THE BAHAMAS

Commonwealth of the Bahamas

COUNTRY OVERVIEW

LOCATION AND SIZE.

The Bahamas is a chain of 700 islands and about 2,000 cays (low islands or reefs of sand or coral). However, only 29 of the islands are inhabited. The Bahamas is in the North Atlantic Ocean on the eastern edge of the Caribbean, just 72 kilometers (45 miles) southeast of Florida. It has an area of 13,939 square kilometers (5,382 square miles) and is a bit smaller than Connecticut. The islands have a total coastline of 3,542 square kilometers (1,368 square miles). The largest city in the nation is Nassau, the capital, and the second largest is Freeport.

POPULATION.

The population of the Bahamas was estimated to be 294,982 in July 2000. The nation has a high birth rate with 19.54 births per 1,000 people compared with 6.81 deaths per 1,000. The fertility rate is 2.33 children born per woman. Because of the increase in AIDS, the infant mortality rate is high, with 16.99 deaths per 1,000 inhabitants. The population is young, with 30 percent under the age of 15 and only 6 percent over 65. Life expectancy is 68.25 years for men and 73.94 years for women. The rate of people moving out of the country is high at 2.67 per 1,000 people. These combined facts give the nation an overall growth rate of 1.01 percent. By 2015, the islands are expected to have a population of 330,000.

Bahamians are primarily of African descent (85 percent). People of European ancestry make up 12 percent of the population and the remaining 3 percent is of Asian or Hispanic origin. English is the official language, and religious worship is largely Christian. The Baptist church has the biggest following (32 percent), with the Anglican, Roman Catholic, and Protestant churches well represented. The literacy rate is high, almost 100 percent.

Most Bahamians reside in urban areas, with two-thirds of the population living on New Providence Island where Nassau is located. Many others live in or near Freeport on Grand Bahama Island. There are small settlements throughout the outer islands, called the "Family Islands".

OVERVIEW OF ECONOMY

Tourism and financial services dominate the economy of the Bahamas. Tourism is the main economic sector, accounting for 60 percent of the gross domestic product (GDP) and employing almost half of the population. The government has undertaken extensive marketing to attract visitors and bring foreign investment to the tourist vacation industry. The importance of tourism to the Bahamas makes the nation reliant on the economic fortunes of vacation-oriented nations, particularly the United States from where most of its visitors come.

The country has benefited from its status as a tax haven and international banking center. To exploit this advantage, the Bahamian government has passed laws aimed at encouraging foreign companies to incorporate themselves there, and has created free trade areas where goods can be trans-shipped without being taxed. Many shipping firms use the Bahamas to register their vessels.

The mild climate of the islands and their proximity to the United States make the Bahamas an ideal tourist destination for Americans. It is also ideally situated for American companies to relocate to avoid U.S. corporate taxes. The nation is also aided by its history of political stability and the sound infrastructure of the main islands. However, the geographical position of the archipelago makes it vulnerable to natural disasters such as hurricanes and tropical storms.

A negative effect of the Bahamas' proximity to the United States is that international criminals often use the country as a base for their activities. The main criminal activities involve smuggling of illicit drugs, illegal immigrants, and money laundering . The government cooperates closely with the United States, which provides substantial aid in anti-narcotic initiatives, in attempting to counter these problems.

The nation has a small fisheries industry and exports limited quantities of lobster and other fish. The main manufacturing company is PFC Bahamas, which makes pharmaceutical products. BORCO maintains an oil refinery in the islands and several breweries in the islands produce rum and assorted beers for export to the United States and Western Europe. Freeport has repair facilities for cruise ships.

The Bahamian government has tied its currency to the U.S. dollar, which has helped maintain economic stability. The country has been the recipient of generous foreign aid that includes bilateral assistance from nations such as the United States and the United Kingdom, and multilateral aid from organizations such as the European Union (EU).

