While speakers at the RBC breakfast seminar on the T&T economy at the Hyatt Regency Trinidad hotel, Port-of-Spain on Tuesday were projecting growth for the local economy in 2012, the Central Bank was revising its projections and reporting that the country had entered a technical recession at the end of 2011. In its April Monetary Policy Report (MPR) and Summary Economic Indicators bulletin released on Wednesday, the Central Bank reported that the T&T economy had declined by 2.6 per cent in the fourth quarter of 2011, (October 1 to December 31, 2011) following a decline by the same amount in the third quarter (July 1 to September 30, 2011). Recessions are generally defined as pertaining to countries that experience "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." Countries that experience two or more consecutive quarters of a declining GDP (gross domestic production) are defined as being in recession. In the MPR, the Central Bank stated that the decline in the T&T economy in the fourth quarter was driven by a "considerable reduction in activity in the energy sector of -7.8 per cent," and that while the non-energy sector increased by 1.2 per cent that was "insufficient to offset the slippage in the energy sector."
All of the energy sub-sectors were in decline in the fourth quarter of 2011:
�2 The exploration and production sub-sector declined by 7.2 per cent mainly as a result of an 8 per cent drop in natural gas production because of bpTT's maintenance operations. Crude oil output in the fourth quarter averaged 86,673 barrels per day, according to the MPR;
�2 The refining sub-sector declined by 15.3 per cent with LNG output falling by 16.5 per cent and the production of natural gas liquids dropping by 16.1 per cent;
�2 The petrochemicals sub-sector declined by 10.4 per cent "as the industry was adversely affected by the lower supplies of natural gas to the Point Lisas Industrial Estate." Ammonia production fell by 13.3 per cent, while the output of methanol was lower by 2.4 per cent.
And the Central Bank also reported further declines in the energy sector during the first quarter of 2012, including crude oil production that slipped to an average of 82,500 barrels a day, down from 96,900 barrels a day during the first quarter of 2011.
Natural gas production during the first quarter of 2012 "has remained at the depressed levels seen throughout 2012," mainly as a result of "sustained maintenance activity in the upstream sector (which) continued to dampen production rates." In particular, the production of natural gas liquids declined by 15.4 per cent in the first quarter, primarily due to the fact, attributed by the Central Bank to industry analysts, that "the natural gas produced by the upstream companies contains less liquids than previously, negatively affecting natural gas liquid output."
Revitalise energy says IMF
In the wake of the reported declines in the energy sector, the mission chief of the International Monetary Fund for T&T, Judith Gold, told the Business Guardian on Tuesday: "You need to say that the energy sector really needs to be revitalised. Investment in that area has been weak. There is a lot happening in the energy sector now, but we don't have access to that information." Speaking after the RBC breakfast meeting on Tuesday, Gold referred to the decline in foreign direct investment in the energy sector in T&T, saying that reduction in energy sector investment must be addressed. She said: "There is much more awareness that the Government has to become more pro-active and dynamic in identifying the opportunities, seeking out the investors and, maybe, modifying the fiscal regime as needed. "It does not serve anyone well for you to get a high share of royalties or high royalties if no one is investing. "You need to be flexible in trying to attract investment, even if it means that sometimes you give a better deal to the private sector. These are just artificial numbers but getting some percentage of a pie is better than getting a higher percentage of no pie." Gold also made the point that the T&T economy had been dealt "a severe blow," by the collapse of CL Financial, the conglomerate that was chaired by Lawrence Duprey until January 2009, when the Government was forced to intervene and take control of Clico, Clico Investment Bank, British American (Trinidad) and CMMB. Gold said that while CL Financial had "huge problems" it was the source of substantial investment in the local economy. She said: "When you took CL Financial out of the mix, I don't have the data but the way to think about it is that it's not that everyone else stopped investing but that one of your main drivers of investment stopped. Everyone else would continue to invest but you had one dynamic player out. And then the other players noted the diminished private sector activity, and took on a more cautious attitude. So people slowed down their own investment."
