The Bahamas - magnet of the Caribbean

Rhoda M Jackson

High Commission of the Commonwealth of the Bahamas, London

Holidays in the Bahamas are the leading tourist attraction of the Caribbean region. Tourism is the engine of the Bahamian economy: it accounts for between one third and a half of the island group's Gross Domestic Product. No less than 70 per cent of all export goods and non-factor services are directly affected by the tourist trade, and roughly half of the total labour force is employed directly or indirectly in tourism.

Economic and political stability are important aspects of the attraction of the Bahamas to holidaymakers - especially to Americans. The country enjoys the status of a middle income developing nation with a sustained moderate economic growth averaging 3.5 per cent annually. As well as on tourism, the thriving economy relies on a large and influential offshore banking sector, backed up by comparatively small agricultural and industrial sectors.

Throughout the 1980s, new capital investment averaged a relatively high 20 per cent of GDP, reinforcing the country's burgeoning growth capacity. With low inflation and a modest per capita income - which is, nonetheless, the highest in the region - the overall economic condition of the Bahamas has never been healthier.

But tourism remains the linchpin. In the decade to 1990, tourism arrivals rose on average by seven per cent a year, mostly due to the significant increase in the numbers of cruise ship visitors. Then, at the turn of the decade, came a minor setback: overall performance in the tourist sector weakened, and the flow of stopover visitors started to decline with the impact of the global recession and the effects of the Gulf War.

Now, however, things have started to pick up again. Economic conditions have improved in the United States and other overseas markets, and American tourists are once more on the move. In 1993, tourist arrivals grew by a healthy ratio, and this trend carried forward into 1994 and the early days of 1995. It is, of course, the policy of the new administration of the Bahamas to encourage the continuing development of the tourist industry, expanding eco-tourism, placing greater emphasis on stopover visitors, and thereby maintaining and facilitating the growing cruise ship business.

Life in the Bahamas

The cost of living in the Bahamas is generally lower than in most European states, but marginally higher than in the United States and Canada. Some imported goods - cars, clothing, household appliances and certain types of food - are comparatively expensive because they attract freight and customs duties. However, home-grown food and a broad range of consumer goods are priced well below European levels, and some luxury items like jewellery, spirits and perfumes are available at prices much lower than in Europe or North America.

Medical and dental care can be less costly than in the United States. Treatment by a general hospital doctor costs only $10 (the Bahamian dollar is on a par with the US currency), but a private call at a general practitioner's consulting rooms averages between $35 and $50. Hospital rooms are priced from $65 to $85 a day in state hospitals; private hospitals, of course, can be more expensive.

Apartment rentals vary in price depending on the location: beach front and other prime properties fetch higher rates. Efficiency apartments range between $300 and $500 a month (more for prime locations); a three-bedroomed apartment can be rented for anything from $650 up to $3,000 a month for a luxury seafront flat. Most apartments are furnished, and a one-year minimum lease is fairly standard.

The average three-bedroomed house in the Bahamas consists of a living room, dining room, kitchen, bathroom and patio - all at a cost of no more than $105,000. Homes are typically priced between $60,000 and $250,000; seafront properties or houses sited in prime areas such as Lyford Cay will be more expensive, and can fetch up to seven figures.

Foreign trade

Although tourism is the primary source of foreign currency earnings, exports of merchandise constitute 16 per cent of the islands' total export trade. Chief among this merchandise is chemical goods, which amount to 78 per cent of the export total. Local expenses of offshore companies and other services make up the balance of foreign currency inflow.

The Bahamas imports more than $1 billion worth of non-oil merchandise every year - almost three times the merchandise export level. This disparity creates a negative trade payments balance, which is satisfactorily offset by the foreign exchange earnings created by the buoyant tourist trade.

The United States and Canada are the principal trading sources for the Bahamas, mainly because of their proximity. There is also a growing level of trade within the Caribbean region and with pan-European states, which the Government is anxious to expand.

Balance of trade (B%$ million)

Year Imports Exports Balance
1986 3,288 2,702 -586
1987 1,096 152 -944
1988 1,083 252 -831
1989 1,139 193 -946
1990 1,111 244 -867
1991 1,091 229 -862
1992    -759
1993   -838

The Bahamas' balance of trade position has registered surpluses over much of the past decade, after deficits on the visible trade account (see above) were financed by surpluses on the non-factor services account, of which tourist revenue represents the largest share. Tourism is the country's main foreign currency earner. The drop in tourism revenue from 1991 to 1993 led to a decline in the invisible trade surplus, with a consequent effect on the visible trade gap.

There is in the Bahamas no tax on personal income, capital gains, inheritance, withholding, corporate earnings, sales, dividends, interest, profit remittance or royalties.


