Bahamas, officially termed as the Commonwealth of the Bahamas, is a Caribbean country comprising of over 700 islands, cays, and islets. This country is located in the Atlantic Ocean. When it comes to the economy of the Bahamas, it is one of the most prosperous countries in the West Indies. Bahamian dollar is the currency of Bahamas. Referring to various economic indicators, it is identified that Bahamas is a fast developing country with a stable economy. The country’s economic development is almost entirely depended on tourism and offshore banking sectors as these sectors help the country generate huge volume of foreign exchange earnings. While analyzing the tourism trends in the Bahamas, it seems that most of the tourists come from the United States and Canada. This paper will talk about the economy of Bahamas with specific focus given to tourism and offshore sectors.
Economy of Bahamas
As noted already, tourism and offshore banking are the two key sectors backing up the economic growth of Bahamas. Unimaginable growth in tourism and offshore industries over the last few decades significantly assisted Bahamas to establish a stable economy with alluring growth rate. According to the 2014 Index of Economic Freedom, Bahamas has a population of 0.4 million in which 9.3% are below the poverty line. As of 2012, the country had a GDP of $11.04 billion and achieved a 2.5% GDP growth (Bahamas travels). The country’s labor force is roughly 184,000 distributed over agriculture (5%), industry (5%), tourism (50%), and other services (40%). Recent studies indicate that Bahamas has an unemployment rate of 11% and an inflation rate of 2.3%. Referring to official government reports, the country’s FDI inflow hit over $1.1 billion (The 2014 Index of Economic Freedom).
Corruption at all levels of government appears to be a potential impediment to the economic growth of Bahamas. Since the judicial processes are very slow in the country, violent crimes continue to escalate in Bahamas, and this adverse social condition raises potential challenges to the economy of Bahamas. According to the 2014 Index of Economic Freedom, a potential feature that makes Bahamas attractive to investors and business enterprises is that the country has the world’s lowest tax regimes characterized with no individual or corporate income taxes or value added taxes. However, the Bahamian government levies national insurance taxes, property taxes, stamp tax, and other tariffs. The country’s overall tax burden accounts for 16.4% of the gross domestic output. When government spending in Bahamas constitutes 23% of the overall economy, public debts represent 50% of GDP (The 2014 Index of Economic Freedom).
Bahamas has an efficient regulatory framework that fosters business growth and productivity improvement in the country. However, as economists point out, Bahamas international competitiveness has been greatly affected by the absence of major regulatory reforms in the recent past. The Bahamian government has great interests in determining the domestic prices of crucial items like medicine, gasoline, and petroleum gas. The country’s average tariff rate (18.9%) is relatively high as the Bahamas government increasingly relies on tariffs to finance its various operations. The government has framed improved mechanisms for screening new foreign investment. It is hopeful to see that the country’s diversified banking sector remains stable in spite of the increasing number of non-performing loans.
Evidently, Bahamian tourism sector plays an inevitable role in stabilizing and fuelling the growth of the country’s economy. Hotels and beaches are the major tourist attractions in the Bahamas attracting more than a half million people.
Kerzner International’s Atlantis Resort and Casino significantly contributed to the recent growth in the overall Bahamian economy by enhancing economic operations in the country. In addition, the opening of Breezes Super Club and Sandals Resort also notably added to this economic turnaround. These recent investments greatly increased the growth opportunities for related industries in addition to augmenting entrepreneurial initiatives that would lead to sustainable economic development of the country. Since Bahamas is an economy that extensively depends on tourism industry, the Bahamian government spends heavily on infrastructural development, which in turn is a key contributor to economic growth.
The great potentiality of the Bahamian tourism sector greatly increased the scope of offshoring activities in the country. In addition, Bahamas’ stable political landscape and the lowest tax regime are favorable for investors. As the above diagram indicates, financial services represent the second-most important sector contributing the GDP of the Bahamas. As Allen, Collie & Allen (2006) point out, many international firms terminated their business in Bahamas and left the country in 2000 when the government imposed new regulations on the financial services sector. The International Business Companies (ABC) Act in 1990 greatly assisted the country to spread its status as a leading financial center. This act aided Bahamas to simply formalities and to minimize the cost of incorporating offshore firms in the country. Over the following nine years, over 84,000 IBC-type companies were formed in Bahamas (Allen, et al). In addition, the country enacted a number of legislative packages over the last two decades to better regulate its financial sector and to attract more overseas businesses.
Global investors have realized that Bahamas is a potential destination for investment in a PEST (Political, Economical, Social, and Technological) perspective. Identifying the importance of Bahamas in the world tourist map, the Bahamian government has taken great efforts to strengthen the law enforcement system in the country so as to ensure the security of foreign and domestic visitors. Such initiatives have significantly contributed to the uplift of the Bahamian offshore banking sector.
As per reports, “offshore banking is a term used to describe banking activity in currencies other than the currency of the country in which the bank accounts are held” (the Central Bank of the Bahamas). Evidently, millions of foreign visitors coming to Bahamas each year, and they cannot use their home currencies in the country. Consequently they have to depend on the offshore banking, and this is the reason why offshoring banking is two of the major contributors to the Bahamas’ GDP.
Allen, M. F. L., Collie, I. E & Allen, D. F. (2006). Guide to doing business in Bahamas. Retrieved from http://krefeld.ihk.de/media/upload/ihk/imap/20090529/bahamas_doing_business_060401.pdf
The Bahamas. The 2014 Index of Economic Freedom. Retrieved from http://www.heritage.org/index/country/bahamas
Bahamas travels. Country visitor Guide. Retrieved from http://www.countryvisitorguide.com/Caribbean/Bahamas/
The Central Bank of the Bahamas. Supervisor and Regulator of the Financial System. Retrieved from http://www.centralbankbahamas.com/faqs.php?cmd=view&id=10266
Tourism today. About the tourism industry. Retrieved from http://www.tourismtoday.com/home/tourism-careers/about-the-industry/