Non-en­er­gy man­u­fac­tur­ing has been iden­ti­fied by suc­ces­sive gov­ern­ments as key to the for­ma­tion of a T&T econ­o­my that is less de­pen­dent on the en­er­gy sec­tor.

But 40 years af­ter the late Prime Min­is­ter George Cham­bers em­barked on an ef­fort to make this coun­try a ma­jor man­u­fac­tur­ing cen­tre and 50 years af­ter Sir Arthur Lewis sem­i­nal work, man­u­fac­tur­ing in T&T faces ma­jor head­winds.

From the is­sue of economies of scale, to a re­li­able sup­ply of for­eign ex­change (forex) to the ease of do­ing busi­ness, man­u­fac­tur­ers have con­tin­ued to per­se­vere with some de­gree of suc­cess but with re­al chal­lenges in mov­ing for­ward.

For­mer Trade Min­is­ter Vas­ant Bharath says the biggest prob­lem fac­ing T&T’s man­u­fac­tur­ing sec­tor is its con­tin­ued re­liance on im­port raw ma­te­ri­als, turn­ing this in­to a fin­ished prod­uct and then try­ing to ex­port those prod­ucts.

“And of course we don’t have the economies of scale to be able to do that. So we are not go­ing to be com­pet­i­tive on in­ter­na­tion­al mar­kets,” Bharath added.

Fur­ther, he said man­u­fac­tur­ers must have the nec­es­sary in­cen­tives “not just on the books” but in re­al­i­ty to make their op­er­a­tions ef­fec­tive and ef­fi­cient, re­it­er­at­ing that the ease of do­ing busi­ness has to be num­ber one on Gov­ern­ment’s pri­or­i­ty list.

T&T is ranked 105 among 190 economies in the ease of do­ing busi­ness, ac­cord­ing to the lat­est World Bank an­nu­al rat­ings.

Con­sis­tent avail­abil­i­ty of forex was iden­ti­fied by Bharath as an­oth­er hin­drance to the ex­pan­sion of the sec­tor.

To the for­mer Trade Min­is­ter there are sig­nif­i­cant oth­er dis­in­cen­tives like de­lays in the re­fund of val­ue added tax, forc­ing man­u­fac­tur­ers to some­times wait as long as two and three years to get their re­funds to help main­tain their cash flow.

Fur­ther, Bharath said, there’s no point for the coun­try to com­pete in ar­eas in which coun­tries like Chi­na, In­dia and the US are dom­i­nant be­cause T&T will be “blown out of the wa­ter” due to economies of scale.

But econ­o­mist Dr Justin Ram be­lieves there is a place for man­u­fac­tur­ers in T&T and what is cru­cial is a strate­gic ap­proach to mar­ket pen­e­tra­tion and com­pet­i­tive­ness.

He not­ed that man­u­fac­tur­ing in T&T is quite var­ied, rang­ing from PVC pipes to food prod­ucts. And while this sec­tor is key, the coun­try must en­sure that the com­pet­i­tive­ness of the econ­o­my is con­ducive to all types of ac­tiv­i­ties to achieve holis­tic trans­for­ma­tion.

“That is an im­por­tant dis­tinc­tion be­cause de­pend­ing on where the op­por­tu­ni­ties lie you re­al­ly then want en­tre­pre­neurs to come in and fill those gaps.

“We have to look at the glob­al val­ue chains for ex­am­ple, and this is not nec­es­sar­i­ly for the Gov­ern­ment to do, but for the pri­vate sec­tor to see where they can fill those gaps in that glob­al val­ue chain with their man­u­fac­tur­ing out­puts,” Ram ex­plained.

Dr Vanus James

Gov­ern­ment, how­ev­er, must en­sure it is do­ing every thing to fa­cil­i­tate lo­cal man­u­fac­tur­ing be­com­ing part of these val­ue chains ex­plained Ram.

“This could mean the food val­ue chain, the wa­ter val­ue chain, for ex­am­ple with what Ro­to­plas­tics does with their wa­ter tanks, but it could equal­ly mean much high­er types of man­u­fac­tur­ing which we are not do­ing for ex­am­ple, green economies with re­spect to build­ing so­lar pan­els.

