slowed the growth of the United States’ economy, such as the energy crisis in the early seventies, the negative results emanating from the United States’ pre-occupation with the terror threat in the aftermath of 9/11, and in more recent times the protracted global recession, which commenced in Q4 of 2008 and only over the last two years has ceded to the “green shoots” of a real recovery. All of these events have similarly affected Grand Bahama’s economy ;
2) The extensive infrastructural and property damage caused by hurricanes Frances, Jeanne and Wilma in 2004 and 2005 respectively. The effects of which still reverberates today, more than ten years later;
CENTRAL GOVERNMENT OVERREACH & MEDDLING
3) Beginning in the late sixties and early seventies, the Central Government has methodically chipped away at or undermined the administrative and regulatory powers reposed in the GBPA under the terms of the HCA. For example, in the early years of the HCA, the GBPA was simply required to “notify the Colonial Secretary within thirty (30) days, of any person or company licensed by them to carry on any manufacturing, industrial or business undertaking or enterprise within the Port Area, together with brief particulars of the kind and nature of the business to be carried on by such licensee.”
Now it would appear, that the GBPA has been relegated to the role of completing investor applications for the approval of the Central Government, which as you all know generally takes anywhere from six (6) to (8) eight weeks to be approved. In the early years of the HCA, the GBPA and its Licensees were also permitted “to bring in trained and skilled personnel,” necessary for the development and administration of their respective businesses, with the understanding that the Government always had the right to withhold its permission for any foreign national to enter The Bahamas or to compel any foreign national to leave The Bahamas. Now, the GBPA and its Licensees are required to operate under a more stringent, xenophobic, time consuming national immigration policy.
Whilst this “freedom to operate” granted to the GBPA and its licensees by the Government in the early years did much to progress development, it is undisputed that during this same period, Grand Bahama’s social infrastructure, lagged significantly behind its economic development. These circumstances led the then Premier of The Bahamas, the late Sir Lynden O. Pindling, in 1969 at the Grand Opening of the Bahamas Oil Refining Company (BORCO), to admonished the GBPA and its licensees for having an “unbending social order” which if not changed, had to be “broken.” Notwithstanding its “moral correctness,” the Premier’s ultimatum was viewed by many as an abrogation of the HCA.
For its part, the Customs Department and more recently the VAT Unit of the Ministry of Finance, has repeatedly attempted to unilaterally dilute the tax concessions enjoyed by GBPA licensees under the HCA, by either assessing taxes that were later found by the Courts to be in contravention of the HCA, assessing taxes and fees which subsequently had to be deferred or suspended, after the GBPA, the Grand Bahama Chamber of Commerce and or individual licensees vigorously asserted their rights or the rights of their respective member bodies under the HCA.
THE PERCEIVED INCOMPATIBLE ROLE OF THE GRAND BAHAMA PORT AUTHORITY AND ITS AFFILIATE, PORT GROUP OF COMPANIES
4) Although the GBPA’s roles of being a municipality and regulator, conflicts with its role as private investor, by virtue of its principals’ investments in The Port Group Limited, this conflict is by no means a new development, and some might even argue was necessary in the early days in order to progress the development of Freeport. Notwithstanding the arguments made for and against – this situation must be addressed and rectified as a matter of urgency, with the cooperation and consent of the GBPA’s principals.
As a first step, the current principals of the GBPA may want to consider reconstituting its Board of Directors, so that it is more reflective of the make-up of the city of Freeport.
To be clear, my intension is not to ridicule or embarrass the Central Government and or the Grand Bahama Port Authority, but to bring focused attention to these contributing factors, which in my view, collectively served to undermine investor confidence and arguably played and continues to play a significant role in Grand Bahama’s decline.
HOW DO WE GET INVESTORS TO RETURN?
The city has been built, they did come, but the sad reality is, a good number of them also did not stay, so how do we now get investors to return?
