2009 Investment Climate Statement - Bahamas
Openness to Foreign Investment
The Bahamian Government generally encourages and offers incentives for foreign investment in all sectors of the economy except those the Government reserves exclusively to Bahamian citizens. Reserved businesses include: wholesale and retail operations; commission agencies engaged in the import/export trade; real estate and domestic property management agencies; domestic newspaper and magazine publication; domestic advertising and public relations firms; nightclubs and restaurants (except specialty, gourmet and ethnic restaurants and restaurants operating in a hotel, resort complex or tourist attraction); security services; domestic distribution and building supplies; construction companies (except for special structures for which international expertise is required); personal cosmetics/beauty establishments; shallow water scalefish; crustacean, mollusk and sponge fishing operations; auto and appliance service operations; and public transportation.
Officially, the Government has targeted the following categories of businesses for foreign investors: tourist resorts; upscale condominiums; time share and second home development; international business centers; marinas; information and data processing services; assembly industries; high-tech service; ship registration, repair and other services; light manufacturing for export; agro-industries; food processing; mariculture; banking and other financial services; captive insurance companies; aircraft services; pharmaceutical manufacture; and offshore medical centers.
Benefits of investing in The Bahamas include: a stable, democratic government; relief from corporate and personal income taxes (although foreign property owners are required to pay a real property tax based on the value of their property); timely repatriation of profits of approved investments; proximity to the United States; extensive air links through nearby Miami, Ft. Lauderdale and Orlando; well-developed telecommunications links; a good pool of skilled professionals; excellent tourism and conference facilities; and current and potential future tariff concessions under the Caribbean Basin Economic Recovery Act, Canada's CARIBCAN Program, and the European Union's Economic Partnership Agreement. The Bahamian dollar is fixed on par with the United States dollar and the Government is firmly committed to maintaining this exchange rate.
In practice, the vast majority of successful foreign investments in The Bahamas have been in the traditional areas of tourism and banking. The decision-making process within the Government of The Bahamas is highly centralized and most foreign investments are subject to review and approval at the cabinet level. The Government is particularly interested in investments that will generate local employment, particularly in white-collar or skilled jobs. Large-scale projects in areas such as agriculture may be difficult to staff since low-wage and low-skill jobs do not appeal to most Bahamians, and because the Government is reluctant to permit importation of foreign laborers to staff these jobs, even on a temporary-permit basis. When new foreign ventures are perceived as competitors to existing Bahamian businesses or too dependent on foreign labor, the Government has responded to local concerns and withdrawn or refused the license of the foreign business.
In 1993, the Government established The Bahamas Investment Authority (BIA). It is located in the office of the Prime Minister, Ministry of Finance. The BIA is intended to provide a "one-stop-shop" to assist foreign investors with initial governmental approval of their investment applications and to cut through red tape for approved investments. BIA is the Government's central point of contact for foreign investment questions. Potential investors may contact the BIA at:
Bahamas Investment Authority
P.O. Box N-7770
Tel: 1-242-356-5956, Fax: 1-242-327-5907
www.opm.gob.bs (note that the website is currently unavailable as the BIA revamps their website)
While The Bahamas has not yet enacted environmental legislation as extensive as that in the United States, the BIA still requires a full accounting of the environmental impact of any industrial or agricultural schemes.
Conversion and Transfer Policies
Persons and corporations resident in The Bahamas are subject to exchange controls administered by the Central Bank. Certain commercial banks are authorized to deal in foreign currency and have authority delegated by the Central Bank to approve exchanges for certain current account transactions. Non-resident investors wishing to initiate operations in The Bahamas must register their operations with the Central Bank. If their projects are financed substantially by foreign currency transferred into The Bahamas, they will be given "approved status," meaning that profits and capital gains can be converted into foreign currency and repatriated with minimal formalities. Capital investment into The Bahamas remains subject to exchange controls, but as a practical matter these controls have not been known to inhibit repatriation of approved investment capital. Many Bahamians argue that exchange controls should be eliminated, but the Central Bank and the Government are not prepared to do so at this time, citing the need to retain sufficient foreign reserves to mount a strong defense of the currency's one-to-one parity with the U.S. dollar.
