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The importance of the Caribbean Community (CARICOM) countries acting jointly to address their development needs has become acute.
With high levels of debt-to-GDP ratios, widening budget deficits, deteriorating terms of trade, dwindling aid flows, and shocks to their economies by a decline in tourism earnings and a grave contraction of the financial services sector, the majority of CARICOM countries are reeling. Guyana and Suriname are the notable exceptions having recorded steady economic growth in recent years, largely due to export earnings from their mineral resources, especially gold.
In my last commentary I drew attention to the real possibility that the European Union (EU) - one of the biggest aid donors to the Caribbean region - could reduce their level of aid to all Caribbean states, except Haiti, because they are middle income countries. While the European Commission has stressed that no firm decision has been made on aid reduction to African, Caribbean and Pacific (ACP) states, under the EU's Multiannual Financial Framework for the period 2014-2020, a "differentiated approach" to aid is being adopted. Already, under this approach, the EU has eliminated traditional aid to 17 countries that are upper middle income countries, and two large middle income countries.
The EU has made it clear that its differentiated approach "represents a budget for investment and growth to ease the pressure on (EU) member states' finances, focusing on Europe 2020 priorities, impacts and results". And while the European Development Fund (EDF), under which aid is made available to the ACP states, is being kept separate from the EU budget, it seems inevitable that the EU - now consisting of many countries that never had colonies in ACP countries - will insist on applying the "differentiated approach" to giving aid to them. In the Caribbean, this means that in calculating allocations for the 11th EDF (2014-2020) Haiti will continue to be a beneficiary and all others could see aid reduced except "on the basis of country needs, capacities, commitments, performance and potential EU impact".
In other words, "needs" alone will not be a sufficient basis for aid to middle income countries; their "commitment" and "performance" will also be key determinants.
That is why my last commentary stressed two points: first, the issue "should command the urgent attention of all Caribbean governments, the CARICOM Secretariat and the Caribbean Development Bank", and second, "if ACP middle-income countries are to justify why aid should not be reduced now, they must be prepared to show how it will be used effectively to transition to diversifying their economies, enhancing their productive sector, and standing on their own feet. A begging bowl is not enough".
There have been many responses to that commentary, but one of them from a trade specialist, David Lewis of Manchester Trade based in Washington, was particularly forthright. Lewis' life's work has been Caribbean oriented. But, he harbors grave doubts that Caribbean governments, the CARICOM Secretariat and the Caribbean Development Bank are prepared to act in a meaningful way. He said that they "are so out of touch with reality in politics and economics in the Caribbean and more so elsewhere that they will be playing 'catch-up' to no avail on this one". He was also dubious about Caribbean organizations actually "showing how the region will transition to diversifying their economies, enhancing their productive sector, and standing on their own feet".
Lewis is not alone in his misgivings. EU representatives in the Caribbean have bemoaned the fact that governments have not actively pursued funding for regional projects that would benefit their countries individually as well as the region collectively. They have also expressed deep concern about the private sector in almost all CARICOM countries failing to produce projects that could attract EU funding and gain access to EU markets. Other regional commentators have also lamented the reality that, in a beggar-thy-neighbor and non-productive approach, many CARICOM governments have sought solutions to their economic problems in national efforts only, shunning the real benefits that could derive from regional action as well.
National efforts for alleviating the budgetary strains on governments and for a few infrastructural projects have focused recently on getting help from China and Venezuela. But, regardless of how generous and unquestioning these two governments may be now, their contributions, while welcome, are stop-gaps; they are not addressing fundamental weaknesses that persist.
The EU's frustration with Caribbean governments and their institutions is not exceptional; other countries and agencies have also expressed their disappointment and dissatisfaction. Among these agencies is the Canadian International Development Agency which has identified the Caribbean as a priority for its aid.
It is significant that it is since May that the European Commission first advised Caribbean representatives in Brussels of the decision to use a "differentiated approach" to aid. While in ACP representatives have been engaged in lobbying and presenting the counter arguments in Brussels, there is urgent need for high-level representation to EU governments, particularly the newer ones that have little knowledge of the Caribbean beyond statistical information.
