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Country Commercial Guides for FY 2000: The Bahamas Report prepared by U.S. Embassy Nassau, released July 1999 Note*

VII. INVESTMENT CLIMATE

A.1. Openness to Foreign Investment

The Bahamian Government generally encourages and offers incentives for foreign investment in all sectors of the economy except those the Government reserves exclusively to Bahamian citizens. Reserved businesses include: wholesale and retail operations, commission agencies engaged in the import/export trade, real estate and domestic property management agencies, domestic newspaper and magazine publication, domestic advertising and public relations firms, nightclubs and restaurants (except specialty, gourmet and ethnic restaurants and restaurants operating in a hotel, resort complex or tourist attraction), security services, domestic distribution and building supplies, construction companies (except for special structures for which international expertise is required), personal cosmetics/beauty establishments, shallow water scalefish, crustacean, mollusk and sponge fishing operations, auto and appliance service operations, and public transportation.

Officially, the Government has targeted the following categories of businesses for foreign investors: tourist resorts, upscale condominium, time share and second home development, international business centers, marinas, information and data processing services, assembly industries, high-tech service, ship registration, repair and other services, light manufacturing for export, agro-industries, food processing, mariculture, banking and other financial services, captive insurance companies, aircraft services, pharmaceutical manufacture, and offshore medical centers.

Benefits of investing in The Bahamas include a stable, democratic Government, relief from corporate and personal income taxes, timely repatriation of profits of approved investments, proximity to the United States, extensive air links through nearby Miami, Ft. Lauderdale and Orlando, well-developed, but expensive, telecommunications links, a good pool of skilled professionals, excellent tourism and conference facilities, and tariff concessions under the Caribbean Basin Economic Recovery Act, Canada's CARIBCAN Program, and the European Union's LOME IV Agreement. The Bahamian dollar is fixed at par with the United States dollar, and the Government is firmly committed to maintaining this exchange rate.

In practice, the vast majority of successful foreign investments in The Bahamas have been in the traditional areas of tourism and banking. The decision-making process within The Bahamas Government is highly centralized, and most major investments are subject to review and approval at the cabinet level. The Government is most interested in investments that will generate local employment, particularly in white-collar or skilled jobs. Large-scale projects in areas such as agriculture may be difficult to staff since low-wage and low-skill jobs do not appeal to most Bahamians, and because the Government is reluctant to permit foreign laborers in these jobs, even on a temporary-permit basis. When new foreign, ventures are perceived as competitors to existing Bahamian businesses or too dependent on foreign labor, the Government has responded to local concerns and withdrawn or refused the license of the foreign business.

In 1993, the Government established The Bahamas Investment Authority (BIA) within the Office of the Prime Minister. BIA is intended to provide a "one-stop-shop" to assist foreign investors with initial Governmental approval of their investment applications and to cut through further red tape for approved investments. BIA is the Government's central point of contact for foreign investment questions. Potential investors may contact the BIA at:

Bahamas Investment Authority
P.O. Box CB-10980
Nassau, Bahamas
Tel: 1-242-327-5970, fax: 1-242-327-5907

While The Bahamas has not yet enacted environmental legislation as extensive as that in the United States, the BIA still requires a full accounting of the environmental impact of any industrial or agricultural schemes.

A.2. Conversion and Transfer Policies

Persons and corporations resident in The Bahamas are subject to exchange controls administered by the Central Bank. Certain commercial banks are authorized to deal in foreign currency and have authority delegated by the Central Bank to approve exchanges for certain current account transactions. Non-resident investors wishing to initiate operations in The Bahamas must register their operations with the Central Bank. If their projects are financed substantially by foreign currency-transferred into The Bahamas, they will be given "approved status" meaning that profits and capital gains can be converted into foreign currency and repatriated with minimal formalities. Capital investment into The Bahamas remains subject to exchange controls, but as a practical matter these controls have not been known to inhibit repatriation of approved investment capital. Many Bahamians argue that exchange controls should be eliminated, but the Central Bank and the Government are not prepared to do so at this time, citing the need to retain sufficient foreign reserves to mount a strong defense of the currency's one-to-one parity with the U.S. dollar.

A.3. Expropriation and Compensation

Article 27 of the Bahamian Constitution prohibits deprivation of property except upon the making of prompt and adequate compensation in the circumstances. There is no evidence that the Government has ever expropriated a business, and both major political parties have stated that nationalization will not be an instrument of Government policy.

A.4. Dispute Settlement

There is no history of major investment disputes in The Bahamas, although smaller contractual and other disputes between Bahamians and foreign investors or exporters are not uncommon. The Bahamian legal system is based on English common law. The judiciary, appointed by the Governor General, is independent and there is no evidence of Governmental interference with the system. The highest court of appeal is the Privy Council in London.

