“We are in a per­fect storm… in a ves­sel which is poor­ly en­gi­neered to take sus­tained pres­sure and un­der the com­mand of of­fi­cers who ap­par­ent­ly can­not bring them­selves to face up to the re­al­i­ties of the storm or the in­ad­e­qua­cies of the ves­sel they are nav­i­gat­ing! So the cri­sis is not ‘im­pend­ing’, it has been with us for some time.”

That is the view of Econ­o­mist Dr Ter­rence Far­rell as he spoke with the Busi­ness Guardian on the state of the econ­o­my days be­fore the Fi­nance Min­is­ter Colm Im­bert’s 2022 bud­get pre­sen­ta­tion.

Dr Far­rell who was a for­mer head of the Eco­nom­ic Ad­vi­so­ry Board and one of the coun­try’s lead­ing eco­nom­ic minds in­sist­ed that the is­sues of no eco­nom­ic growth in the last ten years, ris­ing debt to GDP, falling of­fi­cial for­eign re­serves and the en­er­gy sec­tor fac­ing ma­jor chal­lenges to long-term sus­tain­abil­i­ty are re­al­ly symp­toms of the un­der­ly­ing, con­tin­u­ing cri­sis which is a de­pen­dent, rent-seek­ing econ­o­my which has been rocked by two sig­nif­i­cant ex­ter­nal shocks.

The shocks he ex­plained are the struc­tur­al change in the glob­al en­er­gy mar­kets which be­gan in 2014 and is on­go­ing, and the Covid-19 shock of 2020 which is al­so on­go­ing. When shocks oc­cur, Far­rell posit­ed, ad­just­ment is the first im­per­a­tive. If the shock is mi­nor and short-lived, you ride it out; but if it is ma­jor and struc­tur­al, you have to ad­just.

He said both ex­ter­nal shocks en­coun­tered lo­cal con­di­tions which were un­pro­pi­tious for ef­fec­tive ad­just­ment.

“Our do­mes­tic en­er­gy pol­i­cy has been in dis­ar­ray since 2007 and led to pro­duc­tion de­clines (both oil and gas), and then im­pact­ed ad­verse­ly the down­stream petro­chem­i­cals in­dus­try, it­self a ma­jor source of for­eign ex­change earn­ings. We sus­pend­ed prop­er­ty tax­a­tion, and reck­less­ly spent mon­ey, in­clud­ing NGC’s re­serves, on failed projects like Petrotrin’s gas-to-liq­uids, Life­S­port, Beetham waste­water, WASA, state en­ter­pris­es which add no val­ue, and on and on!” Far­rell told BG.

Sec­ond­ly, and con­sis­tent with our cul­tur­al predilec­tions he not­ed our pol­i­cy­mak­ers chose to in­ter­pret the first shock as tem­po­rary and elect­ed to ‘ride it out’, draw­ing down our for­eign ex­change re­serves, bor­row­ing lo­cal­ly and abroad, mak­ing to­ken ad­just­ments in ex­pen­di­ture, and sup­press­ing for­eign ex­change util­i­sa­tion. The Covid-19 shock sim­ply made things worse be­cause it de­mand­ed a re­sponse which re­quired ex­pen­di­tures to be main­tained and even in­creased in some ar­eas, and hence forced ac­cess to the Her­itage and Sta­bil­i­sa­tion Fund (HSF) and even more bor­row­ing the econ­o­mist not­ed.

For Dr Far­rell our cul­tur­al predilec­tions is the pro­cliv­i­ty to want to en­joy the omelette, but not break any eggs.

“The de­pen­den­cy-en­ti­tle­ment syn­drome which en­er­gy sec­tor rents have fos­tered over the last 50 years he as­serts make it dif­fi­cult for politi­cian and cit­i­zen alike to con­tem­plate a dif­fer­ent par­a­digm.

This re­sults in cit­i­zens want­i­ng gov­ern­ment to sub­sidise every­thing “be­cause we have plen­ty oil and gas” al­though he ar­gued af­ter 100+ years in the busi­ness we still have no ca­pa­bil­i­ty to ex­plore and find oil and gas and we have weak ca­pa­bil­i­ty to ne­go­ti­ate with and mon­i­tor the multi­na­tion­als who do have the ca­pa­bil­i­ty. Far­rell not­ed.

