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Economic reforms and T&T’s growth outlook

Published: 
Thursday, August 9, 2018

Only a few weeks ago, the IMF released a statement on T&T embracing the reforms undertaken by the twin-island sovereign in recent months. After two years of economic recession the IMF projects a return to growth in 2018.

While such a recession is to be expected in a country that is very dependent on its commodities—particularly gas reserves, in the case of T&T—the reforms could be a game changer. The rebound in commodity prices is certainly welcome news, but the progress towards fiscal consolidation and economic diversification is even more significant for the sustainability of the country’s long-term development.

According to the IMF, GDP contracted by 2.6 per cent in 2017, a marked improvement from the 6.1 per cent drop in 2016. While gas production rebounded in late 2017, oil output remained flat. The non-energy sectors also failed to provide respite from the oil and gas crisis, with construction and financial services largely idle due to delays in public projects and a foreign exchange shortage.

Regained optimism amid rebounding commodity prices and regulatory reform

The reforms have brought about improved fiscal performance and a brighter—albeit modest—medium-term economic outlook, which was reflected in our third Oxford Business Group Business Barometer: T&T CEO Survey.

Regulatory changes and the recovery of commodity prices have led local business leaders to adopt a more optimistic perspective. In fact, their forecasts for GDP growth far exceed those of the IMF: while the fund expects nearly flat growth of 0.25 per cent for 2018, 52 per cent of survey participants project expansion of up to 1 per cent for the year, and 15 per cent expect this figure to surpass 2 per cent.

Furthermore, 69 per cent have positive or very positive expectations of local business conditions in the coming 12 months.

This marks a considerable rise from the 57 per cent who had positive expectations in our survey released late last year, and it is a nearly four-fold increase on the 18 per cent figure recorded in our inaugural OBG Business Barometer in T&T two years ago, when the nation was in the midst of an economic crisis.

This wave of recovering optimism is a key factor motivating plans to make capital outlays, with 67 per cent of participants reporting that their company is likely or very likely to make a significant capital investment in the next 12 months

Tax environment remains competitive

In a recent interview with OBG, Christopher Lewis, president of InvesTT, the domestic investment promotion body, said that the relatively low cost of doing business in T&T makes it a particularly attractive investment destination.

“In spite of the recent increase in corporate taxation, with rates going up from 25 per cent to 30 per cent, the country is still very competitive when compared to other jurisdictions in the Americas or the Caribbean,” he said.

CEOs appear to agree, as a notable majority (64 per cent) find the tax environment to be competitive or very competitive on a global scale. This was only a slight decline from 67 per cent in last year’s survey.

Given the global trend of declining corporate tax rates, T&T’s 5 per cent increase is likely to weigh on global competitiveness. However, the government needs to prioritise fiscal strength over the global tax race for the time being.

Indeed, T&T’s focus is internal, but the trends of its Caribbean neighbours remain key to its economic performance.

Guyana is perceived to be the largest player by far influencing T&T’s interests, with 56 per cent of respondents naming it as the Caricom country with the most potential as an export and/or investment destination. This was followed by Jamaica, a distant second with 27 per cent, and Barbados with 9 per cent.

Shortage of soft skills

T&T is also facing a skills mismatch. As we see in many emerging markets where we conduct our CEO surveys, leadership (49 per cent) was cited as the skill in greatest need in the country, followed by customer service (29 per cent).

This indicates a greater perceived shortage of soft skills than that of science, technology, engineering and maths capabilities.

Persistent challenges to address for longer-term growth

With all this in mind, our outlook for T&T is cautiously optimistic: indicators have certainly taken a positive turn, but we must also understand the unique challenges facing the twin-island nation, including volatility in energy prices,v pending reforms, delayed public projects and a lack of soft skills.

Furthermore, to maximise growth potential, the government will need to promptly execute the tax reform and address the foreign exchange shortage. C-suite executives agree that these efforts will require consistent measures to diversify the economy and increase the competitiveness of non-energy sectors.

Investor sentiment improving

A sizeable majority of executives interviewed for the 2018 edition of the Business Barometer: T&T CEO Survey carried out by Oxford Business Group (OBG) had positive expectations for the coming 12 months, in a sign that the country’s fiscal consolidation efforts, assisted by rising commodity prices, are beginning to bear fruit.

As part of its survey on the T&T economy, the global research and consultancy firm asked more than 100 C-suite executives from across the country’s industries a wide-ranging series of questions on a face-to-face basis aimed at gauging business sentiment.

From the CEOs interviewed, 69 per cent felt either positive or very positive about local business conditions for the next 12 months, up from 57 per cent in OBG’s last survey, which was released in late 2017.

In answer to a separate question, 67 per cent of business leaders thought it likely or very likely that their company would make a significant capital investment within the same timeframe, compared to 60.7 per cent previously.

Respondents’ positive outlook may well be down in part to their largely favourable views on T&T’s tax environment and the relatively low cost of doing business in the country. Almost two-thirds (64 per cent) described the tax climate as competitive or very competitive on a global scale, despite a recent increase of 5 per cent in corporate taxation.

Business leaders were also confident that the economy would return to growth in 2018, following two years of recession, with more than half (52 per cent) of those surveyed expecting GDP to reach 1 per cewnt for the year, well above recent forecasts made by the IMF of 0.25 per cent.

This survey has been designed to assess business sentiment amongst business leaders (chief executives or equivalent) and their outlook for the next 12 months. Unlike many surveys, the OBG Business

Barometer is conducted by OBG staff on a face-to-face basis, across the full range of industries, company sizes and functional specialties. The results are anonymous.

OBG Business Barometer is based on data from companies with revenue within the following parameters, among others:

• 81 per cent of companies surveyed were private

• 25 per cent of companies surveyed were international

• 31 per cent of companies surveyed were regional

• 44 per cent5 of companies surveyed were local

The data generated allows for analysis of sentiment within an individual country, as well as regionally and globally. Additionally, comparisons can be drawn between both individual countries and regionally. The results are presented statistically within infographics and discussed in articles written by OBG managing editors.

T&T CEO survey About Oxford Business Group

Oxford Business Group is a global research and consultancy company with a presence in over 30 countries, from The Americas, Africa and Asia to the Middle East. A distinctive and respected provider of on-the-ground intelligence on many of the world’s fastest growing markets, OBG has offices in London, Berlin, Dubai and Istanbul, and a network of local bureaus across the countries in which we operate.

Through its range of products, OBG offers comprehensive and accurate analysis of macroeconomic and sectoral developments, including banking, capital markets, tourism, energy, transport, industry and ICT.

OBG provides business intelligence to its subscribers through multiple platforms: Economic News and Views, OBG Business Barometer—CEO survey, roundtables and conferences, global platform—exclusive video interviews, the report publications and its consultancy division.

 

JAIME PEREZ-SLOANE
DE ZUNZUNEGUI
Regional editor,
North Africa and the Americas,
Oxford Business Group
 

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