Grand Bahama: A Role Model For Privately Funded Infrastructure Development?

Keith Boyfield - March 2013


Speed Read
  • Grand Bahama, the deepest harbour along the East Cast of the United States, is preparing to capitalise on the doubling in capacity of the Panama Canal due in 2014.
  • The Jones Act bans non US registered ships from docking more than once at US ports, but Grand Bahama can act as a transhipment hub servicing the US, Latin America and the trade lanes to Europe, the Far East and Australasia.
  • The Bahamas has applied to join the World Trade Organisation (WTO), but a reduction in existing custom duties, which with excise taxes, accounts for nearly 60% of total tax revenue means new revenue sources are urgently required for fiscal health.

Grand Bahama, the deepest harbour along the East Cast of the United States, is set to enjoy a major boom in its economy as it prepares to capitalise on the doubling in capacity of the Panama Canal, a development due to open later next year.

The ramifications of this infrastructure upgrade were discussed at an international conference held in Freeport, Grand Bahama on 20th & 21st February. The event attracted a large number of delegates from the global financial, commercial, property and shipping communities.

The Grand Bahama Port Authority (GBPA) operates a free trade zone with special powers conferred by the Bahamian government under the Hawksbill Creek Agreement. GBPA provides a model for how one can privately fund and develop a thriving commercial and residential centre which offers the latest in terms of fully digital telecommunications, modern utilities and a sophisticated financial centre. 

Freeport operates a full service container port facility, operational 24 hours a day, seven days a week. It can handle the world’s largest container vessels – highly significant given the impending doubling in capacity of the Panama Canal which will enable the canal to be used by ‘post Panamax’ vessels. Freeport is one of only a few ports along the East Coast capable of accepting such container ships.

Hutchinson Whampoa, a Fortune 500 company and one of the largest firms listed on the Hong Kong Stock Exchange, has invested substantial sums in Grand Bahama. Through its subsidiary, Hutchison Port Holdings Trust, the group is responsible for the management of Freeport Harbour & Container Port; significantly, it is also the manager of the Panama Canal. Consequently, investment in these facilities forms part of Hutchinson’s global port strategy.

Freeport will play a pivotal role in supplying goods to the East Coast of the United States since US legislation – in the form of the Jones Act 2004 – bans non US registered ships from docking more than once at US ports. Grand Bahama is poised to capitalise on this regulation since it can act as a transhipment hub for the world’s shipping, servicing the US, the rapidly developing economies of Latin America and the trade lanes to Europe, the Far East and Australasia.

The port also operates the Grand Bahama International airport, which boasts a 11,000 foot runway capable of handling the largest aircraft in service and within easy reach of all major US destinations.  It also offers US Customs & Immigration Pre-Clearance, which is a considerable attraction for many cargo operators.

The Bahamas is now one of the top five centres in the world for ship registration.  Building on this base, it plans to develop as a centre of excellence for shipping arbitration. The Bahamas is also home to more than 250 banks, financial institutions and trusts. Financial services represent the second largest sector of the economy and accounts for 15% of GDP.

 




However the Bahamas has been hit by a downturn in earnings from tourism, exacerbated by storm damage caused by Hurricane Sandy. While the cruise ship market has remained relatively robust, passengers do not spend much when they venture on land. Hotels are not operating at full capacity and there is a lack of variety, particularly in terms of boutique hotels. Innovative thinking is required, especially with regard to special interest vacations.

The residential property market is also on the slide although there are plans for new developments. Yet much of Grand Bahama is remarkably unspoilt and there are significant opportunities for mixed use development and residential construction across the price spectrum. But one of Grand Bahama’s problems is that relatively few people visit it: Nassau tends to attract far more visitors.

The downturn in the tourist industry together with an ambitious government public expenditure programme has put pressure on the country’s fiscal health. The Government had planned to plug the gap with a levy placed on hitherto illegal online gambling, a popular pastime for locals in so called  “number houses” or “web shops”—legal internet cafés that offer illegal bets on the side.  But the voters rejected the idea in a referendum held on January 28th. This was embarrassing for the government even though Prime Minister Perry Christie claimed he had “no horse in the race”.

 



 

Consequently, there are now plans to introduce in July 2014 a sales tax set – initially at least – at 15%.  The Bahamas has applied to join the World Trade Organisation (WTO) and it hopes to complete this goal by the end of 2014. Yet the immediate result of membership would spell a drastic reduction in existing (hefty) custom duties, which, along with excise taxes, accounts for nearly 60% of total tax revenue.  The onus is therefore on raising new sources of revenue and improvements to the anaemic level of tax collection evident over the last decade.

Clearly, the financial pressures are on the Bahamas to capitalise on its natural assets and its status as a jurisdiction which charges no income tax, corporation tax or capital gains tax. However even these considerable attractions are bound to come under intense pressure from OECD countries and the G8 – one of whose key goals this year is to address the question of offshore financial centres and the tax treatment they afford international investors.

The Bahamas is set for a bumpy economic ride but the opportunities for shipping, finance and tourism remain considerable. There is also an urgent need for more investment in agriculture. Currently, the country has to import nearly all the food it serves to tourists as well as residents. If it attracted investment from major agri-business concerns, its balance of payments would dramatically improve and the choice afforded to visitors may also be transformed.