An Economic Vision for Grand Bahama Island By: Dillon F. Knowles, MBA, PE 2012 Goal The goal for Grand Bahama Island (GBI) ought to be the creation of a physical, social and economic environment that sustains a world class lifestyle for the potential 300,000+ residents that GBI is physically capable of supporting. This paper focuses on the economic portion of a plan to accomplish this goal. Wealth An engineering principle states that input minus output equals accumulation. Applied to wealth, if you take in more money than you spend, you accumulate it. Conversely, if you spend more money than you take in, you deplete it. Moving money from one pocket to another does not create wealth, it just creates a broader distribution of it. In this regard, this paper will deal with GBI as a singular entity. It will consider all of its residents as one entity, just different “pockets”. It will deal with a vision to create wealth for the island as a whole (macro level). The local market will always have ideas on how best to share wealth amongst the “pockets” (micro level), no need for intervention in that process. Most conversations about the economy revolve around what drives it. Some say that small business is the back bone of an economy, however, it is not the size of the business but the trading regime that matters. Whether a business is small, medium or large is of no real consequence in this regard. If a successful business trades internal to GBI, it may create wealth for itself at the expense of others on the island but, it creates no wealth for the Island as a whole. For example, G. B. Power is a large company however, it trades entirely within GBI. Its customers are all resident on GBI. Its trading adds nothing to the wealth of GBI. Straw vendors, on the other hand, are small businesses that trade mostly with individuals who are resident off GBI. Straw vendors, thus, have the potential to create wealth for themselves and for GBI as a whole. They bring in money that is not already resident there. This paper will focus on a plan that produces trade with individuals and entities resident off island, whether within or external to the remainder of The Bahamas. Trade In order to engage in trade, one must have a service or good that is of value to another. It is incumbent on GBI to understand what it has that is of value to those outside GBI. • GBI has been blessed by God with great geography. It is situated in a sub-tropical climatic zone, 50 miles from the world’s largest economy. It has wonderful natural eco-systems (wetlands, white sand beaches, crystal-clear ocean waters, and abundant fresh water supplies). It has near-shore deep water at the cross-roads of international shipping lanes, and it has abundant land. • GBI is the beneficiary of the Hawksbill Creek Agreement and the tax laws of The Bahamas thus, providing for tax free, duty free business transactions. • Licensees of the Grand Bahama Port Authority Limited (GBPA) have created world class infrastructure including a deep water harbor and container transshipment terminal; an 11,000 ft., ICAO certified airport; stable electricity, potable water, telecommunications, and waste collection and disposal services; master planned subdivisions with golf courses and an extensive network of salt water canals, and • People and time have created a colorful history. On the negative side: • Labor, electricity and logistics are relatively expensive. • Technical skills are limited, • Almost all consumables are imported. GBI’s challenge is to maximize the use of its assets and overcome its liabilities in developing trade with outside interests. Industries that have traditionally taken advantage of the geographical assets of the island (Tourism and Maritime/Logistics) and its tax and duty concessions (high volume/low labor manufacturing and high profit margin businesses) have done well on GBI. GBI must now also take advantage of its history and infrastructure assets. Tourism Much focus has been given to hotel rooms and air lift and little focus has been given to activities and attractions. However, visitors are attracted to a destination because of its attractions and activities. Hotels and airlift are necessary amenities but are not attractions of themselves. With a large enough visitor demand, existing international chains will provide hotels and airlift at their own expense. GBI has to focus on developing attractions and activities. Additionally, while some wish to see GBI as a bargain basement tourist destination, GBI rightfully sees itself as the GRAND LIFE. To accomplish this GBI must tap into its history and ecological assets. Potential touristic developments include: 1. The settlement of West End has a colorful history as a transshipment outpost during various stages of American history; bootlegging during the US Prohibition; gun running during the civil war; wrecking and other not so legal activities. The settlement can be turned into a Disney quality living museum depicting its bootlegging and gun running heritage. It should be a “must see” participant in the story of the development of the Americas we know today. 2. Pine Ridge was the site of Wallace Groves’ Abaco Lumber Company logging camp. This company was responsible for the harvesting of pine trees in the area now known as Freeport/Lucaya. It was the operation that started the migration of Bahamians to the Island and was the catalyst for Groves’ vision for the city of Freeport. A Disney quality living replica of the logging village inclusive of a multi-media museum depicting the early history of the Grand Bahama Port Authority could be developed at this location. 3. While archeologist have determined that there are no longer any tangible signs of the original settlement of Freetown, other than the cemetery which has already been protected, a tribute to the people and history of Freetown can be developed in the form of a museum possibly sited at the Garden of Groves where it would benefit from the traffic already frequenting this attraction. 