The IMF has predicted weaker world economic growth because of China’s sluggishness in the East and the higher interest rate policies adopted to contain inflation in Western economies. On January 10, 2024, the US Energy Information Administration (EIA) forecasted that “average annual crude oil prices in 2024 and 2025 will remain near their 2023 average because we expect that global supply and demand for petroleum liquids will be relatively balanced over the next two years.”
The EIA also noted on January 4 that record-high natural gas production, flat consumption, and rising natural gas inventories contributed to lower natural gas prices in 2023 compared with 2022.
The 2024 outlook for LNG is no better. According to a report by Wood Mackenzie (Global Gas and LNG: 5 things to look out for in 2024), the market sentiment for gas and liquefied natural gas (LNG) will remain bearish (weak) into 2024 with European prices having fallen by 45 per cent to US$10 per million British thermal units (mmbtu) in the past three months.
This is due to mild weather conditions in the northern hemisphere as well as the growth outlook. Many big risks can yet affect the world’s economic growth, especially geopolitical risks.
T&T’s economic growth is highly dependent on the performance of natural gas exports and its petrochemical derivatives. The depression of 2015-2020 is due to the poor performance of these sectors. The rebound in 2021 was due solely to the escalation in energy and petrochemical prices which lifted the T&T economy.
Therefore, the 2024 economic outlook for T&T is much weaker due to the depressed forecast for energy prices provided by both the EIA and Wood McKenzie in their reports. Further, natural gas production will not increase to offset the decline in prices as the level of exploration activity is low relative to the industry’s past efforts.
Because the energy and petrochemical sectors are expected to be weaker for the foreseeable future, other exporting sectors must generate the foreign exchange earnings required to maintain the country’s standard of living.
The foregoing perhaps explains the optimism and enthusiasm of the several business organisations which greeted the opening of the Phoenix Park Industrial Estate. Perhaps, the opening of the park can achieve multiple objectives; diversifying the production base, creating jobs and generating more foreign exchange. Building the park is only the first step.
Many preconditions are required to make the park achieve the objectives of increasing investment, exports and jobs. A developed geographical space is only one part of the puzzle. What will make the park more attractive than other parks being developed elsewhere in Latin America and other places? It also requires the right enabling environment, legal arrangements, fiscal incentives, logistics and friendly business conditions to facilitate exports as well as a dedicated labour force with relevant skills and aptitudes.
Low-tech investments mean low-skill operations and therefore weak forex earnings. Perhaps proximity to the US market may make T&T attractive to Chinese investors anxious to avoid US tariffs. Businesses compete on some comparative advantage, price, product, quality or service. What is the basis of viability for firms operating in this park and long-term sustainability?
A feature of the modern world economy has been the spread of technology and know-how to the developing world.
The developing regions of the world that have had the fastest economic growth have been East and Southeast Asia which also have a fast-growing population.
The Asian tigers have matched technological know-how to the development of local industry and have been the most adept at adopting and domesticating technology. By contrast, trying to establish a rig-building capacity in T&T to serve the infrastructure needs of the energy sector has been problematic.
The local firm TOFCO is struggling to survive and compete with Mexico and the US and was not helped by an unfriendly labour union environment. In one labour dispute the comment by the union leader “to take your rig and go” allowed bpTT to do just that. A key issue is the development of human capital.
Foreign direct investment in the petrochemical energy sector has led to significant export growth and some technical capacity in those areas. They have not translated to other sectors and persons trained in the energy sector have generally sought to emigrate when economic conditions become tighter. What will make an industrial park more connected to the development of this human capital? The argument has always been that T&T and the rest of the Caribbean have a highly literate and educated population.
The reality is that the certification and training have not led to the creation of a workforce that meets the demands of an industrial climate.
The success of the Asian tigers is associated with a painstaking process of cumulative technological learning that in turn depended on fundamental aspects of a society such as entrepreneurship, social incentives, institutions and values which define a society and how these translate to indigenous learning. They have a service culture.
A key objective should not simply be to attract foreign firms but to create a dynamic economic environment in which local firms and businessmen learn from the presence of foreign firms. What is the institutional framework that will govern and complement this industrial park to facilitate this objective?
Mariano Browne is the Chief Executive Officer of the Arthur Lok Jack Global School of Business. ALJGSB is a not-for-profit corporation.