Paul I Jukic  03/20/2008 03:12:48 PM  From  DB/Inbox:  Search Results

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UNCLAS        NASSAU 00126

SIPDIS
CXNASSAU:
    ACTION: ECON
    INFO:   NAS AMB DCM POL RSO CONS

DISSEMINATION: ECON
CHARGE: PROG

APPROVED: DCM:DBHARDT
DRAFTED: ECON/COMM:AMBAIN
CLEARED: POL/ECON:DOCONNOR

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RR RUEHC RUCPDOC RUEHDG RUCNCOM
DE RUEHBH #0126/01 0392024
ZNR UUUUU ZZH
R 082024Z FEB 08
FM AMEMBASSY NASSAU
TO RUEHC/SECSTATE WASHDC 5196
INFO RUCPDOC/USDOC WASHDC
RUEHDG/AMEMBASSY SANTO DOMINGO 2890
RUCNCOM/EC CARICOM COLLECTIVE

UNCLAS SECTION 01 OF 03 NASSAU 000126 
 
SIPDIS 
 
STATE FOR WHA/CAR AND EB 
SANDO DOMINGO FOR USFCS 
 
E.O. 12958: N/A 
TAGS: ECON EAIR BEXP ETRD BF
SUBJECT:   2008 BAHAMAS BUSINESS OUTLOOK 
 
 
¶1. SUMMARY:  Presenters at the 17th Annual Bahamas Business Outlook 
Conference discussed substantial challenges to the Bahamian economy, 
including the need to: upgrade the infrastructure on New Providence, 
conclude investment deals quickly, and develop new ways to appeal to 
tourists.  They painted a picture of an economy challenged by the 
slowdown in the United States, but were optimistic that current 
economic conditions would turn around when large scale investment 
projects, now on the drawing board, were approved by the Free 
National Movement government.  END SUMMARY. 
 
------------------------------------ 
ECONOMY TO GROW, BUT CHALLENGES LOOM 
------------------------------------ 
 
¶2.   Minister of State for Finance Zhivargo Laing told attendees at 
the 17th Annual Business Outlook Conference January 8 that the 
Bahamian economy is expected to grow between 3.5 to 4.0 percent in 
2008 despite potential threats from high oil prices and the 
broadening impact of the U.S. sub-prime mortgage crisis.  Minister 
Laing said that economic growth will be underpinned by foreign 
investment projects in tourism and industry, combined with a modest 
recovery in tourism output and a robust pubic sector capital 
development program.  The proposed public sector capital development 
projects include the New Providence Road Improvement Program, with 
an estimated investment of $120 million, and the $400 million Lynden 
Pindling International Airport expansion project. 
 
¶3.  Minister Laing stressed, however, that The Bahamas will not be 
successful in the long run "doing what it has been doing."  He 
bluntly stated that The Bahamas must improve its customer service 
for tourists, engage more fully in the international trading system, 
make better use of information technology, liberalize 
telecommunications (including the sale of the state-owned Bahamas 
Telecommunications Company), reform exchange controls, consolidate 
the regulatory regime for financial services, and modernize business 
laws and regulations to streamline the process for approving 
business start-ups. 
 
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SLOW PROJECT APPROVAL HURTING THE ECONOMY 
------------------------------------------ 
 
¶4. Dionisio D'Aguilar, Chamber of Commerce president, severely 
criticized the government at the Outlook conference for taking too 
long to approve projects, thus slowing down the economy.  D'Aguilar 
called on the government to move expeditiously to approve 
outstanding projects, especially the Baha Mar project slated for 
Cable Beach, and pointed to increased unemployment figures, falling 
tourism arrivals, and global and U.S. economic woes as reasons why 
the government needs to approve foreign direct investment projects. 
The supplemental Heads of Agreement for the Baha Mar project was 
approved on February 1, allowing the project to move forward. 
 
------------------------------------ 
BAHAMAS LOOSES ITS TOURISM ADVANTAGE 
------------------------------------ 
 
¶5. Addressing the 17th Business Outlook Conference, Director General 
of Tourism Vernice Walkine said that total spending in The Bahamas 
in 2007 is estimated at $2 billion -- the same as 2006.  Tourism 
arrivals in 2007 are expected to be slightly lower than the 4.8 
million visitors welcomed in 2006.  Walkine blamed this decline on 
the Western Hemisphere Travel Initiative (WHTI) that has put a dent 
in the impulse travel market, which The Bahamas benefited from 
greatly.  She said that the Ministry of Tourism does expect this 
market and the tourism industry to recover over time, but it has 
eroded The Bahamas' comparative advantage on proximity.  The 
Ministry of Tourism is concerned that while the market share is 
strong, The Bahamas has given up ground to emerging destinations in 
the Caribbean region.   She also noted that the Internet has leveled 
the playing field between destinations due to its availability and 
accessibility. 
 
¶6.  The Ministry is currently redefining its tourism product and 
expects to come out with a new advertising campaign soon.  The 
revised campaign plans to capitalize on the proximity of The Bahamas 
to the U.S. during a period of economic downturn where some 
Americans cannot afford to travel far.  The Ministry also intends to 
expedite plans to redevelop the downtown area and dredge the harbor 
in order to attract and accommodate larger cruise ships to Nassau. 
Tourism officials admit that The Bahamas has a long way to go to 
recapture its competitive edge, but Walkine says that they expect 
this to recover over time.  Additionally, the new tourism 
development projects that are currently on the drawing board will 
also enhance its tourism product when they are completed. 
 
