The continued decline in natural gas and oil production signals that hydrocarbons are stalling as T&T’s economic growth engine. The mid-year budget review confirmed that natural gas prices are 40 per cent below the 2024 budget projections.
Nevertheless, the IMF 2024 Article IV report indicated that growth should be about 2.4 per cent. Recently. The Central Bank has also indicated “modestly” favourable prospects of economic growth for 2024.
Is this growth sustainable, and where will future growth come from?
Economic growth is simply an increase in the size of GDP. Between 2021 and 23, increased natural gas and petrochemical prices led to “growth” despite falling production, a temporary phenomenon.
Price movements are cyclical, volatile, and an unstable springboard for an economy. Given the comments from the energy and finance ministers, the emphasis seems to be that we should double down on dependence on the energy sector by working on the cross-border Manatee project and the Dragon project across the border in Venezuela waters.
While this may be an important transitional measure, it is not a strategic long-term response. Ultimately, hydrocarbon resources are a wasting resource and cannot be replenished. Inevitably, production from the Dragon and Manatee fields will eventually decline. Production declines can only be offset by continuous successful exploration which means continued dependence on multinational energy companies in an unequal arrangement. Furthermore, given the impact of global warming, the world is also reducing its dependence on hydrocarbon usage.
The sky will not fall in tomorrow, but there is a narrow window of opportunity to plan and implement alternatives. T&T’s economic survival requires a transformation over the medium to long term, a different set of economic activities to facilitate economic growth and development.
Ultimately, economic development is a higher-order condition than economic growth and is defined as a sustained improvement in the material well-being of society. It refers to the capacity of a country to survive and grow on its own and is dependent on the ingenuity, capacity and productivity of its people. This cannot be achieved without productive work, training, and technological capacity. It requires social, cultural, political and economic change to contribute to material progress.
It includes improvement in the rate of capital formation, in size and composition of population, in technology, skills and efficiency, and institutional and organisational set-up. How can this be achieved? At independence, it was thought that manufacturing would ignite development using learn-by-doing as advocated by Arthur Lewis. Manufacturing was considered important because it absorbed unskilled labour and helped train the labour force with new skills. It also brought new technology and helped countries to be more productive.
Exporting products so produced was also profitable. However, the early efforts at manufacturing in T&T using the “industrialisation by invitation” model were unsuccessful.
The rapid development of the Asian Tigers demonstrated that manufacturing industrial products for export was both possible and profitable. T&T revamped its approach to industrial manufacturing using “cheap” natural gas to attract foreign direct investment. This led to the Point Lisas project and the development of the manufacturing capacity on the estate in the form of ISCOTT and the petrochemical manufacturers. This approach became the focus of our industrial development for many years based on natural gas until the decision to divert natural gas to the development and export of liquified natural gas in 1995.
One reason why the LNG and the petrochemical sectors did not transform the domestic economy is that they are not integrated with the rest of the economy. They are capital-intensive and require highly trained and skilled operatives and the trickle-down effect is limited.
Whilst these segments have made a significant contribution to the country’s economic growth and deepened skill levels, it has not led to a high level of employment or development. Now that gas production has declined sharply, approximately half the petrochemical plants are closed and the expansion of this sector is now at an end. The same is true of the LNG trains as Train 1 is closed, and the other trains are operating below capacity.
Supplementing the domestic gas supply with gas from Manatee and Dragon will not deliver enough gas to replicate the high production of the past. It will keep the sector operating for some time. Ultimately, T&T must work towards developing other growth engines that will have a wider impact on the economy leading to development, not just growth.
The redistributive model employed by successive governments, that is distributing tax receipts from the energy industries to the rest of the economy by way of transfers and subsidies has neither developed nor transformed the economy. Instead, it has been dysfunctional, raising expectations and cementing dependence on the state without improving productivity.
Changing this dynamic requires a different approach to the education and training of nationals to cope with the more competitive demands of transforming an economy. Whilst non-energy manufacturing has expanded, T&T’s ability to compete internationally is limited by its small resource base and population. At 1.5 million people, T&T is not large enough to become a dominant world player.
Our leaders and planners must re-envision a future that incorporates the export of services as an alternative to hydrocarbon exports. Digitalisation is not just about improving the government’s efficiency. It is about a new approach to engage the business world.
Mariano Browne is the Chief Executive Officer of the UWI Arthur Lok Jack Global School of Business.