Tentative consideration is being given to the creation of a Caribbean Final Court of Appeal to replace the Privy Council. Despite recent efforts to reduce backlogs of criminal and civil cases, resolution of court cases can be slow, sometimes taking years. The Embassy has received some reports of encounters with biased judges and malfeasance by attorneys. The Embassy has also received reports of local defendants evading payment of Bahamian civil judgments or deliberately dragging out court disputes, especially in cases involving non-resident plaintiffs.

Judgments of British courts, and of selected commonwealth countries, can be registered and enforced. Other countries' judgments, including those of the United States, must be sued upon in court as debt, subject to all jurisdictional requirements. Judgments of Bahamian courts are payable in Bahamian dollars unless otherwise specified by agreement of the parties.

Personal bankruptcy laws are antiquated and rarely used. Companies can be and are frequently liquidated according to law. Creditors of bankrupt debtors and liquidated companies participate in the distribution of the bankrupt debtor's or liquidated company's estate according to statute. The law relating to sales of goods and some other commercial subjects are codified in The Bahamas statutes.

The Bahamas has been a member of the International Center for the Settlement of Investment Disputes (ICSID) since 1995. It is also a member of the Multilateral Investment Guarantee Agency, which insures investors against currency transfer restrictions, expropriation, war and civil disturbances, and breach of contract by member countries.

A.5. Performance Requirements/Incentives

The Bahamas lacks any form of taxation on income, sales, estates or inheritances. The only direct tax is a real property tax. Casinos are specially taxed, and there is a $15 departure tax levied at the airports and harbors. The principal incentives for foreign investments are concessions on import duties and property tax abatement. Tariffs in general are high but do not generally discriminate by country of origin. Incentives are offered under the following legislation:

-- Industries Encouragement Act: Under this law, the Government may exempt from duties the machinery, tools, equipment, and raw materials imported to construct new factories. A list of duty-exempt items is negotiated separately with each new venture.

-- Hotels Encouragement Act: Under this law, new hotels and resorts can be exempted from real property taxes for ten years from the date the new facility opens, and for significant tax reduction for up to ten additional years. An amendment to the Act currently before Parliament would allow the Government to grant tax relief for an additional ten years, raising the maximum length of tax abatement to thirty years. In addition, the Act allows the duty-free importation of materials used for the construction of new facilities or the substantial renovation of existing facilities acquired by new owners for a set period of time. The list of duty-free items for each project and the duration of some duty-free windows are negotiated separately for each venture.

-- Agricultural Manufacturers Act: This law allows any materials necessary for the construction, alteration, or repair of an agricultural factory, as well as any machinery or supplies used in establishing such a factory, to be imported duty free. An agricultural factory refers to any factory established for the purpose of manufacturing or preparing agricultural or horticultural produce of The Bahamas for sale or export.

-- Spirits and Beer Manufacturers Act: This law provides for the duty-free importation of materials used in the construction, alteration or repair of approved liquor distilleries or beer breweries and the duty-free importation of raw materials and equipment for liquor or beer production.

-- Recent amendments to the Tariff Act provide duty exemptions for construction and development on certain outer, "Family Islands."

Prospective investors should discuss the terms and conditions under which these benefits will be made available in any specific case with The Bahamas Investment Authority. Although work permits for key foreign employees are readily granted in connection with the investment approval process, Government policy favors employment of Bahamians. Fees for work permits can run up to several thousand dollars each, and permits for less senior employees can be difficult to obtain.

A.6. Right to Private Ownership and Establishment

Subject to the reservation of certain areas of economic activity to Bahamian citizens only, and the necessary approvals and licenses, private entities may engage in nearly all forms of remunerative activity. They may freely establish, acquire, and dispose of interests in business enterprises. One significant exception is the Government's monopoly on all forms of telecommunications (except Internet services, paging, and radio) exercised by The Bahamas Telecommunications Corporation (Batelco). Government corporations such as the Hotel Corporation of The Bahamas and ZNS Radio compete on a basis of rough equality with private corporations in similar businesses. The Government has announced plans to privatize Batelco (by the end of 1999) and the public utilities (sometime thereafter), and to deregulate the telecom and utilities markets.

A.7. Protection of Property Rights

Subject to long legal delays, secured interest in property, both chattel and real, are recognized and enforced. Mortgages in real property and security interests in personal property can be recorded with the Registrar General.

