Tuesday, June 17, 2014

Bahamas brain drain and stagnating economic growth

Bahamas Losing 2/3 Of 'Best And Brightest'

Tribune Business Editor

Almost two-thirds of college and university-educated Bahamians have moved abroad to seek jobs in developed countries, costing this nation a sum equivalent to 4.4 per cent of annual gross domestic product (GDP).

The so-called ‘brain drain’ was highlighted in a newly-released Inter-American Development Bank (IDB) report, which noted that 61 per cent of tertiary-educated Bahamians had left this nation for jobs in Organisation for Economic Co-Operation and Development (OECD) member countries.

The study, ‘Is there a Caribbean Sclerosis’, which attempts to determine why economic growth in the Bahamas and five other regional nations has been stagnating, effectively suggests this nation is losing its ‘best and brightest’ minds to other economies.

This, in turn, has major implications for the productivity, innovation and creativity of Bahamian firms and the wider economy, all areas where it is suggested this nation is not as competitive as it might be.

The IDB report’s authors, Inder Ruprah, Karl Melgarejo, and Ricardo Sierra, summed it up thus: “The Caribbean countries have lost more than 70 per cent of their labour force with more than 12 years of schooling through emigration.

“This is worrisome because one of the few non-controversial stylised facts in economic growth literature is the positive contribution of education to economic growth. Thus, migration affects the Caribbean countries’ ability to generate economic growth and jobs.”

The IDB study pegs the combined impact of this ‘brain drain’, plus the money spent on these Bahamians’ education, at 4.4 per cent of GDP. With Bahamian GDP currently estimated at around $8 billion, the ‘dollar value’ of that 4.4 per cent is around $350 million.

The Bahamas, though, is far from alone in the ‘brain drain’ problem. And, in comparison to regional peers, it is among those that suffers the least loss, only Surinam (at 48 per cent) losing fewer of its tertiary-educated workers.

In contrast, Jamaica and Guyana both see more than 85 per cent of their college/university graduates migrate abroad for work. And the Bahamas also suffers the least loss in terms of GDP impact and the number of secondary school graduates (10 per cent) who head abroad seeking work.

The IDB study gives no explanation as to why 61 per cent of Bahamian tertiary graduates head abroad, although the likely reasons include the fact many of them stay overseas when their college degrees are completed; the narrowness of the Bahamian economy and opportunities at home; and a lack of information about openings in the Bahamas.

Still, the findings have worrying implications for the Bahamas, as they indicate an entire generation of entrepreneurs and top-level managers may be heading abroad, never to return. And with Baha Mar set to create 5,000 extra jobs, and other major investment projects coming on stream, this nation needs all the top-quality labour it can get.

To reinvigorate Caribbean economies, the ID study suggested they “reorient trade in goods and services towards growing niches”, namely faster-growing countries with rapidly expanding middle classes.

Taking Brazil as an example, the authors suggested that had it been the Bahamas’ main trading partner during the 2008-2012 recession, this nation would have seen a 4.5 percentage point difference in its annual growth level.

“The average increase in annual growth during the Great Recession would have been 2.1 per cent for the Bahamas,” the IDB study said. “Over the next six years, the simulation exercise shows that the increase could reach 0.8 per cent for the Bahamas.”

The Bahamas is currently targeting Brazil for increased financial services, trade and tourism business, and the IDB study suggested that instead of an average 0.4 per cent GDP contraction in 2008-2012, this nation could have enjoyed a 1.68 per cent growth rate had the Latin American state - not the US - been its main trading partner.

And, in the same scenario for 2013-2018, the authors project that the Bahamas would enjoy a 2.88 per cent average GDP growth rate instead of 2.3 per cent. Per capita would also be slightly higher by around $200 per person.

Noting just how badly the Bahamas was impacted by the 2008 recession, the IDB study said this nation collectively lost 40 per cent of its GDP between 2008-2012, based on 2007 growth levels. Only Trinidad fared worse.

And the authors also added their voices to those expressing uncertainty over whether Baha Mar would grow or split the high-end visitor market with Atlantis come 2015.

“The total investment in Baha Mar is estimated to be about US$3.5 billion, and the hotels in the development are expected to increase the number of available hotel rooms by 2,000,” the IDB study said.

“However, being successful will require a substantial increase in the airlift to the island, plus a policy of diversification of tourist source countries such that the Baha Mar represents additional tourism rather than a diversion from the existing hotel complex, Atlantis.”

The IDB report also warned that economic growth and competitiveness in the Bahamas and wider Caribbean was being undermined by “special interest groups”, who were using “rent seeking” and other tactics to redistribute social wealth.

“By enlarging their slice of the pie (real GDP), these interest groups reduce the enlargement (economic growth) of the total pie, which in turn reduces total social gains,” the IDB study said. “This happens by influencing policy.”

Small, stable Caribbean societies such as the Bahamas fostered the creation and embedding of these “growth-retarding special interest groups”, it argued.

As a result, there is “a lower level of public trust of politicians, more unproductive rent-seeking, and a greater degree of wastefulness in government spending.

“Government officials engage in more diversion of public funds, show greater favouritism, and Caribbean businesspersons make more irregular payments and bribes. The only area where Caribbean tourism-based countries are at the same level as their [small island states]counterparts is judicial independence,” the IDB study said.

“Thus, the very feature that the Caribbean is proud of - political stability -may have created the conditions for and sustained an alliance against growth. In other words, Caribbean states are good for (some) businesspersons but not necessarily good for business.

“Thus, the difference in growth between Caribbean countries and other small economies could be due to Caribbean governments not being as good for business.”

June 16, 2014