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BUSINESS GUARDIAN www.guardian.co.tt SEPTEMBER 2013 • WEEK ONE
Does National Gas Company s (NGC) US$600million
investment in acquiring additional shares in Phoenix
Park Gas Processors represent sustainable economic
development for T&T?
NGC s vice president, commercial, Anand Ragbir,
claims that this is a means of pulling back some
US$100million in incremental dividends over time into
T&T that would have left the country as Conoco Phillip s
dividends. What he has ignored is the US$600 million
that has left the country now, in lieu of these dividends
and the opportunity cost (economic and social) of using
these funds to, for example, build the onshore econo-
my.There are a few general economic development models
described in the literature. Of these, the stages of growth
model defined by Prof Michael Porter stands out as
being applicable to both developed and developing
economies. A complement to this model for exporting
natural resource-rich countries is the use of sovereign
wealth funds (SWFs) as a means of isolating government
incomes within the two economies (in our case the on-
and the off-shore) as ably demonstrated by Norway.
The risks of using the off-shore earnings to live include
the Dutch disease, high liquidity, high non-resource
sector deficit and being a plantation economy, in which
the last prevents the non-resource sector from adapting
to unusual economic disruptions.
In the Porter model, the second stage of development
is the investment stage wherein the country/firm invests
in production/service processes using imported tech-
nology, even building turn key plants. Paradoxically,
according to Porter, the last decadent stage of devel-
opment is the wealth-driven stage again in which a
country/firm engages in investment, buying into existing
companies to increase market share, hoping to maintain
investment value. The difference in these two is that
the path through the investment stage leads to the
understanding of the technologies, then onto the creation
of knowledge, to innovation and hence economic expan-
sion into new activities. The wealth stage offers no such
economic development, no such economic expansion;
it does not widen the knowledge and innovative capacity
of the country which today is the source of sustainable
NGC, using funds owned by the public, its share-
holders, acquired these shares in Phoenix Park and is
considering buying Total s local production sharing assets
and would be interested in CL Financial 56 per cent
share in MHTL if this became available. These invest-
ments of our limited financial resources do not qualify
for Porter s investment stage that could lead to sustainable
economic development; which would lead to innovation
and widening and deepening of the product space in
which we operate. At worst, they suggest that we are
in the decadent wealth driven stage or at best it is an
inadvertent attempt by NGC to mimic the operation of
a SWF by isolating these savings from the on-shore
Many economists would advise that we use some of
the income from the energy sector, our savings, to develop
the on-shore sector via a diversification effort in building
a knowledge-based economy. We are told that the Phoenix
Park investment was based on the advice of Credit
Suisse, et al.
However, we need to know whether the terms of ref-
erence of the consultation were simply about maintaining
investment value over time, including the prognosis for
the natural gas business in T&T? Or were the consultants
asked to advise on the more comprehensive task of this
country s overall economic development given the current
structural constraints and the vagaries of the global mar-
ket?We need to define a national model for economic
development outside of the laissez faire foreign direct
investment project to project approach, super-imposed
on explore, produce, sell petroleum and now, buy what
we can of the energy sector plants off-shore and the
welfare driven economy on-shore.
Mary K King
In short, economics may be described as a social science
that analyses the utilisation and allocation of resources
among conflicting uses, such analyses being carried with
the aid of "Econometrics" (mathematical modelling) and
In the English and European classical tradition such as will be
found in the writings of the 18th and 19th century economists
Adam Smith, Thomas R Malthus, David Ricardo and Knut Wicksell,
the subject which is today referred to as economics carried the
name "political economy", this title recognising that, in the matter
of resource allocation, whether at the level of the individual firm---
the production unit---or at the macro (national) level, final decisions
are generally constrained by political reality.
It is in this context that this writer seeks to place certain
parameters which the national budget, (which is to be delivered
on September 9, 2013), will be compelled to be addressed by the
Minister of Finance and the Economy, Larry Howai. It must be
made clear therefore, that, in its finality, a national budget, rather
than being an exercise in pure economics, will always be a political
document. The issues being treated herein are:
1. The general state of the economy
The minister will take credit for the success of his Government
in maintaining relative stability in the economy over the past three
years. He will say that unlike the economies of several major world
economies, T&T has been able to witness:
(a) a relatively low unemployment rate
(b) a rate of growth, which, while not being spectacular, was
necessary to avoid overheating of the economy;
(c) a major achievement has been the success of the government
in bringing the Clico/CL Financial matter to an almost complete
resolution. He will say, once again, that failure to handle this matter
clinically, would have resulted in total collapse of the economy.