“This is an area T&T can get in­to be­cause it al­ready has cheap en­er­gy and some of the com­po­nents of a green econ­o­my mov­ing for­ward,” Ram not­ed.

But he ar­gued that the coun­try’s pol­i­cy and struc­tur­al trans­for­ma­tion en­vi­ron­ment have not re­al­ly been fa­cil­i­tat­ing to di­ver­si­fi­ca­tion.

The mar­kets, he said, sim­ply do not work in T&T.

“And that means that en­tre­pre­neur­ial ac­tiv­i­ty be­comes very dif­fi­cult. The labour mar­kets do not work be­cause there’s a lot of in­ter­ven­tion by the Gov­ern­ment ei­ther through things like CEPEP or URP or even with ex­ces­sive gov­ern­ment hir­ing in Cen­tral Gov­ern­ment and even through State-owned en­ter­pris­es. So there are a lot of dis­tor­tions there,” Ram ex­plained.

Ad­di­tion­al­ly, he said, the coun­try’s for­eign ex­change mar­ket “does not work at all.”

Ac­cord­ing to Ram de­mand and sup­ply are not “al­lowed” to come to some sort of equi­lib­ri­um.

“We have an over-val­ued ex­change rate which ul­ti­mate­ly is a dis­ad­van­tage for any man­u­fac­tur­ing sec­tor. You can’t com­pete if you have an over-val­ued ex­change rate and you have a labour mar­ket that is not work­ing well.

“What tends to hap­pen is that you have to pay peo­ple high wages but you can­not off-set that be­cause the for­eign ex­change mar­ket doesn’t work,” Ram ex­plained.

He re­it­er­at­ed that the “on­ly thing go­ing” in T&T is the low cost of en­er­gy, but this costs the State a con­sid­er­able amount.

Look be­yond man­u­fac­tur­ing

From the per­spec­tive of serv­ing as an en­gine of re­vi­tal­i­sa­tion, it’s per­haps true to say that the man­u­fac­tur­ing sec­tor pro­vides Gov­ern­ment with lim­it­ed pol­i­cy op­tions, even though it makes sense for the coun­try to do the best that it can with its eco­nom­ic po­ten­tial, says Econ­o­mist Dr Vanus James.

He ex­plained that the sec­tor can­not com­pet­i­tive­ly pro­duce cap­i­tal goods, so lit­tle long-term gain in cap­i­tal deep­en­ing can be ex­pect­ed from pro­vid­ing it cred­it de­signed to boost cap­i­tal pro­duc­tion.

“This is not Chi­na,” James ex­plained adding, “For the same rea­son, it can­not be ex­pect­ed to serve as an en­gine of trans­for­ma­tion­al growth by stim­u­lat­ing pro­duc­tiv­i­ty growth in oth­er sec­tors of the econ­o­my.”

He said Gov­ern­ment could cut the sec­tor’s prof­its tax rate and low­er reg­u­la­tions, but with no sig­nif­i­cant ex­pect­ed gains in terms of com­pet­i­tive ex­tra-re­gion­al ex­ports of new in­no­v­a­tive food and bev­er­ages un­der arrange­ments such as the EU’s eco­nom­ic part­ner­ship arrange­ments, its prospects of re­coup­ing those tax ex­pen­di­tures are mod­est at best.

In this re­gard, James added, with­out the ca­pac­i­ty to con­tribute to do­mes­tic cap­i­tal pro­duc­tion, small man­u­fac­tur­ers bring no spe­cial ad­van­tages of nim­ble­ness and cre­ativ­i­ty com­pared to large ones that would jus­ti­fy spe­cial sup­port­ing Gov­ern­ment poli­cies.

James said, so far, with the twin ad­van­tages of low-cost in­ter­me­di­ates and elec­tric­i­ty, man­u­fac­tur­ing down­stream of the en­er­gy sec­tor has been eco­nom­i­cal­ly com­pet­i­tive far­ther afield than Cari­com.

