By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A FORMER finance minister says Hurricane Matthew may have cost the Bahamas up to $1 billion in total economic losses, yet the storm is not necessarily “the horrible disaster” it first appears.

James Smith, minister of state for finance under the first Christie administration, told Tribune Business there was “no doubt” that the Category Four storm would “knock a couple of percentage points off GDP growth” in the immediate term.

However, he argued that these losses would be counter-balanced by the foreign currency inflows of reinsurance monies, as storm victims receive an estimated $400 million in total payouts.

This, in turn, should spark an increase in construction sector activity as repairs are carried out to hundreds of homes and businesses, with the extra employment in that industry helping to offset job losses elsewhere.

“The gross loss could be between $0.5 billion to $1 billion,” Mr Smith told Tribune Business of Hurricane Matthew, “but you net it out depending on other factors, and it could be a much lower negative at the end of the year”.

With the Bahamian property and casualty industry estimating that total insured losses as a result of Matthew could total “in excess of” $400 million, and the Government planning to float a $150 million Hurricane Reconstruction Bond, the Category Three/Four storm’s damages have already surpassed the $500 million ($0.5 billion mark).

With total uninsured losses, and the Bahamas’ total economic losses (tourist arrivals, revenues) yet to be factored in, the value of Matthew’s total impact appears set to fall within the range indicated by Mr Smith - probably closer to the $1 billion mark.

“It was a hell of a storm,” he added. “Every time a hurricane comes through it’s going to take a couple of per cent off GDP, no doubt about that.

“You start off with the down side, with the massive loss and damage, days lost in terms of tourist arrivals, cruise ships turned away, and that takes away the multiplier effect of that money coming in.

“But how much of it was insured, and how much will we collect from the insurance effect? That creates some activity in the construction sector, which will have a multiplier effect, providing a level of employment.”

Mr Smith continued: “The immediate downside is the loss in productivity and loss in activity in the private sector, which is tourism and property damage.

“The upside will be the monies now being injected into the economy, and the period of insurance payouts and ongoing reconstruction. You hope you don’t lose too much of your GDP taking into account those things.”

The now-CFAL chairman added that if the $3.5 billion Baha Mar project stayed on target for remobilisation, and the start of construction completion, the final months of 2016 “could have an outturn” where Matthew’s immediate impact is cancelled out.

While acknowledging that this was “a very optimistic outlook”, Mr Smith said uninsured persons would have to “pull down on their savings” to finance home and business premises repairs, injecting further monies into circulation within the Bahamian economy.

“At first glance it looks like a really horrible disaster,” Mr Smith told Tribune Business, “but at second glance you see there’s an upside based on construction expenditure.

“You wish hurricanes never happen, but it’s rather like a forest fire; it paves the way for new growth. The landscaping people must be making out like bandits. It [the storm] impacts all sectors directly, up and down. It usually spurs on a new kind of entrepreneur, who is more aware of the risks involved in doing certain kinds of things.”

The Bahamas, according to Department of Statistics data, had endured two consecutive years of negative economic (GDP) growth prior to 2016, placing this economy in recession.

With just 0.5 per cent growth projected for this year, there is every chance that Matthew could have wiped this out, plunging this nation into three successive years of contraction.

Mr Smith, who is also an ex-Central Bank governor, said he was most concerned about Matthew’s impact on those persons who lacked the financial savings to recover from a major hit, such as small and medium-sized enterprises (SMEs) and self-employed persons.

“I’m usually concerned with the productivity losses,” he explained to Tribune Business, “and people who are self-employed and small operators who take a long time to rebound.

“We look at the big stuff, not realising the sole proprietor can’t get out or can’t get a loan to replace tools and equipment. Then the one or two guys with him stay unemployed for a while.”

Mr Smith suggested that in Matthew’s wake, it might be time to assess whether the Bahamas required “stronger” building codes and new designs, and how prepared the nation was to withstand a Category Four or Five storm in the future.

“It looks, from the outside, that we withstood a very powerful hurricane,” he added.