2. Revenue perspectives
(a) The oil and gas regime
The minister will point to the initiatives which the Government
has taken to attract further investment in deep sea exploration for
natural gas as well as for land-based increased oil production. He
will direct attention to the success of these initiatives and con-
sequently the maintenance of the Government s revenue base.
(b) Personal income tax
The minister will recognise the need to adjust the income tax
bands which are highly skewed towards the high income earner.
However, while he will like attempt "meaningful adjustments",
this will not be achieved to the extent desirable at this time. A
relatively token adjustment upwards and downwards respectively
will be made to the upper and lower income tax rates.
(c) Company taxation
No substantial changes are contemplated.
(d) Road and transport taxes
The minister will direct attention to the continuing large increase
in vehicles on the nation s roads. In so doing, he will also direct
attention to the large drainage in foreign exchange and he will
therefore announce measures to moderate this to some extent.
These will take the form of import restrictions however these new
restrictions will not be sufficient to make a noticeable dent on
the total motorcar road population.
The minister will also direct attention to the large amounts
which are being spent on road construction and maintenance and
the need for road users to contribute substantially towards this.
No direct action will be taken.
3. Subsidies within the economy and the fuel subsidy
Howai will dwell briefly on the role of subsidies in general and
he will admit that there is a need to review the plethora of subsidies.
He will say that subsidies which seem to be neverending are
assumed to be hurting rather than being beneficial to the economy
in the long run. The results of such a review of the regime of
subsidies would have to be implemented over a period of time.
It is in this context that he proposes to reduce, across-the-board,
the fuel subsidy to motorists---an exercise which he had "gingerly"
started in last year s budget---to a more acceptable level.
4. Diversification of the economy
The minister will again direct attention to failure to bring about
any very noticeable diversification of the economy; an objective
which is to be found in every budget speech over more than 50
years. In fact, while there has been much progress in agriculture,
for example. Indeed, he will note the country s food import bill
continues to increase every year. Efforts in this sector, as well as
in light industry and tourism, will be attacked with renewed vigour.
5. Land and building taxes
The budget speech will announce the expected re-introduction
of land and building taxes, however, these will be at levels which
will be higher than hitherto. New criteria, including transferring
power to the regional corporations to impose such taxes, will be
forthcoming in due course. These will take into consideration the
greater powers, such as increased powers in respect of physical
planning, which will be accorded to the regional and municipal
corporations via amendments to the Municipal Corporations Act.
6. Housing and home ownership
The minister will give reasons which have been constraints in
the Government s manifesto promise to provide an increase in the
number of houses to be constructed annually. He will say that it
is the Government s intention not only to attain the 7,000 housing
units promised annually, but also to ensure that completed units
are distributed as soon as possible. He will announce substantial
reduction in fees and stamp duties which, he will say, have been
collectively a major deterrent to home ownership and has had a
negative effect on the real estate market.
7. Infrastructure and transport
Minister Howai will direct attention to the large amounts which
the State spends on roads and bridges construction and maintenance
and he will say users ought to be contributing more substantially
to this expenditure. However, in light of the reduction in the fuel
subsidy, he does not propose to make any adjustments at this
time apart from certain measures which, it is hoped, will result
in encouraging greater use of the Public Transport Service Cor-
poration as well as multiple occupancy rates of private vehicles.
8. Public Service reform, pensions regime and the age
The budget will contain concrete examples of initiatives, including
the use of technology, which either have been or contemplated
in order to modernise the Public Service and to fashion it for
delivery as a 21st century organisation. It will say that, notwith-
standing these initiatives, there is much still to be done so much
so that it is now difficult to fill vacancies in some critical areas
requiring specialist training.
Plans to increase the age of retirement have not been achieved.
The minister will say that plans to convert the present National
Insurance Scheme gradually into a full-fledged all-embracing
system will be continued.
Errol OC Cupid
Expect a 'political' budget
NGC's investment in
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