T&T will soon be celebrating 50 years as an independent nation. Last week we saw what independence means in the United States with its July 4 celebration. It was a time of ceremony, fireworks and immigration reform. That’s right, immigration was a central topic in the US last week with President Barack Obama quoted on July 4 as saying, “Just as we remain a nation of laws, we have to remain a nation of immigrants.” What is T&T’s immigration policy? Last year I was invited to speak at a pre-budget session put on by the T&T Chamber of Industry and Commerce. The purpose of that session was to generate ideas for economic growth as part of the consultation for the 2012 budget. I repeated the question in that forum as well.
Does anyone in T&T know the answer?
The President of the US seems mindful of the role of immigration in the country’s economic development and took the occasion of national Independence Day celebrations to reiterate that fact. Will our Prime Minister be so inclined? Whether by accident or design, we now have an economist in the role of Minister of Foreign Affairs. One expects he is aware of the role demographics play in contributing to a country’s economic growth prospects and, hopefully, he can convince the Cabinet of the need for a clear and properly articulated immigration policy that is constructed to suit the developmental needs of T&T. We are long past the stage where immigration is purely a national security issue. Getting our immigration policy right is fundamental to our economic development and the absence of a proper policy will likely put paid to any chance of us becoming a developed nation anytime soon.
The first step is to identify the issue. The term “energy deficit” was very much used in the period of wanton spending spanning 2004-2008. The revenues from the onshore economy were not sufficient to support the level of government spending, so there was a deficit. That deficit was made up by revenue from the energy sector. The problem, of course, was that the expenditure levels were being hard-wired into the fabric of the economy, but variable oil and gas prices and production levels supported the revenue side. As natural gas prices fell and production declined, the revenue source declined, but the political equation meant that the expenditure levels had to remain elevated. This is where we are today faced with an economic cocktail of negative or anemic growth, a declining revenue base and rising levels of entitlement driven expenditures.
The reliance on an “energy deficit” also meant that the fabric of the economy has become dysfunctional. As a country we ignored agriculture, manufacturing and information technology and went for the easy route of retail. The objective was to import goods from abroad and sell locally with the demand coming from the flows from the energy sector. Our economy is based almost entirely on the extraction of rents. It starts with rents from the extraction and sale of natural resources and flows straight through to rents obtained from margins on the sale of retail products. Last week the new Minister of Finance pointed out that financial services accounted for 25 per cent of the onshore gross domestic product. That was the level of contribution from financial services in the US at the peak of the housing bubble. Yet I sense little pause for reflection on that statistic at a local level.
There is little by way of finance for entrepreneurship and innovation, loans to the manufacturing sector is not very buoyant. It is quite possible that our financial services sector is simply financing the extraction of rents and at the same time extracting rents of their own. We have loans on credit cards, for consumption, for motor vehicles and for housing. All these activities, in the main, circulate wealth that is eventually accumulated by the merchant and the financiers of consumption; they do not create wealth as the value added is limited. Another issue with the energy deficit is that it created an unsustainable level of demand in the local economy. That demand manifested itself through accelerated levels of inflation. As the demand has fallen off, there is the cost of surplus and unused capacity, however, the inflationary pressures have remained.
Low growth and high inflation give rise to stagflation. I predicted that the local economy would be faced with this phenomenon years ago. The current solution to our economic woes seems to be replacing the energy deficit with debt under the disarming term “stimulus.” Yet our economy is an open one and subject to leakages. How much of the stimulus money that goes into buildings and highways are spent on imported materials and imported labour? The retail focus of our economy, coupled with the blunt nature of most stimulus spending, mean that gains are likely to short-lived. The debt associated with the stimulus needs to be repaid. This is where the whole question of immigration and demographics sets in. T&T’s population growth is negative. Almost ten years of elevated levels of inflation would have taken its toll on the age at with people choose to start a family and the number of children they have. Crime, especially kidnapping and a failure to develop our infrastructure, means there is also a brain drain effect to consider. Our existing population size and spending capacity, in my view, are unable to support the retail infrastructure that exists and that continues to be built out. Our tourism infrastructure is poor when benchmarked to other Caribbean islands.
Our free education programmes have not targeted our national development needs despite ten years of operation, so there is little history of entrepreneurship and innovation and inadequate mechanisms to finance what little initiatives exist. Let us be clear that both the current party in power and the party in opposition, when they were in power, saw the hiring of contractors to cut grass as a means of “creating entrepreneurs.” The expenditure on this project must by now be around US$1 billion. For that we should have already invented a way to cut grass via the Internet. Why in such a climate would anyone go through the challenge and risk of process and product innovation when it is more expedient to either seek out a government contract or establish a retail operation that seeks to sell to the recipients of state patrimony? We talk a good game, but the reality is a number of nonsensical, politically expedient policies that will prove counterproductive in the end. Right now, T&T is attracting a number of immigrants from other Caribbean countries. They have stepped in to fill the vacuum created by persons who have gravitated to higher paying, but less productive State “make-work” programmes. We also have an influx of Chinese labour that has found its way into the already overcrowded retail space.
In the past we have organised foreign nurses and doctors to treat with shortages and the migration of local professionals. We therefore have experience with targeted immigration, even if temporary, in order to address our needs. Our focus has been on “importing” corporations in the form of foreign direct investment. However, for a number of different reasons, the labour required for these projects also comes from abroad. At present, we need to increase aggregate demand in the onshore economy in a more sustainable manner. We also need reverse the brain drain. or just as with health sector replace the brain drain by welcoming foreign nationals with the skill set that can support our development objectives. Immigration has to factor into the equation because the developmental requirements exist today. The debts we are incurring to fund our current lifestyle has to be paid back in the future. If we do not develop a self-sustaining onshore economy, we will continue to rely on the volatile and depleting rents from the energy sector to our peril. Starting a process of innovation from scratch or seeing to expand a middle-class organically in the face of negative population growth means that we will be ten years into the process and realise we have gone nowhere. The new Minister of Finance says the economy is the priority. It would therefore be useful to call on the former Finance Minister, now in Foreign Affairs, and craft an immigration policy that provides for T&T’s sustainable economic development.
Ian Narine is a broker registered
with the Securities and Exchange Commission.