If with the help of the Commonwealth Secretariat and the World Bank, CARICOM countries and the Dominican Republic could secure an International Conference on the Caribbean to address their fundamental difficulties of debt; a change in the criteria for concessional financing; differential treatment for trade based on their small size and limited capacity; deepening regional integration to allow for the creation of pan-Caribbean undertakings that are competitive; and, crucially, building machinery for transportation and storage of agricultural products within the region, many of their problems could be addressed through a co-ordinated approach by donor countries and agencies.
But, first the Caribbean would have to assemble a single dynamic team to prepare a convincing plan with measurable outcomes, performance criteria, and a viable implementation mechanism. Otherwise they won't be believed.
It is a dark time for the region; emerging into the light requires regional ingenuity, regional commitment and regional action.
o Sir Ronald Sanders is a business executive and former Caribbean diplomat who publishes widely on small states in the global community. Send responses to: www.sirronaldsanders.com.
The global financial crisis has impacted nations across the world and The Bahamas is not exempt. Financial institutions in most developed nations have sought bailout packages from their respective governments, politicians have faced defeat at the polls for failure to adequately address the economic hardship of their people and economists have seen theories proved and disproved all at the same time. In spite of governments' intervention and policies, for the most part markets have failed to correct themselves or stabilize fast enough to bring about the desired global economic recovery. In the midst of it all, governments across the world have shared the same fate - reduced revenues and high unemployment among other things.
The need for tax reform
The Bahamas is largely a service based country and has generally relied upon customs duties, tourism and foreign direct investments to generate revenue and sustain fiscal balance. However, the global economic crisis has shown in even greater measure the vulnerability of the financial and economic structure of The Bahamas. The government for successive budget cycles has fallen short of the requisite revenue to sustain recurrent expenditure. In this regard, it is becoming increasingly clear that the government must expand its revenue base and create or devise additional ways to generate and receive revenue.
It is encouraging to note that the current administration has committed to undertaking tax reform and has released a white paper which outlines its proposals in this regard. There have been recommendations to move toward a broad-based tax regime with July 2014 being the proposed implementation date for a value added tax (VAT) system. In light of the foregoing, it is imperative that we consider the pros and cons of such a tax regime and briefly examine other jurisdictions that have implemented this form of taxation. The VAT in simple terms is a form of tax levied upon consumption of goods and services. In other words, VAT taxes things that you purchase or utilize in everyday life such as food, clothes, fuel, dining, etc.
The obvious benefit of implementing a VAT system from the government's perspective is that it broadens and increases its revenue base, particularly in a country like The Bahamas that is driven by consumer spending. Additionally, as Bahamians are unaware of the total tax they pay for goods and services procured locally in The Bahamas, a VAT system will provide the much needed transparency. The fixed and generally known tax rate feature of a VAT regime creates accountability and curtails potential exploitation of consumers by vendors and service providers. Readily available information on the cost, tax rate and mark up associated with a good or service should consequently allow for better financial management, planning and budgeting by the consumer with little room for surprises.
A VAT system is also advantageous in that it allows consumers to make better decisions based on their financial condition. In this sense, consumers have the requisite information to avoid goods or services that charge a higher rate of VAT.
Perhaps the most critical argument against the VAT system is that it is a regressive form of taxation that rewards the wealthy and penalizes the poor. This is because all things being equal for example, the purchasing power of an individual making $50 is less than that of an individual making $500. In a VAT regime, both aforementioned individuals will pay the same VAT rate even though the less well-off individual under this scenario has less disposable income than his/her counterpart. Further, studies show that those below or closer to the poverty line tend to spend more on goods and services compared to the rich and wealthy.
Public commentary and financial experts in The Bahamas have been proponents of increased savings and investments by Bahamians as opposed to enormous spending/consumption. One can expect therefore that if consumers choose to save and invest more rather than spend, such a paradigm shift could negatively impact government revenues in the form of VAT and could hamper economic activity. Further, a high VAT rate could discourage shopping in The Bahamas (particularly from local producers and manufacturers) thereby maintaining the status quo of residents shopping in the U.S. where sales tax could be lower.
