With the for­eign ex­change short­age plagu­ing T&T for over a decade, one econ­o­mist has sug­gest­ed that a more per­ma­nent fix to the struc­tur­al prob­lems of the mar­ket is to re­duce im­port in­ten­si­ty and speed up ef­forts at di­ver­si­fi­ca­tion, par­tic­u­lar­ly in the trade­able sec­tor.

The Sun­day Busi­ness Guardian took a clos­er look at what con­tin­ues to be a ma­jor prob­lem for busi­ness own­ers and the pub­lic in ac­cess­ing any amount of US cur­ren­cy.

Econ­o­mist Dr Dave Seer­at­tan iden­ti­fied the twin chal­lenges of rel­a­tive­ly low lev­els of eco­nom­ic di­ver­si­fi­ca­tion and few net for­eign ex­change-earn­ing sec­tors, which pre­dis­pose the econ­o­my to an im­bal­ance in the for­eign mar­ket where de­mand al­most al­ways ex­ceeds sup­ply.

He said this is ac­cen­tu­at­ed by high-risk aver­sion among mar­ket agents, which man­i­fests it­self in a ten­den­cy to hoard forex even when their trans­ac­tion de­mand is sat­is­fied.

“There­fore, avail­abil­i­ty and cost are a key pol­i­cy is­sue in small open economies. The pri­ma­cy of this pol­i­cy is­sue is al­so dri­ven by the fact that what hap­pens in the forex mar­ket in terms of price and liq­uid­i­ty has se­ri­ous im­pli­ca­tions for the cost of liv­ing and pover­ty, eq­ui­ty (in­clud­ing in­ter­gen­er­a­tional eq­ui­ty), and in­ter­na­tion­al com­pet­i­tive­ness,” Seer­at­tan de­tailed.

The on­ly com­fort in this con­text he point­ed out, is that al­most all small, open economies (SOEs) face sim­i­lar chal­lenges, that is, it is pri­mar­i­ly a struc­tur­al prob­lem that can on­ly be solved in the long term. In this con­text, the ap­proach to man­ag­ing the for­eign ex­change con­straint must be very care­ful­ly cal­i­brat­ed.

Seer­at­tan not­ed that over the pe­ri­od 2008 to 2023, the ex­cess de­mand in the forex mar­ket av­er­aged US$1.5 bil­lion per year. This, he high­light­ed, amount­ed to a to­tal of US$ 23.3 bil­lion in ex­cess for­eign ex­change de­mand over that pe­ri­od.

“In re­sponse, the Cen­tral Bank of Trinidad and To­ba­go sup­plied (sold) ap­prox­i­mate­ly US$25 bil­lion to sup­port the mar­ket. The au­thor­i­ties have there­fore more than cov­ered the ex­cess de­mand in the mar­ket over this pe­ri­od. This ex­cess de­mand for for­eign ex­change in the pe­ri­od 2008-2023 spanned two po­lit­i­cal ad­min­is­tra­tions and pe­ri­ods when en­er­gy prices fluc­tu­at­ed wide­ly,” Seer­at­tan said.

He not­ed that for ex­am­ple, dur­ing this pe­ri­od the price of oil ranged from a high of US$105.01 in 2012 to a low of US$41.26 in 2020, while nat­ur­al gas ranged in price from a high of US$8.86 in 2008 to a low of US$2.01 per MMB­TU in 2020. This sug­gests that T&T has a struc­tur­al prob­lem that man­i­fests it­self in ex­cess for­eign ex­change de­mand re­gard­less of the lev­el of en­er­gy prices be­cause an in­crease in the sup­ply of for­eign ex­change seems to be matched by an even larg­er in­crease in de­mand.

“This is due in large part to our high im­port in­ten­si­ty dri­ven by con­sump­tion taste and pref­er­ences, as well as the struc­ture of our econ­o­my where a whole range of in­ter­me­di­ate in­puts re­quired for man­u­fac­tur­ing and heavy in­dus­tries are not pro­duced lo­cal­ly. Un­til we can make head­way in ad­dress­ing these long-term struc­tur­al weak­ness­es, these im­bal­ances will be a fact of life,” the econ­o­mist added.

Key sec­tors for earn­ing for­eign ex­change

CEO of the T&T Cham­ber of In­dus­try and Com­merce, Vashti Guyadeen, in­di­cat­ed that the de­vel­op­ment of sev­er­al strate­gic ser­vice sec­tors and in­dus­tries can sig­nif­i­cant­ly re­duce the coun­try’s re­liance on en­er­gy ex­ports, di­ver­si­fy rev­enue streams, and en­hance T&T’s par­tic­i­pa­tion in glob­al mar­kets.

She not­ed that ef­forts should be made to im­prove ser­vice qual­i­ty, ex­pand train­ing op­por­tu­ni­ties, and sup­port re­mote and dig­i­tal ser­vice de­liv­ery to tar­get in­ter­na­tion­al mar­kets.

She al­so sug­gest­ed more tax in­cen­tives and a stream­lined reg­u­la­to­ry en­vi­ron­ment, which would fur­ther at­tract for­eign firms to set up re­gion­al head­quar­ters in the coun­try.