Expropriation and Compensation
Article 27 of the Bahamian Constitution prohibits deprivation of property except upon the making of prompt and adequate compensation in the circumstances. There is no evidence that the Government has ever expropriated a business, and both major political parties have stated that nationalization will not be an instrument of Government policy.
There is no history of major investment disputes in The Bahamas, although smaller contractual and other disputes between Bahamians and foreign investors or exporters are common. The Bahamian legal system is based on English common law. The judiciary, appointed by the Governor General, is independent and there is no evidence of Governmental interference with the system. The highest court of appeal is the Privy Council in London.
Tentative consideration is being given to the creation of a Caribbean Final Court of Appeals to replace the Privy Council. Despite recent efforts to reduce backlogs of criminal and civil cases, resolution of court cases can be slow, sometimes taking years. The Embassy has received some reports of encounters with biased judges and malfeasance by attorneys. The Embassy has also received reports of local defendants evading payment of Bahamian civil judgments or deliberately dragging out court disputes, especially in cases involving non-resident plaintiffs.
Judgments of British courts, and of selected commonwealth countries, can be registered and enforced. Other countries' judgments, including those of the United States, must be sued upon in court as debt, subject to all jurisdictional requirements. Judgments of Bahamian courts are payable in Bahamian dollars unless otherwise specified by agreement of the parties.
Personal bankruptcy laws are antiquated and rarely used. Companies can be and are frequently liquidated according to law. Creditors of bankrupt debtors and liquidated companies participate in the distribution of the bankrupt debtor's or liquidated company's estate according to statute. The law relating to sales of goods and some other commercial subjects are codified in The Bahamas' statutes.
The Bahamas has been a member of the International Center for the Settlement of Investment Disputes (ICSID) since 1995. It is also a member of the Multilateral Investment Guarantee Agency, which insures investors against currency transfer restrictions, expropriation, war and civil disturbances, and breach of contract by member countries.
The Bahamas lacks any form of taxation on income, sales, estates or inheritances. The only direct tax is a real property tax. Casinos are specially taxed, and there is a $20 departure tax levied at the airports and harbors, which will be increased to $25 once the first phase of the U.S. pre-clearance facility is complete at the end 2010. The principal incentives for foreign investments are concessions on import duties and property tax abatement. Tariffs in general are high and do not generally discriminate by country of origin, although The Bahamas recently signed an Economic Partnership Agreement with the European Union that aims at the eventual elimination of duty on EU and CARIFORUM imports over the next 25 years. Incentives are offered under the following legislation:
- Industries Encouragement Act: Under this law, the Government may exempt from duties the machinery, tools, equipment, and raw materials imported to construct new factories. A list of duty-exempt items is negotiated separately with each new venture.
- Hotels Encouragement Act: Under this law, new hotels and resorts can be exempted from real property taxes for ten years from the date the new facility opens, and for significant tax reduction for up to ten additional years. An amendment to the Act currently before Parliament would allow the Government to grant tax relief for an additional ten years, raising the maximum length of tax abatement to thirty years. In addition, the Act allows the duty-free importation of materials used for the construction of new facilities or the substantial renovation of existing facilities acquired by new owners for a set period of time. The list of duty-free items for each project and the duration of some duty-free windows are negotiated separately for each venture.
- Agricultural Manufacturers Act: This law allows any materials necessary for the construction, alteration, or repair of an agricultural factory, as well as any machinery or supplies used in establishing such a factory, to be imported duty free. An agricultural factory refers to any factory established for the purpose of manufacturing or preparing agricultural or horticultural produce of The Bahamas for sale or export.
- Spirits and Beer Manufacturers Act: This law provides for the duty-free importation of materials used in the construction, alteration or repair of approved liquor distilleries or beer breweries and the duty-free importation of raw materials and equipment for liquor or beer production.
- Recent amendments to the Tariff Act provide duty exemptions for construction and development on certain outer "Family Islands."
Prospective investors should discuss the terms and conditions under which these benefits will be made available in any specific case with The Bahamas Investment Authority. Although work permits for key foreign employees are readily granted in connection with the investment approval process, Government policy favors employment of Bahamians. Fees for work permits can run up to several thousand dollars each, and permits for less senior employees can be difficult to obtain.
