$B Market Overview

The Bahamas has exhibited signs of resiliency in its ability to gradually recover from the harrowing effects of both Hurricane Dorian and the COVID-19 pandemic, which as a duo, has had a summated $7.5B blow to the GDP of The Bahamas ^1. This is significant relative to The Bahamas’ total 2020 GDP, which was $11.25 Billion, representing 0.01% of the global economy, according to Trading Economics. Rebounding tourism, digital innovation and associated legislation, and construction efforts have buoyed The Bahamas as the country makes strides towards stabilization, regaining ground and experiencing growth with traditional and pivoted strategies.

Overall, the Governor of The Central Bank of The Bahamas at its 2021 fourth quarter and full-year economic developments press briefing noted that “Economic growth in 2022 is expected to exceed 5 percent, which would be significantly stronger than the recovery onset of just above 2 percent in 2021.” In addition to this acceleration in comparative prior period economic growth, it was noted that it is predicted that the earliest time that the country’s top industry - tourism - would return to pre-pandemic levels is 2023. The International Monetary Fund conducted a review on January 26th, 2021, in which they outlined a prediction of the Real GDP of the country recovering by 2024, noting that on the heels of 1.2% Real GDP growth in 2019, followed by a pandemic induced real GDP decline of -16.2% in 2020, 2% growth in 2021, projected growth of 8.5% in 2022, 4% in 2023 and 3.5% in 2024, the fall off would be recovered by 2024.

The year ended 2019, was a peak year for tourism in The Bahamas, exhibiting a record year of 7.25m visitors, comprised of 5.58m sea visitors and 1.66m air arrivals. The country strives to return to these levels. For context, The Bahamas has normally recorded visitors number in excess of 6.1m per year, with the average travelers between 2016 and 2018 being 6,340,958 visitors (1,428,504 air segment and 4,912,454 sea segment). During 2021, as pandemic related travel restrictions started to ease, there were 2,100,523 visitors (886,610 air and 1,213,913 sea) to The Bahamas, representing one third of normal levels overall, 62% of normal air arrivals, and 25% of normal sea arrivals. When examining the statistics for the month of December, however, a more revealing story is told, which was that the air segment was more quickly accelerating to typical thresholds. Within the period of 2016 to 2021, the highest number of air arrivals during December was 2018 with 150,531 air visitors followed by 140,121 air arrivals in December 2019. The December 2021 air arrivals was 118,501, which is just ~21% shy of the December 2018 high. Sea arrivals also show promise to rival 2019 pre-pandemic norms based on CEO of Nassau Cruise Port Ltd, Mike Maura, who shared that “Our financial plans for the first quarter, notwithstanding that we have very strong bookings from the cruise lines, we have been conservative in terms of our numbers because of the potential impact of COVID variants. But what we are seeing is 2022 outperforming 2019… the current bookings we have for 2022 total 1,279 vessel calls.” He followed to explain that the cancellations due to COVID-19’s omicron variant have been akin to normal cancellations due to weather induced cancellations. The controversial level four warning by the CDC to not engage in cruises whether vaccinated or unvaccinated has seemingly not taken root with cruise goers who continue to patronize, nonetheless following advocacy from industry participants the CDC has lowered the warning level to a cautionary level 3 classification and has unveiled a color-coded ranking system among cruise lines. There are pulling and pushing factors affecting the cruise industry, such as the cancellation of Crystal Cruises until April 29th, 2022 due to financial challenges, versus the occurrence of home porting by Royal Caribbean cruise lines. With the current government’s intentions seemingly suggesting keeping the country open with the milder effects of the omicron variant, it is foreseeable that tourism is on course to recover.

Unemployment in the Bahamas is expected to remain high in short term, however, with the rebound of tourism, continued rehiring is expected among resorts and tour operations and in the construction industry. However, specifically, according to an Internal Monetary Fund report, in May of 2019 unemployment sat at 9.5%, with an uptick to 10.1% at the end of 2019, escalation to 25.6% (2020) and 24% (2021) during the heart of the pandemic, and is on course to achieve a predicted lowering to 17.2% in 2022 and to 13.5% in 2023. As matters progress, perhaps with increased globalization and the social norms of remote working, it is possible that locals with administrative, computer programming, media and other exportable talent, can explore employment from a broader base of international employers.

The financial services industry has shown potential for expansion due to the embracement of fintech and crypto services, under the auspices of the prudent Digital Assets and Registered Exchanges Act. Attracted by the legislation was FTX, the world’s second largest crypto exchange which opened in The Bahamas during September 2021, and already the ripple effects can be felt in the industry through an enhanced interest of other crypto companies to conduct business here. Moreover, the FTX SALT Conference scheduled for April 2022 at Baha Mar is expected to be one of the most significant crypto conferences of the year. To help foster innovative crypto asset discussions locally and in the process to inform appropriate policies, the Securities Commission of The Bahamas (“SCB”) has established the SCB FITLink (Financial Innovation and Technology Link) , which is the is the SCB’s FinTech Hub. It is expected that the potential inflows of capital in the form of this alternative asset class can be substantial for the local economy – in particular if there are compliant bridges for their use locally; the luxury real estate industry has already experienced such interest. Equity’s crypto financial arm, Liongate Bahamas, is now a holder of the coveted Digital Assets and Registered Exchanges Act License.

