The $3.5 billion Baha Mar resort — the largest such project in the Caribbean — was supposed to lift the Bahamas’ tourism industry to new heights. Instead, due to delays and bankruptcy proceedings, the envisioned “Bahamian Riviera” is foundering, and threatens to drag the Bahamas’ economy down with it.
Once again, the painful lessons of the Bahamas may prove instructive to the Cayman Islands. We will refrain from delving into specific culpabilities because the complex matters are currently being untangled through the court system. Generally speaking, though, the Baha Mar quagmire demonstrates the danger that presents itself when a government entwines its goals for the common welfare with the outcome of a single development, over which it has no real control.
Put another way, “social engineering” and “civil engineering” do not always mix.
In order to illustrate the magnitude of Baha Mar and its potential impact (negative or positive) on the Bahamas, let us sketch out some rough figures:
- The population of the Bahamas is 380,000, about seven times larger than Cayman
- The tourism industry accounts for nearly half of the Bahamas’ economy, about double the share of the tourism sector in Cayman
- The completed Baha Mar project, including four new hotels, another renovated hotel and a casino, would have nearly 3,000 rooms — 10 times that of The Ritz-Carlton, Grand Cayman
- The construction cost of Baha Mar is $3.5 billion (and rising) — more than 10 times the estimated cost of the Dart Group’s Kimpton hotel on Seven Mile Beach.
The key players in Baha Mar are a Bahamian developer who has been pursuing the resort for more than a dozen years, Chinese government-owned construction companies, the Export-Import Bank of China, and Bahamian public officials, who have enmeshed themselves in the project from beginning to end by granting concessions, insisting on the inclusion of Bahamian workers, petitioning to place Baha Mar’s affairs under control of Bahamian courts rather than U.S. courts, and even, lately, paying the salaries of some 2,000 Bahamian workers at Baha Mar (but not to expatriates, primarily temporary laborers from China).
With a reported 97 percent of Baha Mar built, but construction stymied for the near future, rating agency Standard & Poor’s downgraded the country’s credit rating to just a hair above “junk bond” status, and forecasted a “negative” outlook for the country’s economy.
The downgrade resulted merely from the anticipated delay of Baha Mar’s opening (originally set for December 2014) until after the Bahamas’ high tourism season this December, not from any expectation that the project will fail outright. That is a further indication of just how much risk the Bahamas has exposed its economy to in the pursuit of cashing in on Baha Mar.
Perhaps even more troubling is this: On the cusp of Baha Mar’s completion, observers, including S&P, remain unconvinced about the long-term viability of Baha Mar when it is operational, basically over concerns whether the mega-resort will generate enough demand to keep its rooms filled, if adequate airlift capacity can be created to bring the necessary number of tourists over, and also what impact Baha Mar may have on the nearby Atlantis resort.
To bring this topic back home, we in Cayman should feel fortunate that our country’s biggest developer — Dart — has the ability to self-finance its own projects, a decades-long relationship with Cayman and a spotless track record in terms of delivering on, and often exceeding, its promises. We should feel similar gratitude for the partnership between Dr. Devi Shetty’s Narayana Health and Ascension Health, who have brought us Health City Cayman Islands, which has the potential to diversify, and therefore strengthen, Cayman’s economy.
We must also give our public officials credit for, in the past and future, generally “keeping out of the way” — except to provide assistance and encouragement — when the private sector expresses an interest in investing in our islands. We hope that cautionary tales, such as those that continue to be spun in the Bahamas, can serve to help guide our officials to continue to pursue prudent courses of action in the future.