The Bahamas: A Complete And Compelling Choice May 2023

The Bahamas: A Complete And Compelling Choice A WealthBriefing Four-Part Mini-Series On The Bahamas Financial Services Industry EDITION 2

2023

INTRODUCTION

Towards A Future Of Carbon Credits And Systematic Investing Climate change is an existential threat to the islands of The Bahamas. Global warming is going to be a problem for the world in future, both physically in the form of displaced populations and economically in the form of disruptions to commerce. The world stands to lose around 10% of total economic value from climate change by 2050, according to the Swiss Re Institute, if its surface temperature keeps increasing on the current trajectory and if governments fail to conform to the Paris Agreement and to 2050 net-zero-emission targets.

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Despite this, global warming has resulted in a marriage between climate and finance and thus is likely to create economic opportunities even as it creates vulnerabilities. This is especially true in The Bahamas, whose natural resources can be put to work to trap carbon safely. The government is planning to monetize its seagrass meadows, salt marshes and mangroves and develop a blue-carbon credit regime. It has passed two laws – the Climate Change and Carbon Initiatives Act 2022 and the Carbon Credit Trading Act 2022 – to allow for well-regulated trading in a new asset class consisting of carbon credits, carbon securities and carbon-linked digital assets. In this, our second mini-report in this year’s series, we look at the opportunities that this turn of events might generate for The Bahamas.

Meanwhile, more and more international HNW investors are using state-of-the-art trading platforms located in the jurisdiction. They are turning in increasing numbers to systematic investing, an approach that emphasizes data-driven insights, scientific testing and disciplined portfolio-construction techniques. Gone are the days when international private investors – overwhelmed as they are by mountains of data – could navigate volatile markets safely without recourse to brokers’ and platforms’ analytical tools.

Diversification remains the key to the construction of more robust portfolios. Over the rest of this year, as our report illustrates, HNWs’ investment strategies might take account of the comeback of mega-cap stocks, breakthroughs in carbon-capture technology and an upswing in the commodities super-cycle. HNWs with moderate risk appetites are also profiting from today’s erratic markets by allocating some of their investment portfolios to hedge funds, many of them in The Bahamas.

Our report also contains a shopping list of tips to help the investor reduce the risk of ending up in the clutches of a dubious broker.

There are no prizes for guessing the most important tip of all – the choice of jurisdiction, with an emphasis on good regulation.

The Bahamas: A Complete And Compelling Choice 2023

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ADVERTISING SUPPLEMENT

Beyond Natural Beauty: The Carbon Credits Market And The Bahamas * Antoine Bastian, CEO of Genesis Fund Services Limited

The Bahamas, whose surrounding waters are a natural carbon sink, intends to be the first country in the world to trade blue-carbon credits.

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t has been a privilege for me to grow up in The Bahamas and enjoy the crystal-clear, aquamarine waters as a child and now I continue to marvel at its beauty on my daily drive to work. The idyllic, pristine, white, sandy beaches at Cape Santa Maria in Long Island and the Tropic of Cancer Beach in Exuma have often filled me with wonder at The Bahamas’ natural assets and resources. The value proposition of The Bahamas has never truly envisaged the oceans, seas, mangroves and marsh lands contributing directly to the nation’s GDP by themselves and creating a blue economy.

Rather, the perspective has always been that the true value of The Bahamas’ natural beauty, embodied in its white sandy beaches and its balmy breezes, is hitched inextricably to the tourism sector. Today, however, with the climate crisis top of mind, the seagrass meadows, mangroves and salt marshes of The Bahamas may well be the cause of a considerable uptick in the Bahamian economy, with global implications for challenges posed by carbon emissions.

conferences of parties on the subject of climate change, forms the foundation of the Paris Agreement, which attendees at COP 21 struck in 2015. Nearly 200 countries have now signed it. Article 6.4 of the agreement provides for a global platform for the trading of emission reductions by all states and the United Nations’ Carbon Offset Platform is in line with it. Its aim is the avoidance and removal of greenhouse emissions from the atmosphere through projects in the developing world.

With this in mind, The Bahamas’ Climate Change and Carbon Initiatives Act, 2022 now provides a regulatory framework for the accreditation of – and transactions in – blue-carbon credits. The Bahamas has also enacted the Carbon Credit Trading Act, 2022; this legislation now enables the Securities Commission of The Bahamas to regulate the trading of the carbon credits, carbon securities and carbon-linked digital assets that make up this new asset class. While the current legislation allows entities or individuals to manage the monetization of blue-carbon sales or trading, the seagrasses, saltmarshes and mangroves remain the property of the Government. In its current arrangement, 92.5% of all proceeds after operational costs will go to the Government of the Bahamas.

OPPORTUNITY KNOCKS!

