Disaster fund's $60m levy: 'You can't afford to gamble'


Tribune Business Editor


The Bahamas could accumulate over $60 million per year in hurricane "preventative medicine" through a Canadian-led proposal for a disaster recovery fund.

Don Maga, principal of The Sand Consulting Group, told Tribune Business yesterday that the 2017 hurricane season showed the Bahamas and other Caribbean nations "cannot afford to gamble" with their nation's future.

He warned that Nassau would "never be able to recover" if Category Five storms similar to Hurricanes Irma and Maria scored a direct hit on New Providence unless this nation set aside monies in a secure, properly-managed hurricane relief fund.

Mr Maga, a regular visitor to the Bahamas for 40 years, and his associates are proposing to create the Caribbean Recovery Fund as a vehicle for receiving, managing and growing disaster relief funds on behalf of this nation and the wider Caribbean.

Funds would be raised from the Bahamas levying a $5-$10 per head tax on its visitors - a fee that could raise more than $60 million per annum based on this nation's 6.3 million annual visitors.

While the Government and tourism industry will likely fear another increase to the already-high cost of a Bahamian vacation, further undermining this nation's price competitiveness, Mr Maga said traveller surveys had revealed no resistance to paying such a levy in addition to the existing departure tax.

He added that the funds collected would be placed in the Caribbean Recovery Fund, a properly-structured investment fund that would be managed by professional money managers and overseen by licensed administrators and financial services regulators.

Mr Maga said the Bahamas and other Caribbean governments could help write the Fund's rules and investment guidelines, in addition to setting its corporate governance and oversight policies to prevent any "malfeasance". He emphasised that "liquidity" would be the Caribbean Recovery Fund's key indicator, given the need for immediate cash when disaster struck.

The proposal was submitted in November 2017 to Captain Stephen Russell, the National Emergency Management Agency's (NEMA) director, who forwarded it to his colleagues at the Caribbean Disaster Emergency Management Agency (CDEMA) ahead of last year's 10th regional conference on disaster management issues.

Mr Maga told Tribune Business that "the developments of the past few years", including Hurricane Matthew's devastating impact on the Bahamas in October 2016, had prompted him to craft the Caribbean Recovery Fund proposal.

Drawing on his financial services background and knowledge of the Bahamas, Mr Maga said Grand Bahama was still suffering Matthew's effects some 15 months later as the storm had "really devastated the economy".

Pointing out that "it's not rocket science" to predict that powerful hurricanes - in ever-increasing numbers - will again threaten the Caribbean in 2018, he argued that Nassau and other major Bahamian population centres would experience the same fate as the likes of Anguilla, Dominica, the British Virgin Islands and St Maarten if a Category Five storm scored a direct hit.

"Nassau could really suffer the same fate," Mr Maga told Tribune Business. "If Nassau was knocked out by a Category Five storm like the Virgin Islands; if anything like that come through Nassau, you might as well call it the end of the world. You'd never be able to recoup from it.

"Look at Dominica. It was completely wiped out. They have no way to recover from something like that. The funds are not available. Does anybody want to gamble any more? Which hurricane is it going to be? Which hurricane is going to take down the economy?

"No one is putting money away for a rainy day. It has to be taken seriously. You've got to be proactive here; you've got to have your own money in the game. It makes no sense to me that they [the Government] wouldn't go with this. The problem is there and it's real. In another five to six months the hurricane season starts up again."

Describing the Caribbean Recovery Fund proposal as "preventative medicine", and akin to "brushing your teeth before going to the dentist", Mr Maga said the contacts established by his group at the recent Disaster Management conference had encouraged them to focus on the Bahamas first.

Their proposal, tailored specifically to the Bahamas and seen by Tribune Business, warned that the economic costs and losses stemming from the 2017 hurricane season were "astronomical", with recovery for some islands likely to "take years".

"We are proposing that the Bahamas and other Caribbean countries participate in a designated disaster relief fund, which will be available for future needs once a government declares a state of emergency as a consequence of extensive damage resulting from a natural disaster such as a hurricane," the document said.

"The key elements of this fund are as follows: The Fund will be built from travel levies assessed on travellers to the islands. The Fund will be outside the Budget process of the participating country, managed in accordance with the wishes of the Government, but held as a segregated fund until needed."

The proposal from Mr Maga and his associates, who include a former senior vice-president at the Bank of Montreal, and an existing senior wealth consultant at another Canadian bank, is especially timely where the Bahamas is concerned.

Besides the 2017 hurricane season, memories of the devastation wrought by Hurricane Matthew are extremely fresh in the minds of Bahamians. The storm, which struck both New Providence and Grand Bahama, is estimated to have inflicted around $700 million in total economic damages. The then-Christie administration was forced into an emergency $150 million borrowing to meet immediate recovery and repair costs, and the hurricane was at least partially responsible for the bloated $695 million deficit incurred in 2016-2017.

With fiscal 'headroom' all but used up, K P Turnquest, Deputy Prime Minister and minister of finance, has indicated the Government will seek to set aside funds in the 2017-2018 Budget specifically for hurricane relief as it seeks to build up a 'safety net' for financing future infrastructure repairs and other relief.

