An­drea Perez-Sobers

Se­nior Re­porter

an­drea.perez-sobers@guardian.co.tt

Trinidad and To­ba­go will con­tin­ue to face for­eign ex­change short­ages even when new nat­ur­al gas projects be­gin con­tribut­ing to eco­nom­ic ac­tiv­i­ty in 2027, un­less the coun­try ad­dress­es the struc­tur­al weak­ness­es that dri­ve de­mand for for­eign cur­ren­cy, econ­o­mist Dr Dave Seer­at­tan has warned.

While in­creased en­er­gy pro­duc­tion could pro­vide re­lief to busi­ness­es strug­gling to ac­cess for­eign ex­change, Seer­at­tan be­lieves high­er en­er­gy rev­enues alone will not re­solve a prob­lem that has per­sist­ed for more than a decade.

He is call­ing for a de­lib­er­ate in­dus­tri­al pol­i­cy, stronger col­lab­o­ra­tion be­tween the Gov­ern­ment and the pri­vate sec­tor, and greater in­vest­ment in non-en­er­gy in­dus­tries that earn for­eign ex­change rather than con­sume lim­it­ed sup­plies.

Seer­at­tan made the case dur­ing a post-bud­get pan­el dis­cus­sion host­ed by the Trinidad and To­ba­go Man­u­fac­tur­ers’ As­so­ci­a­tion (TTMA) at the Hy­att Re­gency on Tues­day.

He ar­gued that the coun­try’s for­eign ex­change dif­fi­cul­ties re­flect­ed a deep­er im­bal­ance in the econ­o­my’s struc­ture, rather than sim­ply de­clin­ing en­er­gy pro­duc­tion.

“When we have these dis­cus­sions, I of­ten point out that if you look at the for­eign ex­change de­mand and sup­ply in Trinidad and To­ba­go for an ex­tend­ed pe­ri­od, for more than 10 years, and you look at the Cen­tral Bank in­ter­ven­tion in the mar­ket, to help meet the ex­cess de­mand in the mar­ket, you find that even in the boom days in 2005-2006 when en­er­gy prices were very high, you still see the same im­bal­ances, the ex­cess de­mand in the for­eign ex­change mar­ket,” he ex­plained.

Seer­at­tan point­ed to Guyana and Suri­name, two com­mod­i­ty-pro­duc­ing Caribbean economies ex­pe­ri­enc­ing rapid growth, as ex­am­ples of how in­creased eco­nom­ic ac­tiv­i­ty does not au­to­mat­i­cal­ly trans­late in­to suf­fi­cient for­eign ex­change avail­abil­i­ty.

De­spite Guyana’s dou­ble-dig­it growth rates, busi­ness­es there con­tin­ue to face for­eign ex­change chal­lenges sim­i­lar to those in Trinidad and To­ba­go.

“It does mat­ter. Struc­tural­ly, if we have low en­er­gy units or whether we have high en­er­gy units, that struc­tur­al prob­lem of for­eign ex­change ex­cess de­mand is still with us, prob­a­bly to a less­er de­gree when we have these huge en­er­gy in­flows,” he ex­plained.

Re­lief, but no last­ing so­lu­tion

Seer­at­tan ac­knowl­edged that in­creased gas pro­duc­tion in 2027 could ease some of the pres­sure on busi­ness­es seek­ing for­eign cur­ren­cy for in­vest­ment, pro­duc­tion and im­ports. How­ev­er, he cau­tioned that the im­prove­ment would not elim­i­nate the un­der­ly­ing prob­lem.

“Even in 2027, we are go­ing to still have peo­ple in the busi­ness sec­tor com­plain­ing about short­ages in the for­eign ex­change mar­ket and not be­ing able to ac­cess enough for­eign ex­change to make in­vest­ments and that kind of thing,” he warned.

The con­straint af­fects man­u­fac­tur­ers and oth­er busi­ness­es that de­pend on im­port­ed raw ma­te­ri­als, ma­chin­ery, equip­ment and pro­duc­tion in­puts. With­out re­li­able ac­cess to for­eign ex­change, com­pa­nies can strug­gle to main­tain out­put, ex­pand op­er­a­tions and pur­sue new com­mer­cial op­por­tu­ni­ties.

