With­out a strong econ­o­my, a gov­ern­ment’s abil­i­ty to pro­vide pub­lic goods, ser­vices and so­cial pro­grammes would be com­pro­mised. Gov­ern­ment rev­enues are de­rived from tax­es on pri­vate sec­tor prof­its and VAT on ex­pen­di­ture. A weak econ­o­my means few­er suc­cess­ful busi­ness­es and low­er tax rev­enues. There­fore, keep­ing track of the econ­o­my is crit­i­cal.

The IMF and the Min­is­ter of Fi­nance have pro­ject­ed mod­est an­nu­al eco­nom­ic growth (1.5 per cent to two per cent) for 2024 and in the medi­um term.

To man­age the econ­o­my’s per­for­mance, the Fi­nance Min­is­ter needs cur­rent da­ta, not 2023 third-quar­ter da­ta.

In the ab­sence of time­ly eco­nom­ic da­ta from the CSO, com­men­ta­tors of­ten re­sort to anec­do­tal ev­i­dence and “soft” sta­tis­ti­cal da­ta to eval­u­ate the coun­try’s cur­rent eco­nom­ic po­si­tion. Avail­able anec­do­tal da­ta sug­gest that the growth es­ti­mates would be dif­fi­cult to achieve.

First, re­tail­ers com­plained that De­cem­ber 2023 sales were be­low ex­pec­ta­tions de­spite the im­pact of pub­lic ser­vice retroac­tive pay­ments (back pay).

Those com­ments were wide­ly dis­missed as bel­ly-aching by the pri­vate sec­tor. Pre­lim­i­nary fi­nan­cial da­ta from su­per­mar­kets and oth­er re­tail­ers con­firm that sales in the fourth quar­ter were flat or neg­a­tive.

Fourth quar­ter per­for­mance in­di­cates what could be ex­pect­ed in the first quar­ter which is gen­er­al­ly weak, notwith­stand­ing Car­ni­val and Valen­tine’s Day.  

Next, dur­ing the re­cent­ly con­clud­ed En­er­gy Con­fer­ence, the Na­tion­al Gas Com­pa­ny’s pres­i­dent in­di­cat­ed that “we are at a very crit­i­cal junc­ture where we don’t have the ma­te­ri­al­i­sa­tion of Man­a­tee and Drag­on deal un­til the next four years or so.”

He not­ed that the de­cline in nat­ur­al gas pro­duc­tion was “the mon­ster in the room” and in the pe­ri­od 2024-28, “We (NGC?) are try­ing to keep a plateau.”

If this means main­tain­ing pro­duc­tion at the cur­rent lev­el of 2.6 bil­lion cu­bic feet a day, that is in­ad­e­quate to keep all the petro­chem­i­cal plants open, even if they are op­er­at­ing at re­duced ca­pac­i­ty.

Some plants would re­main closed. That pre­sumes that in­ter­na­tion­al prices would re­main buoy­ant in the face of a slug­gish world econ­o­my.

The CEO of Massy Wood not­ed that con­tract­ing com­pa­nies were strug­gling. Dr Priya Mara­jh, vice pres­i­dent of the En­er­gy Cham­ber not­ed that small­er con­trac­tors of­ten com­plained about cash flow con­straints which ap­pears to be a wider is­sue.

Ma­jor car­ni­val band lead­ers al­so not­ed a de­cline in reg­is­tra­tion and there­fore sales of car­ni­val cos­tumes, though they at­trib­uted this to the im­pact of crime on tourist ar­rivals.

The in­fer­ence from the fore­go­ing is that eco­nom­ic growth in the first quar­ter is like­ly to be low or neg­a­tive.

The key ques­tion is what could be done to im­prove this weak per­for­mance. The short an­swer is noth­ing, apart from in­creas­ing gov­ern­ment ex­pen­di­ture.

Busi­ness de­ci­sions take time to for­mu­late, and a ges­ta­tion pe­ri­od to im­ple­ment those de­ci­sions.

Any re­sponse to fis­cal in­cen­tives would be re­alised on­ly af­ter the full im­pact of the in­cen­tives on the busi­ness has been eval­u­at­ed and the risks con­sid­ered.

There are no ma­jor in­cen­tives that could cause an uptick in do­mes­tic busi­ness ac­tiv­i­ty in the short term. Ex­cept for the open­ing of Phoenix Park in­dus­tri­al es­tate, the an­nounce­ment by lo­cal con­glom­er­ates and the di­rec­tion of their in­vest­ment dol­lars has been about ex­pan­sion in­to ex­ter­nal mar­kets, not about in­vest­ment in the do­mes­tic mar­ket for ex­port or oth­er­wise.

The com­men­tary and pre­sen­ta­tions at the En­er­gy Con­fer­ence were not en­cour­ag­ing. There were no new an­nounce­ments.

The En­er­gy Min­is­ter’s com­ments con­firmed that the en­er­gy sec­tor re­mains the key eco­nom­ic dri­ver. There were no ma­jor projects to cel­e­brate. Shell has been silent on its progress on Man­a­tee and the Drag­on project.  

Short­ly af­ter came the news that the US be­gan re­in­stat­ing sanc­tions on Venezuela. Af­ter Venezuela’s top court up­held a ban block­ing the can­di­da­cy of Maria Co­ri­na Macha­do, the lead­ing op­po­si­tion hope­ful in pres­i­den­tial elec­tions, a Biden ad­min­is­tra­tion source said a roll-back of re­stric­tions on the oil in­dus­try could be al­lowed to ex­pire.

Un­block­ing this ban is high­ly un­like­ly. Even if it is ar­gued that Venezuela’s Supreme Court is stacked with Maduro loy­al­ists, over­turn­ing the ban would con­firm that the Ex­ec­u­tive is guilty of an abuse of le­gal process.

Fur­ther, Macha­do’s re­marks have of­ten bor­dered on trea­son.

Every en­er­gy project has in­her­ent risks. For ex­am­ple, mar­ket con­di­tions fluc­tu­ate many times in the life of a project which could af­fect its fea­si­bil­i­ty. Project costs could in­crease be­cause of con­struc­tion over­runs, de­lays or faulty en­gi­neer­ing.  

There­fore, be­fore any sub­stan­tial in­vest­ment is sanc­tioned sev­er­al pre­con­di­tions must be sat­is­fied be­fore FID (Fi­nal In­vest­ment De­ci­sion), all of which are de­signed to re­duce the in­her­ent risks as­so­ci­at­ed with the project.

One stub­born dif­fi­cul­ty with the Drag­on deal is the po­lit­i­cal risk which can­not be mit­i­gat­ed by in­sur­ance as Venezuela’s track record with in­ter­na­tion­al in­vestors is che­quered.

Giv­en the geopo­lit­i­cal risks, the Drag­on deal can­not re­al­is­ti­cal­ly be con­sid­ered a “project,” at least not in the fore­see­able fu­ture.

Un­for­tu­nate­ly, the op­tion of bor­row­ing to in­crease gov­ern­ment ex­pen­di­ture to main­tain eco­nom­ic ac­tiv­i­ty has the un­for­tu­nate down­side that it al­so in­creas­es the de­mand for for­eign ex­change.

That is not a sus­tain­able pol­i­cy op­tion. 

Mar­i­ano Browne is the Chief Ex­ec­u­tive Of­fi­cer of the Arthur Lok Jack Glob­al School of Busi­ness. ALJGSB is a not-for-prof­it cor­po­ra­tion.