Home' Trinidad and Tobago Guardian : December 22nd 2016 Contents BG4 | COVER STORY
BUSINESS GUARDIAN guardian.co.tt DECEMBER 22 • 2016
year since 1986
GUARDIAN'S BUSINESS DESK
When the full blast of
the economic down-
turn lashed the T&T
economy in 2016, it
left a path of battered
bottom lines, workers
on the breadline and a rolled-out carpet of un-
certainty, ensuring a grim reality faced by most
businesses as the curtains come down on the
hardest year for the economy in three decades.
Across the business landscape, this year was
characterised by three main issues: the shut-
down of the ArcelorMittal steel plant in Point.
Lisas, the continuing oil and gas shortages and
persistent foreign exchange shortages.
In a sense, these issues spilled over from
2015 into 2016 and, to a large extent, remain
In March 2016, ArcelorMittal permanently
closed its steel plant and dismissed 644 work-
ers after losing a judgment at the Industrial
Court that had been filed by employees against
The judgment against the company required
that it pay the full wages owed to workers who
had been laid off in December 2015 by the end
of April 2016. ArcelorMittal was also fined
$24,000 for "its illegal industrial action" and
its failure to treat with the union.
A day after the judgment was delivered, the
company announced that it would engage in
a "creditors' voluntary wind-up" and seek to
dispose of all its T&T assets. The company said
that closing the company had become neces-
sary in light of sustained losses dating back to
2009, proposed major increases in the local
price of gas and electricity at a time of falling
commodity prices, and proposed increases to
port rental fees, announced property taxes and
higher business levies.
According to ArcelorMittal, the company
listed its liabilities at US$280 million and its
assets at US$70 million.
To date, the assets of the company are still
up for sale with the liquidator Christopher
Kelshall stating that the process of is "on-
In the first seven months of 2016, about 690
workers were on the breadline according to
the Ministry of Labour and Small Enterprises
retrenchment data. The CBTT stated: "Unem-
ployment remains low and there are anecdotal
reports of shortages in certain specialist skill
areas as well as in some low-wage jobs in the
Looking at the data the bank said: "The la-
bour market data for the fourth quarter of 2015
shows that the rate of unemployment rose to 3.5
per cent from 3.3 per cent in the corresponding
year, and of the estimated 22,300 individuals
unemployed, 57 per cent were males.
"The number of persons without jobs rose by
400 but the effect on the unemployment rate
was attenuated by a fall in the labour force."
Troubled energy sector
The year 2016 was a challenging one for
companies for the energy sector.
As of December 20, West Texas Intermediate
(WTI) crude has averaged just over US$43 a
barrel for 2016 and global natural gas prices
have been significantly lower than the 2010
to 2014 period.
In the case of T&T, the situation has been
even grimmer because it has been combined
with lower oil and gas production.
According to figures from the Ministry of
Energy and Energy Industries, for 2016 crude
production averaged 70, 071 compared to 2015
when the average production was 78,656. This
represents a more than 10 percent decline in
crude production. On the natural gas side, in
2016 natural gas production as of October has
averaged 3.335 bcf/d this compares to 3.833
bcf/d or a 500 mmscf/d decline in production.
The combination of lower prices and reduced
production impacted all operating companies
in the local sector. There has been an increase
in unemployment and cuts across the board
as the companies have tried to adjust to the
reality of a prolonged period of low prices
and low production. Several companies in the
petrochemical and industrial sector have been
forced to operate below capacity as a result of
the chronic gas shortages to their operations.
Additionally, in October, Franklyn Khan was
appointed the new minister of energy and en-
ergy industries, replacing Nicole Olivierre in
a cabinet reshuffle.
By July 2016 T&T, along with other energy
commodity exporters continued to experience
"challenging" times as the gross domestic
product (GDP) contracted for another time
in the first quarter of 2016.
According to the provisional estimates from
the CBTT's Index of Real Quarterly: "GDP indi-
cates that domestic economic activity declined
by 5.2 per cent year-on-year, due to declines in
both the energy (9.1 per cent) and non-energy
sectors (2.8 per cent)."
The bank stated in that same report, that
production in the energy sector was affected
by planned maintenance and upgrade-related
downtime at the major oil and gas producers, as
well as lower output associated with maturing
oil fields. The non-energy side of the econo-
my, construction sector slowed in the context
of "slower execution of government-related
projects. On the other hand, some uptick in
activity was observed in the finance sector."
The hit that the energy sector took as a result
of declining oil and natural gas prices in the
international market resulted in lower revenues
the CBTT reported. "Central government defi-
cit rose to $6.2 billion (annualised 4.6 per cent
of GDP) over the first nine months of the fiscal
year (October 2015 to June 2016) compared to
$2.2 billion in the corresponding year."
