After 60 years, Trinidad and Tobago’s economy has seen many up and downs, but according to local economists the country has not maximised its potential.
“The Trinidad and Tobago economy has achieved a lot but has not realised its full potential,” said energy economist, Gregory McGuire, who noted that the country had gone through two periods of revolution and two energy booms.
Both, he said, made tremendous impact to us and our economy.
Dr Lester Henry, who wrote a review of the T&T economy in the book Handbook of Caribbean Economies, explained that the country had benefited due to the early discovery of oil. As a result, he explained, Trinidad and Tobago developed differently to the rest of the Caribbean region as its economy has been driven by energy exports.
Henry noted: “For this reason, it has been mainly classified as a middle-income developing country since its independence from the United Kingdom in 1962. For example, in 2012 ‘its gross national per capita income of almost US$22,000 (purchasing power parity) was more than twice the average for Latin America and the Caribbean as a whole’. Hence in recent years Trinidad and Tobago has graduated to a high-income country.”
In the first decade of independence, both economists noted the government had stuck to a series of development plans.
“We started up very nicely with development planning. The first five-year development plan and then the second five year plan,” said McGuire, “We started a campaign called buy local in the late ‘60s, it is significant that started then because it is a thread that comes through the whole economic history.”
Dr Henry noted while the country gained its independence in 1962, there had been internal self-government since 1956. The government issued a series of five-year plans starting with the First Development Plan (1958–62) which was designed to address the problem of “backwardness”, overcoming reliance on primary commodity exports, oil and sugar.
This was followed by the Second Development Plan (1964–68) which identified unemployment and dependency as two key issues facing the country. The Third Development Plan (1969–73) Dr Henry stated recognised the need for greater diversification within the economy to overcome structural problems such as persistent unemployment and the dependence on external parties for development.
However, by the 1970s the development plans were discarded as the country experienced the first oil boom.
McGuire explained it was the oil boom as well as the Black Power revolution that shook the government’s approach.
“Those events in 1970 really changed a lot of thinking, it changed a lot in terms of the direction of the economy and it changed a lot in terms of the choices that government made,” he said. “Eric Williams recognised there were things that were concerns that needed to be addressed such as building local capacity.”
But with the money flowing from the energy sector, the primary focus stood there.
“The initial oil boom for us in Trinidad, it was fortuitous in a double way, because with prices increasing and production increasing, because of the newly found oil off the east coast, with that double windfall, everything changed. Planning went out the window because we went from project to project,” McGuire explained.
Henry wrote: “The revenue windfall from the first oil shock of 1974 brought many tangible benefits to the country. For example, government expenditure rose from TT$448 million in 1973 to TT$3,337 million in 1980, more than a seven-fold increase, while capital expenditure increased from TT$108 million to TT$2,418 million during the same period. This allowed the government to carry out significant infrastructure projects, increase spending on transfers and subsidies, and raise salaries in the public sector. However, by the end of this period, the petroleum sector was still dominant, and the problems of inflation, unemployment and poverty still plagued the economy.”
But while the 1970s pushed growth, the 1980s Dr Henry explained: “Can best be described as a decade of stagflation.”
He noted unemployment and inflation remained high throughout while from 1983–89 there was an average annual fiscal deficit of 4.7 per cent of gross domestic product (GDP).
McGuire said the death of Prime Minister Eric Williams, as well as the collapse of the energy sector, pushed the country into a period of negative growth despite attempts to incentivise other sectors.
“Incentives given to the manufacturing sector back in 1983 really set a lot of investment in manufacturing and I think the first time the Trinidad and Tobago manufacturing sector showed some significant growth, particularly winning market share across the region. That was significant because as people recognised that the old prices had fallen and the economy had gotten into that rot and was quickly nose diving, they were making investments and moving things forward,” said McGuire, “so dominant was energy that notwithstanding that manufacturing was growing,
it couldn’t supplement the decline in energy and down came the economy and down came everything crashing in 86/87.”