The for­mer deputy Gov­er­nor of the Cen­tral Bank of Trinidad and To­ba­go said we per­sist with waste­ful sub­si­dies for wa­ter, fu­el, elec­tric­i­ty, trans­port to To­ba­go, though we still can’t get wa­ter 24/7, elec­tric­i­ty goes fre­quent­ly, and there is in­ad­e­quate pub­lic trans­porta­tion. For him there is a need to en­vi­sion and em­brace a more dis­ci­plined, tol­er­ant and pro­duc­tive so­ci­ety, which is not pre­pared to live ‘like crabs in a bar­rel, fight­ing for ac­cess to the en­er­gy sec­tor rents’.

He said ad­just­ment is the first im­per­a­tive not­ing it is hard­er to get growth go­ing if the econ­o­my is not sta­bilised.

For the for­mer head of the eco­nom­ic ad­vi­so­ry board, growth will fol­low from the oth­er two im­per­a­tives — Di­ver­si­fi­ca­tion, and Trans­for­ma­tion.

Dr Far­rell said, “Fun­da­men­tal­ly, growth re­sults from In­vest­ment. We don’t have Na­tion­al In­come Ac­counts so we don’t know what our in­vest­ment rate is. The re­cent S&P re­port es­ti­mat­ed that our in­vest­ment rate was about 12%. I don’t know where they got that num­ber from and I don’t know if it’s gross or net in­vest­ment. What­ev­er the source and what­ev­er the mea­sure, if it’s any­where close to re­al­i­ty, it is pa­thet­ic! We need to have an In­vest­ment/GDP ra­tio of around 30%. If we are not in­vest­ing how can we ex­pect the econ­o­my to grow?”

But even if we get in­vest­ment Dr Far­rell said it has to be in the cor­rect ar­eas. For ex­am­ple he said in­creas­ing in­vest­ment in im­port sub­sti­tu­tion projects which have no hope of scal­ing up in­to ex­ports is, frankly, a waste of time. We have to in­vest in projects which ad­dress the glob­al mar­ket­place or have the po­ten­tial to do so. They can ini­tial­ly be small, but they must have the “DNA of an ele­phant,” he re­mind­ed.

In try­ing to trans­form the econ­o­my and have sus­tain­able growth Dr Far­rell ar­gued we should not look to re­build what we had be­cause to do so would be to re­build a de­pen­dent, rent-seek­ing econ­o­my, dri­ven and dom­i­nat­ed by the gov­ern­ment sec­tor.

The rents from the en­er­gy sec­tor he as­sert­ed will be much low­er go­ing for­ward, in part be­cause we have to in­cen­tivise the multi­na­tion­als to find and pro­duce as much gas as pos­si­ble, at as com­pet­i­tive a price as pos­si­ble, com­pet­i­tive for both the down­stream Petro­chem­i­cals in­dus­try and for LNG. We will need those en­er­gy sec­tor rents to fund in­vest­ment, not to fund con­sump­tion through the gov­ern­ment bud­get he ob­served.

“The tra­di­tion­al way of think­ing in terms of ‘Man­u­fac­tur­ing’ or ‘Agri­cul­ture’ is sim­ply not help­ful in to­day’s world. The ques­tions we have to be ask­ing and try­ing to an­swer are: “Where can we cre­ate or add val­ue?” and “What glob­al mar­kets can we pen­e­trate with our val­ue-adding goods or ser­vices?” When Arthur Lewis ad­dressed sim­i­lar ques­tions 75 years ago, the an­swer was ‘Man­u­fac­tur­ing for ex­port’ be­cause he could iden­ti­fy a range of man­u­fac­tured goods where our low labour cost could con­fer a com­pet­i­tive ad­van­tage. To­day, the an­swer is more com­plex and does not re­ly on low labour costs, but on a range of fac­tors — lo­ca­tion, tech­nol­o­gy, lo­gis­tics, price, scale, prod­uct unique­ness— usu­al­ly in some com­bi­na­tion....

“So our suc­cess go­ing for­ward will de­pend on in­vest­ing in en­tre­pre­neurs and busi­ness­es that are look­ing to iden­ti­fy prob­lems, find­ing so­lu­tions that add val­ue, and im­ple­ment­ing those so­lu­tions. Some so­lu­tions may fall in­to ‘man­u­fac­tur­ing’ or some in­to ‘ser­vices’. It mat­ters not! In some in­stances im­ple­ment­ing so­lu­tions will re­quire col­lab­o­ra­tion be­tween gov­ern­ment, in­dus­try and uni­ver­si­ties for fund­ing, tech­no­log­i­cal sup­port and R&D, and mar­ket­ing and man­age­ment. Be­sides fund­ing (not through any gov­ern­ment min­istry!), gov­ern­ment can as­sist by en­list­ing our strate­gi­cal­ly placed for­eign mis­sions in mar­ket pen­e­tra­tion, and en­gag­ing our West In­di­an di­as­po­ra for op­por­tu­ni­ties to col­lab­o­rate,” Dr Far­rell ad­vised.

