Small developing states cannot change the world’s geopolitical order or challenge international market forces. While they may have some natural resources and manufacturing capacity that allow them to participate in the international trade system, their size prevents them from becoming dominant in any area.
Invariably, they suffer from underlying structural weaknesses that are difficult to correct. Therefore, to survive, they must be strongly committed to inclusive growth strategies that facilitate structural transformation, sound fiscal management, and macroeconomic stability. This is the reality that faces T&T.
There are a few important variables that determine a country’s long-term success. The first is its population size. The second is the level of discipline and organisation, which provides the foundation for the level of education, which drives the innovativeness and productivity of its people. These simple matters are the main drivers of a country’s wealth.
This explains why the biggest areas of the national budget are health, education, and national security. It also explains Dr William’s admonition for discipline, tolerance, and production in that order and his comment that the nation’s future was in children’s school bags.
But citizens must also do their part. They must remain well-trained and equipped to address the challenges of a changing workplace. That requires a partnership with the State, not dependence on the State. The State does not owe citizens a living.
Unfortunately, many citizens see the State as responsible for everything, even though the objective realities have changed.
Further, the evidence suggests that the education system may not be fit for purpose given the imbalance between training in the humanities and training in science, technology, engineering, and mathematics (STEM).
The reality is that natural gas reserves have declined and are likely to continue declining. Declining natural gas means that the Government’s tax revenues and its ability to maintain its current expenditure pattern will be reduced.
The current conversations with Venezuela in partnership with Shell and BP are important. However, despite the energy minister’s best spin, there can be no firm date when new gas will be sourced from Venezuelan gas fields. Two-year licences from the Office of Foreign Assets Control (OFAC) do not provide the certainty necessary to invest billions in these projects.
For the uninitiated, OFAC is a US Department of the Treasury that administers and enforces economic and trade sanctions based on US foreign policy and national security goals.
OFAC matters to T&T and its ability to do business with Venezuela because the United States can destroy T&T’s capacity to trade and do business with the rest of the world due to its great power status and global reach.
Those who doubt the US’ capacity to inflict punishment should consider the effect of the US’ 62-year trade embargo on Cuba’s economy.
The current sanctions against Iran, Russia, and Venezuela and on anyone doing business with them are a fair warning of the potential risks.
Additionally, the riskiness of doing business with Venezuela in the international trading system was again highlighted last week when the T&T High Court recognised the Conoco Phillips ICC award against Petroleos De Venezuela (PDVSA). The award has been registered in many jurisdictions.
By registering this judgment in T&T courts, Conoco Phillips has given notice that it will seek to recover amounts due to it from any payment made to PDVSA. This column flagged this risk when the Dragon project was first announced.
Economic growth depends on a higher level of diversification and export-led growth from sectors outside the energy sector and, by extension, the petrochemical sector.
The domestic market is too small to facilitate large domestic firms that must export to survive and grow. Expanding into other markets requires outward investment. This explains the flurry of Ministry of Trade missions and the emphasis on trade agreements.
However, making these trade agreements work depends on cooperation between the public and private sectors. There are actions that only a government can take.
For example, the trade agreement with Panama is virtually useless to T&T exporters, as they cannot claim the lower duties allowed by the agreement. All international trade is captured and recorded using Standard Trade Industrial Classification (STIC) codes on international trade invoices.
Currently, T&T exporters cannot benefit from the lower duties available under the agreement because T&T Customs uses an earlier version of the STIC codes, which do not coincide with Panama’s 2023 codes. This sounds simple enough to rectify and ought not to disadvantage T&T exporters. Yet this simple task is taking years to rectify.
Similarly, the availability of foreign exchange is a serious challenge. Only the Government can address this, and it does not need a devaluation.
Sound fiscal management in the context of declining revenues and slower or no growth requires a more robust taxation system. This explains why the Government is proceeding with property tax and the TTRA.
Similarly, increased utility rates (electricity and water) are a virtual certainty. It also means lower international market borrowings as foreign exchange earnings tighten.
Repaying loans not used to expand domestic capacity complicate the economy’s growth prospects by using up foreign exchange.
This is a period of adaptation, adjustment, and alignment. It needs leadership, management, and a strong communication capacity.