Dr Henry pointed out there was significant migration of relatively skilled labour during that decade while Real Estate prices collapsed and there was also significant capital flight.
He explained a comprehensive adjustment programme was initiated in 1986 as the country was forced to rethink its approach.
Dr Henry noted, “These policy shifts came as a response to the collapse of the oil boom and several years of negative economic growth. The country’s need to access resources from the International Monetary Fund (IMF) would also have contributed to the urgency with which they were implemented. The government was also required under the IMF’s structural adjustment programme to reschedule its external debt. This debt peaked at US $2.5 billion at the end of 1990.”
The 1990s, Dr Henry said, “Marked a period of transition from negative to positive economic growth. Following the negative growth of the previous decade, a spike in oil prices in the 1990s led to a favourable recovery of the economy and a reduction in the deficits. Growth continued to be driven by the oil sector and a revitalized manufacturing sector.”
McGuire said the floating of the dollar in 1993 as well as the decision to invest in LNG were crucial to the turnaround.
“What those two things did were one, stimulate a whole lot of new investment again in manufacturing and the local economy started picking up. Secondly, the decision to go into LNG stimulated an abundance of investment upstream,” he said.
This ushered Trinidad and Tobago into a period of unprecedented growth in the early to mid-2000s.
Dr. Henry said, “According to the Central Bank, over the eight-year period from 2001–2008, real GDP growth averaged 7.6 per cent a year. While the main driver was the expansion of the energy sector, whose growth averaged 11.2 per cent a year, the non-energy sector also grew at a very healthy 5.4 per cent per year. During the period the energy sector benefited from the steady increase in the number of oil, gas and methanol facilities. The rapid growth of the non-energy sector was fuelled by the increase in government spending, financed by buoyant energy revenues. Per capita income almost tripled and unemployment fell to historically low levels.”
But Trinidad and Tobago would then face several years of no economic growth following the collapse in energy prices and the global financial crisis in 2008 which Henry said “put a halt to almost 15 years of economic expansion. “
He stated,”Since then the Trinidad and Tobago economy has showed little or no economic growth. With the exception of a brief recovery between 2011 and 2014, oil and natural gas prices have remained at fairly low levels compared to the pre-crisis period. This has had a strong impact on government revenues from the energy sector. From 2015, therefore, any increase in spending would not have been matched by increases in revenue. This has led to several consecutive years of budget deficits and increases in the national debt.”
McGuire agreed as he said the country had not yet recovered from the fallout of 2008.
‘The truth is we never recovered, we are still recovering,” he said, “Notwithstanding some very significant prices increases in 2012 to 2014. We have been struggling for the past 10 years to keep afloat and negative growth and really struggling for the last 10 years.”
McGuire lamented that despite the initial plans made, there had been very little structural change in the economy since independence.
He said while there had been investments here and there, there had been little development in other sectors such as agriculture and tourism while the manufacturing sector in his view had actually contracted in recent years.
“Manufacturing has not expanded much from then, if anything in the last five years there has been a contraction as some of the bigger firms rethink their location in Trinidad,” he said.
He added, “One reason for our less than stellar performance is really the failure of the private sector to invest in the productive sector. Only Duprey and later McAL ventured into the energy sector. For the most part, our private sector has chosen to expand in the distributive trades which only help to reinforce foreign tastes and leak foreign exchange. Looking forward, given government’s ongoing and enduring fiscal constraints, the tasks of transformation investment lie squarely and mainly on the shoulders of our private sector.”
While the Trinidad and Tobago economy has shown an over-reliance on oil and gas, McGuire disagreed with the assertion of Professor Richard Auty who labelled oil a resource curse.
“I don’t think so at all, I think what we do is we feel too blessed and we wish to bless everybody which is why we do we do the things we do,” he said, “In those periods, that is what began the whole business and the state transferring wealth through the fuel subsidy and a host of subsidies and that was the way we felt of sharing the wealth.”
Dr Henry pointed out that there were signs of the economy’s resilience, notably in the performance of its commercial banks, which he explained had benefited greatly from financial liberalization of the 1990s.
