Central Bank Governor Ewart Williams says this country's decision-makers must stop living in denial as it relates to the longevity of T&T's energy reserves. "Our proven energy reserves are fast dwindling, though some experts think that prospects for new discoveries are high. We keep saying God is a Trini. We don't like to talk about our dwindling reserves. I don't know why. Oil production has already fallen below 110,000."
"Energy sector growth was based on the higher oil production and on the expansion of the downstream production capacity, particularly Atlantic LNG Trains II and III and the M5000 methanol plant. "The current prospects are for a continued decline in oil production (until there are new finds) and except for planned melamine plant (the AUM project), no significant increase in downstream capacity is envisaged over the next few years. This would imply that energy sector growth would revert to lower, more sustainable levels leaving the non-energy sector to carry more of the medium-term growth burden."
Williams was speaking at the launch of the Fourth Annual International Conference on Business, Banking and Finance held at the St Augustine Campus of the University of the West Indies, on June 22.
The conference theme was: Restoring Business Confidence and Investments in the Caribbean. Williams said a credible diversification strategy was not merely a policy option, but an urgent necessity.
He noted that while T&T was in a better situation than other Caribbean countries, given its energy resources with stronger public finance and lower public debt burden, which gave it room to manoeuvre, pushing that argument too far was ill-advised.
"Our fiscal space is being steadily reduced, the more the private sector activity remains subdued and Government steps in to lead the recovery. While indebtedness is still at a comfortable level, it, too, is increasing rapidly to meet the high cost of the CL Financial/Clico bailout," said Williams. "Let me put our challenge in another context which further underscores the problem. In the period 2002-2006, real gross domestic product (GDP) increased at an annual rate of close to ten per cent based on an annual growth of 16.7 per cent in the energy sector, and 5.6 per cent in the non-energy sector."
The Caribbean dilemma
Williams was convinced that the entire region needed to embark on a new private-sector-led growth strategy to ensure medium-term economic viability. He said that each country in the Caribbean faced unique challenges in terms of its capacity to spur private sector investment. "The pre-conditions for attracting investment in the extractive industries in T&T, Guyana, and Suriname are different from the steps that are needed to promote investment in the on-shore sectors. These are different from what is needed to promote tourism investment in Barbados or in the Organisation of Eastern Caribbean States (OECS). There are, however, some common challenges and some common approaches which are worthy of consideration by all the countries in the region.
"One challenge faced by the entire region is the need to reverse the decline in the productivity and competitiveness which has occurred in recent years. The most egregious example of our competitive disadvantage is the banana industry, where the yields of our major producers-St Lucia, Jamaica or Dominica-range between 20 per cent and 25 per cent of the most efficient Latin American producers.
"The 2011 Doing Business Report published by the World Bank and IFC ranks 183 countries in terms of their business facilitation environment. Among all countries, Jamaica and T&T-the two largest Caricom members-were ranked 81st and 97th, respectively,. Suriname was ranked 161st," Williams said.
One explanation for our lack of competitive edge, he said, was the fact that the Caribbean lagged behind in terms of access to information technology and affordability.
He said statistics from three years ago showed that broadband penetration in the region was below eight per cent compared with more than 30 per cent in OECS countries. "World Bank data also indicate that the cost of broadband services in the region is close to three times the price in the United States and seven times the price in the United Kingdom. Technology played an important role in the taking off of Singapore, Cyprus, Mauritius and other successful small economies by making business and government services more efficient. A concentrated focus on technological development will greatly facilitate business competitiveness in the region."
Public sector management:
Regional governments hold the power to reverse the sluggish tide of prosperity, but they must see themselves as more than just business facilitators, said governor said. There must be a resurgence of the private sector through disciplined management of public finances, which, he said, had many aspects. "Obviously, one important aspect is avoiding sizeable fiscal deficits so as not to crowd out the private sector and to contain public debt burdens. Good public sector management also implies allocating sufficient resources to infrastructural development, education and health-areas that are critical for private sector development. "In many cases, a business-friendly government expenditure policy could imply difficult socio-political trade-offs involving expenditures on subsidies and transfers," Williams said.
A cultural re-orientation
"Several countries in the region already have excessive debt burdens, which sometimes force expenditure adjustments to fall disproportionately on critical public investment. "If the focus of our regional development strategy is the private sector, the sector would need to undergo a cultural re-orientation. Foreign direct investment to the region has been on a steady decline over the past several years." He said while policy changes may help to reverse this decline, countries should also think about diversifying their targets for investment promotion, with the BRICs-Brazil, Russia, India and China-registering the fastest growth in the world they must be potential sources of foreign direct investment.
In all likelihood, he said, the domestic private sector will need to take the lead in driving growth, since there was a case for targeted partnerships between the private sector and government to enhance international competitiveness, not only to identify and promote opportunities for greater economic diversification, but develop new export markets. "These challenges are not destiny and difficulties can become opportunities for change. Our region is at a crossroad of opportunity where the right combination of leadership, vision, and commitment is needed to overcome a platform of challenges."