The Bahamas is a member of the World Intellectual Property Organization (WIPO), but not of the World Trade Organization (WTO). There is little industrial production that might generate possible infringements of patent rights. However, existing copyright laws are widely ignored, resulting in widespread piracy of video and music cassettes, most of which remain in The Bahamas. Parliament has passed a new copyright law, which is intended to provide better protection to international holders of copyrights. The Government has not yet brought this law into force, but has committed to do so by July 1999.

A.8. Transparency of the Regulatory System

Official Government policy commits The Bahamas to building an economic environment where the Government assumes its proper role as regulator and facilitator of economic development, and where ideals of transparency, fair play and equality of treatment are protected. Still, the discretionary issuance of business licenses can result in a lack of transparency in decisions to authorize or to renew the authority of a business. Large foreign investors may be held to higher labor, health and safety standards than are local entrepreneurs. Obtaining required permits, especially immigration permits, sometimes can take an inordinate length of time. The Bahamas Investment Authority exists to assist foreign investors in dealing with the permitting process.

A.9. Efficient Capital Markets and Portfolio Investment

Less than twenty Bahamian companies offer stock to the public. These shares are traded by local banks. Foreign entities, other than Bahamian permanent residents, are not allowed to purchase publicly traded Bahamian shares. The Government has established a Securities Commission, and the Embassy is not aware of any deficiencies in its oversight of the existing securities market. A Security Industries Bill has passed the legislature and authorizes a new, privately operated stock market. The legislation envisions a two-tier exchange with one market for Bahamian investors and companies only and an offshore market for foreign investors and companies. Other than the requirement of Central Bank approval mentioned in section A.2, and observance of sectors reserved to Bahamian investors under Government guidelines, the Embassy is not aware of any laws, regulations or widespread practices which prevent foreign investment, participation or control of Bahamian companies whose shares are not publicly traded.

Local bank credit, including loans from The Bahamas Development Bank, are available to resident enterprises for capital investment in The Bahamas in proportion to their local ownership. The prime rate at the end of 1998 was 6.75 per cent, with loans of all types averaging a 13.37 per cent rate of interest (consumer loans rates averaged 14.55%). On a weighted average of interest rates over 1998, the interest rate spread was 6.75 per cent. The estimated total domestic assets of the nine Bahamian commercial banks were $3.78 billion at the end of 1998. The majority of outstanding commercial bank credit is personal loans for consumer purchases. Assuming continued growth and steady or declining unemployment, there is at this time no reason to doubt the soundness of the banking system in general. The Government is currently considering implementation of a deposit insurance system, but coverage is likely to be limited to Bahamian depositors with accounts in Bahamian dollars.

Projects in The Bahamas are also eligible, in some instances, for financing from the U.S. Export-Import Bank, the Overseas Private Investment Corporation (OPIC), or from Multilateral Institutions such as the Inter-American Development Bank (IDB). Major Bahamian banking institutions, which can provide financing for certain projects in The Bahamas include:

Bahamas Development Bank
P.O. Box N-3034,
Nassau, Bahamas
Tel: (242) 352-5780

Bank of The Bahamas, Ltd.
P.O. Box N-7118
Nassau Bahamas
Tel: (242) 326-2560

Barclays' Bank
P.O. Box N-8350
Nassau, Bahamas
Tel: (242) 322-4921

British-American Bank
P.O. Box N-7502
Nassau, Bahamas
Tel: (242) 327-5170

Canadian Imperial Bank of Commerce (CIBC)
P.O. Box N-7125
Nassau, Bahamas
Tel: (242) 322-8455

Citibank Bahamas
P.O. Box N-8158
Nassau, Bahamas,
Tel.: (242) 322-4240

Commonwealth Bank
P.O. Box SS-6263
Nassau, Bahamas
Tel.: (242) 328-1854

Royal Bank of Canada
P.O. Box N-7537
Nassau, Bahamas
Tel: (242) 322-8700

Bank of Nova Scotia
P.O. Box N-7518
Nassau, Bahamas
Tel: (242) 356-1400

Finance Corp. Of The Bahamas
P.O. Box N-3038
Nassau, Bahamas
Tel: (242) 322-4822

Some 418 "offshore" banks and trust companies, holding assets of roughly $270 billion, and over 84,000 international business corporations, operate in The Bahamas. Although they employ about 4000 Bahamians and consume Bahamian goods and services, their offshore investments and business transactions are separate and apart from the local Bahamian economy.

A.10. Political Violence

The Bahamas has no history of political violence, although labor unrest over the past year - in particular due to the proposed privatization of the phone company - has led to several semi-violent confrontations between workers and police over the past year. The Government publicly and strongly supports a modern open approach to foreign investment, however, although some Bahamians remain suspicious of expatriate investors and employees. Foreign investors are often the targets of strong criticism in the news media.