4. There are only two beach-front locations remaining on GBI that are suitable for high density resort development. They are Barbary Beach and “Old” Freetown. All other undeveloped sites from the Grand Lucayan Water Way to McLean’s Town are blessed with wonderful coastal wetlands which suggest preservation and light-footprint development. All sites from the Grand Lucayan Water Way to West End are already developed. The Freetown site should be developed into a major 5-star, “Pirates of the Caribbean” themed resort/attraction. 5. The Disney Movie site and adjacent former US Missile Tracking Site could be developed into a full time movie studio complex and marketed as the Hollywood of the Caribbean. 6. The aforementioned wetlands are wonderful opportunities for small eco-lodges that take advantage of nature tours such as bird watching, hiking, camping, kayaking, etc. These developments would have to be developed in the most sensitive and sustainable fashion but they could turn what is typically seen as a negative into a real asset while still maintaining their important contribution to GBI’s delicate ecosystem. Eco-tourism is a growing niche market. 7. GBI is the only Island in the Caribbean which is above the imaginary insurance line allowing home porting of super yachts during the hurricane season. Barbary Beach is also the only site on GBI to which a major super yacht marina can be excavated without negatively impacting the environment, particularly the freshwater aquifer. The aquifer in this area was already impacted by the dredging of the Grand Lucayan Water Way in the early 1970s. G. B. Devco (a joint venture between Port Group Ltd. and Hutchison Whampoa Ltd) already has a conceptual master plan for a major 5-star, yachting, water sports, golf and convention resort development at Barbary Beach. 8. GBI already has 6.5 golf courses (not all currently operating). With the addition of courses at the potential Freetown and Barbary Beach resorts, GBI must market itself as a major golfing destination. 10 golf courses are capable of handling 2,000 golfers per day. Assuming they each bring their families to enjoy the other activities GBI will have to offer, a one week/5 course golf package would require GBI to supply 2,000 hotel rooms just to support this demand. Golfers are proven to be good spenders. 9. Immediately to the north (inland) of Barbary Beach is a tract of land that would be ideal for sports tourism. With the rooms of a potential major resort available to its immediate south, this land could be utilized for a sporting venue that includes a mixed use profession quality stadium (baseball, football, soccer, track & field) and a mixed use professional quality indoor arena (basketball, volleyball, boxing, tennis, etc.). These facilities would be used to host major national and international events and would also be useful as training facilities for US-based professional teams. 10. In close proximity to this potential sporting destination is 270 acres of land that has been set aside for educational purposes. It is envisaged that the future University of The Bahamas would partner with a major US-based university to engage in educational tourism in addition to providing superior educational opportunities to Bahamians. The successful establishment of a small campus of Ross University Medical School on GBI demonstrates the viability of educational tourism. 11. Freeport Harbor Company (a joint venture between Port Group Ltd. and Hutchison Whampoa Ltd) has the exclusive right to develop and operate harbors on GBI. The existing Lucayan Harbor is not conducive to the cruise industry. A site at Russell Town/Williams Town has already been evaluated for the establishment of a dedicated cruise port and upland amenities. Cruise passengers crave a true beach experience and high value inland tours. The economics of this project as a stand-alone port has been the barrier for Freeport Harbor Company. Government and the Cruise Lines have separately reviewed the feasibility. This project needs a meeting of the minds. The opportunity to give the cruise industry a true destination close to the US eastern seaboard is too important to ignore. 12. The former Princess Casino/Royal Oasis site is ideally located for a modern domestic and medical tourism hospital complex. The hospital could be supported by its own hotel and is adjacent to the once famous International Bazaar. It would need to become a center of excellence for a particular discipline of medicine and attract world class physicians. 13. An effective campaign is required to market the many canal and golf view residential lots owned by G.B. Devco to potential 2nd home residents from North and South America and Western Europe. Grand Bahama is the ideal outdoor/indoor destination. Maritime and Logistics Long before tourism, GBI was in the transshipment business. It may not be proud of all the various commodities it transshipped but the characteristics that made it a valued transshipment site have only been enhanced by the presence of the Freeport Container Port. It is 50 miles away form the largest single market in the world and has the physical characteristics required for access by the largest vessels and aircraft the world has to offer. It is also blessed as a free trade zone. A study of the world’s trade reveals that more and more of the world’s goods are produced in Asia and consumed in the Americas (North, Central, South and the Caribbean). This has resulted in a constant stream of cargo vessels plying from East to West. Economies of scale have resulted in the ships getting bigger and bigger. As such, GBI, Norfolk, Va., and Nova Scotia are the only ports on the eastern coast