Finally, compliance costs for businesses created by the need to file returns, invest in equipment and/or systems and professional accounting/legal fees could be substantial.
The need for a detailed analysis
The Bahamas must ascertain whether the implementation of VAT is the sole form of taxation that should replace the current tax system or whether some form of progressive taxation must be introduced alongside VAT. The implementation of an income tax system and/or provision of social benefits should be considered to offset the regressive nature of the VAT.
The following questions among others should be answered adequately before the implementation of VAT. What rate of tax will have to be applied to compensate for the loss of and/or reduction in customs duties and tariffs? What is the current non-compliance rate for the collection of customs duties and will it equal or exceed the potential non-compliance rate for VAT? What is the anticipated cost of implementing and enforcing the VAT? What is the projected impact of VAT on government revenue? Which items or supplies will receive reduced or zero VAT rates and/or exemptions in entirety? What will the turnover threshold be for businesses to register for VAT? How will the government go about educating the public on the proposed VAT system?
It is interesting to note that most countries that have implemented VAT also have a progressive tax system alongside VAT. In this regard, these countries typically impose both income and corporate tax. Consequently, the presence of VAT has provided incentive for income and corporate tax rates to be reduced to lower levels. Of all the 34 members of the OECD, all countries except the United States (which imposes a sales tax in many of its states) have implemented VAT. In the Caribbean Community (CARICOM), all member nations impose income tax and various forms of consumption or sales tax. The discussion on tax reform must therefore be holistic in nature and should consider the medium to long-term objectives of the government.
The WTO component
It was reported that the minister of financial services stated that the goal of this administration is to complete ascension to the World Trade Organization (WTO) by the end of its current term. This commitment is welcomed and it is anticipated that this time line will coincide with conversion of the current tax regime to one that is consistent with the rules of the WTO. In particular, the requirement resulting from the "Uruguay Round" with commitment by members of the WTO to eliminate or reduce their tariff systems to prevent any barriers to trade will need to be addressed during this process.
The Bahamas continues to lose its competitive advantage in the global village according to several indices and The Bahamas being the only member of CARICOM that has failed to ascend to the WTO does not bolster our reputation. While most CARICOM countries ascended to the WTO in 1995, The Bahamas only gained observer status in 2000. Thirteen years later, The Bahamas joins some 28 countries that enjoy observer status compared to 155 full members of the WTO.
o Arinthia S. Komolafe is an attorney-at-law. Comments can be directed firstname.lastname@example.org
"Bahamians First", the campaign slogan adopted by the newly-elected Progressive Liberal Party (PLP), is a pledge by the PLP to put the interests of Bahamians above all others in The Bahamas. It is also a call to Bahamians to believe in The Bahamas and consequently themselves. A post-election analysis seems to confirm that the message resonated among the Bahamian people, resulting in a landslide victory for the PLP on May 7, 2012.
The Bahamianization policy
The concept denoted by the slogan represents a social contract with the Bahamian people - a revived one and arguably an updated version of the Bahamianization policy penned by the Lynden Pindling administration during the 70s. The Bahamianization policy seems to have been misinterpreted since its inception and throughout the years. Arguably, the policy has benefitted a vast majority and been abused by a few. While many believed that the policy promotes "Bahamians only", the intent when construed properly was always to put "Bahamians First". In a nutshell, Bahamianization sought to foster economic prosperity and independence through greater participation in business, finance and commerce by Bahamians, the protection of Bahamian assets for the benefit of Bahamians, whether through land or sustenance of state-owned enterprises and a more strict policy regarding the granting of Bahamian citizenship.
It is fair to suggest that at the time of its creation, the policy was implemented through a series of initiatives that promoted among other things encouraging the attainment of managerial positions in the tourism and financial services sectors, creation of opportunities for Bahamians to obtain tertiary education and the expansion of the housing program to provide home ownership opportunities for more Bahamians. Additionally, work permits were only granted in areas where there were no suitably qualified Bahamians and/or in instances that Bahamians were unwilling to undertake certain jobs.