Gold said the Government needs to have clear policy directions, transparency and there needs to be greater effort to build consensus on the economic path forward to ensure continuity with changes in government. Gold said T&T's immediate challenge is to solidify growth in the economy and stop the decline of production of the energy sector. She said the energy sector has traditionally been strong while the rest of the economy suffered during a recession. Now it's the opposite. That could be a good thing as it should force T&T to look to diversify into other areas. "Energy growth in the last decade was phenomenal and carried the non-energy sectors along with it. But now the energy sector has tanked. So now that the economy is recovering, it is moreso the non-energy sector," Gold said. The public sector in T&T does not raise any "red flags" for the IMF. "T&T's public sector is not as large compared to other countries in the region. When you look at the percentage of the wage bill, it is about four per cent to five per cent. The public sector wage increases are much smaller than the rest of the region. From a macro-economic point of view for the IMF, we do not see red flags in this area," said Gold. She said the answer may not lie in reducing the size of the public sector workforce, but retraining and enhancing these workers' skills to increase productivity.
She gave the example of Tobago, half of whose population rely on public sector jobs, much to the detriment of the island's tourism industry.
"We did visit Tobago last December to look at the problems and tourism there. It is a beautiful island and there are many opportunities," Gold said, adding, "Tobago suffers from Dutch disease. People think that there are other opportunities outside tourism. You do not have labour for tourism in Tobago."
Olga Kalinina, director, sovereign ratings, Standard and Poor's, said T&T has the highest sovereign ratings in the Caribbean and the second highest in Latin America and the Caribbean, after Chile, partly due to its politically stable system.
RBC sees growth in 2012
Marla Dukharan, Group economist, RBC Financial (Caribbean) Ltd says all of the projections for T&T's economy show there will be growth in 2012. Speaking on Tuesday, before the release of the Central Bank Monetary Policy Report, Dukharan said: "In terms of our growth domestic product (GDP) growth, while we do not have the data that shows that we are out of a recession yet, in terms of projection for growth, we are seeing a lot of diverse projections." "The United Nations estimates four per cent. The Economic Commission for Latin America and the Caribbean estimates one per cent. The International Monetary Fund (IMF) projects 1.7 per cent. It is fair to say that they all agree." Dukharan said foreign investment in the region has fallen over the last few years. "In terms of our foreign direct investment (FDI) flows, foreign investment has taken a big hit across the region. We are seeing a significant decline in foreign investment. But last year, countries with investment are the Bahamas based on the Chinese investments, also Suriname. In the eastern Caribbean, Antigua and Grenada had a decline in investment," she said. Dukharan said T&T does not have a good reputation when it comes to corruption and crime and and ranks behind other countries in the region. "In terms of the corruption indicators, T&T does not perform too well here. In terms of our corruption perception, we rank below countries like Jamaica, Cuba and Brazil. In 2001, our ranking was in the 30s, and in 2011, we are ranking 91, so that is not a promising trend," Dukharan said. T&T also needs to improve its competitiveness. "In terms of our competitiveness ranking, there are some countries that we outshine, like Suriname, Jamaica and Guyana, but we rank behind countries like Barbados, Panama and Brazil," Dukharan said. "In this ranking, we improved and we are up three spots from 84." There was one positive indicator: ease of doing business index. "Some of the major challenges in the ease of doing ranking include registering and enforcing contracts. Our ranking improved from 76 in 2011 to 58 in 2012. So while we still have some challenges there, at least we are moving in the right direction."
Likewise for the human development index. "In terms of human development ranking, we rank 62 out of 187. We are turning in the right direction here because we have improved by three points since 2006. But we are outdone by countries like Cuba and Barbados again, but we are ahead of countries like the Dominican Republic."
Renewed Investor confidence
Bruce Sim, head, capital market and wealth management, RBC, said the economic environment is promising and the private sector will help drive this growth. "Interest rates have come down. The economy is not at a standstill. It is growing with a projected rate of growth of between one to two per cent and demand for innovative and competitive goods and services will continue to increase," Sim said. "Investor confidence is returning." He said RBC lends a great deal of money to energy companies globally and T&T can measure up to anywhere else in the world in terms of its energy sector expertise. "You cannot always measure energy in terms of reserves. This country also exports a lot of expertise. There are companies like Tucker Energy which has done a tremendous job. So let us not think so narrowly," Sim said. "That terrible spill that happened off the Gulf of Mexico would not have happened if we had people with the skills of Tucker Energy Services. That is what we are financing."