POLITICS, GOVERNMENT, AND TAXATION

A British colony from 1717, the Bahamas was granted self-government by the British in 1964 and full independence in 1973. A parliamentary democracy and a member of the British Commonwealth of Nations, the country's traditions and its legal system closely resemble those of Great Britain. The British monarch is the chief of state and is represented in the islands by an appointed governor general. The head of the government is an elected prime minister, who presides over a bicameral (2-chamber) legislature consisting of the House of Assembly and the Senate. The House has 40 elected members who serve 5-year terms and the Senate consists of 16 members, also serving for 5 years, appointed by the governor general after consultation with the prime minister and the leader of the opposition.

There are 2 main political parties in the Bahamas: the Free National Movement (FNM) and the Progressive Liberal Party (PLP). The FNM has controlled the government since 1992. Its main priority has been economic development and the diversification of the economy. A related priority has been job creation, including worker retraining. As part of this effort, the government has engaged in privatization initiatives since 1992, which included the selling of all but one of the formerly state-owned hotels. The government-owned telecommunications company, Batelco, is being privatized and there are proposals for the sale of its national airline, Bahamasair, as well as the Bahamas Electric Company. Nonetheless, with a total work-force of 22,000, the state remains the largest employer in the islands.

As part of efforts to diversify the economy are programs to develop the fishing industry in particular, the government has opened 2 shrimp hatcheries. Government infrastructure programs also contribute to the economies of the Family Islands by providing jobs. In 1990, the government enacted the International Business Companies Act to reduce the cost to foreign companies of incorporating in the Bahamas. This is a clear success: on top of the presence of 415 banks, by 2000 84,000 companies had incorporated themselves in the Bahamas.

The Bahamas has one of the lowest levels of taxation in the world. Bahamians do not pay income or sales taxes, and there are no corporate taxes. Government revenue comes from import duties , business license fees, stamp duties, and departure tax. The government's budget for 2001 was US$998 million, with most funds earmarked for social services, including US$178.64 million for education and US$142.36 million for health care. US$103.86 million was given to law enforcement, most of it to be spent on measures to combat the drug trade.

The government supports efforts to reduce trade barriers in the hemisphere. It has entered into negotiations for a Free Trade Area of the Americas. However, since the majority of state revenue comes from trade tariffs , the government needs to develop new sources of revenue and taxation. Nonetheless, it adamantly refuses to consider any form of income tax .

The judiciary is independent and the legal system is based on British common law. Since independence, the Bahamian government has adopted business legislation from American models of commercial law. The legal system is fair and impartial, though many foreign companies have charged that the system is slow and often favors Bahamian companies over their competitors. Partly in response to these complaints, the government began reforms in 1993 to overhaul the system. Much of the reform effort has been funded by aid from the United States.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

The Bahamas has a good infrastructure for a developing nation and the government is engaged in a long-term program to improve roads and communications. Major road construction has been completed in Nassau and on the Family Islands, which have also benefited from improvements in their electricity systems and airports. Traffic congestion has been alleviated in Nassau and a second bridge built between Nassau and Paradise Island. The islands have 2,693 kilometers (1,673 miles) of roads, of which 1,546 kilometers (960 miles) are paved. The water systems in Nassau and the Family Islands have been upgraded.

The islands have 62 airports, but only 33 are paved and only 2 have more than 3,047 meters (9,998 feet) of paved runways, and there is 1 heliport. The 3 main seaports are in Freeport, Matthew Town, and Nassau. Regular air and sea service is available between the inhabited islands, and between the United States and the Bahamas. Since the government allows foreign ships to register themselves under the Bahamian flag, there is a large merchant marine of 1,075 ships, which includes vessels from 49 separate nations. The largest number of ships belong to Norway (177), Greece (141), and the United Kingdom (113). Turmoil in Liberia, where many companies had their vessels registered, has caused several to switch registration to the Bahamas (21 in 2000).

Telecommunication service is widely available but installation and maintenance of equipment is slow by North American standards. There are 4 Internet providers in Nassau and the Cable Bahamas company has been granted a license to establish a center to provide web hosting sites for foreign companies. The company has also announced plans to build a US$15 million fiber-optic system to create a high-speed communication system between the Bahamas and the United States.

The country is self-sufficient in electricity, which is supplied by fossil fuel. Electricity production amounted to 1.34 billion kilowatt-hours (kWh) in 1998, while consumption was 1.246 billion kWh.

