What a week!
In the last seven days we have witnessed S&P indicating that its outlook for T&T was now negative, down from stable—bpTT telling the Government of its forecast of major natural gas shortfalls, and the announcement of progress being made by Shell and bpTT on already sanctioned projects.
In this week’s Business Guardian, we spend considerable time looking at the manufacturing sector because we believe it is one of the areas the country must turn to if it is going to save itself and, importantly, the next generation from disaster.
Yes, I admit there is risk to sounding such dire warnings because as in all things in life there are uncertainties, but we can only plan with what we have before us and try to do things to improve the trajectory of our lives and in this case, the economy.
The Government’s task is enormous and different from the challenges that many developed countries face.
It is Dr Eric St Cyr, one of the Caribbean’s finest economists who wrote in a 2009 paper titled Valid Theory and Policy Choice—that the T&T economy is neither export led, like resource-scarce Japan or resource-rich New Zealand, nor is it internally propelled by technical innovation and investment like the USA or the European Common Market.
It is that uniqueness of the T&T economy that ensures the State must play a larger part in the economy than it should, by essentially redistributing rents it collects from the offshore economy to citizens and in support of the onshore economy.
But the news from bpTT, the challenges of the green agenda, the issue of competitiveness of the energy sector, its maturity and the limited success in the deep-water all point to the urgent need for diversification.
Manufacturing as a means of moving us away from the plantation economy has been espoused for more than 70 years.
Distinguished West Indian Nobel Laureate in Economics, Sir Arthur Lewis, in his 1950 paper, The Industrialisation of the British West Indies outlined a strategy which has been dubbed “industrialisation by invitation”.
St Cyr noted that as implemented, this strategy had not produced the anticipated results because the analysis on which it was based did not explicitly distinguish between an offshore sector of Caribbean economy, where foreign enterprise and capital have always had sway, and an onshore sector where the residentiary population operates.
Lewis’ theory, he opined, needed to be more precisely located in Caribbean empirical reality.
“The problem Lewis addressed was the low level of income which the Caribbean economy of 1950 afforded its members. To Lewis, low incomes resulted from low productivity in its principal industry, namely agriculture.
In order to raise factor productivity, agriculture needed to be mechanised to raise the land/man ratio since output per acre already compared favourably internationally but output per man was low,” wrote Dr S Cyr.
There was, however, a severe constraint on land space in these small island territories of mountainous terrain.
Labour, therefore, had to be removed from the land to make room for mechanisation. In the European experience, with which Sir Arthur was familiar, this was achieved by shifting labour from agriculture to manufacturing, from the land to the factory. The Lewis strategy thus required that the manufacturing industry be established as necessary to raising productivity in agriculture. There were, however, the problems of capitalising manufacturing and finding markets for its output. This is the context in which foreign investors were to be invited to establish and capitalise their enterprises and produce for overseas markets initially.
St Cyr wrote: “The record shows that Caribbean governments gave generous incentives to foreign capital through the various Pioneer Industries Ordinances, and that there was much foreign capital invested throughout the Caribbean. The vast bulk of the investments however went into resource based industries in the offshore sector—petroleum in Trinidad, bauxite in Guyana and Jamaica, tourism in Barbados, Bahamas and the OECS, sugar in Trinidad, Guyana and Belize, citrus in Belize and bananas in the OECS.
Few investments were made onshore complementing the surplus labour in that sector. It needs to be said that Lewis was not unaware of the existence of what he called a “West Indian peasantry” onshore; nor of the downside of foreign investment. He in fact stated that foreign capital would be less dangerous in manufacturing than in “resource based industries.”
The point of this example he said is that Lewis’ strategy which proved to be successful in south-east Asia rather missed the mark in the Caribbean by the theory on which it was based not having taken account of historical and institutional factors unique to the Caribbean.
It is the dual challenge of investment and markets why we must commend the many manufacturers who have gone out there and dominated the Caribbean market—in particular in food and beverage—but we must go further. The Government must assist by improving the ease of doing business. The complaints at the ports and the general challenges in getting things done have plagued us for more than 30 years and in some ways have gotten progressively worse. This hinders investment and increases costs.
Secondly, the Government must continue to work to open markets and have a meaningful conversation with manufacturers on what they need to become more competitive.
The issue of the value of the TT dollar versus other major currencies and the shortage of forex have been articulated over the last six years and the situation remains unresolved.
But the manufacturing sector also has work to do. It must see itself as being prepared to go beyond the importation of raw material and producing its tried and tested products. It must embrace technology, including demanding 5G technology in its business. There must be both product differentiation and cost efficiency.
Investment and a commitment to research and development is the only way for there to be innovation that leads to the development of new higher value products or at least product extensions.
The Rock Hard/TCL issue has shown that there will be challenges to the CET and that relatively cheap energy prices will neither last and if it does, will not be enough to protect us from scale and technology.
The only option is adding the greatest value we can to our products in manufacturing and other things we do in this economy.
The world is quickly changing and as I have constantly said while we must focus and fix the energy sector we must prepare an economy that can last post energy.
We just cannot continue the way we are going.