Seer­at­tan wel­comed the Gov­ern­ment’s use of the Ex­port-Im­port Bank of Trinidad and To­ba­go (Ex­im­Bank) to help busi­ness­es ac­cess for­eign cur­ren­cy, de­scrib­ing the in­sti­tu­tion as like­ly to re­main im­por­tant in sup­port­ing the busi­ness sec­tor.

He point­ed to in­creased dis­burse­ments from the bank as ev­i­dence that the Gov­ern­ment ap­peared more will­ing to use for­eign ex­change re­sources to sup­port busi­ness ac­tiv­i­ty.

How­ev­er, he ar­gued that such in­ter­ven­tions would be more ef­fec­tive if sup­port­ed by a broad­er strat­e­gy to trans­form the econ­o­my.

The ob­jec­tive, he ex­plained, must be to de­vel­op in­dus­tries that con­sis­tent­ly gen­er­ate for­eign ex­change, re­duc­ing the pres­sure on the coun­try’s lim­it­ed re­sources.

For­eign ex­change, he stressed, was the lifeblood of the econ­o­my, and the coun­try’s de­vel­op­ment prospects would re­main con­strained if it could not earn enough to sup­port pro­duc­tive ac­tiv­i­ty.

In­dus­tri­al pol­i­cy must move be­yond plans

Seer­at­tan called for gov­ern­ment and busi­ness to work to­geth­er to iden­ti­fy in­dus­tries ca­pa­ble of dri­ving sus­tain­able eco­nom­ic growth.

He point­ed to grow­ing in­ter­na­tion­al recog­ni­tion of in­dus­tri­al pol­i­cy, in­clud­ing in dis­cus­sions by the In­ter­na­tion­al Mon­e­tary Fund, as ev­i­dence of a shift away from the long­stand­ing pref­er­ence for free mar­kets and lim­it­ed gov­ern­ment in­ter­ven­tion.

For T&T, he out­lined, in­dus­tri­al pol­i­cy must move be­yond rec­om­men­da­tions and re­ports to­wards prac­ti­cal mea­sures that change the struc­ture of pro­duc­tion.

Seer­at­tan ob­served that re­ports pre­pared by the Min­istry of Trade, the Min­istry of Plan­ning and oth­er agen­cies over the past two decades had re­peat­ed­ly iden­ti­fied op­por­tu­ni­ties in tourism, yacht­ing, health tourism and oth­er non-en­er­gy ac­tiv­i­ties.

How­ev­er, many of those pro­pos­als had not trans­lat­ed in­to tan­gi­ble ac­tion.

He be­lieves the in­cen­tives fac­ing busi­ness­es help ex­plain why di­ver­si­fi­ca­tion has pro­gressed slow­ly.

Im­port­ing re­tail goods can of­fer at­trac­tive re­turns with­out the chal­lenges as­so­ci­at­ed with es­tab­lish­ing man­u­fac­tur­ing op­er­a­tions, in­clud­ing tech­nol­o­gy, pro­duc­tion costs and ac­cess to for­eign ex­change.

“If you can im­port the con­tain­ers of re­tail prod­ucts from Chi­na and make a 50 per cent re­turn on in­vest­ment, why would you both­er to take the trou­ble of man­u­fac­tur­ing and deal­ing with all the chal­lenges re­lat­ed to the for­eign ex­change, with the le­gal mar­ket prob­lems, with tech­nol­o­gy and so on, and you end up earn­ing 20 per cent re­turn at best,” he ques­tioned.

That im­bal­ance en­cour­ages busi­ness­es to main­tain ex­ist­ing trad­ing mod­els in­stead of in­vest­ing in ac­tiv­i­ties that could re­duce im­port de­pen­dence and gen­er­ate ad­di­tion­al for­eign ex­change.

Seer­at­tan ac­knowl­edged man­u­fac­tur­ing’s sub­stan­tial con­tri­bu­tion to the econ­o­my but ar­gued that tourism could be among the few in­dus­tries ca­pa­ble of com­ing close to re­plac­ing some of the for­eign ex­change earn­ings lost through changes in the en­er­gy sec­tor.

The goal, he ex­plained, should not sim­ply be to in­crease the con­tri­bu­tion of non-en­er­gy in­dus­tries to eco­nom­ic growth. Those in­dus­tries must al­so gen­er­ate suf­fi­cient for­eign ex­change to sup­port their op­er­a­tions and con­tribute to the coun­try’s wider needs.

