2008 BAHAMAS BUSINESS OUTLOOK

UNCLAS SECTION 01 OF 03 NASSAU 000126

SIPDIS

STATE FOR WHA/CAR AND EB
SANDO DOMINGO FOR USFCS

E.O. 12958: N/A
TAGS: ECON EAIR BEXP ETRD BF
SUBJECT: 2008 BAHAMAS BUSINESS OUTLOOK



1. SUMMARY: Presenters at the 17th Annual Bahamas Business Outlook
Conference discussed substantial challenges to the Bahamian economy,
including the need to: upgrade the infrastructure on New Providence,
conclude investment deals quickly, and develop new ways to appeal to
tourists. They painted a picture of an economy challenged by the
slowdown in the United States, but were optimistic that current
economic conditions would turn around when large scale investment
projects, now on the drawing board, were approved by the Free
National Movement government. END SUMMARY.

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ECONOMY TO GROW, BUT CHALLENGES LOOM
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2. Minister of State for Finance Zhivargo Laing told attendees at
the 17th Annual Business Outlook Conference January 8 that the
Bahamian economy is expected to grow between 3.5 to 4.0 percent in
2008 despite potential threats from high oil prices and the
broadening impact of the U.S. sub-prime mortgage crisis. Minister
Laing said that economic growth will be underpinned by foreign
investment projects in tourism and industry, combined with a modest
recovery in tourism output and a robust pubic sector capital
development program. The proposed public sector capital development
projects include the New Providence Road Improvement Program, with
an estimated investment of $120 million, and the $400 million Lynden
Pindling International Airport expansion project.


3. Minister Laing stressed, however, that The Bahamas will not be
successful in the long run "doing what it has been doing." He
bluntly stated that The Bahamas must improve its customer service
for tourists, engage more fully in the international trading system,
make better use of information technology, liberalize
telecommunications (including the sale of the state-owned Bahamas
Telecommunications Company),reform exchange controls, consolidate
the regulatory regime for financial services, and modernize business
laws and regulations to streamline the process for approving
business start-ups.

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SLOW PROJECT APPROVAL HURTING THE ECONOMY
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4. Dionisio D'Aguilar, Chamber of Commerce president, severely
criticized the government at the Outlook conference for taking too
long to approve projects, thus slowing down the economy. D'Aguilar
called on the government to move expeditiously to approve
outstanding projects, especially the Baha Mar project slated for
Cable Beach, and pointed to increased unemployment figures, falling
tourism arrivals, and global and U.S. economic woes as reasons why
the government needs to approve foreign direct investment projects.
The supplemental Heads of Agreement for the Baha Mar project was
approved on February 1, allowing the project to move forward.

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BAHAMAS LOOSES ITS TOURISM ADVANTAGE
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5. Addressing the 17th Business Outlook Conference, Director General
of Tourism Vernice Walkine said that total spending in The Bahamas
in 2007 is estimated at $2 billion -- the same as 2006. Tourism
arrivals in 2007 are expected to be slightly lower than the 4.8
million visitors welcomed in 2006. Walkine blamed this decline on
the Western Hemisphere Travel Initiative (WHTI) that has put a dent
in the impulse travel market, which The Bahamas benefited from
greatly. She said that the Ministry of Tourism does expect this
market and the tourism industry to recover over time, but it has
eroded The Bahamas' comparative advantage on proximity. The
Ministry of Tourism is concerned that while the market share is
strong, The Bahamas has given up ground to emerging destinations in
the Caribbean region. She also noted that the Internet has leveled
the playing field between destinations due to its availability and
accessibility.


6. The Ministry is currently redefining its tourism product and
expects to come out with a new advertising campaign soon. The
revised campaign plans to capitalize on the proximity of The Bahamas
to the U.S. during a period of economic downturn where some
Americans cannot afford to travel far. The Ministry also intends to
expedite plans to redevelop the downtown area and dredge the harbor
in order to attract and accommodate larger cruise ships to Nassau.
Tourism officials admit that The Bahamas has a long way to go to
recapture its competitive edge, but Walkine says that they expect
this to recover over time. Additionally, the new tourism
development projects that are currently on the drawing board will
also enhance its tourism product when they are completed.


