The U.S. Department of State’s Investment Climate Statements provide information on the business climates of more than 170 economies and are prepared by economic officers stationed in embassies and posts around the world. They analyze a variety of economies that are or could be markets for U.S. businesses. The Investment Climate Statements are also references for working with partner governments to create business environments that are not only economically sound, but address issues of labor, human rights, responsible business conduct, and steps taken to combat corruption. The reports cover topics including Openness to Investment, Legal and Regulatory Systems, Protection of Real and Intellectual Property Rights, Financial Sector, State-Owned Enterprises, Responsible Business Conduct, and Corruption.
Executive Summary
The Commonwealth of The Bahamas is a nation of islands stretching 760 miles from the coast of Florida to the coast of Haiti. Despite historical and cultural similarities with many Caribbean countries, The Bahamas’ proximity to Florida reenforces its close ties to the United States. Only twenty-nine of its 700 islands are inhabited, and the population is clustered around the two largest cities of Nassau and Freeport. The country has a stable investment climate, democratic tradition, respect for the rule of law, and well-developed legal system. Bahamians’ use of English and frequent travel to the U.S. contribute to their preference for U.S. goods and services. The World Bank classifies The Bahamas as a developed country with a high per capita GDP of $25,194. The Bahamas relies primarily on imports from the United States to satisfy its fuel and food needs and conducts more than 85 percent of its international trade with the United States. U.S. exports to The Bahamas were valued at $2.9 billion in 2021, giving the U.S. a trade surplus of $2.5 billion.
The Progressive Liberty Party (PLP) returned to power in September 2021 elections. The landslide victory reflected public discontent over the slumping economy and the government’s handling of the pandemic. Both crises highlighted The Bahamas’ dependence on tourism, vulnerability to external shocks, and lack of economic diversification.
The World Bank classifies The Bahamas as a high-income country, which belies the country’s extreme income inequality. Tourism and related services contribute to over 70 percent of the country’s GDP and employs just over half the workforce. However, Hurricane Dorian (2019) and the COVID-19 pandemic (2020-2021) devastated the economy and forced tens of thousands out of jobs. A survey of the labor force has not been completed since December 2019, yet government and international agencies estimate unemployment at 20 to 25 percent. Although tourism is on the rebound, it has yet to reach the pre-pandemic level of more than seven million annual tourists, most coming from the United States. Financial services is the second most important sector of the economy, accounting for 15 percent of GDP.
To diversify the economy, the government has targeted investment in light manufacturing, technology, agriculture, fisheries, extractive industries, and renewable energy. The government has also committed to digitizing business services and jumpstarting domestic productivity through small and medium enterprises (SMEs), especially those operating in non-traditional sectors. Grand Bahama, the most northern Bahamian island, depends less on tourism and has the most diversified economic activity of any island in the country. Its capital, Freeport, is a free trade zone featuring many U.S.-owned businesses.
The Bahamas’ economic future depends on the government’s ability to revive the tourism industry, diversity the economy, attract foreign direct investment, manage debt obligations, and demonstrate fiscal responsibility. Following two years of pandemic-related government borrowing, spending, and tax concessions, the country has seen recent economic growth credited to rebounding tourism and the lifting of COVID restrictions. The government also reports a strong pipeline of investment proposals in tourism, renewable energy, airport and infrastructure development, mining, and agriculture. The government affirms its support for SMEs (representing 85 percent of registered businesses), with $250 million earmarked to fund entrepreneurial developments over five years. The Small Business Development Centre (SBDC), launched in 2018, has prioritized the economic empowerment of women entrepreneurs and the reduction of the income gap between men and women.
The Bahamas has leaned on international financial institutions for loans and thus far rejected offers from foreign governments to prop up its economy. International Financial Institutions (IFIs) have voiced concern about The Bahamas’ reluctance to impose additional taxes to address its 96 percent debt-to-GDP ratio. The country does not have corporate, personal, inheritance or capital gains taxes. The government also faces international pressure to improve aspects of its anti-money laundering policies.
The Bahamas is not a member of the WTO and does not offer export subsidies, engage in trade-distorting practices, or maintain a local content requirement. The country has a strict $500,000 dollar minimum on foreign capital investments. The country attracts FDI and over the past decade has benefitted from significant investments in the tourism sector by PRC-based and backed companies. Since taking office, the government has shown its willingness to engage investors from non-traditional markets such as the Middle East. Investments from the United States are primarily in the tourism sector and range from general services to billion-dollar resort developments. U.S. companies have also shown interest in emerging sectors, such as non-oil and renewable energy, niche tourism, extractive industries, and digital technology.
Positive aspects of The Bahamas’ investment climate include political stability, a parliamentary democracy, an English-speaking labor force, a profitable financial services infrastructure, established rule of law, general respect for contracts, an independent judiciary, and strong consumer purchasing power. Negative aspects include a lack of transparency in government procurement, labor shortages in certain sectors, high labor costs, a bureaucratic and inefficient investment approvals process, a lengthy legal disputes resolution process, internet connectivity issues on smaller islands, and energy costs four times higher than in the United States. The high cost of electricity is driven by antiquated generation systems and inefficient diesel power plants. The current government has prioritized infrastructure projects focused on non-oil energy, including a liquid natural gas (LNG) plant and an onshore LNG regasification terminal. The government is also promoting solar energy, particularly on the smaller islands.
Another barrier to investment in the country is the prohibition of foreign investment in 15 sectors of the economy without prior approval from the National Economic Council (NEC). These sectors include commercial fishing, public transport, advertising, retail operations, security services, real estate agencies, and others. Accession to the WTO, which would require opening at least some of these protected areas to foreign investment, is unlikely to take place before 2025.
The absence of transparent investment procedures and legislation is also problematic. U.S. and Bahamian companies report business dispute resolution often takes years and debt collection can be difficult, even with a court judgment. Companies describe the approval process for FDI, and work permits as cumbersome and time-consuming. The government passed a Public Procurement Act and launched an e-procurement and suppliers registry system in 2021. While the registry system is in place, the Public Procurement Act has yet to be fully implemented. Companies complain that the tender process for public contracts is inconsistent, and allege it is difficult to obtain information on the status of bids.
The Bahamas scored 64 out of 100 in Transparency International’s Corruption Perception Index in 2020 (where zero is perceived as highly corrupt and 100 is very transparent). This means The Bahamas is perceived as notably transparent when compared to the 180 ranked countries. However, the country’s score has dropped seven points since 2012. The new administration confirmed its intention to amend several good governance laws, including the Public Procurement Act, but has not provided a timeline. The Bahamas still lacks an Office of the Ombudsman and has not fully enacted its Freedom of Information Act (2017). Legislation to support an Integrity Commission and campaign reform have also been delayed. An independent Information Commissioner, supported by technical and administrative staff, was appointed in mid-2021.
The country grapples with high crime, unemployment, and xenophobia directed towards irregular migrants, especially Haitians. Conservative and patriarchal norms sometimes lead to inequality of opportunity, including for women. Women have raised concerns regarding bureaucratic hurdles to register businesses and cited difficulty in securing financing.
To access the ICS for The Bahamas, visit the U.S. Department of State’s Investment Climate Statement website.