An ex­pand­ing non-en­er­gy sec­tor will not nec­es­sar­i­ly re­solve short­ages if its growth de­pends heav­i­ly on im­port­ed goods and ser­vices.

Seer­at­tan al­so warned against wait­ing un­til en­er­gy rev­enues de­cline fur­ther be­fore mak­ing the nec­es­sary changes.

Draw­ing on the ex­pe­ri­ence of the East­ern Caribbean, he re­called how economies de­pen­dent on pref­er­en­tial arrange­ments for ba­nana ex­ports were forced to trans­form their eco­nom­ic mod­els when those arrange­ments were dis­man­tled in the ear­ly 1990s.

Over ap­prox­i­mate­ly 15 years, sev­er­al of those economies shift­ed to­wards tourism and fi­nan­cial ser­vices.

“The point I am mak­ing is, once you have the need and the fo­cus to move the econ­o­my in par­tic­u­lar ways, you can do it, and it will be nice if you can do that be­fore we have ab­solute­ly no choice,” he ex­plained.

Seer­at­tan be­lieves Trinidad and To­ba­go should use the rev­enues still avail­able from the en­er­gy sec­tor to pre­pare for a fu­ture in which the coun­try can­not de­pend on those earn­ings to the same ex­tent.

eTecK parks should pri­ori­tise ex­porters

Pro­fes­sor Roger Ho­sein al­so called for pub­lic sup­port to be tied more close­ly to busi­ness­es’ for­eign ex­change con­tri­bu­tions, fo­cus­ing on the role of the Evolv­ing Tec­knolo­gies and En­ter­prise De­vel­op­ment Com­pa­ny (eTecK).

Ho­sein de­scribed e TecK as a po­ten­tial­ly im­por­tant in­stru­ment for re­shap­ing the coun­try’s pro­duc­tive ca­pac­i­ty through the pro­vi­sion of sub­sidised in­dus­tri­al space.

He ar­gued that busi­ness­es ben­e­fit­ting from this sup­port should be ex­pect­ed to con­tribute mean­ing­ful­ly to for­eign ex­change earn­ings.

“Every sin­gle firm in the e Teck Park space should be ori­ent­ed at earn­ing for­eign ex­change,” Ho­sein ar­gued.

“If I’m sub­si­dis­ing, why should I sub­sidise you and let you use up my for­eign ex­change? I want you to be a net for­eign ex­change earn­er.”

He pro­posed ex­pand­ing the in­dus­tri­al park sys­tem or re­vis­ing arrange­ments for ex­ist­ing ten­ants to give greater pri­or­i­ty to firms that gen­er­ate for­eign ex­change.

Un­der his pro­pos­al, busi­ness­es would be as­sessed on the for­eign ex­change they earn com­pared with what they use. Com­pa­nies mak­ing stronger con­tri­bu­tions could re­ceive ad­di­tion­al space, while arrange­ments for firms that fail to gen­er­ate for­eign ex­change could be re­viewed and grad­u­al­ly re­placed.

Ho­sein ar­gued that this ap­proach would di­rect scarce pub­lic re­sources to­wards busi­ness­es that con­tribute more di­rect­ly to the coun­try’s eco­nom­ic sus­tain­abil­i­ty.

He cau­tioned that T&T could not re­ly sole­ly on in­creased gas pro­duc­tion to re­solve its struc­tur­al dif­fi­cul­ties.

With gas pro­duc­tion now at ap­prox­i­mate­ly 2,440 mil­lion cu­bic feet per day, he ar­gued, the coun­try must make care­ful de­ci­sions about the use of its re­sources.

“We have to use the gas that we have and the as­so­ci­at­ed rev­enues from that gas in the most in­ten­sive, prac­ti­cal, sci­en­tif­ic way to max­imise out­put go­ing for­ward,” he ex­plained.

Ho­sein ac­knowl­edged the fis­cal con­straints fac­ing the Gov­ern­ment but de­scribed in­fra­struc­ture spend­ing in the bud­get, de­spite a deficit of ap­prox­i­mate­ly $3.4 bil­lion, as a start­ing point giv­en the coun­try’s lim­it­ed re­sources.