SUN, SAND, SEA AND SCIENCE Recent scientific research suggests that there are up to 92,000 square kilometres of seagrass meadows in Bahamian waters, storing billions of tons of greenhouse gases (CO2e). In fact, by some estimates, The Bahamas is believed to have at least 30% of the world’s seagrass-meadow habitat. Although it is not a helpful thought for sea bathers and sea waders, much of this came to light through surveys that used cameras on the backs of tiger sharks. As a result, some further ground truthing has convinced the Government of the Bahamas that a new, revolutionary, economic, social and environmental model can be brought to fruition through the monetization of its blue natural assets and the development of a blue-carbon credit regime.

“The Bahamas is believed to have at least 30% of the world’s seagrass-meadow habitat” The UN Framework Convention on Climate Change (UNFCCC) of 1992, which obliges signatory countries to attend regular COPs or

The economic opportunity for The Bahamas with regards to the carbon credit market is not only promising; the sale of blue-carbon credits could have a revolutionary impact. As the world heads towards a carbon-dioxide reduction of 1.5 degrees, The Bahamas’ nature-based global, institutional offering of blue-carbon credits can potentially mean a “carbon wealth”, all owned by the Sovereign, with a value in excess of $50 billion, and generating revenues in the hundreds of millions per annum.

“The sale of blue-carbon credits could have a revolutionary impact” According to the preliminary maps and core samples already produced by Beneath the Wave (the group of marine scientist overseeing the project), the current seagrass meadows of The Bahamas, having regard to the trajectory of their decline (i.e. net of degradation) and additionality (i.e. possibility of expansion) could, at the outset, make at least 2.5 million carbon credits available in The Bahamas for the market as early as 2024 and up to 10 million carbon credits may be available on the voluntary market by 2030. Most analysts think

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The Bahamas: A Complete And Compelling Choice 2023

that the estimated price for carbon credits will be around US$90, or greater, per credit by 2030.

Admittedly, the prices of carbon credits in the voluntary market, which have varied from a few dollars to over US$100 per ton, have also been volatile and they are predicated on many other difficult factors, including the nature of the project, the verification factors of additionality, the transparency of the project and, more importantly, the actual impact in the communities of the project.

AN ENVIRONMENTALLY CENTRED AND INTERNATIONALLY FOCUSED JURISDICTION Although it has an economic upside of enormous potential, the Paris Agreement is keenly focused on the impact on society (including the ways in which countries adapt to and mitigate climate change) of the overall reduction of greenhouse gases and the sale of any carbon credit in the voluntary market.

The process is wrapped around each country’s National Determined Contribution. NDCs are at the heart of the Paris Agreement and are vital to the achievement of its long-term goals. An NDC represents policy and/or legislation submitted to the United Nations by each country to reduce national emissions and adjust to the impacts of climate change.

In this regard, The Bahamas has taken steps to meet these objectives by submitting to the UN its Updated Intended Nationally Determined Contribution (NDC) and The Bahamas’ First Biennial Update Report to the United Nations Framework Convention on Climate Change (BUR).

Together, they form the basis for The Bahamas beginning to install two railway tracks – a rail for economic success but also a rail to impact the environment.

The Paris Agreement stipulates that each party must prepare, communicate and maintain the NDCs that it intends to achieve. The Bahamas NDC provides a fundamental framework that will evolve and develop.

It clearly articulates the commitment of The Bahamas to achieving the UN’s published sustainable development goals. Carbon credits in the voluntary markets will not be successful if some of these goals are not included in the overall monetization plan; work has begun in The Bahamas to realise this objective.

GOALS FOR THE FUTURE In 2015 the UN also published 17 sustainable development goals (SDGs) to transform our world, which are as follows.

GOAL 1: No Poverty.

GOAL 2: Zero Hunger.

GOAL 3: Good Health and Well-being.

GOAL 4: Quality Education.

GOAL 5: Gender Equality.

GOAL 6: Clean Water and Sanitation.

GOAL 7: Affordable and Clean Energy.

GOAL 8: Decent Work and Economic Growth.

GOAL 9: Industry, Innovation and Infrastructure.

GOAL 10: Reduced Inequality.

GOAL 11: Sustainable Cities and Communities.

GOAL 12: Responsible Consumption and Production.

GOAL 13: Climate Action.

GOAL 14: Life Below Water.

GOAL 15: Life on Land.

GOAL 16: Peace and Justice Strong Institutions.

GOAL 17: Partnerships to achieve the Goal.

POTENTIAL IMPACT ON THE BAHAMAS Although this article cannot predict with any certainty how proceeds from the sale of carbon credits, if sold, will be spent, Goal 2 – which addresses the need for food security and the improvement of nutrition and sustainable agriculture – should be a priority. The Bahamas National Pathway for Food Systems Transformations, prepared by the Ministry of Agriculture and Marine Resources, sets out some bleak and worrisome facts about the nature of the Bahamas’ food imports.

