Countries of the World/COUNTRYS.BIN/dp/0028/00283.txt

Text File | 1991-06-24 | 20KB | 320 lines

$Unique_ID{COW00283}
$Pretitle{233C}
$Title{Bahamas, the
Chapter 2B.   Economy}
$Subtitle{}
$Author{Mark P. Sullivan}
$Affiliation{HQ, Department of the Army}
$Subject{bahamas
percent
sector
1980s
government
million
bank
public
central
total}
$Date{1987}
$Log{}
Country:     Bahamas, the
Book:        Caribbean Community, An Area Study: The Bahamas
Author:      Mark P. Sullivan
Affiliation: HQ, Department of the Army
Date:        1987

Chapter 2B.   Economy

Banking and Finance

     The second most important Bahamian economic activity in the late 1980s
was banking and finance. The nation's proximity to Miami and its location in
the same time zone as New York City enhanced these activities. A large number
of trust and finance companies and investment firms were established in the
1950s, following the imposition of restrictive finance laws in many
industrialized countries. Enactment of regulations in the Bahamas in 1965,
however, provided for the licensing and supervision of the banking industry,
cutting back drastically the number of financial institutions. Steady growth
took place after 1967, the only setback occurring in the mid-1970s following
the formation of the Central Bank of the Bahamas. The new Central Bank
increased its monitoring of the industry.

     By the end of 1985, there were 374 banking and trust institutions
registered in the Bahamas. Of these, 270 were permitted to deal with the
public; 96 were restricted to dealing with or on behalf of certain people or
companies; and 8 held nonactive licenses. Of these 270 public financial
institutions, 134 were Eurocurrency (see Glossary) branches of banks in
Western Europe, Hong Kong, the United States, or South America; 84 were
subsidiaries of finance institutions based outside the Bahamas; 33 were
Bahamas-based banks or trust companies; 10 were officially designated to deal
in gold and in Bahamian and foreign currencies; and only 9 were trust
companies designated to act as custodians and dealers in foreign securities.

     The proliferation of financial institutions encouraged the development of
ancillary services such as accounting, computing, and law. It also required
the installation of an advanced telecommunications system, a development that
benefited other economic sectors as well.

     Several factors combined to make the Bahamas a significant center of
finance in the late 1980s. First, the country had tax-haven status: no taxes
on income, profits, capital gains, or inheritance. Second, the Bahamas offered
liberal legal provisions for the registration and licensing of financial
institutions and bank secrecy laws. Third, the Bahamas benefited from its
stable political climate. Finally, it offered investors the convenience of
geographic proximity to the United States. In January 1985, the financial
sector was strengthened by the adoption of a code of conduct that gave the
Central Bank a more supervisory role over the banking system. The main purpose
of the code was to prevent money laundering. Large cash transactions were
prohibited, unless they were made by well-established customers. Lawyers and
accountants could no longer sign over accounts of offshore customers without
approval of the Central Bank.

     Following the example of the banking and finance sector, other offshore
activities also gained importance in the mid-1980s. Although liberal
legislation for ship registration was passed in 1976, the Bahamas did not
attract a major shipping industry until the 1980s. By December 1985, a total
of 370 ships were registered, representing 5 million gross tons; in 1987 the
Bahamas was the third largest flag-of-convenience nation behind Liberia and
Panama. An even younger Bahamian industry was offshore insurance and
reinsurance. Legislation was passed in 1983 to remove all taxes on premiums
and restrictions on investments for this activity.

Industrial Sector

     In the late 1980s, the Bahamian industrial sector consisted of several
large-scale activities (chemicals, pharmaceuticals, and oil) and a variety of
small-scale industries (food processing, paints, purified water, rum and other
alcoholic beverages, salt, and soft drinks). The large-scale activities were
located on Grand Bahama, whereas small-scale industries were concentrated in
both Grand Bahama and New Providence. The industrial sector experienced
setbacks in the early 1980s, when declining demand caused steel and cement
plants to close. In mid-1985 the Bahamas Oil Refining Company (BORCO), the
fourth largest refinery in the world, shut down its refining operations in
response to the oil glut on the world market. BORCO continued its oil
transshipment operations, however, importing large quantities of oil from the
Middle East and Africa for transshipment and for domestic use. In the Bahamas,
oil exploration by several international companies began in the early 1980s;
marine geologists believed vast deposits of oil and natural gas might be
found.

     Chemical and pharmaceutical plants fared well in the early 1980s. Exports
of chemical products increased by over 100 percent in the 1980- 84 period.
Several large chemical and pharmaceutical industries were located in Grand
Bahama. Light industrial activities experienced slight growth in the early
1980s. Salt was mined on Great Inagua, and small amounts of aragonite sand
were mined near the Bimini Islands for export. The rum industry grew. Bacardi
operated a major distillery in New Providence. In 1986 construction began on a
brewery sponsored by a consortium made up of Bacardi, Guinness, and Heineken
to produce a new beer with a Bahamian name.

     Since the 1950s, the government had consistently encouraged efforts to
diversify the economy. Industrial incentive legislation, however, dated back
to the 1950s, when the Hawksbill Creek Agreement allowed the Grand Bahama Port
Authority to develop industry on that island. In 1970 the Industries
Encouragement Act provided incentives for manufacturers of approved products.
Incentives included the duty-free importation of machinery and raw materials
and tax exemptions. In 1971 the Agriculture Manufacturers Act provided similar
incentives for that industry. In 1981 the Bahamas Agricultural and Industrial
Corporation was established as a central agency for potential investors
seeking advice and assistance. Finally, in 1984 legislation created a
free-trade zone in New Providence similar to the one in Grand Bahama
established by the Hawksbill Creek Agreement.

     Aside from a weak external market for oil products, the industrial sector
faced several other difficulties. The Bahamas had a very limited market size.
Wage rates tended to be high, and skilled workers were lacking.
Capital-intensive industries developed despite the government's desire to
locate labor-intensive industries there, especially in New Providence. This
development underscored the growing problem of structural unemployment. A 1986
report by the Inter-American Development Bank (IDB) indicated that a major
task for the government would be to provide 3,000 to 3,500 jobs annually in
the late 1980s and early 1990s for graduating youths.

Agricultural Sector

     In the late 1980s, the agricultural sector consisted mainly of small
farms producing poultry, fruit, and vegetables for the local market and
exporting some citrus fruits and seasonal vegetables. Government policy
focused on reducing food imports, expanding and diversifying agricultural
exports, and increasing linkages between the agricultural sector and tourism.
The government emphasized the promotion of foreign investment, including joint
ventures, and the development of farming among young Bahamians. Investments in
research and extension and marketing facilities led to continued growth in
winter vegetables and fruit and poultry products. The BAIC promoted employment
creation through joint ventures offering access to modern marketing,
management, technology, and venture capital, all in short supply in the
Bahamas. Inherent problems in developing the agricultura