Governments are traditionally wary of allowing the private sector to manage public money, especially given the fees they will have to pay to investment managers. Mr Maga and his group, though, pledge in their proposal that the Caribbean Recovery Fund's costs will not be borne by the Bahamian people.

"No country wants to be told what to do with their money," Mr Maga conceded. "We're collecting it and managing it on their behalf. We'll do an absolutely sterling job. That's what we're offering; a Fund managed at no charge."

The group's proposal expressed optimism that the Caribbean Recovery Fund would "gain significant approval" from Bahamians and other Caribbean countries given the potential benefits on offer should a major hurricane strike.

When it came to financing the Fund, Mr Maga and his group said: "The Fund will be built using a levy on travellers either on arrival or on departure from the participating countries, whether they arrive by ship or air.

"With tourism as the most important source of revenue for the Bahamas, as with so many of the Caribbean islands, we wish to ensure - to the extent possible - that the appearance of a new levy would not have the affect of deterring tourism and thus not only reduce the revenue but constrain revenue that might have been earned from tourism if the levy was not in place."

Mr Maga likened the proposed $5-$10 per head levy to the sum he had to pay to enter a Rib Festival last summer, and said the group's initial survey of travellers to the Bahamas and Caribbean had produced no negative reactions.

The group's proposal said there was "broad acceptance by travellers for a reasonable levy that would be relatively insignificant to the cost of transportation", and also "a great deal of empathy" for the idea given the global publicity surrounding hurricane damage and other natural disasters.

With a $10 levy having gained "broad acceptance" thus far, the group's proposal added: "For the Bahamas, based on the latest figures we have available, the annual revenue would be more than $60 million.

"With prudent and low-risk investment, the accumulation could quickly provide an available pool that could cover the effects of a very severe storm."

Mr Maga said collection, and administration, of the $10 levy would be kept relatively cheap by employing the airlines and cruise lines - who already collect the existing departure tax - to play the same role.

He told Tribune Business that the Caribbean Recovery Fund would be administered by Cidel Bank & Trust, a $50 billion asset manager headquartered in Canada and with offices throughout the Caribbean.

Mr Maga's group and Cidel would work with the Bahamas, and other Caribbean governments, to set out the Fund's rules surrounding investment policies, targeted returns, cash management, liquidity and "make it totally secure from malfeasance".

"When a hurricane comes a country will need its cash quickly, so liquidity is most important," he told Tribune Business. "We've got something that will take the Bahamas government and their lawyers, and the bank and their lawyers, a couple of months to write the rules."

The group's proposal pledges that the Caribbean Recovery Fund would be established "under strict investment and fiduciary rules", and lists one advantage as the complete segregation of its assets from national budgets.

This, the proposal explained, meant that monies would only be available for disaster recovery, while the Fund could also be set up as a segregated accounts company (SAC) where the contributions of individual Caribbean nations were segregated from one another.

Promising "the highest quality" of investment management and controls to ensure that countries' investments were "totally protected", the group's proposal added: "We will ensure that the manager chosen has a clear track record of control and reporting discipline, and a reputation above reproach."

Revealing that his affection for the Bahamas extended to having purchased a boat to spend the winter months here, Mr Maga added: "I've been coming to the Bahamas for many a year. I went to sleep on the beach back in the 70s when I was 17."


DDK says...

Three Questions
One: What cost this $60 million per annum? "a Fund managed at no charge". When something sounds to good to believe, it is usually because it is. "With prudent and low-risk investment". Note: LOW risk, not NO risk.
Two: What guarantee the funds won't go walk about?
Three: Are we SURE our visitors wouldn't object to even higher costs to visit our fair islands?

Posted 12 January 2018, 4:14 p.m. Suggest removal

TheMadHatter says...

We don't need any future protecting fund. Our entire country is going to be one giant shanty town before Christmas anyway - so there is nothing to protect. A proposal has recently been put forth to construct a Little Haiti in Nassau and Abaco. This idea will catch on as Bahamians learn more about the duty-free advantages of that lifestyle and will all jump on board.

No way to stop this. Since the new policy on Jan 1st NOT ONE single foreigner has been arrested for working illegally and NOT ONE single employer has been fined or jailed.

This guy is just trying to grab $60M out of a sinking ship before it sinks. I'm sure many pirates stole bullion from sinking ships here back in the old days. Perhaps this guy is an admirer of pirate folk lore?

Posted 12 January 2018, 5:58 p.m. Suggest removal

ohdrap4 says...

many years ago, two africans were arrested and convicted of credit card fraud.

they had been buying luxury goods on bay st. and paying for the hotel with false cards.

they told the magistrate they came to the bahamas because they heard people here are stupid.

think about it: the government has successfully caused the private sector to collect taxes for them, and continues to charge all manners of fees on top of it. We are being double dipped, but we happy.

Every other day there is a newspaper headline about additional taxes-- inocme, health, garbage, etc...

The shysters out there thought: We can get this government to front for us and make us rich.

The japanese will inspect cars and Merlin the Magi above will open a savings account with a HEAD TAX .

I think the africans were right.

Posted 13 January 2018, 10:34 p.m. Suggest removal

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