An international financial centre (IFC) has the potential to increase the financial sector’s contribution the economy, says Ram Ramesh, chief executive officer of T&T International Financial Centre (TTIFC). “The mission of the IFC now is to attract and facilitate foreign direct investment in the local financial sector. The financial sector accounts for the second largest in the economy. It accounts for 11 to 12 per cent of our growth domestic product (GDP). It is the second fastest growing sector in the country, growing last year at four per cent. It employs ten per cent of the population as opposed to oil and gas, which accounts for 45 per cent of the economy and accounts for only four per cent of jobs, so there is the potential for the financial services sector,” he said.
Ramesh said there are two strategic objectives of the IFC. “To set up a business environment and to strengthen our brand as a country so we can be seen as an IFC,” he said. To achieve this, Ramesh said T&T must have the human capital and is confident the industry could create up to 3,000 high paying jobs.
“The Government spent more than $3 billion over the last five years in the Government Assistance for Tuition Expenses (GATE) programme. Then there would be 10,000 graduates on a yearly basis. We need to find a way to have them employed and have an industry that would continue to create jobs because there would be 10,000 more graduating next year and the following year.”
Ramesh said the second important step is to set up the infrastructure to facilitate the process. “We need to have broadband and bandwidth to have the capacity for the IFC,” he said. Thirdly, T&T needs to have a tax system to would allow foreigners to operate here. “This would allow us to diversify the economy. With the appropriate legislation, this would allow us to build strategic partnerships with outsiders,” he said.
Ramesh said setting up and building an IFC will take time. “This would take five to ten years to happen and would not happen overnight.” Ramesh said an IFC is not a new concept. When Winston Dookeran was governor of the Central Bank, he wrote to then finance minister Gerald Yetming about the possibility of setting up an IFC. After government officials returned from Dubai in 2007, they started to seriously examine the idea of setting up an IFC as Dubai had set up one as an alternative to its declining energy reserves.
Ramesh said T&T looked at the IFC models in Hong Kong, Dubai, Cayman Islands, Barbados, among others, to develop the TTIFC framework.
He identified three IFC concepts.
“The first one is the financial centres that are attractive as tax havens and the Cayman islands is an example. The financial centres, like Mumbai, fall into the second category, and then the third category include those large ones, like New York, London and Tokyo.” According to Ramesh, consultants said T&T has to walk before it runs and the big IFCs—like New York and Tokyo—would not now be a realistic model for T&T. Ramesh was speaking on Tuesday at the Institute of Chartered Accountants of T&T (ICATT) finance and accounting conference at the Hyatt Regency Trinidad hotel, Port-of-Spain.
Ramesh said the TTIFC wants to create a new sub-sector called Financial Institutions Support Services. Finance Minister Larry Howai had mentioned this new sector in the 2012-2013 budget. “The T&T IFC Management Company Ltd is already engaging financial institutions to consider consolidating their national and regional back office operations in T&T. Shared service centres would now become the core of a new financial institutions support services industry. In the light of international competition for such businesses, we need to act quickly and we need to act decisively,” Howai had said. The Finance Minister said he expects the building of this financial services sub-sector to generate substantial benefits.
“It will absorb the continual flow of skilled workers from the tertiary educational institutions. It could provide over the next five years 3,000 good quality jobs for knowledge workers, and on a multiplier effect basis, 6,000 to 12,000 total jobs could be created from the development of the industry. The impact on the gross domestic product would be immediate and positive,” Howai said.
Howai said: “I propose to introduce legislation with associated tax incentives early in the new fiscal year to support the building of the Financial Institutions Support Services industry. Moreover, to be a financial centre, it is imperative that our initiatives in this area be encapsulated in a strong legislative framework.
“I intend to bring forward legislation to Parliament during the coming year, including a new Securities Act, a new Insurance Act, the Credit Union Act as well as legislation to effect electronic payments in the government services.”
In the interview, Ramesh said on August 29, 2012, Scotiabank T&T executed a memorandum of understanding with the IFC Management Company. This initiative will result in new investments of $100 million and jobs for 200 people. Negotiations are currently ongoing with two other financial institutions to locate similar facilities here. Ramesh said T&T “is late in the game” and there are other regional countries ahead of T&T.
“Jamaica is a good example where 12,000 jobs have been created from this industry. We have some catching up to do. The biggest challenge that we have is there is no urgency as we have oil and gas, there is nothing to light the fire that would allow this IFC to happen tomorrow.
“Jamaica, on the other hand, does not have oil and gas to fall back on while we have it. We need to realise that oil and gas is not sustainable forever. “We are not at the top of the game but, at the same time, we are not at the bottom of the pile,” he said.
Small states as IFCs
Prof Avinash Persaud, who also spoke at the conference, said there is a need for small countries like T&T to become IFCs. “Can T&T, land of intelligence, be the regional financial centre? We live in a world where the world’s successful economies—China, India, Brazil, Indonesia—are all major economies that are under-financialised. We are a small state and we cannot out-compete with China in manufacturing or Brazil in agriculture. The wages there are also low and we cannot compete against that. But small states can become IFCs, like Hong Kong, the Cayman islands, Singapore and Barbuda,” Persaud said.
He said it is not impossible to compete against the larger players, like New York and London IFCs, adding that they set the rules to the game. “They have the record for the largest money laundering in the world. If you want to be an IFC, you cannot follow others. If T&T wants to be a leader, it must innovate so we can have this sector long after the oil and gas run outs,” Persaud said.