I. COMMERCIAL OVERVIEW: The Bahamas is a politically stable, middle-income developing country. Following general elections in 1992, The Bahamas experienced a peaceful transfer of power from the center-left Progressive Liberal Party (PLP), which had governed the country for the preceding 25 years, to the centrist Free National Movement (FNM). Nearly two-thirds of The Bahamas' gross domestic product is derived from tourism. In 1993, over 3.6 million visitors came to The Bahamas, 81 percent of them from the United States. The Bahamas is recovering slowly from the decline in tourist arrivals it suffered at the time of the U.S. economic recession in the late 1980's. Factors contributing to this slow recovery include high prices for tourist goods and services, intense competition from newer caribbean destinations, and continuing uncertainties in the North American economy. The Bahamian government projects continued moderate improvement in the number of tourist arrivals in the next several years, but little near-term growth in tourist expenditures. Although the projected opening in early 1995 of a renovated resort complex on Paradise Island near Nassau may help boost the number of stopover visitors, cruise ship passengers -- who spend far less than stopover tourists -- currently constitute a slight majority of all arrivals. This pattern, first set in the late 1980's, appears likely to continue for the rest of the decade. In an effort to increase the number of stops available to cruise ship passengers and to spread their spending more widely, the Bahamian government has earmarked funds for the expansion of harbor facilities on several family islands (islands beyond new providence) to offer cruise lines options other than the two major ports-of-call in Freeport and Nassau. Financial services constitute the second most important sector of the Bahamian economy, accounting for just over 10 percent of GDP, due to the country's status as a tax haven and off-shore banking center. As of December 1993, the Government had licensed 415 banks and trust companies in The Bahamas. The Bahamas promulgated the International Business Companies (IBC) Act in January 1990 to enhance the country's status as a leading financial center. The Act served to simplify and reduce the cost of incorporating off-shore companies in The Bahamas. By mid-1994, nearly 25,000 IBC-type companies had been established. In February 1991, the Government also legalized the establishment of Asset Protection Trusts in The Bahamas. Agriculture and industry together account for less than 10 percent of GDP. The Bahamas exports lobster and some fish, but does not raise these items commercially. There is no large-scale agriculture, and most agricultural products are consumed domestically. The country produces some chemicals and pharmaceuticals for export, along with rum and industrial salt. The Bahamian government maintains the value of the Bahamian dollar on par with the U.S. dollar. The estimated inflation rate dropped to 2.7 percent in 1993 from 5.7 percent the previous year. Fiscally conservative policies of the FNM government, including a virtual freeze on the acquisition of new international loans, resulted in a drop in total external debt to $358.4 million at the end of 1993 from $378.9 million a year earlier. The Bahamas' primary monetary consideration is the mainentance of sufficient foreign exchange reserves to support the present value of its currency, pay for necessary imports, and finance the repatriation of corporate profits. Although the Central Bank in 1992 loosened some liquidity retraints dating back to 1987, domestic Bahamian banks remained extremely conservative in lending and, by early 1994, had accumulated such large Bahamian dollar reserves that several were reluctant to accept new deposits. Despite its small size, The Bahamas is a major market for American exports to the Caribbean, albeit one which has declined slowly in recent years and is unlikely to show dramatic growth for the rest of the decade. With few domestic resources and little industry, The Bahamas imports nearly all its food and manufactured goods. Approximately 55 percent of these imports originate in the United States, and even most Bahamian purchases of third-country exports are acquired through American distributors. U.S. firms exported $704.1 million worth of goods and services to The Bahamas in 1993, down from $712.5 million the previous year. The American share of the overall Bahamian market, however, remained stable. Among imports, American goods and services tend to be favored by Bahamians because of cultural similarities and the exposure of most Bahamians to heavy domestic American advertising from Florida (which, at its closest point, is only 50 miles away). In addition, the dominant tourist industry prefers to purchase goods with which their clientele, the vast majority of whom are Americans, is familiar. The Bahamian government actively encourages the production of locally-produced items for use by the tourist industry and to promote import substitution, albeit with only very modest success. While the Government has encouraged hotels to use domestically-produced fruits, vegetables, and fish to prepare meals, the uncertainties of relying on small local suppliers and other government policies which have discouraged the growth of large-scale domestic agriculture have left the tourist industry largely dependent upon imported fruits, vegetables, and red meats. The best U.S. export opportunities remain in the traditional areas of foodstuffs and manufactured goods; vehicles and automobile parts; hotel, restaurant, and medical supplies; and computers and electronics. As a result of The Bahamas' close proximity to the U.S., spending by weekend and holiday Bahamian shoppers contribute significantly to sales of discount clothing and hardware businesses in Southern Florida. Although Bahamian government policy prohibits American retail or wholesale chains from opening outlets in The Bahamas, distributorship and franchise arrangements are possible. The Bahamas has much to offer the potential investor: a stable democratic environment, relief from personal and corporate income taxes, timely repatriation of corporate profits, proximity to the United States, extensive air links through nearby Miami and Orlando, excellent communications links, a good pool of skilled professionals, and designation under the Caribbean Basin Initiative (CBI) as well as Canada's Caribcan program and the European Union's Lome IV Agreement. Efforts by FNM party to reduce government "red tape" and expedite approval of investment applications have had mixed results. In 1993, the Government repealed the Immovable Properties (Acquisition for Foreign Persons) Act, replacing it with the Foreign Persons (Landholding) Act. The new law eliminated, with limited exceptions, the previous Act's requirement for prior government approval for non-Bahamians to acquire residential property of less than five acres. The new Bahamas Investment Authority (BIA), which was created within the Prime Minister's Office in 1992 in an effort to centralize and expedite the approval of foreign investment applications, has had a slow start. The Bahamas officially welcomes foreign investment in tourism and banking, and has declared its interest in agricultural and industrial investment as well. In practice, the vast majority of successful foreign investments have remained in the prior two areas. The Bahamian government and business community have been suspicious of outside investment in non-traditional areas such as agriculture and industry, and such projects have generally faced a drawn-out approval process and some local opposition. The Bahamian government is most interested in investments which will generate local employment, particularly in white-collar or skilled jobs; large-scale projects in areas such as agriculture requiring low-wage and low-skill labor in which many Bahamians are not interested have failed due to government reluctance to allow foreign workers to be used even on a temporary permit basis. In instances where new foreign ventures have been perceived by a part of the Bahamian business or labor communities as competing with existing Bahamian businesses, the Bahamian government has been generally responsive to local concerns and has closed the foreign venture, even in instances in which business licenses were already granted. Furthermore, while The Bahamas has not yet enacted environmental legislation as extensive as that in the United States, BIA will require a full accounting of the environmental impact of new industrial or agricultural schemes and will not approve projects which would be unable to pass American environmental standards. Finally, while corruption is admirably rare, some foreign businesses, attracted by the tax advantages of investing in The Bahamas, have complained that frequent requests for "voluntary" donations to civic causes have constituted an unexpectedly high expense. The Bahamian government reserves certain businesses exclusively for Bahamians. These include retail and wholesale outlets, non-speciality restaurants, most construction projects, small hotels, and most small businesses. Other categories of businesses are designated for possible joint ventures between Bahamians and foreigners. The Bahamas government has never expropriated a business and both major political parties have repeatedly stated that "nationalization will never be an instrument of government policy." Profits and investment capital may be freely and easily repatriated.