One ray of hope for the local energy sector
was the signing of a cross-border gas shar-
ing agreement between T&T and Venezuela in
early December. The deal involves T&T taking
gas from the Dragon gas field in Venezuela. If
all goes as planned, broad estimates suggests
that first gas could arrive within 30 months
from the signing of the bilateral agreement.
The parties involved in the agreement were
the NGC, Shell and PDVSA---the state-owned
Venezuelan oil company.
Demand for forex
The demand for foreign exchange showed no
signs of abating in 2016, with local companies
voicing their angst about the effect of their
inability to acquire the desired amounts of
"hard currency" on their respective businesses.
According to Central Bank data, from De-
cember 2015 to the end of November 2016 the
currency depreciated by 5.44 per cent against
the US dollar, moving from TT$6.43 to US$1,
to TT$6.78 to US$1.
The country's foreign reserves position
also fell during the same period moving from
US$9.78 billion in December 2015, to US$9.54
billion in November 2016. As at November
2016, the country's import cover was roughly
10.6 months, down from 11.1 months in De-
A number of listed entities on the local stock
exchange noted the impact of the foreign ex-
change situation on their business.
In his half-yearly report for 2016, Massy
Group chairman Robert Bermudez said his
company had taken aggressive measures to
satisfy the group's demand for forex.
He said: "Given the current challenges in
the T&T economy, the group has intensified
its attention to managing foreign exchange and
continues to find ways to fund its foreign cur-
rency requirements through multiple strate-
gies including: greater attention to the balance
between receive and send transactions in the
money transfer business; daily monitoring
of foreign exchange required, generated and
requested; pursuit of foreign exchange gener-
ating investments, and finding ways to reduce
import needs by buying and promoting more
Christian Mouttet, chairman of Prestige
Holdings Ltd, noted in their half-year results
for 2016 that inspite of foreign exchange chal-
lenges, the group's KFC and Pizza Hut brands
had performed well.
Managing director of Agostini's Ltd, An-
thony Agostini, in an October 6 article in the
Business Guardian, also commented on the
persistent foreign exchange challenges in the
local economy and his group's response to the
"Access to US dollars has certainly been a
challenge, but we're no different to many other
companies in that regard. We have been able to
keep our heads above water as it were and, with
some manufacturing coming into the group
by way of acquisitions, we expect to generate
more foreign exchange through export of those
products," he said.
The Government used overdraft financing at
the CBTT but also borrowed on the local and
international markets as well as accessed the
Heritage and Stabilisation Fund. The CBTT
stated that, "during the first nine months of
fiscal year 2015/2016, the Government bor-
rowed a total of $4662.9 million in the do-
In May 2016, the Government had with-
drawn US$375 million from the HSF which was
the first drawdown since the establishment of
the fund in 2007.
Specifically, in August 2016, the Government
received the proceeds from a US$1 billion for-
eign bond, which was the first international
issue since 2013. The tenor of the bond is 10
years at a coupon rate of 4.5 per cent. The bond
issue brought external debt as a per cent of
GDP to 13.6 per cent."
Referring to monetary conditions, the CBTT
said it remained stable for the first seven
months of 2016.
"With inflation low and broadly comfortable
interest rate differentials against US short-
term securities the bank has been able to hold
its Repo rate since January in the context of
the slowing economy."
The TT-dollar depreciated against the
US-dollar by 4.9 per cent for 2016, with the
selling rate moving from TT$6.45 in January
2016 to TT$6.77 on December 21, 2016. The
CBTT's interventions declined to US$906.6
million in the first seven months of 2016 com-
pared with US$1.42 billion in the same period
Stating that T&T's economy is in an even
more perilous state than the Government had
envisaged, Finance Minister Colm Imbert said
during presentation of the 2015/2016 budget
statement that the facts about the statement
• The economy was far from being strong
or on a growth path
• Real output in the energy sector declined
again in 2015, making it the fourth annual de-
cline in the last five years
• Activity in the non-energy sector has also
weakened with a loss of momentum in con-
struction, distribution and manufacturing
• Total energy exports are estimated at only
US$7.5 billion in 2015, a significant decline
when compared with an annual average of
US$12.7 billion in the period 2010 and 2014
• The sharp decline in export receipts will
mean that T&T's trade balance will be reduced
by more than half from US$4.6 million in 2014
to US$1.7 billion in 2015.
Reporting by Curtis Williams, Nadaleen Singh
and Andre Worrell
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