of North America capable of handing them. Norfolk is almost entirely dedicated to US Naval operations and Nova Scotia is at the extreme northern end of the market. This leaves GBI in an enviable position. There is only one small challenge. At the moment, these super post panamax ships cannot navigate the Panama Canal. It is more cost effective for them to birth on the west coast of America and rail their cargo over to the east coast to be loaded onto smaller distribution vessels than it is to navigate around the Cape to arrive in GBI. However, by 2013, the Panama Canal will be capable of handling such vessels and Freeport will have a major opportunity. It already has a container transshipment port with current capacity of 1.2M TEU per annum with the capability to be expanded to 6.7M TEU per annum. Although capturing 6.7M TEU of container transshipment business would be beneficial, the opportunity is greater than that. Market Analysis According to the U.S. Department of Commerce and the U.S. International Trade Commission, the USA imported $1.943T worth of goods in 2007. Of this, $312B was imported from Canada and $210B from Mexico. The remaining $1.421T was imported from countries that are not contiguous with the USA and thus do not have access to the USA by land-based transport. This cargo enters the USA by air or sea with the vast majority of it gaining access by transatlantic and transpacific sea routes. North American container ports handled 52.7m TEU in 2007. It is also worth noting that the USA re-exported $110B worth of merchandise it previously imported. Additionally, some imports to the USA are artificially limited by trade quotas which cap the annual import whether the demand for the good is fulfilled or not. Opportunities In recent years, Logistics Centers have been established in Asia and Europe to allow for the consolidation of shipments to the USA. Manufacturers warehouse their goods at these Logistics Centers. The Centers provide storage, order picking, and consolidation services in preparation for shipping to America. The challenge with these “push” Centers is the transit time for goods leaving the warehouse to arrive in America, by sea, is approximately two (2) weeks resulting in higher inventory carrying cost for the customer in America. The establishment of Logistic Centers (“pull” Centers) in Freeport could reduce the shipping time from warehouse to customer to mere hours thus allowing customers to significantly reduce their minimum/maximum inventory levels and cost. Additionally, Logistics Centers in Freeport could allow goods which currently transship through Freeport into the USA and are then re-export to Canada, South America and the Caribbean to be shipped directly from Freeport to their final destination, eliminating the import/re-export steps in the USA. This would eliminate additional shipping costs and US import duties on these goods. The Bahamas has focused on markets internal to The Bahamas for far too long. There is a huge opportunity to use Freeport to become the wholesaler of these same goods to Canada, South America and the Caribbean. Further, there are no USA import quotas on goods manufactured in The Bahamas. Manufacturing Centers can be set up in Freeport to complete the final “value added” steps of the manufacture of goods substantially manufactured outside the USA for import into the USA. These goods would then have no quota limits and thus would allow for a greater market share to be gained by a manufacturing nation who otherwise has exceeded its own quotas. States like Nevada are capitalizing on these opportunities by establishing “Foreign Trade Zones” where goods can be warehoused free of import duty until they are needed. Once the goods leave the “Foreign Trade Zone”, they are subject to normal US Customs procedures. States like Nevada however, do not enjoy the advantages of Freeport. GBI already has a Foreign Trade Zone. Immediately adjacent to Freeport Container Port is a 720 acre tract of undeveloped land which is earmarked as a business park (Sea Air Business Centre). The Container Port’s Foreign Trade Zone can be expanded to encompass this area which is ideally suited for the development and operation of logistics centers and manufacturing centers for the completion of unfinished goods. The proximity of these centers to Freeport Container Port and the proximity of Freeport Container Port to the USA east coast provides for goods requiring sea transport to ship from this locale to Miami or West Palm Beach within a matter of hours or to New York, Montreal or South America in a matter of days. For goods which demand air transport as a mode of shipment, Grand Bahama International Airport is immediately adjacent to this business park. The Foreign Trade Zone can be expanded to include the Airport allowing goods to enter the park by container, free of import duties, be warehoused, sorted and shipped by air to any international airport in North or South America within hours. Grand Bahama International Airport benefits from immigration/customs pre-clearance of passengers into the USA. This permits airlines to fly directly to any USA destination without having to stop at an international airport first. While not a current provision, there is the potential for negotiation with the US government to provide customs pre-clearance for cargo as well. This could allow freight to be flown directly to any USA destination without having to stop at an international airport first. From a practical perspective, with cargo pre-clearance, a logistics center in Freeport could operate as if it were within main land USA. The maritime/logistics opportunities also encompass a previously evaluated project to build an LNG storage and regasification terminal at Freeport Harbor. An objective environmental and safety review of this project has revealed that the