The Bahamas, like the rest of the Caribbean, has suffered from the effects of a world-wide recession. In particular the Bahamian tourism and construction industry are desperately waiting for the much needed turnaround. Now, with a massive Cable Beach project set to launch in the first quarter of 2011, the construction industry feels some relief, while hotel operators watch the new development with some trepidation. Meanwhile, politicians and local workers have to contend with several thousand Chinese workers coming to the country to build the resort.
According to the Baha Mar developers, the project is planned to comprise six hotels with approximately 3,500 rooms and condominiums, the largest convention centre in the Bahamas encompassing 200,000 sq ft, a 100,000 sq ft casino which would be the largest in the Caribbean, an 18-hole golf course, twenty acres of beach and water parks and a 60,000 sq ft retail village.
Too much competition?
All this will not only put Baha Mar into direct competition with other Cable Beach resorts, but also with the famous Atlantis hotel, resort and casino. A question asked by many in Bahamas is whether New Providence and its sister island Paradise Islands will be able to sustain two massive tourism developments and casinos.
Robert Sands, Baha Mar’s vice-president of external and government affairs, insists that Atlantis and Baha Mar will be targeting two distinctly different markets. “We consider Atlantis to parallel Orlando, while we will in fact parallel Las Vegas. We will be children friendly but adult focused,” he told the Rotary Club of West Nassau during a lunchtime speech in November.
He also believes the Bahamas will able to accommodate additional room inventory. Although Baha Mar will add about 3,500 rooms to the total room count of 14,000 to 15,000 for the entire Bahamas, he said 700 of those rooms currently exist at the Sheraton and 550 exist at the Wyndham. This would mean the total of new rooms being built would amount to 2,200, while the net amount of “incremental new rooms coming to the market would only be 1,550”, Sand said.
Atlantis developer and owner Sol Kerzner disagrees, fearing that Baha Mar will over-saturate the market. “Last year was a tough year and occupancy was under pressure. Well guess what, this year is even tougher. So it seems pretty ridiculous to me that these folks are wanting to move forward,” he said, after the development was confirmed. “At the very least” the development should be “phased in over many years”.
This is however, not planned by the Baha Mar developers and financiers, who announced the start of construction for the early this year and aim for completion in 2014.
“When this opens sometime in 2014, we are satisfied that because of the recession there is no meaningful resort development going on anywhere in the Caribbean in the last three years, or forecasted for the next four years, so the room inventory will remain the same,” said Sands. “So we have the benefit of that.”
He also anticipates that by then the Bahamas and the world economy will have emerged from the recession and Baha Mar should be in a position to take advantage of that upswing.
Beyond the economic viability of the development, which, according to Kerzner, has been less of a focus than jobs, the Atlantis developer also criticised the conditions offered to the Baha Mar developers by the Bahamian government, stating it would give Baha Mar a better deal than Kerzner International received for building Atlantis.
If true, this would violate a ‘most favoured nation’ clause in its Heads of Agreement with the government, which implies that no other developers should be granted more favourable terms.
Kerzner’s complaint focuses specifically on the ratio of Bahamian to non-Bahamian construction workers.
“Among the many requirements that the government imposed (on Kerzner International) was a strict rule that at least 70 per cent of the total construction labour force would be Bahamian,” Kerzner said.
The conditions offered to Baha Mar would see up to 5,000 Chinese construction workers at any one time working on the project, approximately half of what is required. In total the government approved 8,150 work permits for foreign construction workers.
Bahamian Prime Minister Hubert Ingraham was quick to express his high regard for Kerzner and how the developer had transformed the Bahamas tourism industry since he arrived in 1994. Ingraham pointed out that Atlantis had provided 2,000 more jobs than initially promised and he would “not knowingly give anybody else a better deal than Kerzner got”.
How the government will resolve the issue remains unclear as the outcome of a meeting between Kerzner and Ingraham in December has not yet been disclosed.
Kerzner International meanwhile announced that Phase IV of Atlantis would not go ahead in the near or medium term and warned that some of the 8,000 Atlantis jobs would be at risk from the Baha Mar project.
The issue of more than 8,000 Chinese workers thrown into the local economy at least initially looked like a hard sell on the Bahamian public. Earlier in 2010, China’s Export-Import Bank agreed to arrange $2.5 billion in financing and Beijing’s state-owned China State Construction and Engineering Corporation signed on as the general contractor and invested $150 million in “non-convertible” preference shares in the project.
It is important that the general contractor “has skin in the game”, said Sands, “to ensure the resort is built on time, to budget and quality expectations”.
It also meant that the Chinese had some leverage to impose the use of Chinese workers.
Yet, after a trip to China in October Ingraham announced that the Chinese project partners had allowed an additional $200 million in contracts for Bahamian contractors and more than 4,000 local construction jobs. Moreover, $8 million would be spent on training programmes for Bahamian workers. Shortly after the Baha Mar labour resolution was passed unanimously before the House of Assembly (36 voting in favour with four absent), that enables the developers to hire 8,150 foreign workers, but no more than 5,000 at one time to be employed on the Baha Mar Cable Beach project.
It appears that concerns over an influx of foreign workers expressed earlier by the country’s opposition were dissuaded given the economic pressure that the Bahamian construction industry is under.
In addition to at least $8 million in work permit fees, several thousand new workers should also result in spin-off effects for the local economy, politicians have argued, although Chinese workers will likely be paid minimum wages and the majority of their pay cheques will stay in China.
The Baha Mar developers believe in the first year of operation an additional 400,000 visitors will visit the Bahamas, resulting in $1 billion extra spending for the Bahamian economy. The average employee family will see its income increase by $4,000 per year.
If the Bahmanian hotel industry can sustain 2,000 to 3,000 new rooms and two large casino resorts can exist profitably side-by-side remains to be seen. But irrespective of whether the luxury tourism pie increases or is just shared in a different way, the Bahamian construction industry will be granted some relief.