Economist Dr Ronald Ramkissoon: Local economy needs investments

Although some countries survived the international economic crisis and have done well, the T&T economy suffered a decline during this same period from a lack of investment, says Republic Bank senior economist Dr Ronald Ramkissoon. “Following the international crisis of 2008, this economy declined for three consecutive years, 2009-2011, at an average rate of decline of about 1.6 per cent. This performance was weaker when compared to our peers and when compared to other countries,” he said. “Did Brazil, India, China, Russia, Oman and Malaysia decline for those years?” He gave statistics which showed the BRIC countries—Brazil, Russia, India and China—and others experiencing growth during this period.

 

Brazil had an annual growth of 3.5 per cent, India more than eight per cent, Oman 3.2 per cent, and Botswana 2.8 per cent. “The high growth rate in these countries were stimulated by high levels of investment in all cases. The message is that growth will not take place in T&T if investment fails to take place. I believe the connection is between investment and growth on one hand, and social amelioration on the other, but that is either not well understood nor appreciated by too many persons at all levels of society.” Ramkissoon was speaking on Tuesday on the topic of growth and investment at the American Chamber of Commerce of T&T (AmCham) monthly seminar at the Trinidad Hilton hotel, St Ann’s.

 

2011: A mixed year

He painted a picture of 2011 marked by social upheavals which impacted the economy. “During the last year, T&T had a new coalition government, intractable criminal activity, the fallout of what happened with Clico, industrial unrest and the economy. All of these were compounded by volatility in the external markets. Then there was the state of emergency, and while criminal activity was temporarily held back, activity in the non-energy sector, especially in retail and entertainment areas, were impacted.” All was not bad, though. Ramkissoon said there were good indicators at the year’s close. “Despite the overall 1.4 per cent in the overall economy in 2011, the year ended with reserves of $9.9 billion, low inflation and good news came for those who invested in the stock market as the Composite Index rose by 31 per cent during the year, making this country the fifth best  performing stock exchange in the world, according to Business Insider. 

 

“Just a few weeks ago, Finance Minister Winston Dookeran reported that the fiscal deficit was not the initial estimate of $7.7 billion and is now under $4 billion. This is as a result of greater energy revenue, lower expenditure, for whatever reason, in the last fiscal year.” Ramkissoon is more optimistic about 2012.

“The Finance Minister estimates we will have $26 billion in investment or 18 per cent of gross domestic product (GDP) and this will contribute to the renewal of growth in the economy. Our reserves are expected to remain at a reasonable level, keeping inflation under control and activity in the construction sector.

“In terms of energy, things started last year in terms of companies equipping themselves, drilling, which continues to increase, and we finally will be getting the (Point Fortin) highway project started and off the ground.”

 

Declining living standards

A lack of investments and a declining economy resulted in a decline in T&T’s per capita income. “The fact is that output of this economy has contracted for three consecutive years. The previous three years, we were growing at an annual average of seven per cent. Not surprisingly, average individual incomes have also declined. The average income of each individual has declined for T&T at an average of six per cent annually over the two-year period compared to an average increase of 20 per cent for the previous period, an indication of how much lower we have gone over the last three years. Per capita GDP income has fallen from US$21,000 in 2008 to US$17,000 in 2011.” Ramkissoon believes this decline in living standards and purchasing power could lead to greater borrowing, which is not healthy for the economy.

 

“If national income has fallen one cannot expect to continue to increase spending for long. While borrowing does have a role in prudent financial management, greater borrowing without the necessary expenditure adjustments is certainly not the answer. Just witness the global turmoil over these issues which threaten another global economic collapse. “If we are to come out of the decline and address the issues that plague our society, we want to see the connect between growth and investment and these issues. Economic growth must be restored. Growth is important in any economy to provide jobs and tax revenue, all of which contribute to alleviating poverty.”

 

Growth through investment

The best way to stimulate growth is through investment, Ramkissoon contends. “Total investment as a percentage of GDP stand over the three-year period stand at an average of nine to ten per cent from close to 14 per cent over the previous three-year period. So there is a direct relationship between investment  and growth in the economy. The amount of income that we earn every year as a country ranked against the United States or the United Kingdom, BRIC countries, and even Jamaica, the amount of income that we invest, according to World Bank data, is just under 20 per cent average for T&T. All those countries, for every year of the last five years, were higher than T&T. It seems as if our balance between investment and consumption is off and there must be greater emphasis on investment.” He examined the different types of investment that exists in T&T.

 

“T&T reflects a low investment ratio compared to other countries. There are different types of investment. There is foreign investment, Government investment and investment by domestic private sector. What we found over the last four to five years is that there was a fall in Government capital expenditure, but increase in recurrent expenditure. The kind of expenditure that will not generate growth.” “The question is what rate of growth is appropriate? There was some work done a few years ago by the Vision 20/20 Committee. That committee suggested then that if we were to become developed, we need to grow and have GDP per capita growth of nine per cent annually. The World Bank expects developing countries to grow by 4.5 per cent in 2012. T&T is still developing country. But can we grow by something more that 1.7 per cent? We must move quickly to stimulate growth.”