 1989 l990199119921993
Visitors '0003,398 3,629 3,6223,690 3,672
On cruises1,6451,8642,020 2,141 2,039
Spending per visitor (B$)766775 758809 806
RPI annual % change 5.4 4.57.2 5.62.7


The agricultural sector is relatively small, contributing five to six per cent of the Gross Domestic Product, but there are great possibilities for expansion. The islands possess 238,000 acres of prime agricultural land, of which less than ten per cent is actually cultivated. The major crop producing lands are situated on Andros (134,000 acres), Abaco (50,000 acres) and Grand Bahama (30,000 acres). Most of the remaining arable (but uncleared) land is covered by pine forests.

The land yields more than 40 varieties of agricultural produce, including poultry, pork, beef, avocado pears, bananas, beans, beet, broccoli, cabbage, citrus, tomatoes, peppers and potatoes.

Agriculture is a priority sector for government-guided expansion, investment and job creation. There are two principal reasons for this:

  • the demands made on the country's food supplies by the millions of tourists arriving year in, year out;
  • the annual food bill of the Bahamas is $250 million, of which only ten per cent is supplied locally.

There are ongoing government plans to link the two sectors - tourism and agriculture - in a determined drive to expand the capacities of both.

International banking and financial services

From being little more than an offshore tax haven comprising a few branches of overseas banks back in the mid-1960s, the Bahamas has evolved into an extremely choice offshore jurisdiction for financial services ranging from banking to asset protection trusts, services for international businesses and estate planning, and captive insurance and ship registration.

The financial services sector accounts for about 15 per cent of GDP and provides jobs for 15 per cent of the labour force. In 1993, banking alone directly employed almost 3,500 people, and contributed just over $200 million in direct expenditure to the Bahamian economy.

There is a strong commitment to enhancing the image of the Bahamas as an international financial centre, and to ensure the balanced growth of a broad spectrum of financial services. Supported by the private sector, the government has placed increasing emphasis on making certain that the regulatory environment is modernised and responsive to the needs of the offshore investor.

The banking community is comprised of many of the world's leading banks and financial institutions. The total number of licensed banks and trust companies in September 1994, was 415, including 287 public financial institutions. The offshore section consisted of 89 eurocurrency branches of foreign banks and 178 Bahamian incorporated banks and trust companies. The domestic sector comprised 20 authorised agents and dealers. The remaining 128 were restricted, non-active and nominee institutions.

There is a bias towards attracting branches and subsidiaries of well-known institutions. Banks from 35 different countries, representing branches and subsidiaries of the world's largest and most prestigious financial institutions, are located in the Bahamas.

In recent years there has been a decline in traditional commercial banking; instead, private banking, portfolio management and mutual fund administration have gained in importance, reinforcing the international community's acceptance of the Bahamas as a safe haven for the financial assets of both individuals and corporate clientele. In line with this trend, about 60 per cent of the institutions are banking and trust operations, as distinguished from pure banking operations.

The asset base of the centre is estimated to be more than $200 billion, placing the Bahamas in the top ten along with the United States, Japan, Switzerland and other notable financial centres. Trust business is growing at a faster rate than banking operations, but because of the sensitive and highly confidential nature of these activities, the Central Bank of the Bahamas does not require reporting of any figure relating to assets under administration.

Although the Bahamas offers a tax-free environment to the offshore financial sector, income received in the country may be subject to the taxes of the country of origin. However, there are no tax information exchange agreements between the Bahamas and any other country.

The Bahamas has earned its reputation as a politically stable community, having enjoyed 275 years of parliamentary democracy. As a former British colony, independent since 1973, the country retains the Queen of England as its nominal Head of State; she is represented in the islands by a Governor General. The bicameral legislature consists of a House of Assembly, with 49 members, and a 16-member Senate. Members of the House of Assembly are elected by universal suffrage every five years; senators are appointed by the Governor General on the advice of the Prime Minister and the Leader of the Opposition. Given the country's historic and cultural links with Great Britain, the legal system is patterned after English Common Law and legal procedures.

The macroeconomic environment and the exchange rate are both stable. The Gross Domestic Product exceeds $3 billion, of which 60 per cent is derived from tourism. The population of the islands is about 269,000, and per capita income is $11,000.

As a leading offshore financial centre, the Bahamas enjoys state-of-the-art telecommunication links with the rest of the world. These include direct distance dialling, telex, facsimile machines, computer modems and special banking communications networks such as Swift, Microwire, Euclid and Cedcom. There are frequent flight services providing ready access to North America. Miami International Airport - a mere 45 miles away - is served by more than 30 scheduled flights every day.

Under Bahamian law, a bank client÷s right to confidentiality and privacy is strongly protected. Bank and trust company personnel, as well as outside advisers, attorneys and accountants, are statutorily restricted from divulging information. All those governed by Bahamian legislation are forbidden to reveal any information during the course of their employment without an order issued by the Supreme Court.

Bank secrecy has been challenged in the past, but the authorities remain unwilling to compromise these principles, which are regarded as the bedrock of the islands' success as an offshore financial centre.