“Although the T&T economy has achieved very high growth rates it has never been able to do so over a sustained period. In fact, given that the economy is still dominated by the energy sector, shocks in this sector have a dramatic impact on the entire economy —particularly, exports, government revenue and ultimately growth. The economic strategy must therefore address this fundamental issue: the need for the development of other growth centres, to achieve a broad-based economy where the structure of production is more balanced and where the country is to some extent insulated from economic shocks generally from outside.”
The above is from the operational plan 2007/2010 of the Vision 2020 document.
The risks to the economy posed by fluctuating commodity prices are perhaps more relevant today than they were in 2007 when the Vision 2020 plan was expected to be operationalised. That is because there has been no fundamental shift in the economy of T&T in the last decade.
What has in fact happened is that government spending has increased dramatically with transfers and subsidies growing to unsustainable levels. In addition, the swings in commodity prices have not resulted in windfalls for at least the last seven years and the advent of shale oil and gas have fundamentally changed the market.
Natural gas has become ubiquitous globally and T&T’s place in the international LNG market has been negatively impacted, both in terms of its influence and its ability to get high prices for its cargoes; as the US market turned sour and even the arbitrage in the Asian market has been significantly reduced due to the impact of recent lower demand in China and Japan.
In February, the world’s largest natural gas exporter Qatar announced it was delaying, by several months, its choice of Western partners for the world’s largest liquefied natural gas (LNG) project and there is speculation that the decision to delay was made based on current market fundamentals and the still unclear impact of the coronavirus.
International expansion in Australia, Qatar, Mozambique and Egypt, combined with a continuously strong US shale gas export drive have pushed down prices further.
The challenge to the country’s main source of revenue has been exacerbated as the collapse in the price of LNG has been relatively mild compared to what has happened to oil and petrochemical prices.
The story of the US marker, West Texas Intermediate collapsing last month to below zero dollars was unimaginable and methanol and ammonia prices have been hammered.
T&T is a major exporter of methanol and ammonia and the sector contributes in excess of $5 billion to the country’s gross domestic product according to a study dong by Economist Dr Terrence Farrell, and therefore its challenges that have now led to a call for temporary relief from high natural gas prices is a direct outcome of the collapse of commodity prices.
I say all of this so that we understand the context in which the Roadmap to Recovery committee set up by the prime minister in response to the economic crisis caused by the shut-in of demand in the global economy was established.
I think it is fair to say the country understands that these are extraordinary times that require the highest quality of leadership from all, politicians, business, labour, civil society and citizens.
No country in the world has escaped the negative impact of the novel coronavirus on its economy and small vulnerable states like those in the Caribbean countries are expected to pay a disproportionate price for it.
This is why the resignation of the co-vice chair of the committee Robert Le Hunte has brought about so much angst amongst those finally hoping for a change in the fortunes of T&T and for the country to see that diversification of its economy is the only way for sustainable growth.
I have previously pointed out in this space that the country failed when it did not implement the vision 2020 document and allowed party politics to trump what was a truly national effort.
We have come full circle and in so many ways we are worst off than in 2007. Oil and gas production are both significantly down from those days. Prices are much lower, our balance of payment position was much worse, we did not have a foreign exchange crisis. Business confidence was at an all time high and the offshore economy was booming.
To be sure the implementation of the entire plan would have been difficult as it would have required annual growth rates at close to nine per cent to become a developed country by this year but the problem is we never even gave it a real chance of success.
Even then there were warning signs, and the then Patrick Manning government had promised to take action.
The Vision 2020 report warned: “The increase in the fiscal deficit has large extent resulted from an increase in Government’s investment in social and economic infrastructure and in transfers and subsidies, and a downward revision of the non-energy tax regime. The strategy to reduce the non-energy deficit will involve the following:
• measures to increase non-energy output through increases in productivity,innovation and the infusion of new technologies
• promoting the entry of new businesses into the non-energy sector
• assisting firms operating in the business sector to explore new export markets
• reviewing subsidies and transfers with a view to better targeting and rationalisation.”
We only have to look at our budget to see that transfers and subsidies have now become almost half the value of the national budget.
The issue of competitiveness was also raised way back in 2007 with the committee finding that to sustain growth and raise the standard of living there is a need to become more competitive.
“However, we must understand that countries do not compete, firms do. Countries do not create wealth; wealth is actually created at the micro level of the economy, rooted in the capabilities of a nation’s firms, small and large, as well as in the quality of the business environment in which these companies compete. Unless the competitiveness of firms improve, macroeconomic, political, legal and social reform will not bear full fruit. Building competitive firms is therefore the fundamental determinant of the level of prosperity. The Government will therefore enable competitive businesses, which can compete successfully in international markets by producing world-class products, brands and services,” the report read.
We have not done well as a country to implement studies and reports. We have not shown a capacity to bring ourselves out of challenging periods other than relying on the next oil or gas boom, both of which are not coming back anytime soon.
I have said, and I repeat, we have to focus hard on the energy sector but the model cannot be taking out as much out of the ground, taxing it as much as we can and producing primary products. It has to be about deepening the energy sector and linking it back to the manufacturing sector. We must not confine ourselves to the use of our own resources and must see the potential in importing molecules of gas if we need to so do.
This is not at the expense of the other sectors like manufacturing, tourism, creative sector, shipbuilding and in new areas that we have not yet thought about.
We must build a knowledge-based economy where there is a clear commitment from the state and private sector to science and research and development.
We must as a country think big, return to planning and to implementation. We must stop the destructive politics that says it my time now and if we cant have it we must be prepared to mash it up. How else can we explain the UNC’s decision not to support recent legislation in the Parliament and its continued refusal to vote for the Revenue Authority.
Politics is, in some ways, the greatest challenge the country faces, for the signs are not good from the present government about a willingness to take the hard and necessary decisions and the exit of Mr Le Hunte, who from all accounts worked tirelessly on the Road to Recovery team is worrying that the more things change the more they remain the same.