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.