REMARKS BY LYNDEN NAIRN
AT PRESS CONFERENCE
NATIONAL ECONOMIC SUMMIT – INTERIM REPORT
THURSDAY MARCH 12, 2009
BAHAMAS CHAMBER OF COMMERCE
Before we outline the major recommendations of the National Economic Summit (NES), we wish to make a few critical observations. First, it would appear that this economic crisis is far from reaching bottom, and it will be deep and painful for Bahamians. Unfortunately, there is no panacea. While we believe the recommendations emanating from the NES should be adopted, their pursuit will not mean that we will not experience pain. It will mean, however, that we ameliorate the sting and set our country on the path to economic diversification and historic structural strength.
Next, we urge the Government to reconsider its capital works generally and its plans to spend almost $600 million on road construction and upgrade to the airport specifically. With respect to the construction of the roads, no evidence has been offered to support the proposition that that is the best use of public money at this time. That is true especially because it is hardly likely that the proposed roads will have a material impact on traffic congestion, certainly not to the extent that a)staggering work hours; and b)unification and drastic improvement of public transportation would.
The Government is urged to consider the possibility that a protracted recession might require the need for borrowing beyond what is now projected. Needless to say, borrowing for roads that we do not need might put at risk our capacity to borrow later when we need to.
Let me say that I was not of that view in September 2008 when the effects of the economic crisis became clear to me. I did not realize then that the recession would be so deep. I make that point because it is important to realize that the events we face are dynamic, and all of us must be prepared to adjust our thinking in the face of changing circumstances.
We believe that Government spending should flow into areas that would have a genuine stimulative effect. Regrettably, there is no evidence that the term “economic stimulus” is understood in our context. It is not true that every dollar spent by Government, no matter how well intentioned, is stimulative. In our context, Government spending that has the effect of reducing the current account deficit is stimulative.
Given that many persons are closely watching the efforts of the U.S. Government to stimulate its economy and believe The Bahamas should follow suit, permit us to offer two observations. First, the intent of the U.S. Government is to inject stimulus into the economy in order to fill demand not being met by the private sector in the U.S. and thereafter create confidence in the economy. They expect that the end result of their efforts will be the reinvigoration of the economy on a sustained basis and without ongoing Government inducement. John Maynard Keynes developed that approach to addressing economic challenges during the Great Depression in the 1930s.
Regrettably, no amount of money we spend on infrastructure will cause us to emerge from this recession nor will any amount of money spent to provide part-time employment for Bahamians. That’s just the nature of our economy. We are not in a recession because Bahamians have lost confidence and have decided not to spend. Our economy is in recession because tourists are coming in fewer numbers. Yes, the drop in demand is driven by persons outside The Bahamas.
However, some would argue that the Government is seeking to provide a bridge until the U.S. economy turns around and tourists return. That strategy is not altogether unmeritorious, but it is not a stimulus strategy in the Keynesian sense and, more importantly, in today’s context it is quite risky. It is a gamble because it would strain foreign reserves if Government borrowing to fund such initiatives is in Bahamian dollars; or increase U.S. dollar debt otherwise. Moreover, should the U.S. economy not recover in the time period that we expect, or if U.S. consumer spending changes dramatically even after their economy recovers, we would have exhausted our capacity to borrow without having achieved an appreciable improvement in tourism. With respect to a change in U.S. consumer spending, one can reasonably expect the U.S. consumer to use credit more prudently and to save more, at least in the short-term. That means we should expect impulse travel to decline and travelers to exercise a greater level of thrift. Furthermore, improvement in unemployment will lag behind the economic recovery, which means that even if, and that’s a big if, the U.S. economy recovers during 2009, U.S. unemployment will still be high throughout 2010.
The second point we make with respect to this matter is that the Bahamas’ reliance on imports places it in the highest percentile of all nations in that regard. Some have argued that that accounts for our level of wealth vis-à-vis other countries. We would argue that that presents us with an unparalleled opportunity to reverse that result by producing more of what we consume and hence become even stronger economically.
