Home' Trinidad and Tobago Guardian : November 28th 2013 Contents The tendency of the local private sector
to import and distribute instead of
investing and innovating will continue
as long as importing and distribution is
much more profitable"Anthony Wilson,
Chief Editor, Business
November 21, 2013
Icould not agree more with Mr Wilson s
statement and it is a point that I have
echoed in this space many times over
the past few years. However, the overall
theme of last week s BG View: "Is
diversification likely without devalu-
ation?" is, in my view, the wrong question
being posed to the right problem.
The first question we should really be asking
is: what does diversification really mean?
The previous administration viewed the
issue as one in which energy resources would
be consumed locally instead of being used for
export, providing the impetus for a local indus-
trial base. Thus, natural gas would be used to
power electric plants that would support an
aluminum smelter complex. The aluminum
would then form the input into local manu-
facturing initiatives, which would then be
The current administration has a diversi-
fication thrust more aligned to the service
sector with industries such as fashion and
filmmaking, tourism and information tech-
nology providing the diversification thrust. To
date, after more than a decade of talk, we have
no clear definition and a change in government
could probably see us right back where we
started with no end product in sight.
The next question is: what should we be
The differences detailed above need to be
reconciled into a national plan that transcends
the politics. I have long argued that the era
of export-led economic growth outside of the
energy sector is over. The so-called "Point
Lisas" model was perfect for the 1970s into
This was an era when the "baby boom"
generation of the developed world started
entering the workforce. As their earning power
increased, along with an increased debt profile,
their propensity to spend and consume grew
Since this generation was, at that time, tied
to a job, manufacturing products for export
to these markets was the way to go.
China, more than anyone else, capitalised
on this consumption pattern to become the
low-cost manufacturer of the world. T&T
carved a niche in the energy sector and some
of our local manufacturers have since managed
to position their product into the more devel-
In 2013 and beyond, the paradigm is vastly
different. The baby boom generation is now
beginning to retire. Their consumption levels
and pattern have changed.
In the margin, consumption is now taking
place in the emerging markets. If our diver-
sification thrust is going to be based on man-
ufacturing for export then what are the com-
petitive advantages that exist over similar
resource rich countries such as Brazil, Chile,
Colombia, even Peru?
Manufacturing is returning to the US due
to abundant, low-cost, energy supplies. A gas
pipeline to Mexico from the US will bring
cheap energy to one of the lowest cost labour
pools in the world. The effect of this is yet
to be fully grasped by us here in T&T.
Bilateral trade amongst emerging market
countries is increasing as they position them-
selves in each other s markets. In 1995, total
India/China trade was US$1.1 billion. Last
year, it was US$69 billion. In the case of Rus-
sia/China the change is from US$5.5 billion
to US$88 billion over the same period.
Simply put: the world has changed. Has
our thinking changed or are we stuck in the
paradigms of old?
With a floating currency there should be
no talk of devaluation. More to the point, the
question is whether we are prepared to move
from a very managed float to a freely floating
currency. I suspect that if we were to do the
latter, there would be the issue of capital flight,
causing pressure on the exchange rate.
The reason is simple and can be expressed
in one phrase: poor governance. This is also
the reason why our diversification initiatives
have not taken root and are unlikely to do so
any time soon.
While I agree that the local private sector
will import and distribute instead of investing
and innovating, as long as importing and dis-
tribution is much more profitable, the reason
why the latter is more profitable is down to
a badly mismanaged economy with poor gov-
With close to 50 per cent of our national
budget spent on transfers and subsidies, it
means significantly more funds are in circu-
lation than are actually being earned from
productive endeavour. Those funds ultimately
find its way into the coffers of the retail shop,
creating a bigger retail space from which to
Then there is the issue of tax compliance.
Without the political will to enforce the tax
code, there is a additional dividend that accrues
to the private sector from "cheating" the tax
man. I often repeat that in 2010, at the time
of the last tax amnesty, the estimated uncol-
lected revenues of $7 billion equalled the
national budget deficit for that year.
Now combine the above with the size and
frequency of government contracts on offer.
What is the point of seeking extra regional
markets or innovating the supply chain, when
it is so much easier to seek out the favours
of a politician and obtain a government con-
tract? I recently saw the term "tenderpreneurs"
being used to reflect what exists in T&T when
entrepreneurs are really what we want.
Nowhere is this more apparent than the
suggestion that CEPEP is an incubator for
entrepreneurs. This notion alone should make
it painfully obvious why our diversification
initiatives are so slow in taking off.
The bottom line is that we lack the political
will to do what is required to achieve the
desired objectives. Everything is sacrificed on
the alter of political expediency and so there
is no consistency of policy or approach.
This, once again, plays into the private sector
mindset of seeking profit by any means nec-
essary while taking on the least amount of
risk. Why put precious capital at risk to seek
new ventures and new markets when we are
not clear on how long our energy reserves will
go on for? Better to try to make as much as
possible now and hoard for that rainy day.
Why take the chance when we do not have
a clear policy for our natural gas usage. After
ten years or more of funding tertiary education,
we still suffer from skills shortage in our growth
industries and lower cost labour is diverted
towards make-work programmes. The end
result is labour costs being higher than it
should be leading to the risk of being uncom-
petitive on the international markets.
Our transport infrastructure is woefully
inadequate for the type of economy we are
trying to engineer. An unreliable port flows
right into an inefficient public transport system.
The last transportation study is approaching
its 50th birthday without being replaced and
we have not built a new highway in this coun-
try for 30 years.
Procurement legislation, which one would
hope would bring some transparency and mer-
itocracy to the award of government contracts,
is now a perpetual promise with no delivery
date. This measure alone would provide some
balance to the risk-reward dynamic and it is
mindboggling that this legislation is still out-
Why even invest in order to provide services
to the State if there is no sense that the best,
most efficient, most productive bidder will be
selected for a project?
Finally, we have a declining population base
and an ageing population. This leads to two
questions: from where do we get the mass of
innovators and entrepreneurs necessary to
move the diversification needle away from oil
and gas? Then, from where do we get the
market size required to develop the necessary
sophistication for our products and services
before seeking out new markets?
I have long advocated for an immigration
policy that is tied to our development objec-
tives. We have an economist as our Minister
of Foreign Affairs, yet there is a deafening
silence associated with this issue.
In today s world, there are four factors that
contribute to technological innovation and
entrepreneurship: cost, convenience, caliber
and creative destruction. While creative
destruction speaks to the innovation itself,
the first three on the list come from the level
of facilitation provided by the State.
Low cost to doing business, infrastructure
that lend itself to convenience and the ability
to attract the right caliber of talent, are fun-
damental to our diversification thrust. How
we measure up on these matters will be the
difference between success and "ole talk".
Ian Narine is a broker registered with the
Securities and Exchange Commission.
BG18 | COMMENTARY
BUSINESS GUARDIAN www.guardian.co.tt NOVEMBER 2013 • WEEK FOUR
Devaluation vs diversification
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