But apart from emerg­ing chal­lenges with the sup­ply of gas, the sub-sec­tor faces sig­nif­i­cant head­winds in the fu­ture be­cause of the glob­al need to shift away from in­dus­tries based on hy­dro­car­bons to pre­serve the en­vi­ron­ment.

Fur­ther, James not­ed, that even with­out those con­ser­va­tion head­winds, oth­er large-scale com­peti­tors are build­ing up their gas-pro­duc­tion ca­pac­i­ties.

“And the coun­try’s his­tor­i­cal record is re­plete with ev­i­dence that, in that en­vi­ron­ment, the glob­al mar­ket for LNG is high­ly vul­ner­a­ble to mas­sive neg­a­tive price shocks that put the sec­tor and the econ­o­my at risk of re­peat­ed and sub­stan­tial col­laps­es of net cash flow.

“It should not be for­got­ten that these neg­a­tive shocks are the main rea­son for re­peat­ed calls to di­ver­si­fy the econ­o­my away from the en­er­gy sec­tor as a whole, in­clud­ing en­er­gy-based man­u­fac­tur­ing,” James said.

Vasant Bharath

Hence, he ex­plained, T&T must look be­yond man­u­fac­tur­ing for post-COVID eco­nom­ic di­ver­si­fi­ca­tion, pro­duc­tiv­i­ty growth, ex­port growth and im­port re­straint.

In par­tic­u­lar, the coun­try must look to sec­tors that can grow ca­pac­i­ty to pro­duce cap­i­tal as the ba­sis for com­pet­ing suc­cess­ful­ly in the mar­kets for the broad class­es of goods and ser­vices it im­ports.

James said be­cause of the crit­i­cal role played by cre­ative think­ing, the can­di­date sec­tors are those that can pro­duce and ex­port the in­dus­tri­alised cap­i­tal ser­vices: ed­u­ca­tion, health­care and the cre­ative in­dus­tries such as mu­sic and fash­ion de­sign.

He ad­vised that while tak­ing avail­able ad­van­tage of its nat­ur­al re­source base, such as en­er­gy or sea, sun and sand, T&T must col­lab­o­rate with the world to build suit­able ca­pac­i­ty to de­vel­op win­ning so­lu­tions to the fol­low­ing lo­cal and glob­al prob­lems.

These in­clude af­ford­able growth of the av­er­age lev­el of knowl­edge, skills, and self-con­fi­dence of the work­force to match the chang­ing re­quire­ments of mar­ket com­pe­ti­tion; growth of ac­cess to af­ford­able ad­vanced and re­li­able health­care ser­vices by the work­force en­gaged in the process of com­pe­ti­tion; growth of read­i­ly ac­ces­si­ble and at­trac­tive mu­sic and en­ter­tain­ment, film, fash­ion de­sign, and oth­er cre­ative ser­vices to meet the chang­ing de­mands of an in­creas­ing­ly knowl­edge­able, skil­ful, and self-con­fi­dent work­force.

“Since the coun­try im­ports so­lu­tions in all of these ar­eas, suc­cess will amount to de­vel­op­ment of in­tra-in­dus­try trade in the in­dus­tri­alised tourism ser­vices,” James said.

For ex­am­ple, he added that as il­lus­trat­ed by so­ca, T&T must re­dou­ble its ef­forts to make mu­sic and ex­port it to the world, while im­port­ing mu­sic at the same time.

“Of course, this is where the eco­nom­ic po­ten­tial of To­ba­go fits in­to the favourable na­tion­al op­tions for the fu­ture. With suit­able cap­i­tal in­vest­ments, in­ter­na­tion­al col­lab­o­ra­tion, and ap­pro­pri­ate in­sti­tu­tion­al de­vel­op­ment, it of­fers the coun­try rich po­ten­tial for ex­port­ing the in­dus­tri­al cap­i­tal ser­vices on a very at­trac­tive tourism plat­form.

“More­over, at this time, this win­dow of op­por­tu­ni­ty is wide open, since (oth­er than Cu­ba) Caribbean coun­tries have not yet moved de­ci­sive­ly to ex­ploit it,” James said.