Beaches and blockchain: how the Bahamas is looking to the future

Sea, sand, sun – and silicon.  That’s the mantra the Bahamian government would like investors to memorise as it gears up to make the Bahamas the “new Silicon capital of the Caribbean”. The strategy aims to create a technology hub on the islands that will attract foreign and domestic entrepreneurs with innovation in mind.

The strategy’s first goal is ambitious – to establish the Bahamas as a global centre for blockchain, cryptocurrency and financial technology companies. The government targeted blockchain because it views companies that adopt it as pioneers of a new wave of world-changing solutions – the kind it wants to attract.

Diversifying from tourism

The aim is to make technology investment a 'third pillar' for the Bahamian economy, which currently relies heavily on tourism and financial services. It will also provide new employment opportunities for young people, many of whom now leave the country to pursue careers elsewhere.

“There are real opportunities for data centres, blockchain technology, data protection and security, business incorporation centres and technology corporate headquarters and conferences,” says Bahamas minister of state Kwasi Thompson.

The designated hub is Freeport. It is the second largest city in the island chain and a major business centre that is also a free-trade zone. Mick Holding, president of the Grand Bahama Chamber of Commerce, says it backs the government’s strategy, adding that Freeport is an attractive destination. “We are a tax-free zone, with no import duty, no company taxation and no income tax for employees,” he says. “The country is very stable politically, it has been independent for 45 years, and the people are very friendly."

Mr Thompson says the government has already taken steps to make its dreams a reality by recently passing the Commercial Enterprises Act, which is designed to attract technology entrepreneurs and investors to the Bahamas. Among the first to bite was New York-based GIBC Digital. The act is now being amended to allow financial technology companies that locate their global headquarters in the Bahamas to benefit as well.

Mr Thompson adds that the government is also working to complete a regulatory framework for cryptocurrencies, initial coin offerings and exchanges. “We are focused on diversifying our regulatory and legislative framework to allow for innovations in financial service offerings that are based on blockchain technology,” he says.

On the fast track

To attract US H-1B visa holders in hi-tech industries who will be forced by a Trump administration clampdown to leave the US when their visas expire, the Bahamas is weighing up a new BH-1B work permit that would fast-track applications to enter the country.

The government will also provide free tuition for students entering degree programmes in IT. It has also pioneered in the Caribbean a 'Blockcert' programme that uses blockchain technology to provide globally verifiable digital certificates to graduates of its workforce training programmes.

Mr Thompson says the efforts have already attracted inquiries from investors interested in establishing both traditional and blockchain-based technology companies in the country. “There is strong interest in providing Bahamas-based initial coin offerings, as well as setting up exchanges that would allow for trading of cryptocurrencies and tokens,” he adds.

Blockchain could also serve as the foundation for a national digital currency. September 15 was the deadline for expressions of interest in supplying “blockchain or other robust technology solutions” for a central bank-issued digital currency system – “a secure, reliable platform for a digital version of the Bahamian dollar”. The selected solution is to be piloted in one of the country’s smaller islands within 30 months before going nationwide.

Boosting inclusion

Central bank governor John A Rolle says the digital currency initiative “is a financial inclusion, anti-money laundering and economic efficiency prospect”. With a population of just 400,000 scattered over 21 inhabited islands, residents outside the Bahamas' more densely inhabited areas often lack access to banking services. The hope is that a digital currency would reduce service delivery costs and improve financial inclusion.

By reducing the use of cash, the bank also hopes to prevent money laundering, terrorism financing and other crimes. In May it was removed from an EU blacklist of secretive tax havens. However, it remains on a 'grey list' of jurisdictions that are not transparent but working to improve their transparency.

Several global banks have cut correspondent banking relationships with Bahamian banks to reduce the risk of facilitating money laundering, criminal activity or violating international trade sanctions – but this has also led to some Bahamian residents being cut off from access to credit, trade finance and other bank services.

The Bahamas hopes a fully traceable digital currency will banish this reputation and reduce domestic banks’ dependence on correspondent banks. “The Bahamas is no longer in the business of hiding money from international tax authorities,” says Mr Rolle.

Getting regulations right

Still, the digital strategy involves risk, according to Robert Williams, the author of reports on blockchain and digital currencies for the Economic Commission for Latin America and the Caribbean, a UN agency. Now a US-based consultant, Mr Williams says there’s room for the Bahamas to be a centre of customer service for companies with new blockchain products that need support. But he contends there are older, off-the-shelf technologies that are better than blockchain for achieving the country’s monetary goals, such as Apple Pay or the services of telecommunications companies. 

“Blockchain is one technology with unique qualities and limitations. The issue is not which technology is picked, but that the regulatory framework is appropriate,” says Mr Williams. He believes customers could find the buying and selling of digital currencies expensive and not cost-effective, especially with increased regulatory oversight.

He is also concerned that shady operators could take advantage of a small country for illegal purposes, but says this could be an opportunity for the Bahamas to put in the necessary regulatory processes and become a centre of regulatory technology.

The government is betting on its proximity to the US and the low cost of business to attract new companies, according to Joel S Telpner, a partner in law firm Sullivan & Worcester and an expert in blockchain who attended the conference launching the government strategy. He says that because blockchain is a distributed ledger technology, staff need not be in the Bahamas to make it work and can collaborate from anywhere in the world, though a core talent pool is needed. It is also less capital intensive than other sectors.

“Compared with other small emerging markets, the Bahamas has a pretty highly educated workforce, is English-speaking, is neither a rich nor a poor country, and has pretty good infrastructure. That’s not a bad story,” says Mr Telpner.