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Saturday, July 5, 2025

Af­ter re­vo­ca­tion of OFAC li­cences...

Economist fears greater economic hardship ahead

by

RAPHAEL JOHN-LALL
72 days ago
20250418

Raphael John-Lall

The re­vo­ca­tion of the li­cences to joint­ly ex­plore gas fields in Venezuela will on­ly lead to greater eco­nom­ic hard­ship in T&T, warns econ­o­mist Pro­fes­sor Patrick Wat­son.

He said this adds to the ex­ist­ing “com­pli­ca­tions” of T&T’s al­ready trou­bled econ­o­my.

“Re­cent events have not helped us, which is the re­vo­ca­tion of the Of­fice of For­eign As­sets Con­trol (OFAC) li­cences which has stopped ex­plo­ration of gas with Venezuela. The Gross Do­mes­tic Prod­uct (GDP) has been in de­cline. From 2015 it has been on a con­stant path down­wards, there is an up­ward move­ment in 2019, then down­ward and up­ward again. That is be­cause we have had, gen­er­al­ly speak­ing, growth that has ei­ther been in re­cent times neg­a­tive or on­ly very slight­ly pos­i­tive. The GDP per capi­ta has been in de­cline. All of this has been ac­com­pa­nied by neg­a­tive fis­cal bal­ances and that has added to the na­tion­al debt,” he ex­plained.

Wat­son made the com­ments while speak­ing at a we­bi­nar on Wednes­day ti­tled, “The T&T Econ­o­my in the Sec­ond Quar­ter of the 21st Cen­tu­ry” host­ed by the Trade and Eco­nom­ic De­vel­op­ment Unit (TEDU) of the Uni­ver­si­ty of the West In­dies (UWI), St Au­gus­tine.

He stat­ed that T&T’s eco­nom­ic for­tunes have tra­di­tion­al­ly been linked to the en­er­gy sec­tor and the death of the gas agree­ments with Venezuela would on­ly deep­en this coun­try’s com­pli­cat­ed eco­nom­ic sit­u­a­tion.

“The re­cent re­vo­ca­tion by the Don­ald Trump ad­min­is­tra­tion is adding to the com­pli­ca­tions that T&T is fac­ing and what the coun­try will face in the near fu­ture. We were de­pend­ing to a large ex­tent on the Drag­on gas deal and that cer­tain­ly is off the ta­ble, at least in the near fu­ture. We have al­so been de­pend­ing on oth­er things which have not come to pass. So, we are not in a very good place,” Wat­son said.

He added the Her­itage and Sta­bil­i­sa­tion Fund (HSF) is a source of for­eign ex­change but is not re­flect­ed in the of­fi­cial re­serves.

“It fell dras­ti­cal­ly in 2022 to rise again not nec­es­sar­i­ly be­cause of a lot of in­puts in­to it but be­cause of prop­er man­age­ment I would say, rea­son­ably good man­age­ment by the Cen­tral Bank that caused it to rise and it is now in the re­gion of $5.5 bil­lion, its net as­set val­ue. How­ev­er, the for­eign ex­change re­serves have been dwin­dling. Al­so, the for­eign di­rect in­vest­ment (FDI) has been dry­ing up and it is large­ly be­cause there is a strong re­la­tion­ship in the falling for­tunes of the hy­dro­car­bon sec­tor. For­eign ex­change is the lifeblood of economies like T&T and it af­fects every as­pect of the eco­nom­ic well-be­ing. My view is that all the stan­dard in­dices of well-be­ing like growth, in­fla­tion, em­ploy­ment, so­cial ser­vices, are di­rect­ly and in­di­rect­ly re­lat­ed to the health of for­eign ex­change re­serves,” he fur­ther ex­plained.

Wat­son al­so not­ed that T&T has the largest man­u­fac­tur­ing and re­tail sec­tors in the Cari­com re­gion how­ev­er, to a large ex­tent they are not a net earn­er of for­eign ex­change.

“They do earn for­eign ex­change but it is not a net earn­er. Every­body in this coun­try de­pends on the hy­dro­car­bon sec­tor to gen­er­ate the for­eign ex­change that we need and the crunch has in­ten­si­fied de­spite the rea­son­ably good prices and it is large­ly be­cause the forex now is not as re­li­able as be­fore.”

SMEs need to get in­to man­u­fac­tur­ing

Mean­while, chair­man of the Con­fed­er­a­tion of Re­gion­al Busi­ness Cham­bers, Vivek Char­ran who al­so spoke em­pha­sised the im­por­tance of im­port sub­sti­tu­tion and the po­ten­tial of small and medi­um en­ter­pris­es (SMEs) to get in­to man­u­fac­tur­ing in T&T.

“There is tremen­dous po­ten­tial par­tic­u­lar­ly with­in the small and medi­um busi­ness­es to get in­to the man­u­fac­tur­ing sec­tor be­cause there is a lot of room with­in the man­u­fac­tur­ing sec­tor for many of the things...There are many items that can be pro­duced by small ma­chines, au­to­mat­ed and se­mi-au­to­mat­ed that are af­ford­able and these items are sin­gle-use items that we all im­port in­to T&T,” he ex­plained.

