The Bahamas - Economy

The Bahamas - Economy

In the mid-1980s, the Bahamas was classified as an upper middle-income developing country and ranked among the wealthiest nations in the Caribbean region. Tourism was the nation's primary economic activity. In 1986 the World Bank reported that tourism directly and indirectly accounted for approximately 50 percent of employment. Tourism's share of the gross domestic product (GDP--see Glossary) was estimated at 70 percent by the United States Department of Commerce.

In order to lessen the economy's dependency on tourism, the government has followed a policy of diversification since the 1970s, emphasizing development in the industrial and agricultural sectors. Success, however, has been limited. The nation experienced setbacks in the early 1980s with the closing of steel and cement plants and oil refineries. Because industries locating in the Bahamas tended to be capital intensive, the industrial sector's share of the labor force was estimated at just 6 percent in 1979. Industry's share of GDP was estimated at about 10 percent in the mid-1980s. The agricultural sector (including fishing) also employed only about 6 percent of the labor force in the early 1980s. Despite various programs to boost production, the World Bank estimated that agriculture in the Bahamas accounted for less than 5 percent of GDP in 1986. The nation's banking and finance sector experienced significant growth in the 1970s and 1980s. This sector contributed approximately 7 percent to GDP in the mid-1980s but employed only about 3,000 Bahamians.

The overall performance of the economy during the past several decades has been positive. In the 1960s, the country recorded robust economic growth; growth rates averaged 9 percent annually as direct foreign investment spurred the development of tourism. Economic performance in the 1970s was not as successful. The international economic recession caused a reduction in investment, especially after the 1973 and 1979 oil price shocks. Bahamian independence in 1973 also caused a certain amount of uncertainty, contributing further to reduced foreign investment. Toward the end of the decade, however, economic performance improved, led by growth in tourism; investment soon followed suit, resulting in a boom in the construction sector and an increase in employment levels.

The economy continued to perform well in the early and mid1980s . Real GDP growth in the 1980-84 period averaged 3 percent. The only notable setback occurred in 1981, when recession in the United States resulted in a decline in stopover visitors (hotel occupants rather than cruise ship or day visitors) and the manufacturing sector was hurt by the closing of several plants; real GDP for that year fell by 9 percent. Tourism recovered quickly, however. In 1982 about 1.7 million foreign tourists visited the Bahamas, and by 1986 that figure had grown to 3 million. GDP was US$1.8 billion in 1985, and per capita GDP was estimated at US$7,822.

The nation was not without economic problems. Growth and development were not uniform throughout the country. Most development occurred in New Providence and Grand Bahama, causing significant migration from the Family Islands to these two urban centers. This migration strained the infrastructure and social sectors of New Providence and Grand Bahama. The government also was faced with the heavy burden of spreading facilities and services throughout the Family Islands. A second problem of the Bahamian economy was its dependence on a single sector, tourism; that sector's well-being was in turn affected by the economy in the United States, the source of most tourists. To reduce this dependency, the government actively pursued a policy of diversification. Finally, the country was afflicted with the problem of structural unemployment; in 1986 unemployment levels were estimated in the 17- to 22-percent range. Industrial development tended to be capital intensive because of a high wage structure and a scarcity of technically skilled labor.

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