Right to Private Ownership and Establishment
Subject to the reservation of certain areas of economic activity to Bahamian citizens only, and the necessary approvals and licenses, private entities may engage in nearly all forms of remunerative activity. They may freely establish acquire, and dispose of interests in business enterprises. One significant exception is the Government’s monopoly on all forms of telecommunications (except Internet services, wireless services, paging, and radio) exercised by The Bahamas Telecommunications Company (BTC). However, with the plan to privatize this corporation the GCOB is opening the market to competition within two years of the sale. The GCOB is actively seeking a buyer for BTC and is offering 51 percent of its stake in BTC. Government corporations such as the Hotel Corporation of The Bahamas and ZNS Radio compete on a basis of rough equality with private corporations in similar businesses.
Protection of Property Rights
Subject to long legal delays, secured interest in property, both chattel and real, is recognized and enforced. Mortgages in real property and security interests in personal property can be recorded with the Registrar General.
The Bahamas is a member of the World Intellectual Property Organization (WIPO), but not of the World Trade Organization (WTO). There is little industrial production that might generate possible infringements of patent rights. However, existing copyright laws are widely ignored, resulting in widespread piracy of video and music recordings and broadcasts, most of which remain in The Bahamas. Parliament passed a new copyright law on July 4, 2000, which is intended to provide better protection to international holders of copyrights but has yet to be strictly enforced. The Bahamas was removed from the USTR 301 watch list in 2007 but is up for review and possible inclusion on the list in 2009.
Transparency of the Regulatory System
Official Government policy commits The Bahamas to building an economic environment where the Government assumes its proper role as regulator and facilitator of economic development, and where ideals of transparency, fair play and equality of treatment are protected. Still, the discretionary issuance of business licenses can result in a lack of transparency in decisions to authorize or to renew the authority of a business. Large foreign investors may be held to higher labor, health and safety standards than are local entrepreneurs. Obtaining required permits, especially immigration permits, can take an inordinate length of time. The Bahamas Investment Authority exists to assist foreign investors in dealing with the permitting process.
Efficient Capital Markets and Portfolio Investment
In 2000 the Bahamas International Securities Exchange, (BISX) began operations, and presently involves the listing and trading of domestic equities and also provides a mutual fund listing facility. BISX has experienced several problems during its short corporate life, with a shortage of funds and low trading volumes since its inception. The Exchange presently consists of 19 listed public companies and the volume of securities traded on BISX in the first quarter of 2008 declined to 4.8 million, from 5.25 million shares in the previous period, and the value decreased by 1.6 percent to $28.3 million. In the same period the BISX All Share Price Index appreciated by 23.2 percent to 2,066.75 points from last period's 1,676.19. Similarly, valuations represented in the broader Fidelity Capital Market Index (FINDEX), which captures both BISX securities and over-the-counter companies, increased by 26.4 percent to 938.3. Total market capitalization on BISX rose by 24.3 percent to $3.9 billion.
The Exchange has experienced continued overall growth over 2008, though FINDEX growth slowed moderately. A number of important initiatives are being carried out to accelerate the development of the local capital markets. One of these is the inclusion of Government debt securities among those instruments issued and openly traded on BISX. This development has come about as the result of a number of Governmental initiatives designed to stimulate capital markets in The Bahamas and support BISX. As an initial step the Government of The Bahamas published a 'Capital Market Development Policy Statement' in August 2005 which commits itself to support the growth of capital markets in The Bahamas. This commitment was later illustrated by the Government's acquisition of a 43 percent interest in BISX in February 2006, making them the Exchange's single largest shareholder out of 46 shareholders.
Finally, with the further liberalization of Exchange Controls initiated under the former administration, two new Bahamas Receipt (BDR) products were offered to the public in 2007.
Local bank credit, including loans from The Bahamas Development Bank, is available to resident enterprises for capital investment in The Bahamas in proportion to their local ownership.
