By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas could grow its per capita income to 90 percent of US levels - the highest in the Caribbean - by eliminating the “misallocation” of capital, labour and other resources, an IMF paper is asserting.

The International Monetary Fund (IMF), in an August 8, 2005, working paper highlighting the gap between the region’s growth and productivity potential, and what exists today, argued that The Bahamas and its regional counterparts are being held back by over-regulation, “the presence of state-owned enterprises” and other inefficiencies that undermine their competitiveness.

Noting that The Bahamas’ real economic output declined by an annual average of around 2 percent between 2001 and 2023, when compared to its performance between 1980 and 2000, the report estimated that total factor productivity (TFP) would increase by 64 percent in this nation - the highest rise of all regional tourism economies - if such resource “misallocation” ceased.

The report, entitled ‘Potential growth and productivity in the Caribbean’, blamed the reduced contribution by human capital (workers) and total factor productivity, which measures the amount of economic output and efficiency countries get from labour, capital and other production inputs, for the consistent decline in the region’s actual and forecast economic growth.

“The Caribbean economies’ economic growth and medium-term growth prospects have weakened in recent decades. Five-year-ahead growth forecasts, which tend to be highly correlated with the assessment of potential growth, have declined in the last two decades from around 3.5 percent to 2 percent,” the IMF paper asserted.

“For tourism dependent countries, growth has been on a downward trend in the last four decades before the COVID-19 pandemic, while for commodity-based exporters, growth is more volatile yet also remains at a low level on average historically. Growth in the post-2000 period has been lower than in the two decades prior in almost all Caribbean countries, except for.... Suriname and Guyana.”

To spur faster growth, and boost total factor productivity and labour output, the IMF paper said it was critical to eliminate inefficiencies impacting private sector companies by preventing the most optimal use of capital and labour.

“Misallocation can result from entry or exit barriers, a large informal sector, the presence of state-owned enterprises, differential tax rates, special treatment among groups of firms, and stringent regulations such as trade barriers,” the IMF working paper said, listing conditions that all impact the Bahamian economy.

Estimating that total factor productivity would increase by 65 percent, the highest rise of all tourism-based Caribbean economies, if these misallocations and inefficiencies were eliminated, the paper added that doing so will also ensure living standards in The Bahamas top the region with person incomes forecast to be just shy of those in the US.

With The Bahamas’ purchasing power parity (PPP) per person already the highest in the Caribbean, the IMF paper and its authors predicted Bahamian incomes could rise by 36 percentage points to around 90 percent of what US workers are earning if the necessary reforms are successfully enacted and this nation comes closer to fulfilling its growth potential. Current GDP per capita is under 60 percent of that in the US.

“We find that the reallocation of resources across firms could substantially improve income convergence, with The Bahamas achieving convergence to around 90 percent of the US’ GDP per capita level. For other countries, the gains are more modest yet remain substantial, where they vary between 30 and 60 percent,” the IMF working paper said.

“Consequently, improving the allocation of resources and removing firm-specific distortions provides a path to improving living standards in the Caribbean and closing the income convergence gap with advanced economies. This provides motivation behind the implementation of structural reforms to remove these distortions.”

Dillon Knowles, the Grand Bahama Chamber of Commerce’s president, yesterday acknowledged the long-standing “multiple challenges” that The Bahamas faces in supplying trained workers with the skill-sets that employers need and in sufficient quantities.

Disclosing that he knows of two major Grand Bahama employers, who he declined to name, that are “extremely concerned” about their ability to find the necessary skilled staff for their expansion plans, he added: “We want jobs but not the work. We’re not preparing ourselves.”

Asserting that The Bahamas cannot rely on employers to provide all the necessary training and certifications, Mr Knowles said: “We do have multiple challenges. We have a significant challenge in terms of the skill sets that we have in-country. 

“I know of two major companies in Grand Bahama right now that are extremely concerned about their ability to increase their staff complement by the end of the year, which they need to do, and there’s a challenge with finding the right skills in the populace to be able to support what they do.

“I worked in pharmaceuticals for 30 years and know we had a challenge with hiring and training locally, and outfitting individuals with pretty technical tools in our operations. The skill set issue is definitely one that is holding the country back and we definitely need to identify what skills we have available and engage in training and certification.”

Mr Knowles said The Bahamas, as well as being “high-priced” when it came to labour costs, also faces “the double whammy of having both labour unions and very strong labour laws”. This, he suggested, combined with the skills shortages to place The Bahamas at a competitive disadvantage with the US, where employers can terminate staff without having to give reason or cause, due to deregulation.

“It’s hard for us to compete with that,” the GB Chamber chief added. “We tend to be very entitled people. We want jobs but not work. We’re not preparing ourselves. When entities come to The Bahamas they struggle with having the level of efficiency that they expect when they come here, and we’ve not done a lot to resolve that.....

“The Grand Bahama Chamber of Commerce is engaged with the National Training Agency (NTA) to support them in their quest to identify unemployed or unemployable members of society to provide them with the skills or skill sets to make them employable. We’re supporting them as best we can. We need more of that.”