Business and Strategy Consultant, Kevin D. Seymour, GB?Chamber of Commerce director was one of several presenters Thursday at the Ninth Annual BACO Northern Bahamas Conference. Seymour shared his views on the vision for Grand Bahama Island 2015 and beyond.
Following is Seymour’s presentation in its entirety.
“In August of 2015, just under a year from now, the provision of the Freeport Grand Bahama Act, 1993 or the 1993 Act, in connection with Government’s ability to assess real property taxes against any land, building or structure within the Port Area and certain other tax exemptions included in the Hawksbill Creek Agreement or the HCA are due to expire.
My vision for Grand Bahama 2015 and beyond, is therefore “positive and sustainable economic growth through Continuation, Collaboration and Competitiveness.”
In his Budget Communication to Parliament made on May 28, 2014, the Rt. Honorable Perry Gladstone Christie, Prime Minister of the Commonwealth of The Bahamas and Minister of Finance, announced that the “Government’s focused attention to turning around the faltering economy of Grand Bahama, is bearing tangible results and attracting significant major investments.” He went on to state that “tourism, which had been in the doldrums for far too long is now growing at a faster rate than in New Providence and leading the way in growth of air arrivals for the entire Bahamas.”
The city of Freeport, Grand Bahama’s business nucleus, was born out of the vision of Wallace Groves, an American financier, who upon moving to Grand Bahama, in the late forties, immediately recognized the strategic value of the island’s geographical location and its other positive natural attributes. Sensitive to the Colonial Government’s desire for increasing the Colony’s revenues and the promotion of economic development in the “out islands,” Mr. Groves, was one of the principal architects of the nation’s first “Public Private Partnership,” the enduring agreements that is known as the Hawksbill Creek Agreement or the HCA.
The Prime Minister’s optimism concerning Grand Bahama’s future, is supported in part by the opening of “Memories Grand Bahama Beach Resort and Casino,” the neighbouring, four diamond all inclusive resort, in February of this year and the formal commitments of several of the major industrial companies currently operating here in Freeport, to expand their respective businesses and increase employment in the foreseeable future.
The Challenge therefore for the residents of Grand Bahama and the other key stakeholders such as the Government, the Grand Bahama Port Authority Limited or the GBPA its Licensees and other business owners, is to ensure that the Prime Minister’s recent prognostication concerning the island’s economic future is not merely another “hallucinatory dawn.” Instead, stakeholders must formulate imaginative strategies and an action plan directed at arresting the economic malaise that has plagued the local economy for the last 10 or more years.
Over a period of less than 20 years, Mr. Groves and a collection of minority investors, through a corporate entity named the Grand Bahama Port Authority, Limited, presided over the transformation of an underdeveloped, sparsely populated “out island,” to a burgeoning, metropolis, which fondly became known by names such as, “the nation’s second city,” “the magic city,” and the “industrial capital” of The Bahamas.
In the post independence era, the management and ownership reins at the GBPA, were taken over by the late, Mr. Edward St. George, an Oxford educated barrister, and astute businessman, with a penchant for deal making, and Sir Jack Hayward, the son of Sir Charles Hayward, who was one of the founding minority shareholders in the GBPA. Under the leadership of these two businessmen, the GBPA continued to attract a diverse group of multi-national companies to Grand Bahama’s shores. These companies included, Hutchison Whampoa Limited, one of the world’s leading container terminal operators and port services provider and the Mediterranean Shipping Company, the world’s second largest container shipping line. Other notable companies included the Grand Bahama Shipyard (formerly Lloyd Werft Bremerhaven), Polymers International Limited, and Pharmachem Technologies (Grand Bahama) Ltd.
Despite the valiant efforts of Mr. St. George and Mr. Hayward, it was during the post-independence era, that Grand Bahama’s economy began to steadily decline.
CONTRIBUTING FACTO-RS TO GRAND BAHAMA’S DECLINE
The decline of Grand Bahama’s economy in the post-independence era can be attributed to a combination of natural and macro-economic events as well as the perception of conflict of interest by the GBPA and the Port Group of Companies and yes, political interference by the Central Government. These contributing factors are summarized as follows in no particular order of impact:
(A) The consistent meddling and overreach by the Central Government – Beginning in the late sixties and early seventies, the Central Government has methodically chipped away at or undermined the administrative and regulatory powers reposed in the GBPA under the terms of the HCA. For example, in the early years of the HCA, the GBPA was simply required to “notify the Colonial Secretary within 30 days, of any person or company licensed by them to carry on any manufacturing, industrial or business undertaking or enterprise within the Port Area, together with brief particulars of the kind and nature of the business to be carried on by such licensee.” Now it would appear, that the GBPA has been relegated to the role of completing investor applications for the approval of the Central Government, which as you all know generally takes anywhere from six to eight weeks to be approved. In the early years of the HCA, the GBPA and its Licensees were also permitted “to bring in trained and skilled personnel,” necessary for the development and administration of their respective businesses, with the understanding that the Government always had the right to withhold its permission for any foreign national to enter The Bahamas or to compel any foreign national to leave The Bahamas. Now the GBPA and its Licensees are required to operate under a more stringent xenophobic, time consuming national immigration policy.
