By ANNELIA NIXON

Tribune Business Reporter

anixon@tribunemedia.net

A former Central Bank governor yesterday challenged whether The Bahamas is willing to expose itself to the “risk” of greater competition from foreign workers as a means to boost productivity and drive down costs.

Julian Francis, now chairman of BISX-listed Commonwealth Brewery, said “The Bahamas exists in a rigged system” and added: “It’s not just the US dollar we’re talking about, say, the availability of US dollars. It’s perhaps, much more importantly, labour because... the fact is that productivity in The Bahamas is dismally bad. And the only way you can change that is by competition.

“People are not going to make an effort if they don’t feel threatened. And so you can imagine what happens to a government in The Bahamas which decides to let in, without any kinds of controls at all or without any major controls, foreign labour. That Government is probably not going to last very long.”

Agreeing that the cost of banking services is high, Mr Francis said it is “a complicated matter”. He called for policymakers to take into consideration the need for greater competition. “This increase in the net earnings of the retail banks is happening at a time when, of course, we know that the banks are shedding costs,” the ex-Central Bank governor said.

“They are reducing their footprint, they are adopting electronic tools to deliver the services. And this is a good thing... And you would think that it would actually bring the cost of these services down because all of a sudden the banks don’t need, and they tell us this, they don’t need offices all around the island.

“I would talk about the Family Islands, which are woefully under-serviced. But despite the expectation that, as a result of the opportunity, they have to operate far more efficiently in terms of the quantum of assets which they need to deliver their services, we see the costs actually going up,” Mr Francis added.

“And my message to Minister Halkitis [minister of economic affairs] really is that I think the policymakers really need to look seriously at this issue. Retail banks have a licence from the Government through the Central Bank to provide a sort of monopoly on banking services.

“And this goes back to the point about competition. They’re not subjected to competition. Why? Because you would have thought they would understand that part of the deal is that they keep prices reasonable, and that they provide the scope of services which are required by the economy. That would be the sort of quid pro quo. But apparently they don’t see it that way.”

Michael Green, portfolio manager and chief strategist at Simplify, said.: “The Bahamas, as I’m sure most of you are aware, has amongst the lowest deposit savings rates in terms of the interest income you earn, even as the cost of financing is amongst the highest in the world.

“That shouldn’t be the case. If you’re going to change that, the only answer is to ultimately decide to open up that base layer stack, effectively subsidising the infrastructure and compliance components while radically introducing competition into the banking sector at the consumer facing front. Almost the exact opposite of what has occurred so far.

“From my perspective, this speaks broadly around components that were raised. This issue of capital controls, the concerns of bleed over from the international banking system into the domestic banking system and the challenges associated with it,” Mr Green added.

“But The Bahamas faces a very real choice. With a debt-to-GDP ratio amongst the highest levels of developed countries in the world, you may very well be faced with a very unattractive prospect of a devaluation, a challenge associated with that. And the last thing I would introduce is this idea that when we talk about productivity in The Bahamas. The simple reality is The Bahamas is a derivative economy.

“It is tied to the developed world, particularly the United States, in terms of tourism. And when you talk about productivity, as was introduced earlier. It’s basically the number of people and capital invested per person that you can change. One of the most striking factors to me in The Bahamas is that you have actually seen your tourism numbers roughly double, exceed any level you’ve seen in the past.

“And yet you’re still increasing your deficit levels. There is no alternative to effectively expanding the capacity, increasing competition, lowering the barriers so that you can accommodate even more tourism so that your productivity in the tourism sector becomes a primary focus.”