Despite the current global economic downturn, the effect on the banking industry has been mild, reflecting a relatively sound system. The prime rate and the Central Bank Discount rate at the end of the second quarter of 2008 have been maintained at 5.50 percent and 5.25 percent, respectively. The majority of outstanding commercial bank credit is personal loans (mortgages) for consumer purchases. At the end of June 2007, the Central Bank reported the total net external assets increased by $3.7 billion to $351.2 billion. Domestic banks also strengthened 8.9 percent to $8.4 billion. The gross economic contribution of the banking sector for 2007 to the Bahamian economy was $478.3 million. Since the passage of the new financial legislation, the total number of banks and trust companies declined from 415 in 1999 to 245 in 2007 - most of these banks were "brass plate" banks (organizations that were registered in The Bahamas but did not have a physical presence in this jurisdiction). In addition, the number of International Business Companies (IBCs) has rebounded after falling-off to around 80,000 in 2003, after implementation of new bank regulations in 2000, to 155,765 as at December 17, 2008. Further, the enactment of the new legislation on Private Trust Companies has ushered in the approval of two Financial and Corporate Service Providers (FCSP's) to act as Registered Representatives of Private Trust Companies and the exemption of seven (7) Private Trust Companies from having to obtain a trust license.
Projects in The Bahamas are also eligible, in some instances, for financing from the U.S. Export-Import Bank, the Overseas Private Investment Corporation (OPIC) or from multilateral institutions such as the Inter-American Development Bank (IDB). Major Bahamian banking institutions which can provide financing for certain projects in The Bahamas include:
Bahamas Development Bank
P.O. Box N-3034
Tel: (242) 352-5780
Bank of The Bahamas, Ltd.
P.O. Box N-7118
Tel: (242) 326-2560
First Caribbean International Bank (merger between Barclays Bank and the Canadian Imperial Bank of Commerce (CIBC)
P.O. Box N-3221
Tel: (242) 325-7384
P.O. Box N-7502
Tel: (242) 327-5170
P.O. Box SS-6263
Tel.: (242) 328-1854
Royal Bank of Canada
P.O. Box N-7537
Tel: (242) 322-8700
Bank of Nova Scotia
P.O. Box N-7518
Tel: (242) 356-1400
Finance Corp. Of The Bahamas
P.O. Box N-3038
Tel: (242) 322-4822
The Bahamas has no history of political violence, although labor unrest has become violent on occasion and labor strikes are becoming more common. In 1998 a semi-violent confrontation between workers and police occurred due to the proposed privatization of the phone company. In August 2008 telecom workers took part in a major strike on both New Providence and Grand Bahama, once again in protest of privatization. In 2008 union workers at Morton Salt on the island of Great Inagua went on strike for three weeks due to the termination of an employee who was also a senior union official. Property on Morton Salt facilities was damaged. Despite these isolated incidents, the Government publicly and strongly supports a modern open approach to foreign investment, although many Bahamians, including some prominent politicians, remain suspicious of expatriate investors and employees. Foreign investors are sometimes the targets of criticism in the news media and Parliament.
Giving a bribe to -- or accepting bribes from -- a Government official is a criminal act in The Bahamas under the Prevention of Bribery Act. Penalty under this act is a fine up to $10,000, or a maximum prison tem of four (4) years or both. The FNM Government has emphasized anti-corruption measures. Since 192, credible reports of heavy corruption have become rare, although allegations of improper conduct on the part of Government officials surface regularly, and have plagued the political process for decades.
Bilateral Investment Agreements
There is no Bilateral Investment Treaty between The Bahamas and the United States. The Bahamas was designated a beneficiary of the Caribbean Basin Initiative (CBI) in 1985. As a result, with certain restrictions, products manufactured in The Bahamas qualify for duty-free entry into the United States. High wage rates, combined with the small size of the country's manufacturing and agricultural sectors, have hindered The Bahamas' ability to exploit these benefits. On January 25, 2002 a previous FNM Government signed a Tax Information Exchange Agreement (TIEA). A key side benefit of this agreement for The Bahamas is that, effective 2005 it permitted U.S. tax deductions for expenses of business conventions held in The Bahamas.
OPIC and Other Investment Insurance Programs
Since 1992, the U.S. Overseas Private Investment Corporation (OPIC) has approved two investment projects in The Bahamas. It guaranteed up to $10.8 million in loans to Uniroyal Chemical Company, Ltd. to assist in the purchase and refurbishment of a plant in Freeport. The Uniroyal plant has since closed. In addition, OPIC committed itself to a loan of up to $1.6 million to Landquest, Ltd., for the development of a cruise ship facility on the island of Eleuthera. The facility is currently operational.