He fur­ther be­lieves that this gives fur­ther op­por­tu­ni­ties to small en­ti­ties in the re­tail sec­tor to get in­to man­u­fac­tur­ing.

“Even be­fore we start to talk about ex­port­ing and earn­ing our own forex, one of the ben­e­fits of in­creas­ing the depth and the width of man­u­fac­tur­ing is by al­low­ing small and medi­um busi­ness­es in the pri­vate sec­tor which were tra­di­tion­al­ly re­tail to get as­sis­tance of con­ces­sions to come in­to the man­u­fac­tur­ing sec­tor. “What it would mean is that as larg­er com­pa­nies may not see the economies of scale but for much small­er-type busi­ness­es get­ting in­to this would be a step in the right di­rec­tion away from re­tail be­cause what you would be do­ing in par­tic­i­pat­ing is im­port sub­sti­tu­tion,” he ex­plained.

He al­so spoke about the chal­lenges of get­ting in­to man­u­fac­tur­ing and used the eTecK parks as an ex­am­ple.

“The biggest prob­lem in T&T now for many small busi­ness­es and where I have al­so hit a wall is we have al­ways been hear­ing is the eTecK parks have been set up to as­sist in bring­ing peo­ple in­to man­u­fac­tur­ing. The rea­son for that is when you look at the fac­tors of pro­duc­tion of man­u­fac­tur­ing, there is plant cap­i­tal, land, and in­for­ma­tion tech­nol­o­gy, but one of the largest costs, par­tic­u­lar­ly if you are get­ting in­to small man­u­fac­tur­ing, is set­ting up your plant which re­quires land. We are in a re­al es­tate bub­ble in T&T and when you look at the price of re­al es­tate it just keeps go­ing up or it hov­ers at a very high lev­el par­tic­u­lar­ly when it comes to com­mer­cial land.

“The eTecK parks were sup­posed to be parks that were pur­pose-built to al­low peo­ple to get in­to dif­fer­ent as­pects of man­u­fac­tur­ing and food pro­cess­ing. At the end of 2023 to 2024 many start­ed to leave the eTecK parks and the rea­son is many were con­sul­tants for en­er­gy and things were not go­ing good and many were leav­ing. Many in food pro­cess­ing end­ed up leav­ing be­cause of forex is­sues,” Char­ran said.

He stat­ed what he and oth­er busi­ness­peo­ple ob­served was that the eTecK parks be­came very “run­down.”

“The places up for rent have a lot of struc­tur­al is­sues like mould, wa­ter dam­age and leaks. Then there is the floor­ing it­self and the con­crete. There is a lot of work that needs to be done. Fi­nal­ly, when I got a meet­ing, I was told that the rent is $32,000 and I asked if it is VAT in­clu­sive and they said no. So, that works out to be $36,000 which works out to $500,000 a year. I said to them what is the con­ces­sion then for the park and they said well you have the ap­proval. But if we are se­ri­ous about man­u­fac­tur­ing and if we are se­ri­ous about bring­ing more peo­ple in­to man­u­fac­tur­ing, it can­not be that on­ly the very wealthy should get con­ces­sions or on­ly the very wealthy should be al­lowed to in­vest and that the gov­ern­ment should work on­ly with the very wealthy and the largest firms in T&T be­cause they are the ones who will cre­ate em­ploy­ment and ex­pand,” Char­ran stat­ed.

He al­so com­plained there are busi­ness own­ers in T&T earn­ing mil­lions and have over­seas con­tracts and de­spite this, they do not keep their US dol­lars in T&T.

“The ma­jor­i­ty of their US dol­lars are kept in for­eign bank ac­counts and it gives them a wider range of fi­nan­cial op­tions and it is very lu­cra­tive to in­vest in the Amer­i­can stock mar­ket com­pared to keep­ing all their rev­enue in T&T and that is a lot of what is hap­pen­ing and peo­ple in the man­u­fac­tur­ing sec­tor who are very suc­cess­ful and be­came very wealthy and are mak­ing a lot of US dol­lars rev­enue. So, it is not com­ing in­to T&T. It is not bol­ster­ing or in­creas­ing the lev­els of re­serves in our banks. It is not be­ing put in fixed de­posits, it is not be­ing put in sav­ings ac­counts, it is not be­ing put in oth­er types of in­stru­ments,” Char­ran stat­ed.

How­ev­er, he re­mained op­ti­mistic.

Char­ran ad­vised that di­ver­si­fi­ca­tion could hap­pen in a “small way” but added that if T&T could al­low busi­ness­es to di­ver­si­fy in­to a vast range of prod­ucts that can eas­i­ly be man­u­fac­tured by au­to­mat­ic and se­mi-au­to­mat­ic ma­chines then the re­al­i­ty is that T&T can have a greater lev­el of im­port sub­sti­tu­tion.

“There can be a wide range of ac­ces­si­bly priced prod­ucts and these would be con­sumer-type prod­ucts,” he said.


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