¶7.  As severe crimes in The Bahamas have increased to record levels 
and have moved from the grassroots areas to downtown Nassau, tourism 
officials hope that this will not further threaten the industry. 
Economists fear that the issue of crime could destroy the reputation 
of The Bahamas, if it is not addressed immediately.  Last year The 
Bahamas experienced 79 murders.   As reported (septel) the Embassy 
often receives inquiries from the press following high profile 
murders as to whether it will issue a travel advisory for The 
Bahamas due to the increasing crime. 
 
------------------------------------ 
$2 BN INFRASTRUCTURE UPGRADES NEEDED 
------------------------------------- 
¶8. Simon Townend of KPMG said that $2 billion in investments is 
needed to upgrade The Bahamas' infrastructure if the country is to 
maximize its economic growth potential.  Mr. Townend said that it 
might be difficult for The Bahamas to increase its GDP per capita to 
the level of Bermuda and the Cayman Islands, but noted that the 
Bahamas needs to "change our aspirations" and set its economic 
sights higher.  Townend informed Outlook Conference delegates that 
upgrades to Lynden Pindling International Airport alone are 
projected to cost $400 million, and with the other Family Island 
airports all needing attention, the total investment required for 
all Bahamian airports is approximately $500 million.  He said that 
although $120 million has been allocated for New Providence Road 
Improvement projects; total road refurbishment requirements for The 
Bahamas exceed $200 million.  Townend further noted that a proposed 
relocation of the downtown commercial shipping port to south-western 
New Providence is estimated at $235 million.  Townsend estimates 
that The Bahamas needs to invest $400-500 million in rebuilding the 
nation's education and school system, if it wants "state-of-the-art" 
schools.  He presented a number of suggestions to help improve the 
current state of the economy including:  investing more heavily in 
the financial services industry, privatizing key government 
agencies, and investing Bahamian businesses in other Caribbean 
countries. 
 
----------------------- 
IMPROVEMENTS TO AIRPORT 
----------------------- 
 
¶9. The audience literally applauded as Craig Richmond, Chief 
Executive of the Nassau Airport Development Company (NAD), told 
conference delegates about the improvements being made to the Lynden 
Pindling International Airport.  Richmond noted that because the 
airport was never operated as a business, it is $6 million in debt 
even with the changes NAD has already made.  Richmond attributed the 
debt to the fact that landing fees at the airport have not changed 
since 1993, and that LPIA had some of the lowest fees in the 
Caribbean.  He noted that landing and terminal fees currently cover 
only 33 percent of the airport's airside operations and just 6 
percent of the terminal costs, which caused the imbalance.  In order 
to strengthen airport operations, NAD is looking at four areas: 
operational competence, financial strength, passenger satisfaction 
and staff competitiveness.   Richmond said that safety, access for 
airlines that chose to fly to The Bahamas and gate execution are all 
essential to the airport's competitiveness.  NAD has recently hired 
gate schedulers whose only function will be to ensure gates are 
scheduled efficiently.  NAD plans to install a new baggage system to 
be one of the most sophisticated in the region for a cost of between 
$25-30 million upon completion.  Additionally NAD will eliminate the 
final security checking point that will provide a better visitor 
experience. 
 
----------------------------- 
DOWNTOWN REDEVELOPMENT PLEASE 
----------------------------- 
 
¶10.  Charles Klonaris, chairman of the Nassau Tourism and 
Development Board, outlined the challenges faced by downtown Nassau. 
 He described a downtown that "lacks diversity and density, that 
"closes its doors" and "is abandoned."  He recommended that the 
shipping facilities currently located in the heart of the city be 
relocated, that stops be found for the buses outside of the downtown 
area to reduce congestion, and that waterfront land used by the port 
be reclaimed for retail and residential use. 
 
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COMMENT 
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¶11.  The presenters at the 17th Annual Business Outlook Conference 
showed a Bahamas at the tipping point.  With its streets clogged 
with vehicles, its infrastructure in need of repair, its 
customs-based tax structure ill-fitted to a 21st century trading 
system, and its old formula of sun and sand under challenge from 
other destinations offering similar amenities at lower prices, The 
Bahamas needs to invest in its future.  Presenters seemed impatient 
with the pace of change, and the Free National Movement honeymoon 
may be coming to an end, as speaker after speaker called on the new 
FNM government to move quickly to approve pending tourism 
development projects and deal with other critical tourism issues 
that have been stalled for some time--including the relocation of 
the straw market, improvements to downtown and the relocation of the 
Port of Nassau.  The Ingraham government seems to have gotten the 
message and granted the necessary approvals for the $2.4 billion 
Baha Mar project to move forward and has pledged to conclude the 
sale of Bahamas Telecommunications Company this year.  While the 
airport will finance its own renovations, it is unclear where the $2 
billion will come from for infrastructure improvements that all 
agree need to be made. 
 
Siegel