risks are no greater than those of operations currently found acceptable in Freeport Harbor today. A modification to the original plan is recommended. Instead of supplying South Florida with natural gas, GB Power (or another) could build a natural gas fueled power plant to supply electricity to South Florida by submerged cable. The economies of scale would then allow it to supply GBI and possibly Abaco with power at the price it would be required to supply power to Florida. This would be a game changer for GBI. It would not only create wealth for GBI by allowing G.B. Power to trade external to GBI, it would also significantly reduce the cost of electricity within GBI, making for a significantly more competitive environment. Additionally, a by-product of an LNG regasification plant is the generation of waste refrigeration. This waste product can be utilized by industries that require large amounts of refrigeration such as chemical manufacturing with significant cooling demands, cold storage and distribution businesses, ice production facilities and many others. These industries are typically very utility intensive. The LNG plant throws away the very utility these industries need to be successful. Lastly, G. B. Devco is the owner of a parcel of land to the immediate east of Statoil at South Riding Point. This location is ideal for the creation of a Maritime Institute, inclusive of the Department of Maritime Affairs. The parcel is at a near-shore deep water location and the presence of the oil transshipment terminal does not make it suitable for touristic endeavors. GBI’s maritime industries make it an ideal locale for a maritime institute. Wealth Management Industries When the words “wealth management” are uttered, one generally thinks of financial services. However, while financial services are valuable offerings, wealth management has broader implications than just financial services. For example, Syntex Pharmaceuticals operated a manufacturing facility in Freeport solely for the purpose of managing wealth. Syntex had patented pharmaceutical products which generated high profit margins. The margins were high enough that the savings from Freeport’s tax and duty regimes far offset the naturally higher cost of doing business in the islands. As discussed in the Maritime/Logistics section, manufacturing associated with items which are otherwise quota limited, and products which generate high profit margins are the types of manufacturing operations that can be successful on GBI. A marketing plan targeting these types of businesses needs to be developed and execute. Low profit margin, high labor manufacturing needs to be avoided at all cost. Expenditure Reduction GBI is not in a position to manufacture many of the items it currently imports, however, many of them are currently sourced at high mark-ups from wholesalers/retailers in non-producing countries, particularly the USA. The opportunity previously discussed under Maritime/Logistics for Bahamian Wholesalers to import directly from producer nations and distribute to consumer nations, including The Bahamas, could significantly reduce the cost of these imports and thus add to the accumulation of wealth on GBI. Additionally, many agricultural products can be produced on GBI. Many modern technologies have created the means to grow food in the most severe conditions. While they may not produce at prices competitive with farms in more suitable environments they do allow for production. From the bigger perspective, the cost savings to GBI would not be seen as a reduction in price to the residents but the reduction in external purchases reduces the negative trade and thus keeps more of the wealth on Island, where it can be distributed to the benefit of all. With trade liberalization under WTO there may not be a mechanism to protect this industry and thus it may not be a practical opportunity but it must be considered. Support In order to provide the necessary support to these potential industries, the Bahamas Government will need to: • improve the educational system, • provide technical training in the specific areas targeted, • resolve the intra-island transportation system (unified bus system) issues, • expand the “Foreign Trade Zone” to include the Sea/Air/Business Center, • negotiate cargo preclearance with the US Government, and • protect/renegotiate trade concessions with the Americas Additionally, Port Group Limited and its subsidiaries and joint venture companies will be required to invest in the necessary infrastructure (potable water supply and distribution, electricity distribution and roads) in areas that are not already equipped. These ideas are not all new. They are a result of a decade of analysis and many individuals have contributed to their development over that period. As stand-alone ideas they have gained little traction. As part of a comprehensive development and marketing plan it is hard to see how they would not entice significant investor interest. The question is who or what will be charged with the development and execution of such a plan. Unlike the local market which will facilitate itself by the law of supply and demand, this national and international trade needs coordination. Someone/thing has to “speak” for the Island. Conclusion GBI has great potential in tourism, maritime and logistics, and wealth management that it can tap into in a structured and organized way. These would make GBI the envy of the region as it balances industry with a life style approach for both visitors and residents alike. It requires leadership by an institution that is dedicated and empowered to develop and execute all aspects of a coordinated economic plan like this one. The opportunity Wallace Groves saw in 1955 still exists today.
Posted on: Wed, 12 Nov 2014 20:48:25 +0000
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