Tourism, the mainstay of the economy, directly or indirectly involves more than half of the population and accounts for more than 60% of GDP. Because of the absence of direct taxation, the Bahamas has also become a financial haven for the activities of a large number of banking and trust companies, mutual funds, investment firms, and offshore sales and insurance companies. Local firms produce a small array of exports, including salt, cement, timber, pharmaceuticals, and petroleum products refined on Grand Bahama and reexported.
After a decade of slow growth, the economy began to pick up in the mid-1990s due to increased private investment in tourism, shipping, construction and the expansion of financial services. Renewed economic buoyancy followed privatization of major hotels in 1994 and completion of major renovations by the new owners since, as well as increased marketing and an improved foreign investment regime. Real GDP growth, at 3% to 3.5% in 1997 and 1998, increased to 6% and 5% in 1999 and 2000. The global economic slowdown in 2001, and, particularly, in tourism, after the 11 September 2001 terrorist attacks on the United States, reduced growth to 3.5% in 2001. Steady economic growth has brought a steady decline in unemployment: from 11.5% in 1996 to an estimated 6.9% in 2001. Inflation has remained low, averaging 1.27% 1996 to 2001.