A.11. Corruption

Giving a bribe to - or accepting bribes by - a Government official is a criminal act in The Bahamas. The current Government was elected in 1992 on a platform of accountability designed to change the country's image and international reputation of being a corrupt nation. Since that time, reports of corruption have become rare, although allegations of improper conduct on the part of Government officials surface from time to time.

B. Bilateral Investment Agreements

There is no Bilateral Investment Treaty between The Bahamas and the United States. The Bahamas was designated a beneficiary of the Caribbean Basin Initiative (CBI) in 1985. As a result, with certain restrictions, products manufactured in The Bahamas qualify for duty-free entry into the United States. High wage rates, combined with the small size of the country's manufacturing and agricultural sectors, have hindered The Bahamas' ability to exploit these benefits. In addition, The Bahamas failure to enter negotiations with the United States for a bilateral Tax Information Exchange Agreement (TIEA) precludes the use of credits for projects in The Bahamas or U.S. tax deductions for expenses of business conventions held in The Bahamas.

C. OPIC and Other Investment Insurance Programs

Since 1992, the U.S. Overseas Private Investment Corporation (OPIC) has approved two investment projects, in The Bahamas. It guaranteed up to $10.8 million in loans to Uniroyal Chemical Company, Ltd. to assist in the purchase and refurbishment of a plant in Freeport. Uniroyal currently uses the plant to produce high performance antioxidants used in the manufacture of plastics. In addition, OPIC committed itself to loan of up to $1.6 million to Landquest, Ltd. for the development of a cruise ship facility on the island of Eleuthera.

The Bahamas is also associated with the Multilateral Investment Guarantee Agency of the World Bank, which, like OPIC, insures investors against currency transfer restrictions, expropriation, war, civil disturbances and breach of contract by member countries.

D. Labor

In 1998 the labor force consisted of approximately 156,000 workers. The Government and the tourism industry are the country's largest employers. The official unemployment rate at the end of 1998 was estimated at just 7.8 percent, a historically low level. With several major construction projects underway, Nassau is currently experiencing shortages of skilled construction workers. Well-qualified accountants and secretaries, and others with skills appropriate to the financial services industry command a premium due to the large number of financial institutions located in Nassau. Unemployment is highest among youth and slightly higher for women. Unemployment outside Nassau and Freeport tends to be higher than in the two major population centers. Considerable underemployment also exists in The Bahamas. Despite these facts, wage rates, while lower than in the United States, tend to be higher than elsewhere in the Caribbean. Some business owners have raised concerns about the level of employee and white-collar crime in The Bahamas.

There is no minimum wage. The Government established a minimum wage of $4.12 per hour for its own employees in 1996. The Fair Labor Standards Act requires at least one 24 hour rest period per week, paid annual vacations, and employer contributions to National Insurance (social security). The Act also requires overtime pay (time and a half) for hours in excess of 48 or on public holidays. A 1988 law provides for maternity leave and the right to re-employment after childbirth. A new Minimum Labor Standards Act currently under consideration may give the Government the right to establish wage minimums for the private sector, shorten the work week, increase paid vacations, guarantee paid sick leave and severance pay, and grant employees new protections against unfair dismissal. Local business leaders complain that the draft law is too restrictive and the Government has given signs that it may revise the proposed law.

The Bahamian Constitution specifically grants labor unions the rights of free assembly and association. These rights are exercised extensively, particularly in the hotel industry - where 80 percent of the employees are unionized - and in the state-owned industries. Unions operate without restrictions or Government control. The right to strike is governed under the industrial relations act, which requires a simple majority of union members to vote in favor of a strike before it can commence. The Ministry of Labor oversees strike votes. Labor-management relations in The Bahamas have become strained in recent months. Although prolonged strikes are still rare, work slow-downs and rowdy protests have become more common over the past year. Labor unions and others involved in disputes with foreign-owned enterprises have not been above using the fact of foreign ownership as a lever to gain popular support for their demands.

The Immigration Act requires foreigners to obtain work permits before they can be employed in The Bahamas. The Government will permit foreign employees to work in a technical, supervisory or managerial capacity to initiate and operate industries, provided no similarly qualified Bahamians are available for the job. Foreign business owners are expected to train as many of their Bahamian employees as possible to eventually fill technical and managerial positions. Work permits can cost as much as $7,500 per year for upper management employees, or as little as $250 per year for farm laborers. (Legislation currently pending in Parliament would raise the cost of work permits across the board. Fees for the two categories mentioned above would rise to $10,000 and $350 respectively.)