Fur­ther, Guyadeen said T&T has the po­ten­tial to be­come a sought-af­ter des­ti­na­tion for both med­ical and lit­er­ary tourism, cap­i­tal­is­ing on ex­ist­ing strengths while ad­dress­ing cur­rent in­fra­struc­ture lim­i­ta­tions.

“San Fer­nan­do, St Au­gus­tine, and West Trinidad al­ready of­fer med­ical ser­vices, at­tract­ing both lo­cal and in­ter­na­tion­al pa­tients. How­ev­er, en­hanc­ing the in­fra­struc­ture in these ar­eas and im­ple­ment­ing strate­gic ini­tia­tives are nec­es­sary to max­imise the sec­tor’s po­ten­tial and to achieve sig­nif­i­cant eco­nom­ic ben­e­fits,” she de­tailed.

Pro­jec­tions, she said, in­di­cat­ed that the glob­al med­ical tourism mar­ket was val­ued at over US$100 bil­lion in 2019 and con­tin­ues to grow as pa­tients seek cost-ef­fec­tive treat­ments abroad. T&T can po­si­tion it­self as a hub for med­ical tourism in the Caribbean by im­prov­ing the in­fra­struc­ture and ser­vices of­fered in key med­ical dis­tricts.

En­er­gy ser­vices

She said that the en­er­gy-as-a-ser­vice mar­ket is pro­ject­ed to grow from US$57.6 bil­lion in 2020 to US$106.6 bil­lion by 2026, of­fer­ing sig­nif­i­cant ex­port op­por­tu­ni­ties and with T&T’s ex­per­tise in oil and gas, it can ex­pand in­to en­er­gy con­sult­ing, re­new­able en­er­gy ser­vices, and main­te­nance for in­ter­na­tion­al clients.

Al­so, the cham­ber CEO out­lined that col­lab­o­ra­tions with in­ter­na­tion­al firms for joint ven­tures in re­new­able en­er­gy and en­er­gy man­age­ment can fur­ther di­ver­si­fy the sec­tor’s of­fer­ings.

She high­light­ed that for this coun­try to ful­ly har­ness the po­ten­tial of these sec­tors and mit­i­gate the forex cri­sis; a co­or­di­nat­ed ap­proach is es­sen­tial. The gov­ern­ment, pri­vate sec­tor, and oth­er stake­hold­ers must work to­geth­er to:

• Ad­dress da­ta gaps: Im­prov­ing da­ta col­lec­tion on ser­vices ex­ports will sup­port ev­i­dence-based pol­i­cy­mak­ing. The Cham­ber of Com­merce can lead ini­tia­tives to de­vel­op a na­tion­al ser­vices data­base.

• Sup­port ex­port pro­mo­tion: Ex­port pro­mo­tion agen­cies should re­ceive en­hanced re­sources to pre­pare lo­cal firms for in­ter­na­tion­al mar­kets. Cre­at­ing ex­port-readi­ness pro­grammes and on­line plat­forms to show­case ser­vices will in­crease glob­al vis­i­bil­i­ty;

• Fos­ter in­sti­tu­tion­al col­lab­o­ra­tion: A whole-of-gov­ern­ment ap­proach, in­te­grat­ing the ef­forts of var­i­ous min­istries, will be nec­es­sary for ef­fec­tive ex­port fa­cil­i­ta­tion. Reg­u­la­to­ry re­forms to ease busi­ness op­er­a­tions and at­tract for­eign in­vest­ment should be pri­ori­tised;

• Pri­ori­tise re­new­able en­er­gy and con­ser­va­tion: De­vel­op­ing a strat­e­gy for en­er­gy con­ser­va­tion and pro­mot­ing re­new­ables can com­ple­ment the growth of en­er­gy ser­vices, po­si­tion­ing the coun­try as a leader in sus­tain­able en­er­gy so­lu­tions.

No quick fix

Al­le­vi­at­ing T&T’s for­eign ex­change cri­sis, Guyadeen said, will re­quire more than quick fix­es.

“While short-term so­lu­tions are im­por­tant, sus­tained eco­nom­ic di­ver­si­fi­ca­tion must be pri­ori­tised to build re­silience. Sec­tors such as busi­ness tourism, pro­fes­sion­al ser­vices, en­er­gy ser­vices, ICT, and agri­cul­ture hold sig­nif­i­cant promise for trans­form­ing the econ­o­my.”

“By im­ple­ment­ing tar­get­ed strate­gies and align­ing ef­forts across sec­tors, the coun­try can re­duce its re­liance on en­er­gy ex­ports, cre­ate new jobs, and se­cure a sta­ble eco­nom­ic fu­ture,” she ex­plained.

She al­so not­ed that the busi­ness com­mu­ni­ty has a crit­i­cal role to play in dri­ving eco­nom­ic trans­for­ma­tion.

“Ur­gent at­ten­tion and a holis­tic plan to ad­dress crime is re­quired to en­sure in­vestor con­fi­dence is high. Now is the time for bold ac­tions. Ex­pan­sion of high-po­ten­tial sec­tors is key. With the right in­fra­struc­ture, reg­u­la­to­ry re­forms, and sup­port, T&T can un­lock vast eco­nom­ic op­por­tu­ni­ties and al­le­vi­ate its forex chal­lenges for a sus­tain­able fu­ture,” the cham­ber CEO said.