Pe­ter Quen­trall-Thomas

As I have ar­gued in this space on a num­ber of oc­ca­sions, one of the ma­jor dys­func­tion­al­i­ties of the lo­cal econ­o­my is the lack of new, high-qual­i­ty in­vest­ment op­por­tu­ni­ties in TT dol­lars. This is an is­sue that not on­ly im­pacts on the lo­cal econ­o­my in a pro­found way, but has a di­rect im­pact on every work­ing man and woman in this coun­try.The lack of high-qual­i­ty in­vest­ment op­por­tu­ni­ties im­pacts on the econ­o­my be­cause if in­di­vid­ual in­vestors can­not re­ceive a re­turn on their in­vest­ment that beats the lo­cal rate of in­fla­tion from their TT dol­lar in­vest­ments, they will be forced to look else­where for in­fla­tion-beat­ing in­vest­ment re­turns. This has a di­rect im­pact on cap­i­tal flight, puts down­ward pres­sure on the TT to US dol­lar ex­change rate and con­tributes to a build-up of de­posits that can have a po­ten­tial­ly desta­bil­is­ing im­pact on the coun­try's rate of in­fla­tion.

The dearth of TT-dol­lar in­vest­ment op­por­tu­ni­ties al­so af­fects the av­er­age man in the street be­cause, by law, 80 per cent of the in­sur­ance pre­mi­ums and the pen­sion funds-from both the Na­tion­al In­sur­ance Board and the pri­vate providers of pen­sions-col­lect­ed from work­ing men and women must be in­vest­ed lo­cal­ly.Sec­tion 47 (1) of the In­sur­ance Act states: "Every com­pa­ny shall in­vest in as­sets in Trinidad and To­ba­go an amount equal to at least 80 per cent of the Trinidad and To­ba­go dol­lar li­a­bil­i­ty in each statu­to­ry fund."

The In­sur­ance (Pen­sion Fund Plan In­vest­ments) Reg­u­la­tion is equal­ly em­phat­ic: "For the pur­pos­es of in­vest­ment by the Trustees of a reg­is­tered plan in such se­cu­ri­ties as are set out in the Sec­ond Sched­ule to the Act, the per­cent­age which the reg­is­tered plan's as­sets orig­i­nat­ing in Trinidad and To­ba­go shall bear to the to­tal of the plan's as­sets shall be not less than 80 per cent."The coun­try's in­sur­ance com­pa­nies and pen­sion plans col­lect bil­lions of dol­lars every year-in its last pub­lished an­nu­al re­port, the Na­tion­al In­sur­ance Board re­port­ed that it col­lect­ed $2.55 bil­lion from 497,805 ac­tive in­sured em­ploy­ees and 17, 233 ac­tive em­ploy­ers.

If by law 80 cents out of every dol­lar col­lect­ed in in­sur­ance pre­mi­ums and pen­sion funds must be in­vest­ed lo­cal­ly, then the coun­try's in­sti­tu­tion­al in­vestors need to en­sure that they re­ceive a high enough re­turn in TT dol­lars on the mon­ey they col­lect in or­der to pay TT dol­lar pen­sions and oth­er in­sur­ance-type ben­e­fits when they be­come due.But the T&T econ­o­my, like much of the rest of the world, is now in a low-in­ter­est rate en­vi­ron­ment and the Gov­ern­ment has has starved lo­cal in­sti­tu­tion­al in­vestors of the steady flow of high-qual­i­ty, fixed-in­come in­vest­ments they need to en­sure that the mon­ey they are col­lect­ing is ap­pro­pri­ate­ly in­vest­ed.

This is be­gin­ning to bite the bot­tom lines of pen­sion plans and in­sur­ance com­pa­nies.

In re­port­ing the sec­ond quar­ter re­sults of Guardian Hold­ings (GHL), chair­man Arthur Lok Jack stat­ed that the in­vest­ment cli­mate was af­fect­ing all of the hold­ing com­pa­ny's busi­ness­es, lead­ing to a 23 per cent de­cline in its net in­come which moved from $594 mil­lion in the first six months of 2010 to $460 mil­lion in the same pe­ri­od this year.Ac­cord­ing to Lok Jack, the GHL's in­vest­ment in­come was down $30 mil­lion, "re?ect­ing the low in­ter­est rate en­vi­ron­ment..."

And, he stat­ed: "The poor­er in­vest­ment re­sults par­tic­u­lar­ly af­fect­ed our life busi­ness which gen­er­ates a lot of cash ?oat. Giv­en the pauci­ty of ap­pro­pri­ate in­vest­ment se­cu­ri­ties, we were forced to sit on more cash than we would have liked. We all know the ul­tra low rates earned on cash. As a re­sult, our life busi­ness­es, while con­tin­u­ing to grow their top lines, de­liv­ered low­er than ex­pect­ed re­sults."

