The Bahamian Business Structure:

Mr. Mike Smith: You obviously have considerable respect for a number of Bahamian entrepreneurs.

Mr. Richard Coulson: Instead of the two industries of tourism and banking, Bahamian entrepreneurs have found many other opportunities. A review of the 19 so-called “public” companies trading on our stock exchange or the over-the-counter market gives a very limited picture of the diversity of investment choices. The list includes five banks (three locally controlled), two life insurance companies and one general insurance agency, a cable-TV and Internet operator, an electric utility, a supermarket chain and a wholesale-retail conglomerate, a hospital group, a concrete producer, a waste collection firm, a cinema exhibitor, a petroleum products distributor, a closed-end investment company, and a real-estate mutual fund. Based on the quoted share price of these companies – which in many cases is hypothetical at best – their total market capitalization is about $1.7 billion. However, in terms of true Bahamian ownership this figure is meaningless, since nearly 50% is provided by one company, First Caribbean Bank, which happens to be 95% owned by Canada’s CIBC. Several other public companies also have substantial foreign ownership, so that the true market share attributable to Bahamian investors is probably no more than $500 million, representing possibly $100 million in shareholder net worth.

This figure reflects only a tiny fraction, probably less than 2%, of the total value of Bahamian business enterprises. Since our stock exchange does not yet provide an effective trading platform and is often regarded with suspicion by successful corporate leaders, the vast majority of our wealth continues to be held in private hands, often passed down from father to son. The most traditional path to wealth, and still one of the most lucrative, has been the field of wholesaling, or more precisely the role of “commission agent”, acting as the local representative for all the multifarious brands of imported commodities that Bahamian consumers demand – from lumber and lawn-mowers down to corn flakes, chocolate bars, toothpaste and detergents. The father of this essential industry was the late Sir Asa Pritchard, who even before World War II founded Asa H. Pritchard Ltd. which continues its success under his family descendants, acting as exclusive distributors for Procter & Gamble’s vast range of household products, H.J. Heinz, Libby’s, Chivers, and Folgers. Pritchard was soon followed by d’Albenas Agency, Thompson Trading, Lightbourn Trading, and Milo Butler & Sons, all family-owned firms (and many smaller ones) who aggressively fight for and guard their connections with suppliers, well aware that unless they demonstrate active promotion of their assigned products, they could easily lose the business to a competitor.

A relative newcomer to this elite group is Bahamas Food Services, which evolved from Bahamian ownership to be controlled by an American business group who only three years ago completed a $20 million state-of-the-art refrigerated warehouse from which it distributes a wide variety of meats, fish and fresh produce. As wholesale suppliers to our supermarkets, small food stores, and direct to hotels, all these firms remain tightly centralized and avoid the problems inherent in retail operations. Their enormous role in our economy can be seen from the Department of Statistics figures for 2001: 47 wholesale firms with revenues ofﾠ $887 million and operating profits of $69 million. We can estimate that the largest ones must enjoy sales of at least $50 million, with a profit margin of about 7%. And all this with a total of only about 2,500 employees! Clearly our merchant class has benefited from the growth of tourist hotels, not by investing in them, but by selling to them.

Mr. Smith:What other sectors have done well?

Mr. Coulson: The retail sector has by no means been neglected. One branch of the Pritchard family diversified into John Bull Ltd., Bay Street’s leading purveyor of watches, jewelry and luxury goods. Our two supermarket chains are probably the largest single businesses in the private sector. Bahamas Supermarkets, with ten stores in Nassau and two in Freeport, evolved out of the original Bahamian City Meat Market and is now 60% owned by the American Winn-Dixie chain. Trading on our over-the-counter market, its published figures show sales in 2002 of $122 million, earnings of $7 million, and net worth of $14 million. Its vigorous competitor is Supervalue Stores, founded in 1967 by Bahamian Rupert Roberts Jr. and wholly-owned by his family. Limiting its business mainly to ten Nassau outlets, its sales of $80-$90 million approximate the Nassau sales of Bahamas Supermarkets. Mr. Roberts estimates that the two supermarket chains together account for only about one-third of total food sales in The Bahamas, evidence of the wealth retained in the hundreds of smaller chains and “mom-and-pop” stores.

Other dominant participants in the retail market include the family-owned Kelly’s Home Centre, Nassau’s leading department store – and indeed the Marathon shopping mall where it is located, a joint venture of several local investors with over 50 commercial tenants, giving it a valuation of over $50 million. Beyond this, the list stretches ad infinitum, to the successful auto-parts chain Automotive and Industrial Distributors, Mike’s Shoe Stores, Lorene’s group of lady’s apparel shops, Nassau Paper Company, Destination Travel Agency, Burns House Wine & Spirits, Hill-York Air Conditioning, and the innumerable small enterprises marketing virtually all the goods and services that are expected in a modern economy. One special category is auto dealerships: every Bahamian must drive a car, preferably a hefty SUV, and the market is dominated by three highly profitable importers of the most popular foreign brands, backed up by several successful niche players.

Mr. Smith: You mentioned real estate as well.

Mr. Coulson: Almost every Bahamian who has accumulated any surplus wealth has, in effect, entered the real-estate business, as can be expected in an economy with few stock-market opportunities, a limited supply of land, a growing population and a steady stream of home-buyers from abroad. For many citizens, this has meant simply the occasional buying and selling of properties for a profit; for others, it has meant becoming licensed real-estate brokers, appraisers and building managers; and for still others it has meant committing capital to the active development and ownership of commercial buildings, shopping centers, condominium complexes, and residential housing tracts. Probably a greater percentage of the country’s private wealth is invested in real property than in any other type of asset.

Closely related to the real-estate business is the construction industry. With demand for high-quality housing from a wealthier local population and from foreign second-home owners, together with improved Government facilities and periodic large new hotel and office projects, contractors have enjoyed a long-term but by no means steady history of growth, marked by periods of boom and bust. At least five major contracting firms created by Bahamians are always kept busy, although their levels of employment may expand and shrink radically. Naturally, a whole sub-industry of building-supply firms exists to serve the major contractors.

As an island nation, we can only survive with imports, virtually all of which arrive by sea from Florida ports. Although most of the vessels are foreign-owned, a substantial Bahamian owned industry has developed to provide container handling, stevedoring, customs brokerage and local delivery. Even more significant is our inter-island marine transport, restricted exclusively to Bahamian ship-owners. With communities scattered over a range of 700 miles of seascape, it is not surprising that local marine transport represents a substantial capital investment, although fragmented among many participants. For many years, all freight and a few uncomfortable passengers were carried under separate “mail-boat” contracts, with each ship-owner assigned a specific island route to serve with a slow-moving cargo vessel under fairly rigid Government rules. More recently, a modern group of Bahamian entrepreneurs are altering this pattern with high-speed catamaran ferries, some taking passengers only, others carrying vehicles and cargo. While these services are presently limited to ports within easy range of Nassau, further capital investment will gradually extend carriage to the more distant communities. In the air transport industry, Bahamian capital has built an impressive Fixed Base Operation for private aircraft, under franchise from the U.S. Million-Air group, the first of its kind in the Caribbean.

Mr. Smith: Your conclusion.