By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

Foreign direct investment (FDI) is “not the panacea that governments think”, a well-known businessman is arguing, suggesting that the returns are “less than 5 per cent”.

Ophthalmologist Dr Johnathon Rodgers, giving a lecture hosted by the Nassau Institute think-tank, entitled ‘Is devaluation in the cards?’, argued that the purpose of FDIs was not only to attract foreign currency but stimulate the Bahamian economy.

“Foreign direct investments are not the panacea that governments think they are,” said Dr Rodgers. “When you look at all the subsidies, all of the Crown Land and concessions that that go into it,  return on investment on direct foreign investment is less than 5 per cent.”

He added that many of the goods and services consumed by FDI projects were procured outside the Bahamas, meaning that more money was still leaving the country.

“Crown Land is a very important asset. Crown land in this country is the biggest national asset, and it has been abused and misused by successive governments over the years,” said Dr Rodgers, arguing that its management should be left to the private sector and made accessible to everyone.  

Commenting on the recent downgrade by Standard & Poor’s (S&P), which reduced the Bahamas’ creditworthiness to ‘junk’, Dr Rodgers said this would drive up the cost of government debt on the international markets.

“Obviously, the cost of debt is going to go up. The banks, who have a lot of government debt on their books, will have to mark that down, which means they will have to recapitalise,” Dr Rodgers said.

“The next thing is who is going to buy the Government debt next time they need $100 million. The banks can’t give them the money, the insurance companies can’t give them money because they can’t invest in anything less than investment grade, since they have a fiduciary responsibility to the policyholders or pension fund holders.

“The Canadian banks received instructions last year that they can’t buy any more government debt. NIB has too much government debt in its portfolio already. Things are really going to hit the fan when the next $100 million issue comes up.”

Such an outcome is by no means certain, given that the downgrade will have no impact on the Government’s Bahamian dollar debt, which accounts for 75 per cent of its debt holdings.

Future domestic debt issues have also likely been made cheaper, along with many existing tranches, as a result of the recent Bahamian Prime rate cut, so the Government’s ability to borrow locally may not be as negatively impacted as Dr Rodgers thinks.

However, he argued: Our currency is way overvalued.That increases the trade deficit and increases the drain on the US dollar reserves. It gives you a false sense of security.”