He said the re­cent­ly an­nounced agri­cul­ture projects like ANSA McAL’s berry farm in To­ba­go is an ex­am­ple of what is need­ed go­ing for­ward.  

He re­vealed, “To­ba­go has a Draft Medi­um Term Pol­i­cy Plan­ning Frame­work through a ex­er­cise which I led a cou­ple of years ago, and al­so has my views on how To­ba­go can max­imise the ben­e­fits of re­sort tourism. In sum­ma­ry, To­ba­go’s tourism has to scale up to reach one mil­lion vis­i­tors per year, and grow from there. Scale is im­por­tant and it is the on­ly way a new air­port ter­mi­nal makes sense, or else we are build­ing an­oth­er white ele­phant! To get to those num­bers from both in­ter­na­tion­al and do­mes­tic vis­i­tors, you need at least three ‘San­dals-scale’ re­sorts. Once you’ve got those num­bers, and you’ve ne­go­ti­at­ed well with the re­sort own­ers, To­ba­go can in­vite en­tre­pre­neurs in agri­cul­ture us­ing mod­ern hy­dro­pon­ic and aero­pon­ic tech­nolo­gies to pro­duce some of the fruit and veg­eta­bles that the re­sorts con­sume. In oth­er words, your in­vest­ment in re­sort tourism dri­ves the kind of agri­cul­tur­al ini­tia­tives that you in­cen­tivise and pur­sue. The In­fra­struc­ture plan for To­ba­go - pub­lic wifi, pedes­tri­an­i­sa­tion, wa­ter and san­i­ta­tion, her­itage sites — will al­so gen­er­ate op­por­tu­ni­ties for busi­ness on the is­land. The key to un­lock all that in my view are the re­sorts.”

Dr Far­rell ad­mits the in­crease in debt is un­der­stand­able in the present sit­u­a­tion say­ing as part of a sen­si­ble, pro­por­tion­ate ad­just­ment pro­gramme, some in­crease in debt and some draw­down of for­eign ex­change re­serves would have been nec­es­sary and ap­pro­pri­ate. But added ad­just­ment re­al­ly in­volves re­duc­ing ex­pen­di­tures in both the pub­lic and pri­vate sec­tors in line with re­duced re­al in­comes so that both Debt and Re­serves are kept at sus­tain­able lev­els. As debt in­creas­es, its ser­vic­ing ab­sorbs more rev­enues and pre-empts oth­er ex­pen­di­tures. As for­eign ex­change re­serves fall, they may reach a lev­el at which fu­ture growth, which re­quires ac­cess to for­eign ex­change, is com­pro­mised. A sen­si­ble ad­just­ment pro­gramme es­tab­lish­es those tar­gets and then crafts mea­sures for ex­pen­di­ture re­duc­tion and ex­pen­di­ture switch­ing which en­ables the tar­gets to be met Dr Far­rell told BG.

He said, “In my view, those mea­sures must in­clude us­ing the price mech­a­nism to help man­age what and how much we con­sume and pro­duce. As far as I am aware, we’ve es­tab­lished no such tar­gets. So again, con­sis­tent with our cul­tur­al predilec­tions, we chinks, we pro­cras­ti­nate, we ob­fus­cate and we kick the can down the road, hop­ing that since God is a Tri­ni, He will find us more nat­ur­al gas, raise en­er­gy prices, and al­low the fete to be­gin again.”

Dr Far­rell al­so ex­pressed sup­port for the Rev­enue Au­thor­i­ty as a means of in­creas­ing gov­ern­ment’s tax take by bring­ing more peo­ple in­to the tax­a­tion sys­tem but warned we could end up re-cre­at­ing the BIR if we are not mind­ful.

He al­so called for a re­duc­tion in the size of the pub­lic ser­vice call­ing it bloat­ed and in need of trans­for­ma­tion.

The econ­o­mist said the use of the HSF does not cre­ate fis­cal space, since it is mere­ly fi­nanc­ing the emerg­ing deficits. He in­sist­ed that we need­ed to have a Her­itage Fund un­der the con­trol of Par­lia­ment, sep­a­rate from a Sta­bi­liza­tion Fund ac­ces­si­ble by the Min­is­ter of Fi­nance for the pur­pose of sta­bil­is­ing ex­pen­di­tures in the face of a ma­jor shock, such as Covid-19.