The Bahamas - Foreign investment



The absence of corporate and personal income taxes, as well as any form of sales, estate or inheritance taxes, acts as a direct inducement to foreign capital. In addition, specific investment incentives are included through the following: the Industries Encouragement Act, providing total exception from import duties and taxes for development of approved industries; the Hawksbill Act, which provides for tax-free development of the Freeport area; the newer Bahamas Free Trade Zone Act; the Export Manufacturing Industries Encouragement Act; the Spirits and Beer Manufacturing Act, which allows duty-free importation of construction materials and raw material; the Hotels Encouragement Act, which, as amended, exempts large new hotels from all taxes for up to 20 years with reductions for the next 10 years; the Agricultural Manufacturers Act, which allows machinery and raw materials for an agricultural factory to be imported duty-free; and recent amendments to the Tariffs Act, which allow duty exemptions for construction on some of the outer "Family Islands." Investment proposals are processed by the Bahamas Investment Authority, established under the Foreign Investment Law in 1993 to be a one-stop shop.

In 1999, there was a 25% increase in the number of airline seats available to tourists to the Bahamas and a 26% growth in hotel rooms. By 2002, the government-owned hotels had been privatized and the government was seeking the strategic investment of foreign capital in the privatization of utilities. The sale of the telecommunications company, Batelco, begun in 1998, was scheduled for final bids in September 2003; an original set of nine bidders has been reduced to three: Bahamatel (US-Canadian consortium), BluTel (German), and TransWorld (US). The next in line for privatization is the Bahamas Electric Corporation. Enron's Calypso project—a liquefied natural gas (LNG) pipeline from Freeport to Everglades Port—was sold to Tractelbel for $11 million in 2002 and in 2003, AES, the Virginia-based global power company was cleared by the US government to build an LNG pipeline from Ocean Cay (a Bahamian island owned by AES) to Broward county, Florida. In the tourist sector, the $275 million Exuma resort complex built by Four Seasons Resort Development Corporation (US) was completed in March 2003 but scheduled to open in November.

The government actively seeks foreign investment in every sector of the economy, but reserves many businesses exclusively for Bahamians, including wholesale and retail operations, commission agencies in import/export trade; real estate; domestic newspaper and magazine publication; domestic advertising; local night clubs and restaurants; security services; construction; beauty parlors and barber shops; shallow water scalefish, crustacean, mollusk and sponge fishing operations; auto and appliance service; and public transportation.

The Bahamas is recognized as an international offshore financial center, which to the benefits of no taxes on any kind of income adds those of a stable democratic government, a timely repatriation of profits (although exchange controls are maintained on residents to assure adequate levels of foreign exchange), an increasingly well-developed infrastructure, and a central location. The International Business Companies (IBC) Act, in effect from January 1990, simplified the requirements for incorporation and reduced the cost of forming an offshore company. The Bahamas has signed an OPIC agreement and a number of OPIC-financed projects have been approved. Canada also has an investment insurance program in the Bahamas. The country has also become a signatory to the Multilateral Investment Guarantee Agency (MIGA) of the World Bank.

By 2002, over 80,000 companies were formally headquartered in the Bahamas, most holding companies (IBCs) for investment or trading activities conducted in other countries, although these arrangements were vulnerable to prosecution under controlled foreign corporation legislation. In 2002, the government passed reform legislation, making it more difficult to set up shell corporations, and was then successful in having the Bahamas removed from two OECD watch lists for international noncooperation: one on money laundering and one on offshore tax havens. However, in 2003 the Bahamas remained on the US list of 23 "Majors" in illicit drug production or drug transit.

The Bahamas has the world's third-largest registry of ships, administered by the Bahamas Maritime Authority (BMA) headquartered in London. Ships can be registered in Nassau, London, or New York. The registry has been famous for cruise ships, but with the development of the Freeport deep-water container facility and transshipment center by a joint venture led by Hutchison Wampoa of Hong Kong, the largest vessels can be accommodated. In November 2002, the Prestige, a single-hull tanker flying a Bahamian flag and carrying 20 million gallons of oil, foundered in a storm off the coast of Spain, beginning Europe's worst environmental disaster (it may continue leaking oil until 2006). Damage to the Bahamas' shipping reputation has been limited, however, first because the Prestige had had several recent inspections, including by the US Coast Guard, and second, because though registered in the Bahamas, the tanker was owned by a company headquartered in Liberia, had been leased to a Russian company registered in Switzerland, was being managed by a Greek company, had a Filipino crew, and was carrying oil from Latvia to Singapore that was owned by a British company. Moreover, both Spanish and Portuguese ships turned the Prestige away when it was seeking safe harbor during the storm.

Foreign investment remains mainly in the tourism-related sector (50% of GDP in 2002) and the banking and related services sector (15% of GDP). Since the enactment of a revised foreign landholding act in 1993, investment in the second-home sector has been growing. The government does not publish detailed foreign investment statistics and estimates vary. The US State and Commerce Departments estimate the inflow of foreign direct investment (FDI) for 1999 and 2000 at $512.80 million and $500.3 million, respectively, whereas UNCTAD reports only $149.4 million and $249.6 for the same years. All sources agree that there were dramatic declines in 2001 and 2002 due to the global economic slowdown and to the worldwide declines in foreign investment and tourism after the 11 September 2001 terrorist attacks on the US World Trade Center. For 2001, UNCTAD reports a 60% decline in FDI for the Bahamas to $100.8 million. US direct investment in the Bahamas in 2002 was a negative -$542 million

The Bahamas' only stock exchange is the Bahamas International Stock Exchange (BISX) started as a private venture with a $5 million investment in 2000. It has not developed into an efficient channel for foreign portfolio investment. By 2003, the BISX had lost an estimated $2 to $3 million and was being sustained by government subsidies of $50,000 a month. In March 2003, 14 companies were listed with a market capitalization value of $1.4 billion. In 2001, US investors held $1.16 billion in equity in Bahamian companies.

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