Letter: Modern day off-shoring

0

Dear Sir:

We are being told that the Trinidad and Tobago minister of trade and industry, Paula Gopee-Scoon, was in Beijing, China, to meet with potential foreign investors for the proposed Phoenix Park Industrial Estate (PPIE) in Trinidad. This park is to be developed/built by Beijing Construction Engineering Company at a cost of US$104 million (cost/loan for the Trinidad and Tobago government).

It appears that the philosophy of this Trinidad and Tobago government is at the stage where, as in the failed Tamana Park (an existing park in Trinidad and Tobago), it is willing to put out capital (funded by loans) and other incentives to attract companies to locate in Trinidad and Tobago with the main intent to employ our people and in so doing we can earn foreign exchange for services and labour provided and taxes.

The prospective investors may have different reasons for wanting to invest in Trinidad and Tobago, possibly because of high transport costs to locate nearer the market for their goods. It is said that Trinidad and Tobago is the gateway for China into Latin America. Also, investors may see Trinidad and Tobago as a cheaper place to manufacture given certain tax incentives, e.g. operate in a free zone.

Trinidad and Tobago has been able to attract much foreign investment into its energy sector because of the petroleum resource, investment that did not provide much employment, though the rents drove our petroleum plantation.

What has not been addressed is what has changed which will make the PPIE a success in attracting foreign investment since Tamana with the same objective has remained virtually empty of such investors. A similar comment can be made about the Cove Industrial Park in Tobago.

What is clear is that the survival of Trinidad and Tobago, given the depletion of the petroleum resource, we have to get involved more generally in the global trade, in globalisation, in order to earn foreign exchange to support this small open economy. However, to decide how we fit into the scheme of things we need to know what is happening to global trade, to the process of globalisation. Perhaps it is useful to look back a bit.

In the days when global transport was expensive and even risky, trade was about made here sold here. With the advent of cheap and reliable sea even air transport it became possible to make it here sell it here and there also. Hence the product could be made completely in one country and then exported to another in which it was sold.

This gave rise to the theory of country specialisation, in which a country focussed on what it was best at and imported the rest.

However, according to Schumpeter, what drove economic development and hence competitiveness in production of goods was inventions, knowledge, innovations. Hence the countries that were ahead in this knowledge were the competitive producers, the new G7 countries today. Those who sold commodities imported these goods. The difficulty with globalisation then was that the transport of ideas, knowledge, and knowhow was expensive.

Trinidad and Tobago sold commodities and imported the more sophisticated goods – the plantation economy ranging from colonial times to today as the petroleum resource depletes.

Indeed, we understood that we should be producing these kinds of goods to export and this takes knowledge, innovation, which if these have to be totally home grown would take an inordinately long time to develop from scratch. Hence, we have fallen back on the need for foreign investment to provide, we hope, some jobs and foreign exchange income in the near future.

We are acutely aware of the failure of our attempt at import substitution and even Sir Arthur Lewis’s investment by invitation wherein foreign investment was to be invited to utilise the surplus labour from the fields.

What our planners apparently have missed is that globalisation has again changed. The ICT and digital technologies have unbundled the production process in enabling easy transport of ideas, technology, knowledge and innovation. The home country can divide its production process into tasks, some of which can be out-sourced to developing countries to benefit, from, for example, cheaper wages, costs, yet provide these outposts with the equipment with embedded technology, highly skilled training to the staff, yet manage, supervise and coordinate the processes across its global value chain.

Other tasks could be conflated via the technologies of robotics and artificial intelligence which could remain at home. The difference from the CKD process was that the home country provides the knowledge, etc.

What, however, is of fundamental importance is that such a process brings the latest technologies, innovations to the shores of the developing country and there could be spillovers into the creation of local companies if the developing country were to provide facilitating R&D service, a national innovation system. If this is done, as in China, eventually as in Korea, in Taiwan, the developing country can quickly become an exporter in its own right of globally competitive goods.

The question then is, when we are seeking foreign investment are we looking at such offshore entities to jump start our own innovation system? If this is what the minister of trade and industry is seeking in China, then a simple industrial park is insufficient. The important aspects are what do we have to offer the foreign investor to attract off-shore plants and what are we putting in place to benefit from the spillovers to produce the local activities that will drive quickly our economic development?

Further, it is still very expensive and necessary to transport people across the global value chain, which constrains how far away the home country chooses offshore partners. China is a long way away!

Mary K King
St Augustine
Trinidad

print

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.