Home' Trinidad and Tobago Guardian : May 25th 2017 Contents MAY 25 • 2017 guardian.co.tt BUSINESS GUARDIAN
NEWS | BG7
IDB researcher asks:
ment Bank (IDB) econ-
omist Jeetendra Khadan
offers a new book about
the domestic realities
confronting T&T by pos-
ing one simple question: Are oil and
gas smothering the private sector in
The IDB publication (11 chapters
in all) examines the factors that
have systematically led to the un-
derperformance of T&T not just as
a country, but the output--- or lack
thereof---of the local private sector
From the outset, and to his credit,
Khadan correctly acknowledges that
the intense attention given to build-
ing out the potential of the private
sector today is conditional.
"The role of the private sector as
an engine for sustainable econom-
ic growth and development is once
again at the forefront of policy dis-
cussions in T&T.
The main driver of economic
growth, the energy sector, has fal-
tered, and the prospect of its re-
covery in the near future is grim,"
Khadan says in the opening salvo of
his first chapter.
To drive his point home, Khadan
---a PhD economics graduate from
UWI---characterises the stakes for
T&T's future as being quite high.
"Without a dynamic non-ener-
gy private sector, T&T can expect
further declines in investment,
employment, and the government's
ability to earn non-energy revenue.
If the private sector does not step
up to the plate, the socioeconomic
consequences could be dire in both
the short and medium term."
For Khadan, getting a sense of the
ability of the local private sector to
improve its performance hinges on
the answers to three main questions:
1. How does the performance of
firms in T&T compare to that of
firms in other Caribbean countries?
2. What are the key factors that
affect firm performance?
3. What are the key issues that
should be considered in a private
sector development strategy?
Dutch disease problem
The concept of the Dutch disease
in relation to the T&T economy has
been posited for many years.
Economic theory surrounding the
"disease" explores how countries
with natural resource endowments
(in T&T's case oil and gas) tend to
grow and develop at a slower pace
than resource poor-economies.
Commenting on this phenomenon
in relation to T&T, Khadan makes
a pointed, though well understood
"Dutch disease is particularly
important to consider given the
country's experience with two
commodity booms (1973-1982 and
2002-2008) and its increasing de-
pendence on the petroleum sector."
For Dutch disease to be present
however, certain specific economic
conditions must hold.
"All firms have to contend with a
more appreciated real exchange rate
that makes non-energy tradeables
less internationally competitive. At
the same time, producers for the
domestic market face competition
from relatively cheaper imports.
Thus, in the presence of Dutch
disease, even those goods that are
produced at the frontier of technol-
ogy are not economically viable in a
competitive market," Khadan said.
Examining the data on local firms,
Khadan notes that:
1. T&T firms invest one quarter of
what firms in the rest of the small
economies of the world that are
2. Foreign direct investment in the
non-energy sector is very small (only
10 per cent of the total foreign direct
investment compared to the energy
3. In performance measured by
sales growth and total factor pro-
ductivity, T&T performs below the
Certainly this merits deep consid-
eration by the local private sector.
Is government good
for business in T&T?
The role of government in re-
source-rich economies is of particu-
lar importance in influencing private
sector behaviour, this according the
The economist quite bluntly states
that natural resource dependant
countries are disposed to a form
of "rent-seeking" behaviour (rent
defined as rewards in excess of ef-
fort and productivity that accrue to
the owners of natural resources) by
economic agents (private sector et
al) operating in that country.
Khadan makes two points with
regard to the effectiveness of gov-
ernment in influencing business
activity in T&T.
Supported by data from the World
Bank's Ease of Doing Business indi-
cators and an IDB-developed Pro-
ductivity, Technology and Innova-
tion survey, he concludes that the
local business environment is "less
conducive to business growth" than
our regional counterparts because
of challenges with government pol-
icies, regulations, laws, and the ef-
ficiency with which public services
Khadan also adds that the percep-
tion of corruption is "high" among
various segments of society which
he says "creates an incentive for
public officials to request bribes
from firms to process transaction
in a more timely manner."
What Khadan implies, therefore,
is relatively intuitive: to maximise
the potential of the local private sec-
tor, it is critical for the government
as an economic agent to examine
whether its policies and practices
hinder or help drive the desired kind
---and level---of business activity in
T&T's private sector.
The way forward
Arresting T&T's economic decline
requires a multi-faceted approach.
that seems to pop up in trying cir-
cumstances---has again been placed
at the forefront of economic and
For Khadan, a combination of
social and economic medicine is
needed to spur growth and lay the
foundation for a vibrant domestic
"The public inputs show the
need for policies that can provide
a favourable macroeconomic and
business environment for firms in
the non-energy sector.
"Morever, issues relating to labour
and training, human capital, and
crime and security are important
constraints that the government
needs to address."
Khadan added that access to fi-
nancing and improved investments
in research and development and
new technology (innovation) are
central to the success of the local
All told, much of what happens to
T&T's economy in the future will be
determined by the decisions made
by both the government and private
DR JEETENDRA KHADAN
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