Financial Services and Bahamian participation in international investments have taken a positive turn with the reopening of the Investment Currency Market(“ICM”) of The Central Bank as of October 1st, 2021, with closure of the ICM for Bahamian dollar to foreign currency conversions for investment purposes being in effect since May 4th, 2020, to conserve the Central Bank’s external reserves during the pandemic. This reopening of the ICM was in part made possible due to the IMF Special Drawing Rights (SDRs) made available to members states that the Central Bank can borrow against at an attractive 0.05% if necessary while managing its reserves to assist with pandemic recovery. The SDRs that The Bahamas proportionately has access to has a value of US$247.5 million.

On the local front, Banks remain conservative in their lending policies, leading to deposits outpacing loans, causing a net increase in bank liquidity. This conservative stance among commercial banks has created an industry opening for non-bank lenders to provide solutions; however, this space is bracing for increased reasonable regulations to protect consumers, which may tapper off gradually the rate of growth, with mature and well-organized non-bank lenders being best positioned.

In the Central Bank of The Bahamas’ Monthly Economic and Financial Developments report for December 2021 published on January 31st, 2022, it is reported that The Bahamian’s peg to the U.S. dollar remains firmly intact and that “further, external reserve balances are anticipated to remain buoyant in 2022, staying above international benchmarks, with anticipated support from the tourism sector and other net private sector inflows.”

Here at Equity Bank Bahamas and affiliates, we remain steadfast in our commitment to our clients throughout all seasons and although have been at full capacity, we are still able to assist clients with navigating headwinds. We will continue to collectively build a robust and prudently planned strategy for the future.

With respect to interest rates and the cost of living, inflation decelerated in the 12 months leading up to January 2021 by 0.6% as indicated by the All-Bahamas Retail Price Index deduced to be as a result of reduce oil pricing. This is as opposed to a 2.4% increase in consumer prices during 2020. As of February 2021, year over year the weighted average interest rate of bank loans elevated by 22 basis points to 10.13%. In divergence, the weighted average deposit interest rate declined by 11 basis points to 0.56%. Nevertheless, the highest interest rate on bank fixed deposits longer than 12-month terms sat at 4%. Investors should consider the interest rate earned on their capital as compared to the inflation rate, to ensure that there is not a loss in net holdings given the time value of money.

<sup>1. https://thenassauguardian.com/7-5b-hit-to-gdp-from-dorian-covid/
2. https://tradingeconomics.com/bahamas/gdp
3. http://www.tribune242.com/news/2022/feb/01/bank-governor-eases-2022-growth-forecast/?news
4. https://ewnews.com/further-to-go-tourism-on-definite-rebound-but-central-bank-governor-john-rolle-expects-no-full-recovery-until-2023-at-least
5. https://www.imf.org/en/News/Articles/2021/01/26/pr2123-the-bahamas-imf-executive-board-concludes-2020-article-iv-consultation
6. http://www.tribune242.com/news/2022/jan/17/bad-weather-cancels-many-cruise-calls-covids-omicr/
7. https://edition.cnn.com/travel/article/cdc-lowers-cruise-travel-warning/index.html
8. https://www.cdc.gov/quarantine/cruise/cruise-ship-color-status.html
9. https://www.usatoday.com/story/travel/cruises/2022/01/21/crystal-cruises-temporarily-halts-sailings-what-cruisers-need-know/6606608001/
10. https://www.seatrade-cruise.com/ship-operations/royal-caribbean-ship-position-begin-nassau-cruise-homeporting-adventure
11. https://www.imf.org/en/News/Articles/2021/01/26/pr2123-the-bahamas-imf-executive-board-concludes-2020-article-iv-consultation
12. https://ewnews.com/major-crypto-conference-set-for-the-bahamas-as-ftx-teams-up-with-salt#:~:text=Crypto%20Isle.,to%20launch%20in%20early%202022.
13. https://www.scb.gov.bs/scb-fitlink/
14. https://www.centralbankbahamas.com/news/press-releases/resumption-of-foreign-currency-purchases-through-the-bahamian-depository-receipts-program-and-the-investment-currency-market
15. https://www.centralbankbahamas.com/news/press-releases/the-bahamas-receives-247-million-sdr-allocation-to-bolster-external-reserves#:~:text=Published%3A%20Friday%20August%2027th%2C%202021&text=The%20Bahamas%20received%20an%20allocation,reserves%20of%20IMF%20member%20countries.
16. https://www.scb.gov.bs/wp-content/uploads/2022/02/Draft-FCSPA-Money-Lenders-Rules-2022.pdf</sup>