Consequences of Bahamianization
Critics of the Bahamianization policy assert that the Pindling administration ran a socialist type government that was primarily opposed to the free market economy. For the most part and prior to the implementation of the policy, Bahamians were unable to afford participation in the economic structure of The Bahamas due to poverty, poor education or lack of skills among other things. Consequently, the government ran state-owned enterprises for decades - even at deficit levels and continued subsidizing the same from year to year. The government remained by far the largest employer for decades, while the tourism and financial services sectors provided the second and third highest rates of employment respectively.
Bahamians First in reality
Decades after the implementation of the Bahamianization policy and faced with a globalized world that promotes free enterprise and trade, The Bahamas still finds itself in an economic enigma whereby its people appear to be regressing rather than progressing. While it was a major feat yesterday for Bahamians to attain managerial status in the tourism and financial services sector, today such accomplishments are generally common although there is much ground to be covered in other sectors of the economy. It is disheartening however, that about three decades after the implementation of the Bahamianization policy, we have yet to accomplish substantial feats of economic ownership, particularly within the dominant twin pillar industries of tourism and financial services.
The reality is that successive governments through their fiscal and economic policies have failed to put "Bahamians First". By these governments' very actions, the foreign investor has been given priority over and above Bahamians owing to heavy reliance on foreign direct investment while the majority of Bahamians have been forced to take the crumbs. In essence, more jobs (which are arguably unsustainable due to their cyclical and/or fragile nature in the two main nationals industries) have been created rather than opportunities for increased ownership.
Bahamians First: Fiscal policy
The tax system in our country has been in place for years. While our politicians concede that the system of taxation is regressive and inequitable, successive administrations have made insignificant movement toward implementation of a progressive form of taxation. Many have gone as far as committing to no income tax which is arguably the most progressive and equitable form of taxation. It is noteworthy to state that we are far behind our regional counterparts who have long since implemented multiple progressive tax structures. Our failure to do so, obviously panders to special interest groups both domestic and foreign who are comfortable with the status quo and prefer to pay neither income nor corporate tax. The pledge we must remember is Bahamians First.
Bahamians First: Banking sector
The entry barriers within the banking sector exclude the majority of Bahamians from the ownership of banks. These barriers include capital requirements which are not tiered enough to allow average Bahamians to establish small banks with limitations on deposits and/or their operations. The commercial banking sector has predominantly been governed by three Canadian banks and in recent decades Bahamian owned and state-owned entities. It is therefore not surprising that having enjoyed the patronage of Bahamians; the former have repatriated billions of dollars in profits outside of our shores over the years. These entities are not to blame as they are in business to make profits. However, successive governments have not created an economic environment that allows more Bahamians to enjoy the same levels of success. The government's failure to facilitate the establishment of a Credit Bureau, Consumer Protection Agency and foreclosure laws have further allowed Bahamians to be exploited by the system.
Bahamians First: Home ownership and entrepreneurship
The cost of real estate in The Bahamians makes it difficult for quite a number of Bahamians to qualify for a home either because they are underpaid, unemployed or lack the necessary skills to attain a higher paying job. The small to medium sized enterprise sector, which is the engine of an economy, is challenged and growing at a slow pace due to what is seen as neglect by successive governments. The financial crisis, global economic downturn and ill-advised policies of the former administration have no doubt dealt a major setback to this vital sector. These factors coupled with the high cost of energy and other overhead costs have resulted in business closures and challenged the Bahamian entrepreneurial spirit.
Honoring the contract
A government that is truly about "Bahamians First" will address these inequities that have persisted and lingered within our society for far too long. It seems fair to suggest that Bahamians will continue to vote successive administrations out of office following one term of governance until it finds one that will finally speak their language and truly place "Bahamians First". The task of this Christie administration is to implement policies that will start and end with the average Bahamian in mind. The Christie administration must honor its part of the contract to maintain the confidence of the people.
Arinthia S. Komolafe is an attorney-at-law. Comments can be directed at email@example.com.
When the global economy recovers, and it will, opportunities for serious investment in the Caribbean may be lost due to a lack of adequate regulatory controls, professional training and suspicion that the financial services sector is still susceptible to money laundering crimes.
