PETER CHRISTOPHER
peter.christopher@guardian.co.tt
As operations return to normal in Trinidad and Tobago, the manufacturing industry has drawn its eyes to activity beyond its borders.
Many within the industry are aware with the country and much of the Caribbean still under restrictions imposed as a result of the pandemic, their markets have been directly impacted and in many cases shrunk.
This was highlighted as far back as June, when CEO of Tobago Tourism Agency Louis Lewis highlighted the hit the industry took as result of hotels across the region being closed and flights from foreign lands not arriving with potential customers to the various islands across the Caribbean.
"We know that Trinidad and Tobago is the manufacturing hub or powerhouse within the region. But I think it is certain for the manufacturing sector to thrive it depends on the demand that is created by the islands chain which depend on tourism. And I think the conversation has started to change and we have to recognise we are interconnected even if we are not necessarily first round beneficiaries of a tremendous flow of visitors,” said Lewis then.
In his assessment of the state of the manufacturing sector economist Vaalmikki Arjoon said the Industry has made significant strides since being given the all clear to reopen especially with regard to vaccinating workers.
"So far, the manufacturing sector appears to have achieved the most critical component in ensuring their operations return to a healthy capacity – vaccinating the bulk of its workers. This is crucial, as it reduces the health risk to the companies’ labour force so there is improved work flow, room for increased productivity and greater confidence in the sector for meeting local and export demand. This is one factor that builds the expectation of higher earnings and, consequently, cash flows in the sector, therefore strengthening their position to access funding from financial institutions going forward," said Arjoon.
He explained that to get back to a level of productivity was crucial, given the declines experienced within the sector because of the pandemic.
"The CBTT (Central Bank of Trinidad and Tobago) data shows after activity fell in the first two quarters of 2019 by -2.5% and -1.5% respectively, the sector’s performance improved and grew by a quarterly average of 2.4% from July 2019 to March 2021, with the best performance over January to March 2020 of 4.1%. Such encouraging performance may have continued, had it not been for the effects of the global pandemic. By the second quarter of 2020, activities in the sector declined by -7.3%, followed by a marginal growth in the third quarter of 0.5% and a decline of -0.3% in the fourth quarter," Arjoon reminded.
Like Lewis had pointed out months earlier, Arjoon noted that the lack of tourism across the islands also negatively affected the sector.
"The various lockdowns in the private sector since 2020, not just locally but internationally, caused our manufacturers to face declines in their local sales and export earnings," he said, "For instance, the shutdown of the tourism sectors in the wider Caribbean region meant substantially lower purchases of food items produced by our local food processors, as hotels, restaurants etc. were either closed or operating at minimum capacity. Production levels locally were also drastically slashed – apart from having to operate at a lower capacity with fewer workers given the lockdown restrictions, manufacturers were not able to import adequate raw materials and other items essential for the production process, including equipment, as their foreign suppliers were either shut down or operating at a low capacity."
Arjoon also noted that key international ports and trade routes were closed which negatively affected the production process, and manufacturers ability to export.
"The fall in production and lower export demand for manufacturers would have been partially reflected in the fall in non-energy exports (year-on- year) of 34% and 32% in the second and third quarters of 2020 respectively," said Arjoon, who also noted that the industry also saw a boost as certain foreign markets reopened.
He said, "Despite manufacturing activity falling in the last quarter of 2020, non-energy exports increased by 22% in this period. Some of this may have been attributed to the manufacturing sector, given the increase in demand for items such as processed foods and non-alcoholic beverages due to the gradual re-opening of certain US states."
He expected the trend of increased demand to continue as more markets opened.
"For the first half of this year, the pent-up pandemic demand unleashed a surge in investment and consumption activities in large economies when they re-opened, including the US, EU and China. This, together with the gradual re-opening of other Caribbean economies, provided opportunities for local manufacturers to increase their exports. Indeed, as tourist activities pick up in next two years in other Caribbean countries, the demand for local food items manufactured by our food processors will improve," said Arjoon.
However he believed they would require more access to forex to achieve the necessary production to meet that demand.
"It is, however, essential for manufacturers to be allotted more forex to be able to increase their import needs of raw materials to facilitate production and meet some of this export demand. In the first six months of this year, authorized foreign exchange dealers have purchased an additional US$2.5 billion, partially due to the small increase in export earnings from higher oil prices – this should hopefully help banks to better support the forex needs of manufacturers, thereby better allowing them to increase production and foreign sales," he said.
Arjoon warned however that this surge in demand could be "a double edged sword for the sector" as they run the risk of falling out of favour with their clients if they are unable to provide what is required.
"The excess global demand has made it difficult for suppliers to fill purchase orders for raw materials and other inputs for production, therefore some manufacturers have to wait lengthy times to receive these inputs from abroad, which stalls the production process. For instance, the pent up demand has caused manufacturing in China to increase by 38.6% in the first half of this year, but this means that essential inputs for production would have been sent to China as opposed to other economies, including ours," he said, "Lower global supply of these raw materials also caused their prices to increase, suggesting a higher cost of production, which is compounded by the increase in international shipping costs. This can impede the ability of the manufacturing sector to meaningfully increase their production levels and exports. If we are unable to therefore satisfy for food items for hotels and other businesses. as the tourism segments re-open, our local manufacturers could lose market share to other regional/international food processors."
There were a few ways he felt that the sector could be helped along by the state and other local stakeholders
"Certain interventions by the state can help to ensure that activities in the sector grow and they are better poised to adequately capture some of the increased global demand. The EXIM bank has helped to alleviate some of the forex woes for many companies, but they are not meant to replace the banks, only complement. Additional stimulus where small manufacturers can access some of the excess liquidity in the banking sector is a necessary step, coupled with improvements in the ease of doing business, including digital access to import licenses, faster granting of building permits and accelerated access to imported raw materials etc. to name a few. Larger supermarket chains can also provide more support to small local food processors by providing them with more shelf space for their items," he said.
The Trinidad and Tobago Manufacturers Association has already began talks concerning increasing exports.
This week, the association, lead by TTMA President Tricia Coosal met with outgoing Market Head of the Anglo Dutch Caribbean, Patricio Torres and Josue de la Maza who is set to take on the role from September 2021 to discuss TTMA’s Export Manufacturing Strategy.
The Export Manufacturing Strategy's goal is double non-energy exports by 2025.