E. Foreign Trade Zones/Free Ports

The 1955 Hawksbill Creek Agreement established Freeport, Grand Bahama, the country's second-largest town, as a free trade zone. Firms in Freeport are granted the right to import equipment and materials duty-free, and enjoy other tax advantages. In 1993, the Government extended the hawksbill creek property tax exemptions through 2015 and duty exemptions to 2054, but withdrew real property tax exemptions for foreign individuals and corporations. The prime minister declared at the time that property tax exemptions might still be available on a case-by-case basis. Recently, the Hong Kong-based conglomerate Hutchison Whampoa has invested millions of dollars in a new deep-water container port, a cruise ship dock, an industrial park, and hotel properties in Freeport, promising a revitalization of Freeport as The Bahamas' leading industrial city.

F. Foreign Direct Investment Statistics and Major Foreign Investments

Foreign direct investment in The Bahamas has increased significantly in recent years. In 1998, inflows of private foreign investment measured US$851.2 million, up from US$416.5 the year before. While no exact breakdown of this figure is available, the majority of the growth in investment in The Bahamas appears to be the result of large-scale hotel construction, renovations, and expansion. While Government statistics do not list overall foreign investment by nationality, the Embassy believes that the largest investors are American, Canadian, Hong-Kong Chinese, and South African in origin.

Exchange controls restrict direct investment by Bahamians overseas, since the Central Bank must approve - and takes a percentage of - all foreign currency purchases. Central Bank sources estimate that Bahamians invested roughly US$100,000 overseas in this manner in 1998. Wealthy Bahamians are widely believed to skirt Central Bank regulations, however, making investments in the U.S. and elsewhere. Therefore, the Central Bank's estimates are likely to be too small by several orders of magnitude.

Major foreign investments in The Bahamas include:

-- Atlantis, a hotel, resort, and casino complex on Paradise Island near Nassau owned by the South African firm Sun Hotels International;

-- Nassau Marriott Crystal Palace Resort, casino, and convention center, owned by the Ruffin Group of the United States and operated by Marriott;

-- Crystal Cay underwater observatory, marine park, and hotel owned by the Ruffin Group;

-- Superclub Breezes Resort, owned by a Jamaican company;

-- Sandals Royal Bahamian Resort, owned by a Jamaican company.

-- The Sheraton Grand Hotel on Paradise Island, owned by the U.S.-based Wedge Group;

-- The British Colonial (Hilton) Hotel and the Clarion Resort owned by RHK Capital, Inc. of Canada;

-- Club Med Resorts on Paradise Island, Eleuthera, and San Salvador;

-- Comfort Suites on Paradise Island owned by a U.S. company;

-- Island Outpost Resort at Compass Point, Nassau, and Pink Sands Resort, Harbour Island, owned by a Jamaican company.

-- Cable Bahamas, Ltd., established by a Canadian group

-- Sandyport Development Co. Ltd., a housing subdivision owned by a British company.

-- Roberts Isle, a housing subdivision owned by a U.S. company.

-- Treasure Trove, a housing subdivision, owned by a U.S. company;

-- Commonwealth Brewery Ltd (Heineken), is a Dutch-Bahamian company;

-- Bacardi Company Ltd. is a Bermuda-based company;

-- The Container Port facility, airport and three beachfront hotels acquired in 1997 by Hong Kong-based Hutchison Whampoa;

-- Freeport Power is an affiliate of Southern Company Power based in Atlana.

-- PFC Bahamas in Freeport formerly known as Syntex, acquired by the U.S. company Allied Signal in 1998;

-- Uniroyal Chemical, a plant manufacturing high performance antioxidants for the plastics industry in Freeport is owned by a U.S. company;

-- Freeport/Lucaya marina village developed recently by European investors;

-- Polymers International, Ltd., a subsidiary of Dart Container, which produces styrofoam pellets at a plant in Freeport.

-- Morton Bahamas Ltd (Salt), is owned by a U.S. company;

-- The Winding Bay Hotel in Eleuthera owned by Venta, an Italian group;

-- Gorda Cay, purchased and developed by Disney Corp. For its cruise ship operations;

-- Half Moon Cay, owned by U.S. company Holland America Cruise Lines;

-- Bahama Star, a large citrus farm on Abaco Island owned by a U.S. company;

-- Cotton Bay Club, Eleuthera, owned by a Colombian company;

-- A large shrimp farm on Long Island operated by the American firm Maritek;

-- A tropical fish farm operated on Walker's Cay by Aqualife, Ltd., a U.S. company;

-- Princess Cay, a cruise ship landing facility near Eleuthera island owned by Landquest, a U.S. company;