7. As severe crimes in The Bahamas have increased to record levels
and have moved from the grassroots areas to downtown Nassau, tourism
officials hope that this will not further threaten the industry.
Economists fear that the issue of crime could destroy the reputation
of The Bahamas, if it is not addressed immediately. Last year The
Bahamas experienced 79 murders. As reported (septel) the Embassy
often receives inquiries from the press following high profile
murders as to whether it will issue a travel advisory for The
Bahamas due to the increasing crime.

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$2 BN INFRASTRUCTURE UPGRADES NEEDED
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8. Simon Townend of KPMG said that $2 billion in investments is
needed to upgrade The Bahamas' infrastructure if the country is to
maximize its economic growth potential. Mr. Townend said that it
might be difficult for The Bahamas to increase its GDP per capita to
the level of Bermuda and the Cayman Islands, but noted that the
Bahamas needs to "change our aspirations" and set its economic
sights higher. Townend informed Outlook Conference delegates that
upgrades to Lynden Pindling International Airport alone are
projected to cost $400 million, and with the other Family Island
airports all needing attention, the total investment required for
all Bahamian airports is approximately $500 million. He said that
although $120 million has been allocated for New Providence Road
Improvement projects; total road refurbishment requirements for The
Bahamas exceed $200 million. Townend further noted that a proposed
relocation of the downtown commercial shipping port to south-western
New Providence is estimated at $235 million. Townsend estimates
that The Bahamas needs to invest $400-500 million in rebuilding the
nation's education and school system, if it wants "state-of-the-art"
schools. He presented a number of suggestions to help improve the
current state of the economy including: investing more heavily in
the financial services industry, privatizing key government
agencies, and investing Bahamian businesses in other Caribbean
countries.

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IMPROVEMENTS TO AIRPORT
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9. The audience literally applauded as Craig Richmond, Chief
Executive of the Nassau Airport Development Company (NAD),told
conference delegates about the improvements being made to the Lynden
Pindling International Airport. Richmond noted that because the
airport was never operated as a business, it is $6 million in debt
even with the changes NAD has already made. Richmond attributed the
debt to the fact that landing fees at the airport have not changed
since 1993, and that LPIA had some of the lowest fees in the
Caribbean. He noted that landing and terminal fees currently cover
only 33 percent of the airport's airside operations and just 6
percent of the terminal costs, which caused the imbalance. In order
to strengthen airport operations, NAD is looking at four areas:
operational competence, financial strength, passenger satisfaction
and staff competitiveness. Richmond said that safety, access for
airlines that chose to fly to The Bahamas and gate execution are all
essential to the airport's competitiveness. NAD has recently hired
gate schedulers whose only function will be to ensure gates are
scheduled efficiently. NAD plans to install a new baggage system to
be one of the most sophisticated in the region for a cost of between
$25-30 million upon completion. Additionally NAD will eliminate the
final security checking point that will provide a better visitor
experience.

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DOWNTOWN REDEVELOPMENT PLEASE
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10. Charles Klonaris, chairman of the Nassau Tourism and
Development Board, outlined the challenges faced by downtown Nassau.
He described a downtown that "lacks diversity and density, that
"closes its doors" and "is abandoned." He recommended that the
shipping facilities currently located in the heart of the city be
relocated, that stops be found for the buses outside of the downtown
area to reduce congestion, and that waterfront land used by the port
be reclaimed for retail and residential use.

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COMMENT
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11. The presenters at the 17th Annual Business Outlook Conference
showed a Bahamas at the tipping point. With its streets clogged
with vehicles, its infrastructure in need of repair, its
customs-based tax structure ill-fitted to a 21st century trading
system, and its old formula of sun and sand under challenge from
other destinations offering similar amenities at lower prices, The
Bahamas needs to invest in its future. Presenters seemed impatient
with the pace of change, and the Free National Movement honeymoon
may be coming to an end, as speaker after speaker called on the new
FNM government to move quickly to approve pending tourism
development projects and deal with other critical tourism issues
that have been stalled for some time--including the relocation of
the straw market, improvements to downtown and the relocation of the
Port of Nassau. The Ingraham government seems to have gotten the
message and granted the necessary approvals for the $2.4 billion
Baha Mar project to move forward and has pledged to conclude the
sale of Bahamas Telecommunications Company this year. While the
airport will finance its own renovations, it is unclear where the $2
billion will come from for infrastructure improvements that all
agree need to be made.

Siegel