Monday, February 12, 2018
By NEIL HARTNELL
Tribune Business Editor
Arawak Homes' chairman is "deathly afraid" that WTO membership will undermine Bahamian economic ownership because many locally-owned firms cannot compete internationally.
Sir Franklyn Wilson told Tribune Business that "a high percentage" of Bahamian businesspeople "don't have a clue" what joining the World Trade Organisation (WTO) will mean for the country or their companies.
With the Minnis administration, by its own admission, targeting a "very aggressive" 2019 deadline for the Bahamas to complete accession to full WTO membership, Sir Franklyn said he was praying this "doesn't represent as radical a change" as he fears.
The well-known businessman suggested many Bahamian companies would be unable to compete head-on with multinational rivals that enjoy greater economies of scale and access to cheaper financing, thereby placing local entrepreneurs at a significant disadvantage.
Suggesting that the Bahamas was being forced to adopt rules that did not favour small, vulnerable economies such as its own, Sir Franklyn said one potential 'saving grace' was this nation's relatively small size, which may prove unattractive to major foreign companies.
"I am deathly afraid of it, deathly afraid," he told Tribune Business of the Bahamas' potential WTO membership. "I may be wrong, but I think a very high percentage of people in business in this country, they don't have a clue what WTO is or what it brings.
"When I say deathly afraid, my prayer is that somehow, some way, it [the WTO] just doesn't represent as radical a change as we hear about. If it does represent the change people fear, what businesses in this country are ready to compete? Who can compete?
"When I say deathly afraid I'm not fearful the country is going to come to an end; I'm not saying that. When I say deathly afraid, it's more about empowering Bahamian ownership of the economy and being competitive internationally. It's in these areas that I think it's going to be very difficult." Suggesting that public education on WTO, and other rules-based trading regimes, has to-date been lacking, Sir Franklyn said it typically "takes years to get people to really understand it".
The Bahamas' accession is the longest such process in WTO history, with this nation having first served notice in 2001 - through then-trade and industry minister, Zhivargo Laing - of its intention to become a full member, and Sir Franklyn implied that the education effort should have been ongoing and consistent ever since.
Recalling the "effort" made in 2007-2008 when the Bahamas signed on to the Economic Partnership Agreement (EPA) with the European Union (EU), the first rules-based trade agreement in its history, the well-known businessman said many in the private sector then were "scratching their heads and trying to understand that".
"I just don't remember it becoming a topic of conversation," Sir Franklyn said, implying that the intricacies and complexities of rules-based trading agreements did not remain at the forefront of Bahamian private sector thinking for long.
His words, though, will strike a chord with the reservations many Bahamians hold about becoming a full WTO member, notwithstanding the Government's eagerness to rapidly complete the accession process.
The Minnis administration sees WTO membership as a key element of its strategy to reposition the Bahamian economy through liberalisation and deregulation, thereby ending its 'isolation' from the world's open, rules-based trading regime.
Advocates of this strategy have argued that it will open up new export-led opportunities for Bahamas-based companies and industries, enabling them to sell services and manufactured goods abroad under the protection of WTO rules.
Presently, all Bahamian exports are exposed to be the imposition of trade barriers - such as tariffs, quotas and subsidies - by other countries wishing to deny them market access and protect their own industries. As a WTO member, the Bahamas would be able to challenge such actions by invoking trade dispute procedures.
Sir Franklyn's comments, though, reflect fears that WTO membership will require the Bahamas to open up many industries to foreign competitors, who will then use their deeper pockets and access to cheaper capital to squeeze out locally-owned companies.
However, much will depend on the skills of the Bahamas' negotiating team, headed by Deloitte & Touche (Bahamas) managing partner, Raymond Winder, to reserve key industries for Bahamian ownership only in talks with the Working Group of nations it will have to determine accession terms with.
Sir Franklyn, meanwhile, suggested that FOCOL Holdings' 2006 acquisition of Shell's Bahamian operations could not happen now because "the rules have changed" regarding how such deals play out.
While Shell decided to sell off its operations on a 'country-by-country' basis, its rivals - Esso and Texaco - exited by placing their entire Latin American and Caribbean networks for sale. The latter two structures, Sir Franklyn argued, made it difficult for Bahamian groups to participate because of the sheer scale and capital required.
Suggesting this was an indication of what might be to come under WTO, the Arawak Homes chairman said: "FOCOL buying Shell was the last time [such a deal] could have happened.
"By the time Esso and Texaco came along, if you committed to buy them you had to buy multiple countries in Latin America and the Caribbean. How many businesses in the Bahamas can really do that?
"That's a really clear indication. Now you're talking about WTO, it means you're really out there. Look at the numbers. I'm not just being theoretical about it. Bahamians were able to buy Shell because certain realities existed at that point, but by the time Texaco and Esso came along, the rules had changed. No Bahamian came close; no Bahamian was ever mentioned."
Sir Franklyn said a similar situation now existed with CIBC FirstCaribbean, which was exploring a New York Stock Exchange (NYSE) listing as an avenue that would allow its Canadian parent to exit after failing to find a buyer for the region-wide business.
Hinting that scale was again a barrier to Bahamian ownership and participation, he added: "Where's the Bahamian capital to come and say: 'Let one investor buy a dominant position'. The numbers guys may have the cash, but there aren't many investors in this country able to deals of that magnitude."
Sir Franklyn, though, said the Bahamian economy's relatively small size and lack of growth since the 2008-2009 recession could act as a deterrent to the influx of foreign corporate competition feared by many.
"One consequence of the general lack of growth the country has experienced over time is that, more and more, the country is not likely to be of interest to the deep-pocketed global investor," he told Tribune Business.
"That is a factor that may be relevant. I spoke the other day to the chairman of a company that has a relatively big presence here in the Bahamas, and he was saying that if activity in a country doesn't have the potential to move his stock price on any exchange he's listed on in the world - it doesn't have the potential to move his stock price one penny - what's the point?
"If you're a really large company, and to move your stock price you need nine-figure profit levels, you don't have many opportunities in this country," Sir Franklyn added.
"One side to WTO accession is the smallness of the country may not attract many players big players from the global arena. There are not many industries in our country for global companies to buy into, and that to some extent is a mitigating factor.
"Our relative smallness may not be enough to attract big players. It [WTO] may not have the consequences some fear." He pointed to the oil and insurance industries as examples of sectors where foreign owners had exited after selling their interests to Bahamians.
Still, Sir Franklyn argued that WTO was another example where, in common with the international financial services regulatory regime, the Bahamas was being forced to adopt rules and laws to its disadvantage.
"A real big takeaway is the large countries of the world are finding every possible way, in my opinion, to be unfair and unkind to small countries," he told Tribune Business. "They're finding every possible way to be unfair. The biggest tax havens in the world are in the US.
"They're putting hell on us to open bank accounts. I did a transaction the other day, and there was provision to create a bank account. Even though the venture was under Bahamian law, the process of opening a bank account in the Bahamas was such that we had to agree to open it in Florida.
"The rules are all changing, and the rules are very much in favour of large, settled economies and multinationals. These rules are not geared towards the smaller economies. I don't know what we can do about it. It's just the way it is."