The Bahamas is also associated with the Multilateral Investment Guarantee Agency of the World Bank, which, like OPIC, insures investors against currency transfer restrictions, expropriation, war, civil disturbances and breach of contract by member countries.
In 2008 the labor force grew 19.8 percent compared to 2007, consisting of 191,595 workers and owing mainly to the addition of high school graduates. The Government and the tourism industry are the country's largest employers. According to the Department of Statistics, the unemployment rate appreciated to 8.7 percent from 8.0 percent in 2007. This contrasted the moderate increase of 90 basis points just a year earlier and it is expected to reach the lower double digits by the end of 2009. There is a considerable amount of under-employment and discouraged workers as a result of the global economic downturn. The GCOB plans to create an unemployment program and in an attempt to alleviate the current increase in unemployment.
Well-qualified accountants and secretaries, and others with skills appropriate to the financial services industry, command a premium wage. While low skilled labor, mostly found in the hotel and restaurant industries, basic wage hovers around the minimum rate. Unemployment is slightly higher for adults between the age of 25 and 34. As expected, Nassau - the capital city - has the highest employment. However, Freeport, the second city, has experienced escalating unemployment due to two devastating storms and the closure of a major casino and resort. At a meet the press conference in November, Prime Minister Ingraham stated that presently there is no good news for Grand Bahama. The government approval of several tourism anchor projects on major family islands was developed to attract workers back to the family islands. Conversely, most of these projects have stalled in light of the current economic crisis, so these benefits will not be realized in the near future.
There is notable concern about the level of employee and white-collar crime in The Bahamas.
In the 2000/2001 Government Budget, the Government increased its minimum wage from $4.12 per hour to $4.45 per hour for public sector employees. Minimum wage for private sector workers is $4 per hour. The Fair Labor Standards Act requires at least one 24-hour rest period per week, paid annual vacations, and employer contributions to National Insurance (social security). The Act also requires overtime pay (time and a half) for hours in excess of 48 or on public holidays. A 1988 law provides for maternity leave and the right to re-employment after childbirth. A new Minimum Labor Standards Act including the Employment Act, Health and Safety at Work Act, Industrial Tribunal and Trade Disputes Act, and the Trade Union and Labor Relations Act were passed in 2001 and early 2002.
The Bahamian Constitution specifically grants labor unions the rights of free assembly and association. These rights are exercised extensively, particularly in the hotel industry - where 80 percent of the employees are unionized - and in the state-owned industries.
Unions operate without restrictions or Government controls. The right to strike is governed under the Industrial Relations Act, which requires a simple majority of union members to vote in favor of a strike before it can commence. The Ministry of Labor oversees strike votes. Although prolonged strikes are still rare, work slow-downs and rowdy protests occur occasionally. Labor unions and others involved in disputes with foreign-owned enterprises have not been above using the fact of foreign ownership as a lever to gain popular support for their demands.
The Immigration Act requires foreigners to obtain work permits before they can be employed in The Bahamas. The Government will permit foreign employees to work in a technical, supervisory or managerial capacity to initiate and operate industries, provided no similarly qualified Bahamians are available for the job. Foreign business owners are expected to train as many of their Bahamian employees as possible to eventually fill technical and managerial positions. Work permit fees have increased from a range of $250 to $7,500 per year to $350 to $10,000 per year.
Foreign Trade Zones/Free Ports
The 1955 Hawksbill Creek Agreement established Freeport, Grand Bahama, the country's second-largest town, as a free trade zone. Firms in Freeport are granted the right to import equipment and materials duty-free, and enjoy other tax advantages. In 1993, the Government extended the Hawksbill Creek property tax exemptions through 2015 and duty exemptions to 2054, but withdrew real property tax exemptions for foreign individuals and corporations. The Hong Kong-based conglomerate Hutchison Whampoa has invested millions of dollars in a new deep-water container port, airport, cruise ship dock, industrial park, and hotel properties in Freeport, promising a revitalization of Freeport as The Bahamas' leading industrial city. The Grand Bahama Port Authority (GBPA) has been embroiled in an ownership dispute since the summer of 2006. As of March 2008 the issue has not been resolved, but GBPA leadership has sought to assure investors that their investments are safe.