In the third quar­ter chair­man's re­port, Lok Jack stat­ed: "The pre­vail­ing dif?cult in­ter­na­tion­al eco­nom­ic cli­mate char­ac­terised in­ter-alia by un­prece­dent­ed low in­ter­est rates, con­tin­ues to present chal­lenges and im­pact neg­a­tive­ly on the Group's in­vest­ment ac­tiv­i­ties."Sound pro?ta­ble in­vest­ment op­por­tu­ni­ties are lim­it­ed and where they ex­ist, gen­er­ate his­tor­i­cal­ly low re­turns. The low in­ter­est rate en­vi­ron­ment al­so places pres­sure on mar­gins earned from our con­sid­er­able spread busi­ness."

As a re­sult, GHL's net in­come for the first nine months of the year de­clined from $852.3 mil­lion in 2010 to $784.3 mil­lion in 2011-a re­duc­tion of 8.6 per cent in a con­text where 80 to 85 per cent of GHL's net in­come is de­rived from in­vest­ing ac­tiv­i­ties and be­tween 15 and 20 per cent from in­sur­ance ac­tiv­i­ties.

It is in re­ac­tion to the in­vest­ment co­nun­drum be­ing ex­pe­ri­enced by the lo­cal in­sur­ance and pen­sion in­dus­try that the Min­is­ter of Fi­nance in­sert­ed the fol­low­ing sen­tences in­to the in­for­ma­tion mem­o­ran­dum for the 20-year, 6 per cent, fixed-rate bond of up to $1.5 bil­lion that is be­ing float­ed this week to fi­nance gov­ern­ment's pay­outs to Cli­co pol­i­cy­hold­ers: "The gov­ern­ment is al­so mind­ful of its role in the de­vel­op­ment of the lo­cal cap­i­tal mar­ket and, in par­tic­u­lar, the de­vel­op­ment of the gov­ern­ment bond mar­ket. To this end, it con­tin­ues to pro­vide se­cu­ri­ties that will cater to the needs of all in­vestors."

En­sur­ing that lo­cal in­sti­tu­tion­al in­vestors are prop­er­ly sup­plied with fixed-in­come in­vest­ments is on­ly a par­tial so­lu­tion to the dys­func­tion­al econ­o­my. The Gov­ern­ment al­so needs to en­sure that those in­vestors who are look­ing for the cap­i­tal gains and div­i­dend op­por­tu­ni­ties that come from hold­ing shares have a steady stream of high-qual­i­ty TT dol­lar in­vest­ments op­tions as well.

The an­nounce­ment that it in­tends to di­vest a sig­nif­i­cant per­cent­age of First Cit­i­zens, the state-owned bank­ing group, is an in­di­ca­tion that the Gov­ern­ment un­der­stands its re­spon­si­bil­i­ty and the dan­ger to the econ­o­my that is pos­si­ble from a lack of ac­tion.

But First Cit­i­zens is not enough.

The Gov­ern­ment should al­so be look­ing to di­vest on to the lo­cal stock mar­ket by way of an ini­tial pub­lic of­fer­ing Pow­er­Gen, which is 51 per cent owned by TTEC, the 100 per cent state-owned util­i­ty, and Phoenix Park Gas Proces­sors, the pro­duc­er of propane, bu­tane and nat­ur­al gaso­line that was 51 per cent owned by the Na­tion­al Gas Com­pa­ny of T&T. NGC owns its stake in Phoenix Park Gas Proces­sors through a com­pa­ny called NGC NGL. Twen­ty per cent of NGC NGL was sold to Na­tion­al En­ter­pris­es Ltd on De­cem­ber 1, 2001, in ex­change for 50.5 mil­lion shares in NEL. NGC re­ceived an­oth­er 49.5 mil­lion NEL shares in ex­change for 37.84 per cent of NGC LNG, which holds the State's stake in the At­lantic LNG fa­cil­i­ties in Point Fortin.

Would it not be great for the lo­cal in­vest­ment en­vi­ron­ment if the Gov­ern­ment were to di­vest on to the lo­cal mar­ket the 40.8 per cent of Phoenix Park and the 6.2 per cent of At­lantic that re­main with NGC?Would that not al­low lo­cal in­sti­tu­tion­al and in­di­vid­ual in­vestors the op­por­tu­ni­ty to own more of what T&T pro­duces and pro­vide lo­cal in­sti­tu­tion­al in­vestors with more op­por­tu­ni­ties to cre­ate ap­pro­pri­ate re­turns for pen­sions?And we have not even got around to dis­cussing the like­li­hood that the search for high­er in­vest­ment re­turns than were fa­cil­i­tat­ed by the lo­cal mar­ket may have con­tributed to the demise of the CL Fi­nan­cial em­pire or what the State should do with MHTL, petro­chem­i­cal pro­duc­er based in Point Lisas that is 56 per cent owned by Cli­co-an en­ti­ty which re­mains un­der the con­trol of the Gov­ern­ment un­til June 12, 2012.