We are spending billions on energy and other imports. Is it really that foolish to imagine what we might become if we came together as a country and decided to produce more of what we consume? We are cognizant of the historical, cultural and ideological impediments that militate against what we suggest. Surely though, in the face of incredible economic downturn we can muster the wherewithal to eclipse those challenges. Can’t we? We say quite simply: pump stimulus money into areas that would reduce our imports and increase exports. We would create jobs in pursuit of those objectives and generate even more jobs because we would be a much wealthier nation. We argue that there is no other realistic way, apart from increased tourist expenditure, for The Bahamas to follow the Keynesian model of economic recovery.
Notwithstanding the foregoing, we accept the notion that our economy is linked to the world’s, particularly the U.S. economy and that our recovery is more likely if the U.S. economy turns around. However, we simply do not believe we should be solely reliant on a U.S. rebound for our economic advancement. The reality is that the vast majority of countries around the globe would be thrilled beyond description to have The Bahamas’ current level of per capita foreign earnings on which to build a strong economy.
Let’s turn now to the NES. We went into the NES seeking to achieve one primary objective: To identify ways to positively impact The Bahamas’ current account balance in the immediate to medium term. Such opportunities when exploited will positively impact entrepreneurial and job prospects and lead to an improvement in external reserves.
As a result of our intensive discussions with Bahamian agriculturalists, tradesmen, businesspeople, economists and other professionals, we have identified ways to improve our country’s current account by $1 billion. This would float directly into our country’s national wealth, if you will. To put that figure into perspective, $1 billion represents the following:
13% of GDP
2 times foreign reserves
6 times the amount spent by cruise visitors annually
53% of the amount spent by stopover visitors annually
38% of Baha Mar’s proposed investment
50,000 persons can be paid $20,000 each.
What industries would generate $1 billion?
Trade and manufacturing
What would achieving an annual improvement of $1 billion in the current account mean?
Less reliance on tourism
Increased entrepreneurial class.
How do we achieve the goal of an annual improvement of $1 billion in the current account?
First, agree on the above as a national goal.
Second, agree that we will achieve it in three years.
Third, pursue the following:
Improve marine security to reduce poaching dramatically.
Develop world-class marine management including high technology laboratories and long range strategic planning.
Pursue targeted training.
Pursue value added product development rather than being primary producers only.
Reinvent the Department of Fisheries.
Employ new technology for energy generation, owned primarily by Bahamians.
Unify and dramatically improve public transportation.
Approve LNG with partial Bahamian ownership component.
Pursue aggressive and sustained energy conservation for homes and businesses.
Promote the growth of solar energy solutions for households and businesses.
Achieve 100% sufficiency in poultry, goat and lamb production.
Privatize and expand the Abattoir to diversify services and distribute products.
Achieve 100% sufficiency in selected fruits and vegetables.
Increase export of fruits and vegetables through strategic foreign alliances.
Create the National Agricultural Institute under the auspices of C.O.B.
Privatize packing houses and increase processing.
In the main promote small and intensive farming.
Ensure that lands leased for agriculture in N.P. are being used for that purpose.
Trade & manufacturing:
Increase emphasis and exploitation of Freeport Container Port.
Seek to manufacture foreign competitors’ products for local consumption and export.
Aggressively promote The Bahamas as an excellent jurisdiction for light manufacturing.
Create an Economic Diversification Committee.
Define, develop and promote new Family Island product.
Pursue specialized tourism particularly sports, education and medical.
Track, develop and promote cultural tourism.
Various other recommendations.
As we move into phase 2 of the NES, we expect further refinement of the above goals through conversations with the public and private sectors as well as with members of the Government and the Official Opposition.
We stand at a time that is pregnant with change and possibilities. Business, political and other leaders would do well to listen to the many voices around this country that scream for prudent yet decided economic diversification. We might not have another opportunity in our lifetime to effect the transformation we need. Lest the world’s economy improves while we retain the status quo, let us embrace this crisis now and convert it to the opportunity that it offers.
The views expressed are those of the author, and not necessarily those of the Nassau Institute (which has no corporate view), or its Advisers or Directors.