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Diversifying economy: An absence of funds
But the spotlight should not be placed only on the low levels of entrepreneurship and the dimness of vision for the development of a robust export economy. When identifying reasons as to why we have failed to transform the narrow post-colonial economy, focus should also be placed on the inappropriate nature of the existing financial infrastructure. Pursuing this institutional deficiency is to be the core of the post-script to last week’s column. That column highlighted the failure of the society and economy to develop dazzling entrepreneurial capacity. It noted that risk-aversion amongst the business class with a preference for trading on the foreign exchange earned by the energy sector has continued to be the dominant feature. This inability of the productive sector to dynamically transform the neo-colonial economy in the manner of the Asian Tigers has been the reality, notwithstanding the existence here of many of the factors which could produce a vibrant and diversified economy. Among those factors: the large quantities of foreign exchange (during two relatively long periods) for the purchase of raw materials for the production of semi-finished and finished products. So too has the business elite not taken full advantage of the potential benefit of economic geography, that is, proximity to large developed markets in North America and hundreds of millions of consumers in South and Central America.
Further, this country and Caricom have had several free-trade agreements (a few of them for a couple decades now) with regions and countries in South, North and Central America and also in Europe. In this respect, T&T has developed something of an export capacity behind a fairly extensive range of protective barriers within Caricom. However, the business community here has not effectively penetrated in any significant manner the export markets outside of Caricom. One reason for such a failing has been the timidity of regional ventures. The weakness of the regional administrative bureaucracy has imposed strictures on achieving the full potential of the Caricom Single Market and Economy. This opportunity to combine the resources of Caricom to produce and sell goods and services outside of the region has been prisoner to insularity, bureaucracy and the lack of political will on the part of governments from Jamaica in the North to Guyana and Suriname in the South and all the other countries in-between. But while vision and entrepreneurship have been lacking, the manufacturing sector could plead that the financial infrastructure to fund investment has not been supportive of risk-taking in crucial areas of production.
It has become the norm for assessments of the strength and viability of the financial and commer- cial banking sub-sectors to be based on the ability of banks to declare profits amounting to $800 million with bank assets reaching upwards of $15 billion.
Surely stability, the existence of prudential criteria and profitability in the sector are vital to avoid the financial meltdown experienced two years ago in the US. There is lacking, however, a discussion on the orientation and loan portfolios of the finance houses and banks to decide whether the sector is making a contribution to sustainable growth, diversification and development of the economy. Little attention and discussion have been engaged to find out whether or not the financial institutions are structured and inclined towards investing in productive and dynamic ventures to transform the economy from its traditional trading moorings and dependence on the energy sector. Back in the mid 1960s, after a failed experiment with the industrialisation by invitation model of Arthur Lewis, the Williams Government established the Industrial Development Corporation to promote an import substitution programme to have local manufac- turers develop local manufacturing capacity and in so doing benefit from fiscal incentives. In the decades thereafter and indeed continuing into the present, governments have developed policies and programmes to finance and give technical assistance to small and medium-sized productive ventures. During the period of the first oil price boom, the Point Lisas Industrial Estate took decisive shape with the State laying down physical infrastructure and investing in industries. The State-led investment programme was said to be necessary as the private sector had neither the financial capacity, the willingness nor the ability to be involved in high-cost and technologically sophisticated ventures in heavy industrial production.
State bureaucracy and political patronage damned those efforts. Only the CL Financial group under Lawrence Duprey and Centrin among local corporations have ventured into production in downstream energy ventures.
Without seeking in any manner to defend Duprey’s dependence on financial resources from Clico to fund the petro-chemical ventures, he may have felt forced into doing so because of the absence of the financial infrastructure to fund export production. Today, while the Food Production Minister has noted the existence of a $4 billion food import bill and one running at US$4 billion amongst Caricom countries, local and regional agricultural production remains unexploited. Sure govern- ments have pumped relatively small portions of revenue into the Agricultural Development Bank, but the private financial institutions generally stay far from venturing there. Most assuredly, the weakness of the land tenure system, infrastructural inadequacy and the absence of protection from praedial lar-ceny have made investment in food production unattractive. Instead, the financial institutions have found it simple and immensely profitable to trade on government expenditure and transfers from the Treasury. But an export-oriented financial system is not all that is required. The experience of the newly industrialised countries has shown the role played by governments in encouraging growth and development in new sectors. Identification of sectors in which those countries hold a competitive advantage, specific targeting of incentives to companies which display boldness and dynamism to make the cut in an export-led strategy, and the elimination of blocking bureaucracy have been major amongst the initiatives. Crucial to success has been the evolution of a foreign service to identify opportunities and create space for local industrialists abroad. None of what has been said over the last two columns is new and traffic stopping; in fact it is decades old as a means of encouraging diversification and growth. However, after a second period of billions in revenue from the energy sector, the economy has not been transformed. The lack of dynamic entrepreneurial activity, a financial sector based on trading and ineffective government targeting have been amongst the problems.
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