In the past, when the Central Government was being asked to extend the tax exemptions relating to real property taxes and business license fees, under the Freeport Grand Bahama Act, 1993 and the HCA respectively, the Government demanded in return that certain “works and undertakings” be carried out by the Grand Bahama Port Authority and the Grand Bahama Development Company. These works and undertakings in the main, focused on the island’s physical infrastructure, which I hasten to add is extremely important in the life of any city, if we are to remain competitive. However proper consideration was not given to the intangible factors that I’ve enumerated, which contributed to its decline. As fate would have it, we now have another chance at hitting the “reset button” for Freeport and by extension Grand Bahama’s economy, with the possible sun setting of the real property, business license and other tax exemptions in August of this year. This opportunity must not and cannot be squandered.
As previously mentioned, Freeport’s initial success was born out of the HCA. The framers of the HCA, Wallace Groves, the Colonial Government and the early investors, clearly understood the critical role that fiscal incentives play in spurring investment and the resultant positive impact this can have on raising revenues. However in order to be effective, such incentives must necessarily be accompanied by SMART (i.e. specific, measurable, achievable, relevant and time bound) developmental and growth goals.
So, what specific steps do we recommend be taken by key stakeholders in order to entice investors back to the magic city and make it competitive once again? We humbly recommend the following:
1) The Central Government needs to quickly make a decision on the tax exemptions expected to expire in August, in order to dispel the dark cloud of uncertainty hovering over Freeport;
2) Rather than attempting to chip away at the existing tax incentives available to GBPA’s Licensees, by way of these frequent incursions made by the Customs Department and The Vat Unit of the Ministry of Finance on GBPA Licensees, the Central Government needs to be seen to recognize and respect the legal rights of Licensees under the terms of the Hawksbill Creek Agreement;
3) The Central Government and its agencies should be available, as and when required, but should resist the urge to meddle and interfere with the running of the city. Pursuant to the HCA, this responsibility has been delegated to the Grand Bahama Port Authority and every time the Government or one of its agencies overreaches, this erodes investor confidence;
4) Once Foreign Direct Investment Applicants are properly vetted by the GBPA and its agents and the applications are passed on to the Foreign Investment Board, the National Economic Council and the Central Bank for further review, we recommend that these Central Government agencies coordinate their respective review activities with a view to reducing review and turn-around times to no more than fifteen (15) business days;
5) The Central Government needs to revisit its “one size fits all” policy on immigration, with a view to facilitating the migration of a greater number of professionals and skilled labour to our shores;
6) The Principals of the Grand Bahama Port Authority need to urgently address the appearance of conflict and must lead the way in the restructuring of this essential quasi governmental organ;
7) The Principals of the Grand Bahama Port Authority needs to leverage their relation with their Joint Venture Partners to make the proposed Sea Air Business Park, more than just a theoretical concept, but a fully functional Free Trade Zone comparable to the likes of Jebel Ali in Dubai, Shannon in Ireland and Colon in Panama;
8) The Grand Bahama Port Authority needs to be more visible and transparent in defending the rights of its licensees and should actively facilitate the formation of a fully functioning Licensees Association; and
9) The Grand Bahama Port Authority, in collaboration with the Central Government, Licensees and NGOs such as the Chamber of Commerce, should actively market and promote the island of Grand Bahama. The Government can immediately add value here by not only extending the tax exemptions due to sun set in August of this year, but by “doubling down” and creating new tax incentives in order to spur new investment.
CONCLUSION
The economic decline and stagnation currently affecting Grand Bahama’s economy, is a blight that has affected other cities around the world and some even in developed and wealthy countries, such as the United States. Hence we need not feel discouraged. Our challenge therefore is not to complain, but to identify and correct our shortcomings and inefficiencies, leverage our geographical, climatic and other God given advantages, refresh our product and services offerings, and forge stronger and more mutually beneficial relationships between key stakeholders. History has shown that Grand Bahama’s residents, inclusive the business community, are resourceful, resilient and persevering. We are not asking for a hand out from the Central Government, when we request that fiscal incentives be extended or even increased, since history supports the fact that we have always paid our way, and has been and I believe that we continue to be, a net contributor to the economy of The Bahamas. The message therefore is clear, our success here in Grand Bahama inures to the benefit of the nation at large, let us therefore work together to achieve this. Thank you!