Even if a few private placements succeed, the majority of companies in the region hoping to access sources of new investment income to grow their businesses will face the challenge of investor confidence that the financial services sector operates in a properly regulated risk environment.
This skepticism from investors is not unfounded especially since there was a collective failure by all the risk officers and financial serv ...
Bahamian theater-goers can expect a total departure from the norm when "A Wedding in Nassau" closes out its two-night run tonight at The College of The Bahamas (COB) Performing Arts Centre.
Writer and director Dario 'Erics' Poitier brings audiences the story of a girl of Indian descent who falls in love with a Bahamian politician. But the girl's family of wealthy doctors is not too thrilled she won't be marrying the young man they had chosen for her. Trouble ensues as the family does everything they can to stop her from going against their wishes.
To say the least, a play about Indian culture mixed into Bahamian culture is quite out of the box, but for Poitier, it just came naturally.
"I was always into Indian history [and] Indian culture," Poitier said. "I initially wrote the play in about 2004, but during that time, it was just a 15-minute play whereas it was only the wedding scene. And I always told myself that once I put myself out there on a large scale, I'd use that as my first play."
"It's my first play on a large scale, but I've been writing plays just about all my life for church and work functions."
The 31-year-old, who works in financial services and is a certified pilot, also said he never planned to even stage a play in a theater until he met the play's co-director Rakel Dean, who encouraged him to think bigger than activity halls and church spaces.
When searching for an appropriate venue, Poitier said he simply fell in love with the four-year-old Performing Arts Centre at COB the first time he saw it.
"It just reminded me of, I guess being somewhere in New York," he said.
And that venue was the perfect place in his mind to stage an interactive play like "A Wedding in Nassau", which promises to make the audience feel as though they are attending an actual wedding.
In addition to the play, the audience can look forward to a mini-expo, which will feature 10 small businesses, promoting their products at the door. There, Poitier promises to offer up "a taste of Hollywood, a taste of Bollywood and a taste of what I call 'Bahama-wood'."
By bringing Indian culture into Bahamian culture, the young writer hopes to give theater-goers something different and consequently mark out his place in the Bahamian theater scene.
"I'm not trying to be Mr. [James] Catalyn or Tyler Perry. I'm just trying to get what's in me out of me," he said.
He also hopes budding writers will be encouraged by his work to pursue their interest, despite the lack of government support and the difficulty finding funding. As far as he's concerned, success can be achieved simply through hard work.
The final showing of "A Wedding in Nassau" begins tonight at 7 o'clock at COB's Performing Arts Centre in Oakes Field.
o Tickets are $20 in advance and $25 at the door. For more information, email firstname.lastname@example.org or call 502-3078, 544-3094, 502-3085 or 636-6853.
International credit ratings agency A.M. Best has affirmed the financial strength of one of Family Guardian's major shareholders. The revised outlook for Sagicor Capital Life Insurance Company Limited's - which has 20 percent in the Bahamian company - was sent down yesterday.
A top rating agency has downgraded the Family Guardian Insurance Company.
A.M. Best Company made the determination yesterday, revising the BISX-listed firm's financial strength rating from "A-" to "B++", or from excellent to good. Its issuer credit rating also took a hit, falling from "a-" to "bbb+".
However, the rating agency has now classified the overall outlook from negative to stable.
The move, according to the rating agency, reflects Family Guardian's "high concentration in mortgage loans relative to its total equity and the continued delinquencies in its mortgage loan portfolio, which are attributable to the current weak economic
environment in The Bahamas".
A.M Best also noted some improvements at the firm, such as a decline in mortgage loans as a percentage of total investment assets as well as a percentage of total capital.
Indeed, according to Famguard Corporation Limited's first quarter results, the parent company recorded a 54.4 percent net income increase. Famguard was aided by a 7.9 percent dip in total policyholder benefits paid out, the report noted. Gross policyholder benefits dropped by 18.6 percent to $15.508 million, from $19.057 million the previous year.
Total benefits and expenses declined $26.751 million to $25.661 million year-on-year.