Whilst this “freedom to operate” granted to the GBPA and its licensees by the Government in the early years, did much to progress development, it is undisputed that during this same period, Grand Bahama’s social infrastructure, lagged significantly behind its economic development. These circumstances led the then Premier of The Bahamas, the late Sir Lynden O. Pindling, in 1969 at the Grand Opening of the Bahamas Oil Refining Company (BORCO), to admonished the GBPA and its licensees for having an “unbending social order” which if not changed, had to be “broken.” Notwithstanding its “moral correctness,” the Premier’s ultimatum was viewed by many as an abrogation of the HCA and marked the beginning of the less than cordial relationship between the Central Government and the GBPA, that is believed to still exist today.
For its part, the Customs Department has repeatedly attempted to unilaterally dilute the tax concessions enjoyed by GBPA licensees under the HCA, by assessing taxes that were later found by the Courts to be in contravention of the HCA. The Customs Department’s most recent incursion on GBPA licensee occurred in July 2013, when Customs began assessing licensees, a 1 percent Customs Processing Fee, an Environmental Levy and Stamp Duty on dividends or profits local subsidiaries repatriated to their foreign Parents. This time, the GBCC, with the financial support of its members, intervened and applied to the Supreme Court to have the mentioned assessments, subjected to a Supreme Court Declaration.
I should add that the above actions by the Government and its agencies over time, coupled with the inaction of the GBPA in vigorously defending its licensees, has eroded investor confidence and in a few instance have even caused investors to pack up and leave.
In a deal said to have been brokered by the GBPA, the Government has since publicly retreated from its original positions and now appears willing to “roll back” these tax assessments, in exchange for investment commitments agreed to by certain of the larger industrial licensees. The formal Court hearing for a Declaration is pending.
(B) Devastating effects of hurricanes, Frances, Jeanne and Wilma – Another contributing factor to Grand Bahama island’s economic decline was the extensive infrastructural and property damage caused by hurricanes Frances and Jeanne in September of 2004. If that were not enough, the following year, hurricane Wilma inflicted her fury on the south western coast of Grand Bahama island, causing more damage to homeowners and businesses alike. The crippling economic effects of these natural disasters, still reverberates throughout the local economy today, some 10 years later.
Other noteworthy contributing factors, include the lingering effect of the Global recession and the perceived incompatible roles of the GBPA and its affiliate “Port Group of Companies” as a Regulator and Municipality versus its role as Private investor.
As previously mentioned, Freeport’s and by extension, Grand Bahama’s initial success was born out of the HCA. The framers of the HCA, Wallace Groves, the Colonial Government and the early investors, clearly understood the critical role that fiscal incentives play in spurring investment. However in order to be effective, such incentives must necessarily be accompanied by SMART (i.e. specific, measurable, achievable, and relevant and time bound) development and growth goals.
Consequently, I am strongly in favour of extending the real property and other tax exemptions mentioned earlier through the year 2054, provided that all of the 21 “works and undertakings” agreed to by the GBPA and DEVCO, pursuant to the 1993 Act have now been satisfactorily completed. The GBPA and DEVCO should also be required to provide the following additional “works and undertakings” to Government in exchange for the extension:
1) The GBPA’s Board of Directors should be reconstituted by statute, so that it is more representative of the community that it serves. In addition to directors appointed by the GBPA’s shareholders, members of the Board should also include a representative from the Ministry of Grand Bahama, Local Government, and the Licensees.
2) Provision should be made by statute, for the automatic transition of GBPA’s regulatory powers, in the event of shareholder disputes, or non-compliance with previously agreed works and undertakings.
3) The boundaries of the Port Area should be extended by mutual agreement between the GBPA and the Central Government to cover all of Grand Bahama and the Master Land Use Plan for the Port Area should be appropriately revised.