The islands import 90% of all food items. Capital injections for the development of efficient farms or for the purchase of very costly farm machinery and highly-efficient farm solutions are a priority for The Bahamas. The successful sale of blue-carbon credits in the global market can transform the very nature of agriculture and aquaculture by adding capital inflows generated by the sales. This might automatically reduce the islands’ need to import food and to use foreign currency to do so. Innovations, cleaner methods and greater efficiency on farms can eliminate the old methods of slash and burn, thus reducing emissions of greenhouse gases. The development of modern agricultural practices is paramount for the building of a sustainable and self-sufficient country, but this requires large capital funding.

“Innovations, cleaner methods and greater efficiency on farms can eliminate the old methods” Goals 14 and 15 are also important. They are a critical way of ensuring that the prices in the voluntary carbon market of The Bahamas’ carbon credits are hitched to substantive adaptation and mitigation programmes. The BUR and the NDC reports suggest that there is a lack of financial and technical support for the continuation of ongoing mitigation and adaption policies; these are essential for the Bahamas’ efforts to help improve the global climate. While legislation exists to improve the natural assets of the Bahamas, like the law that bans commercial shark fishing and the selling and trading of shark, or the law that bans long-line fishing and fishing for turtles or stingrays, it is difficult to fulfil the aims of the NDC without major funding.

Furthermore, the commitment to monitor, enhance and add more nationally-protected areas like The Exuma Cays Land and Sea Park (established in 1958) requires large funding. The ideology of conservation is a critical and a meaningful precondition for the monetization of carbon credits in The Bahamas. Again, some ongoing funding for a generational endeavour in this area may be made possible through the proceeds and the sale of the Bahamas’ blue-carbon credits.

The Bahamas’ plan to help the world to mitigate climate change and reduce greenhouse gases is an expensive venture for a nation of approximately 400,000 people. The World Bank’s designation of The Bahamas as a “high-income, developed country” eliminates the country from certain environmental funding for climate adaption and mitigation. During the period between 2010 and 2020, The Government of the Bahamas had financial inflows to use towards the adaption and mitigation of climate change of approximately $154 million.

Of this, approximately $50 million was earmarked from domestic

The Bahamas: A Complete And Compelling Choice 2023

taxes and other government sources of funding. This statistic is sobering and shockingly small.

A TRANSFORMATION IN THE MAKING The Bahamas is keen to persuade many of its citizens to leave their jobs in tourism, which accounts for more than 50% of GDP, for careers as stewards of the seagrass meadows, mangroves and pine forests (which are regenerating gradually), or simply as custodians of the country’s plethora of natural assets and its environmental biodiversity. The destiny of The Bahamas is bound to change if the programme to monetize blue-carbon credits is successful. The image of pleasure boats or majestic cruise ships laden with excited tourists sailing through Bahamian waters is likely to be joined by another image – one of ships full of environmentalists taking part in the global endeavour to lower greenhouse gas emissions, slow down the process of global warming and save the planet from a climate catastrophe.

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The success of the blue-carbon project in The Bahamas could be part of a global success story. We must wait and see whether The Bahamas transcends its natural beauty to become a forerunner in the blue-carbon market and a leader in the global crusade to reduce greenhouse gases. * Antoine Bastian can be reached on +(242) 502 7020 or at info@genesisfundservices.com

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The Bahamas: A Complete And Compelling Choice 2023

ADVERTISING SUPPLEMENT

Investment Strategies That Use Systemic Research - An Example Of Technology Affecting Business *By Chris Illing - Honorary Consul of the Federal Republic of Germany in The Bahamas at ActivTrades, Promoters of Market Democracy

To take advantage of today’s volatile markets, HNWs can rely on state-of-the-art trading platforms. In these, The Bahamas excels.

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ho would h a v e thought that when the Corona pandemic subsided, we would fall into the next crisis mode? The Ukraine conflict has shaken the global community to its core and has brought the most violent atrocities of war back onto the map of Europe. The associated increase in energy prices is partly responsible for the return of inflation, which we thought was dead, and which is still on our minds to this day.

Systemic research is one answer to the problem. It involves an analysis of the interconnected relationships between different factors such as economic trends, industry performance, market conditions and government policies. By looking at the larger picture, the educated investor can gain a deeper understanding of the risks and opportunities that the different markets and industries face and develop his or her investment strategy. Investment strategies that are formed through systemic research can help the HNW retail investor make better-informed decisions by considering the broader economic and social context in which companies operate.