The rating agency also acknowledged a trend of improving results in Family Guardian's group health division. The firm has recorded growth in premium income, and over the past five years achieved an annual rate of premium growth of 13 percent.
"A.M. Best also notes that the company trends favorably when it comes to profitability and capital with consistent growth in stockholders' equity, despite dividend payments. Family Guardian's three core business segments - home service, financial services and group division led by BahamaHealth - provide business diversification and competitive advantages in a generally limited and mature marketplace," according to the rating agency.
Nevertheless, it is felt the overall performance poses a challenge to the longer-term financial results and growth opportunities.
Increased delinquency rates in the mortgage loan portfolio, adverse operating profitability and an overall deterioration of the Bahamian economic environment were cited as key factors that could result in negative rating actions for Family Guardian.
Famguard is now focused on its alliance with Aetna, a third party healthcare provider, for 2012 and 2013. The alliance is intended to boost the services for policyholders both domestically and abroad.
A.M. Best assigned an issuer credit rating of "bb+" to Famguard, with a stable outlook.
The business manager at the Bahamas Automated Clearing House (ACH) says individual money transfers between banks will finally come to fruition in the beginning of 2012.The innovation, now commonplace in many areas of the world, is expected to make doing business and everyday banking far easier for Bahamians.
Brian Smith from ACH told Guardian Business it will get done in the time frame"because everyone wants it to get done".
"It's part of the evolution of banking in The Bahamas," he said. "We want to make things more convenient for consumers and they really want it to happen-and it will happen next year."
Although it is not possible for large employers to do transfers, and for banks to send other banks sums of cash, individuals continue to work through tellers or with checks for everyday services.
The managing director of Bank of The Bahamas (BOB), Paul McWeeney, said the capacity of performing these transactions has not been the issue. Instead, ensuring the security of clients has been a central focus for the ACH.
"The sooner it happens the better. But we had to be satisfied that when debiting someone's account, it was coming from a legitimate source. All transactions are final and we have to make sure the safeguards are in place,"he toldGuardian Business.
The ACH has made considerable strikes in defending against fraud, he said, and once individual transfers are enabled, ease of doing business in The Bahamas will improve greatly.
At BOB, McWeeney pointed out operations at the bank will be made far easier through the innovation, allowing staff typically wrapped up in these transactions to be freed up for other duties. It will likely reduce queues and wait times at banks as well.
In particular, the world of online banking will take center stage, Smith told Guardian Business.
"It has to make business easier," he added. "If you're paying someone directly into their account, there are so many personal transactions for small business owners and other clients that are made simpler. I want to book an airline ticket and I need payment right away, for example. Right now you have to go to a merchant and make a deposit. But if I can credit someone directly, I don't have to go there. That's a huge difference."
Since January 2010, Smith said ACH has been working on projects to make financial services easier for Bahamians. Check clearing was a"big thing", he said, and then bulk payments came along. Consumer payments are the"next thing", and then the ACH will fall into a more supervisor role to ensure the system works properly.
"My role is to keep things running. We go from a project mode to a business as usual type of mode,"he explained.
The ACH continues to work with banks and the Central Bank to make sure everyone's needs are met. The main challenge, he felt, was getting everyone on the same page and facilitating testing.
Individual transfers between banks will undergo a series of further tests before being unveiled to the general public in early 2012.
AN ADMINISTRATOR at a Bahamas-based financial and corporate services provider, Marcia S. Meeres, has successfully completed the Series 7 exam in the US after studying with the Securities Training Institute (STI).
Michael Miller, STI's president, said, "Our programmes provide professionals with the conceptual foundations, and practical skills, necessary to keep pace with the evolving fields of securities and financial services."
Concerns about equitable distribution among placement agents have heavily weighed into the issuance of the Arawak Port Development Limited's (APD) $38 million worth of equities on the Bahamian capital market - with three different companies chosen for the honors.
Chief Financial Officer Dion Bethell confirmed to Guardian Business that it was a closely considered decision to select Royal Fidelity as the agent for its $30 million private placement, while Providence Advisors Limited and CFAL will be the placement agents for the $8 million initial public offering (IPO).