4) The Port Group of Companies and its Joint Venture Partner Hutchison Whampoa, should resurrect their plan to use the land area between the Freeport Harbour and the Grand Bahama International Airport as a Sea/Air Business Centre and Free Trade Zone.
5) The GBPA with the assistance of the Central Government should promote Freeport as a Regional Arbitration Centre.
6) A Northern Bahamas Campus of the Bahamas Agricultural and Marine Science Institute otherwise known as “BAMSI” should be established in Eastern Grand Bahama; and
7) A world class medical facility and research centre should be constructed in Freeport.
I should hasten to add that some of the mentioned works and undertakings are not new and that plans may already be underway for the achievement of others.
Earlier in my presentation, I made reference to the less than cordial, one might even say frosty relationship that currently exists between the Government and the GBPA. Similarly, the current relationship between the GBPA and its Licensees also appear to be at an all time low.
Government needs to clearly understand that a major reason that most, if not all of GBPA’s licensees, are still doing business in Freeport, is because of the favourable tax concessions that they receive. Removal of these concessions will likely threaten the viability of these businesses. Equally, the GBPA also needs to understand that that there is a reasonable expectation among its licensees, that it will zealously guard and be seen to be guarding, their rights and privileges under the HCA.
Therefore, in order to enhance investor confidence and promote transparency, there needs to be greater Collaboration between these key stakeholders in the areas of:
1) Planning and development;
2) Public disclosure of the details of taxes and other payments collected by the Government from Grand Bahama’s residents, the GBPA and its Licensees;
3) Public disclosure of the costs incurred by Government in providing civil services (i.e. police, immigration, customs, social services, education etc.) to Grand Bahama Island;
4) Public disclosure of the GBPA’s list of licensees, its annual costs incurred in carrying out its function as a municipality and the details of all payments made to the Government on an annual basis.
5) Public disclosure of the criteria being used by the GBPA to determine annual license fees for Licensees; and finally
6) Developing a more efficient and effective strategy for reducing crime and dispensing justice.
Grand Bahama’s resurgence as an economic powerhouse will very much depend on its ability to compete globally. Therefore, it is vital that prospective investors, be they local or foreign, see Grand Bahama as being an investor friendly, safe, moderately regulated business environment, with a skilled, competent and adaptable workforce, where they are able to conduct business at a reasonable cost. While potential investors are able to positively check the box regarding some of the aforementioned attributes, much remains to be done with respect to others. Hence I make the following recommendations for improving Grand Bahama’s competitive landscape:
1) The Government needs to stop equivocating on its plan for the Country’s accession to the World Trade Organization and make it happen (WTO Agreement on Subsidies and Countervailing Measures apply to free zones).;
2) The Government should give greater momentum to its plans to upgrade The College of The Bahamas to University Status;
3) The GBPA and its Joint Venture Partner, Hutchison should resurrect its plan for the creation of a Sea/Air Business Centre and Foreign Trade Zone;
4) The Government assisted by the GBPA, should provide greater access to training, credit, and incubator support for small businesses and budding entrepreneurs;
5) The Grand Bahama Power Company’s monopoly should be dismantled through negation and use of incentives and other alternative energy players should be allowed to participate in the power generation space; and
6) The Government should relax its Immigration Policy, by providing a pathway for “fit and proper” high net worth individuals and professionals such as physicians, scientist, engineers, lawyers, IT specialist etc., to become residents and ultimately citizens of The Bahamas.
By now it should be clear to all and sundry that Freeport, Grand Bahama, is different. Instead of taking steps to make Grand Bahama conform to the rest of the Country, Government should exploit its diversity and even use the HCA as a template for the development of other family islands.
The resurgence of Grand Bahama as the Country’s industrial powerhouse will not only inure to the benefit of its key stakeholders, business owners and residents, but to the nation at large. The competitive advantage that we the stakeholders have, is the foundation laid over the last half century using the visionary blueprint called the HCA, which in essence ties the Governments’ desire for large scale and measurable development and economic growth to fiscal incentives. I therefore strongly urge the Government to extend the tax incentives due to expire in August 2015, with the conditions as explained above, and to consider offering new incentives for the further development of the settlements which lie to the east and to the west of Freeport. These settlements should also be incorporated into the Port Area, to create greater critical mass and economic efficiencies.
(DISCLAIMER - THE VIEWS EXPRESSED ARE MY OWN AND NOT THOSE OF THE GRAND BAHAMA CHAMBER OF COMMERCE OR ANY OTHER ENTITY WITH WHICH I AM AFFILIATED)