ECONOMIC SECTORS

Most of the Bahamas' GDP comes from tourism and financial services, and there is little industry. There is, however, some production of minerals, consisting of cement, salt, sand, and gravel. One of the main labor-intensive industries is construction, which continues to expand because of the building of new housing, even as commercial construction has declined over the past few years.

Tourism is the economic backbone of the Bahamas. It provides the biggest percentage of the nation's GDP and employs more people than any other economic sector. Financial services form the second chief component of the economy, encompassing banking, insurance, stocks and bonds, and mutual funds.

There is about 1 percent of arable land throughout the islands but plenty of fresh water. With 32 percent of the land comprised of forest, timber is a plentiful natural resource. Most agricultural production is on Grand Bahama Island and the outer islands. While the cultivation of several crops, notably ornamental plants and citrus fruits, has expanded, the farming of poultry and livestock has declined. The government has aggressively looked for foreign investment to improve crop quality and output, while its support for fisheries has improved output and profits.

AGRICULTURE

The Bahamas is a net importer of foodstuffs, buying 80 percent of its consumables. Agriculture and fisheries make up about 5 percent of GDP and about 5 percent of employment. Also, temporary jobs become available during the harvest season and during specific fishing seasons, such as the lobster harvest. Companies have requested that they be allowed to use foreign workers during harvests but the government usually refuses such requests.

The islands' primary crops are bananas, corn, and, by far the most important, sugar cane. In 1998 sugar cane provided 45,000 metric tons of the total crop production of 46,200 metric tons. In addition, beef and veal, chicken, and pork are raised. There are 240,000 acres of land used for agriculture, mostly on the outer islands. Most farms are small and most products are for domestic consumption. Because of the 1999 hurricane season, crop output fell 16.5 percent or US$8.8 million, and poultry and meat production declined by US$6.4 million. However, the output of ornamental plants increased by 11.2 percent. Citrus production has also increased in the past few years.

There have been continued increases in fish output. Total harvests in 1999 were 6.3 million pounds with a value of US$74.1 million (a 4.3 percent increase from the previous year). Lobster or crawfish make up 88 percent of total output and rose by 23 percent in 2000. Fish production will continue to expand and diversify as the government establishes new fish farms and funds efforts to broaden harvests to new species.

INDUSTRY

In 1999, the small industrial sector of the Bahamas only made up about 5 percent of the nation's GDP and 5 percent of employment. Government infrastructure projects and private construction provide the main industrial activity. The 1 shipyard in the Bahamas is at Freeport and it specializes in the repair of passenger or cruise ships. There is limited production of minerals. Sand is dredged off the Bahamas Bank and used for limestone and the production of commercial sand, which supply the local construction industry. There is also limited production of salt for export to the United States.

The pharmaceutical company, PFC Bahamas, produces a small quantity of products for export and the oil company, BORCO, has a refinery in the islands, but these are individual enterprises and do not represent any large industrial presence. There is a substantial brewing industry. Companies such as Bacardi, Inc., distill rum and other spirits in the islands, while other international breweries such as Commonwealth Brewery, produce different beers including the Heineken, Guinness, and Kalik brands.

The construction industry seemed to peak in 1998 with the completion of several new resorts. By 1999, new construction projects had fallen by 15.9 percent, with 817 continuing commercial projects valued at US$123 million. However, private housing completions were up by 18.3 percent with a value of US$112.1 million. This reflects an increasing demand for more upscale housing in the nation.

SERVICES

Tourism dominates the Bahamian economy. In 1999, 3.65 million people visited the islands, with 2.2 million of them arriving by cruise ship. Revenue from tourism made up 60 percent of the nation's GDP. The average tourist spent US$958 while vacationing in the Bahamas, and tourist spending overall amounted to US$1.5 billion. In 2000, there were about 81,700 people employed in the tourist industry. Most visitors are from the United States (83 percent in 1999). However, in recent years the number of European tourists has increased by 9 percent.