“Systemic research can help the HNW investor make better-informed decisions” Technology is one major factor that affects businesses. The ways in which companies communicate, operate and compete in the different markets is changing. One example of this is the rise of digital payment systems and E-commerce platforms. With their introduction, companies can now reach new clients and new areas worldwide. At the same time, advances in Artificial Intelligence (AI) and machine learning are allowing companies to gain new insights into customers’ preferences and behaviours. This leads to targeted and more personalized marketing strategies.

Every investor in the financial markets – whether private or institutional – is confronted with an unmanageable amount of information.

With a realistic self-assessment, he quickly realizes that he cannot process and condense this wealth of information to make successful investments on his own. If he wishes to understand what is driving the performance of a portfolio, it makes sense to look at the factors and their application.

IF THE INVESTOR ASSESSES HIMSELF The investor can use a wide variety of factors as filters to screen available company and price data to look for markets in which to invest.

Systematic investing is an approach that emphasizes data-driven insights, scientific testing and disciplined portfolio construction techniques on the hunt for varied portfolio outcomes.

The mid-cycle environment in which we find ourselves still offers a positive environment for riskier investments and HNWIs with moderate risk appetites remain invested. The exact rate of inflation and growth is unknown and probably will remain a controversial topic in the coming months; volatility can be expected to persist. Diversification remains the key to the construction of more robust portfolios.

For this purpose, investors might also consider the partial allocation of their investment portfolios into hedge funds.

WHAT DOES THE IMMEDIATE FUTURE HOLD? Aside from macroeconomic trends, a variety of factors is driving general asset allocation. The fiscal priorities of individual states are likely to centre around investments in infrastructure. Investors should keep the fields of biotechnology, artificial intelligence and equipment under careful observation.

“Diversification remains the key to the construction of more robust portfolios” However, in 2023 and beyond, the topic of environmental sustainability will probably dominate some investment strategies. The earth

The Bahamas: A Complete And Compelling Choice 2023

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needs help. The most recent natural disasters around the world show that climate change is top of mind and the urgency of addressing it, on a scale of 1 to 10, sits at 9.9. It is a real problem and everyone must do their part to avert what scientists have dubbed “the sixth mass-extinction event.”

Convergence Divergence) and the Stochastic Oscillator. Traders often use a combination of technical indicators in their analyses.

Investment ideas that could drive markets in 2023 include the comeback of mega-cap stocks, breakthroughs in carbon-capture technology and the upswing in the commodities super-cycle. The savvy investor should diversify his portfolio by investing in a range of companies in different industries. This will reduce his exposure to the risks associated with a disruption in any one sector. He should also keep a close eye on regulatory developments. By staying informed about regulatory changes, he can spot risks and adjust his investment strategies accordingly.

“The savvy investor should diversify”

IT TO THE RESCUE To take advantage of the volatile markets, traders can rely on state-ofthe-art trading platforms. There are many of these on the Internet on which speculative investors can trade in various financial products.

These include stocks, bonds, ETFs, currencies, cryptos and derivatives. Unfortunately, not all operators of such trading platforms are reputable across the board. Traders need to be diligent when making their selections.

“The country in which the broker is regulated should be of the utmost importance to every trader” The best trading platforms should give the investor a wide selection of indicators and trading tools to help him analyze a specific instrument. For example, technical chart indicators can help him to assess the market and provide him with an overview of price developments in graphical form over time. They identify trends, support and resistance levels, thereby enabling investors to find the right times at which to make buying and selling decisions. Indicators that show trends are called trend indicators or trend followers. However, some of the most-used technical indicators are: Moving Averages, Bollinger Bands, the Relative Strength Index (RSI), MACD (Moving Average

Even more important than the user-friendliness of the platform is the seriousness of a trading platform or the corresponding broker.

A trader can recognize a legitimate broker if the company is licensed and regulated by a reputable financial authority (such as the Securities Commission of the Bahamas) or if it offers client fund protection, knowledgeable and reachable customer service and segregated client accounts.

The country in which the broker is regulated should be of the utmost importance to every trader. As seen during the fall of a well-known crypto-exchange in late 2022, multiple international liquidators must sort through the chaotic aftermath of such a collapse and work handin-hand with each other. In the case of FTX, the main US liquidator praised the Bahamian Securities Commission for taking swift action to protect the digital assets that the crypto-giant held from being hacked and stolen.

If you focus on the points we have mentioned, you will reduce your risk of ending up with a dubious broker, thereby losing part of your capital or bearing excessive costs related to your investment decisions and/or strategies.

Systemic research is essential for all investors who want to capitalize on the opportunities in the various market segments. By analyzing the broader economic and social context in which companies and clients operate, the investor can develop more effective strategies that are better aligned with the changing realities of the business world. * ActivTrades can be reached on +1 242 603 5200 or at englishdesk@activtrades.bs