Foreign Direct Investment Statistics and Major Foreign Investments
There is also a direct link between the level of imports flowing into The Bahamas and foreign direct investments. At the end of the second quarter 2008, net private direct investment was $212.0 million, and net private direct equity investments was $108.8 million. Net Foreign Loan Financing on foreign investments was $149.3 million. Net foreign real estate purchases for this period totaled $103.1 million. While Government statistics do not list overall foreign investment by nationality, post determined that the largest investors are American, Canadian, Hong-Kong Chinese, and South African in origin.
Major foreign investments in The Bahamas include:
- Grant Thornton Chartered Accountants
- Horwath International
- Ernst & Young
- Atlantis Resort, a hotel, resort, and casino complex on Paradise Island near Nassau owned by Sol Kerzner of the South African firm Sun Hotels International
- Baha Mar owned by Armenian, Sarkis Izmirlian recently purchased the Radisson Resort (formerly government owned), Wyndham Nassau Resort & Crystal Palace Casino formerly the Nassau Marriott Crystal Palace Resort, casino, and convention center, and the Nassau Beach Hotel
- -- Superclub Breezes Resort, owned by a Jamaican company
- Sandals Royal Bahamian Resort, owned by a Jamaican company
- The British Colonial (Hilton) Hotel a subsidiary of Blackstone and managed by Hilton Corp., both U.S. companies
- Comfort Suites on Paradise Island owned by a U.S. company
- Island Outpost Resort at Compass Point, Nassau, Pink Sands Resort, Harbour Island, and Kamalamae Resort, Andros owned by a Jamaican company
- Freeport/Lucaya Marina Village developed recently by European investors
- Gorda Cay, renamed Castaway Cay, purchased and developed by Disney Corp. for its cruise ship operations
- Half Moon Cay, owned by U.S. company Holland America Cruise Lines
- Princess Cay, a cruise ship landing facility near Eleuthera Island, owned by Landquest, a U.S. company
- Four Seasons Resort Development on Exuma, owned by a Canadian Company
- Our Lucaya Resort, a subsidiary of Hutchison Whampoa Group and Centex Rooney
- RIU Resort, Paradise Island, owned by a Spanish Company
- Winding Bay Resort, Abaco, owned by an American company
- Baker's Bay located on Guana Cay, Abaco is owned by the U.S. Discovery Land Company of San Francisco
- Bimini Bay Resort, owned by Florida-based developer Geraldo Capo
- The Ginn development project located on the west end of Grand Bahama, owned by the Florida-based Ginn Development Company
- The Bahamas Film Studio/Gold Rock Creek Enterprises Ltd., located at East Grand Bahama, owned by Canadian Paul Quigley
- Ritz Carlton Rose Island Resort owned by Karim Alibhai of the Florida-based Gencom Group
- Albany Golf and Beach Resort owned by an investment group comprising Bahamian Joe Lewis, American Tiger Woods and South African Ernie Els
- The I Group Mayaguana development owned by developers from Boston
- Baker Construction
BANKING & FINANCE:
- Citibank, N.A.
- JP Morgan Trust Co. (Bahamas) Ltd.
- BankBoston Trust Company Ltd.
- Templeton Global Advisors Ltd.
- Morton Salt (Bahamas) Ltd.
- American - Marubeni Caribbean Power Holdings, Inc. (Grand Bahama Power Company)
- AES American Oil Company, which owns Ocean Cay, a facility to produce liquefied natural gas (upon Bahamian government approval)
- Freeport Ship Care Facility, owned by the Lloyd Werft Ship Repair Company of Germany
- The Container Port facility, airport and three beachfront hotels in Freeport were acquired in 1997 by Hong Kong-based Hutchison Whampoa
- The Caribbean Marine Research Center, operated by The Perry Institute for Marine Science, an American firm
- Cable Bahamas, Ltd., established by a Canadian group
- Commonwealth Brewery Ltd (Heineken), a Dutch-Bahamian company
- Polymers International, Ltd., a subsidiary of Dart Container, which produces styrofoam pellets at a plant in Freeport
- Sandyport Development Co. Ltd., a housing subdivision owned by a British company
- Roberts Isle, a housing subdivision, owned by a U.S. company
- Treasure Cove, a housing subdivision, owned by a U.S. company.
- Schooner Bay, an environmentally friendly community, owned by a U.S. company.
- Old Fort Bay, a housing subdivision, owned by a U.S. company.