The largest resort in the island is the 2,340 room mega-resort Atlantis, which is owned by Sun International. It employs 5,500 people and is the second largest employer in the nation after the government. Other major resorts in the islands include Club Med (popular with the French), Sandals (attracting the British), and Holiday Inn. The Grand Bahama Development Company plans to spend US$50 million upgrading airport and cruise ship facilities to accommodate an additional 555,000 visitors per year.

Although the majority of the tourist industry in the Bahamas has been driven by private enterprise, the Bahamian government did own 20 percent of the hotel accommodations in 1992. Privatization programs since that time have reduced the government holdings to 5 percent.

All major cruise lines operate services to the Bahamas. To extend the stay of passengers, the government has enacted legislation that allows ships to open their casinos and stores only if they remain in port for more than 18 hours.

Thanks to the tourist trade, retail companies prosper in the Bahamas. There is a strong preference for recognizable name-brand products, and major American brands do well in the islands. However, the government requires that retail and wholesale businesses be Bahamian-owned.

In 1995, the government changed laws to allow betting on sporting events. Gambling is permitted on events both in the Bahamas and elsewhere in the world. The same law also lowered the taxes on winnings in casinos that are smaller than 10,000 square feet, which has resulted in the proliferation of sports bars and small casinos.

The financial services sector is the second chief component of the Bahamian economy. In 1998, this sector added US$300 million to the economy and employed 4,000 people, accounting for some 15 percent of the GDP. Government legislation has also encouraged the formation of international companies known as shell corporations, which are established to hide or protect their assets from national taxes at home by incorporating themselves in a foreign nation. As a result there are over 100,000 such corporations. Although many of these firms employ Bahamians, they add little to the nation's economy since they essentially act as conduits for transferring money.

INTERNATIONAL TRADE

The Bahamian economy is dependent on trade with the United States. Most of the tourists that visit the nation are from the United States, and there are 110 American-owned businesses in the islands. In addition, 55 percent of Bahamian imports come from the United States, and American distributors also handle many of the nation's other imports. Other than the United States, which supplies 27.3 percent of Bahamians imports, the Bahamas' other main import partners are Italy with 26.5 percent, Japan with 10 percent, and Denmark with 4.2 percent. The country's main export partners are the United States at 22.3 percent, Switzerland at 15.6 percent, the United Kingdom at 15 percent, and Denmark at 7.4 percent. In 1998, the Bahamas had exports of US$300 million and imports of US$1.87 billion.

The government supports efforts to set up a free trade area that would end tariffs and other taxes on goods imported from or exported to members of the agreement in the Caribbean region. However, since most of the Bahamas' revenue comes from tariffs and duties on imported goods, the government would have to dramatically change its tax system.

MONEY

The Bahamian dollar is fixed to the U.S. dollar on a one-to-one exchange ratio. As such, the Bahamian currency is dependent on the strength or weakness of the U.S. dollar.

There are over 400 banks in the Bahamas, but only 9 are regular, full-service commercial institutions. The others specialize in international banking and investment. In 1998, the government established the Bahamas Financial Services Board to promote the nation as a major financial center and to coordinate financial services. In 2000 the Bahamas International Securities Exchange was launched as the nation's first stock market.

POVERTY AND WEALTH

Although the Bahamas suffers from extremes of wealth and poverty, the standard of living is high and the

average per capita income in 1998 was US$14,492. On many outer islands, where the people exist as subsistence farmers and fishermen, modern amenities, including sanitation, are badly lacking. Meanwhile, the standard of living in Nassau and Freeport is the same as many highly developed nations. The poverty rate in the Bahamas has declined from about 9 percent in 1993 to about 5 percent, which is low by international standards and points to an improved economy.

The United Nations Human Development Report 2000 ranks the Bahamas high in human development, placing it at number 33 in the world. This ranking is based on a combination of per capita income, standard of living, and access to health care, education, and so forth.

WORKING CONDITIONS

In 1999, the labor force was estimated at 156,000. The unemployment rate was 9 percent by 1998 estimates. Except for members of the police, military, and fire departments, under the constitution of the Bahamas all workers have the right to join unions. About 25 percent of the workforce are unionized, but for workers in the hotel industry the rate is closer to 50 percent. Children under the age of 14 are not allowed to work during school hours or in industrial jobs, and those under the age of 16 may not work at night. There is no national minimum wage, but government employees earn a minimum of

US$4.12 per hour. The working week is limited to 48 hours and there is mandatory overtime pay for hours that exceed this limit.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1492. Spanish explorer Christopher Columbus lands in the Bahamas.

1500s. The Spanish conduct raids in the islands and enslave the Lucian Indians, who are sent to work the gold and silver mines in Central and South America. Over a 25-year period, the native tribes of the Bahamas are wiped out.

1647. British religious refugees settle on Eleuthera Island.

1717. The Bahamas becomes a British Crown Colony.

1718. Woodes Rogers, the first governor of the colony, drives out pirates who were based in the islands.

1700s. Sugar cane production becomes the main source of revenue in the colony.

1861-65. The Bahamas becomes a center for Confederate blockade raiders during the American Civil War.

1917-33. The Bahamas again becomes a center for American smugglers, this time for those transporting illegal alcohol into the United States during the Prohibition period.

1939-45. The Allies use the Bahamas as a base for air and naval operations during World War II.

1964. The nation is granted self-government.

1973. The Bahamas gains full independence.

1992. After 25 years of rule, the United Bahamian Party loses power to the FNM.

FUTURE TRENDS

The economy of the Bahamas remains dependent on tourists, especially from the United States, and is therefore vulnerable to downturns in the prosperity of Americans. The government has started efforts to diversify the economy and the success of these initiatives will determine how badly the islands may suffer from future problems with the U.S. economy. The nation's dependency on tourism makes it vulnerable to competition from other destinations. The development and expansion of the tourist trade elsewhere in the Caribbean stands to have a negative effect on tourism in the Bahamas. The islands are also subject to disruption from hurricanes and other weather-related disasters.

Efforts to develop a free trade area in the region will require a dramatic restructuring of the Bahamian economy since most of the government's revenue come from tariffs and duties on imported goods. Yet, the establishment of a free trade area could well attract more foreign businesses to the islands, since they would be able to use the Bahamas as a strategic base for economic interaction with the United States. The Bahamas would also be able to expand its international financial services sector as other islands in the Caribbean have done.

DEPENDENCIES

The Bahamas has no territories or colonies.

BIBLIOGRAPHY

Eneas, William J. Godfrey. Agriculture in the Bahamas: Historical Development, 1492-1992. New York: Media Publishing, 1998.

Sealey, Neal E. The Bahamas Today: An Introduction to the Human and Economic Geography of the Bahamas. London: Macmillan Caribbean, 1993.

U.S. Central Intelligence Agency. World Factbook 2000. <http://www.odci.gov/cia/publications/factbook/index.html>. Accessed August 2001.

U.S. Central Intelligence Agency. World Factbook 2001. <http://www.odci.gov/cia/publications/factbook/index.html>. Accessed September 2001.

U.S. Department of State. Background Notes: The Bahamas. 1999. <http://www.state.gov/r/pa/bgn/index/cfm?docid=1857>. Accessed August 2001.

—. 1999 Country Reports on Human Rights Practices: The Bahamas. 2000. <http://www.state.gov/g/drl/rls/hrrpt/1999/index.cfm?docid=373>. Accessed August 2001.

—. FY 2001 Country Commercial Guide: The Bahamas. <http://www.state.gov/>. Accessed August 2001.

—Tom Lansford

CAPITAL:

Nassau.

MONETARY UNIT:

Bahamian dollar (B$). One Bahamian dollar equals 100 cents. The Bahamas issues bank notes of B$0.50, 1, 3, 5, 10, 20, 50, and 100. There are coins of 1, 5, 10, 15, 25, and 50 cents.

CHIEF EXPORTS:

Pharmaceuticals, cement, rum, crawfish, refined petroleum products.

CHIEF IMPORTS:

Foodstuffs, manufactured goods, crude oil, vehicles, electronics.

GROSS DOMESTIC PRODUCT:

US$4.5 billion (purchasing power parity, 2000 est.).

BALANCE OF TRADE:

Exports: US$376.8 million (2000 est.). Imports: US$1.73 billion (2000 est.).