If we drive a conventional motor car we cannot expect it to fly, to navigate rivers, unless we redesign and reconstruct it to do these things. Similarly, our onshore plantation economy of Trinidad and Tobago that depends on energy sector revenues, directly generated by foreign investment and technology and a private sector that chooses to invest primarily in low risk import-buy-sell, cannot be expected to fly, cannot export and compete in the higher risk global economy unless it is redesigned, reconstructed to so do.
Though we talk incessantly about diversification into global competitive global exports, this is indeed a difficult and a drawn out task in time. Hence, even with a depleting natural resource and a private sector with a low risk focus on the local market, our five year bound governments continue to look to the energy sector, to short term fixes that depend on energy based exports.
The prime minister, Dr Rowley, suggested that, given our infrastructure, our track record, we could become the petroleum hub of the producing countries that include Guyana, Suriname, and Grenada. Hence, predicting local economic growth or its decline by the IMF, the Central Bank or whomsoever really defaults to the prediction of the global market prices for energy based products and our production capacity, supported by foreign investment in the sector. The plantation is inextricably bound to the fortunes of the energy sector.
In general economists recommend not simply economic growth but that it should be sustainable. Indeed Dr Vanus James of the University of Jamaica calls for investment of local and foreign capital in producing goods and services which should also improve the productivity of the people.
Also, Richard Baldwin in his book, The Great Convergence, sees that developing countries can hasten their diversification process, their sustainable economic development and growth, if they, as offshore production stages, were to join global chains and more so benefit from spill-overs that can drive indigenous and innovative activity.
This view is also held by Paul Romer, Nobel Prize winner in Economics, who sees economic growth and its sustainability as due to the endogenous activity in the country. China and now Vietnam are classic examples of this path to economic development.
If we were to apply these benchmarks to our energy sector, the driver of our economy, it is immediately evident that the sector is unsustainable; it depends on the continued existence of the now depleting natural resources and the associated foreign investment and technology. There were no spillovers in that sector that gave rise to endogenous new/innovative activity.
However, in the absence of a normal private sector response to diversify the economy, and to be fair to this government, there have been plans for government projects with both local and foreign capital. These include the dry dock and transshipment port, a plant to manufacture aluminium car wheels, the Sandals Hotel complex in Tobago.
We are being told that they will all contribute to our foreign exchange earnings and provide jobs — the latter in an onshore sector that cannot now provide sufficient well-paying jobs. What is still to be really assessed is whether any of them meet the bench mark of being sustainable via the generation of spillovers and endogenous new and innovative export activity.
Of these the Sandals project has drawn condemnation from some commentators. However, it is an interesting project in which the Trinidad and Tobago government is starting a global value chain in which it will fund the on-island infrastructure, the hotel as specified by Sandals, the expansion of the airport and utilities. Sandals will provide the other two specialist stages, the management and operation of the hotels and off-shore, the market development, marketing and sales of the product that is an all-inclusive holiday in Tobago.
Sandals will be paid for services it provides in the value chain. Indeed Sandals has a global reputation in this business, particularly in offering the all-inclusive holiday package which they were one of the first to adopt and then perfected. This chain may be sustainable since it is based on renewable resources — sun, sea, sand and fun. However, what is yet to be seen is if there are to be spillovers into the economy that can drive the endogenous activities referred to by Baldwin and Romer.
Still, with a private sector that is unable to adapt, this government can be faulted for its non-systematic approach, if it can be so described, to diversification. One had some hope with the appointment of the Economic Development Advisory Board under the chairmanship of Dr Terrence Farrell, which came to naught. It is worth comparing the path to economic development taken by Vietnam, which was a devastated country, economy, after the war in which the US was involved.
Vietnam adopted trade liberalisation, invested heavily in physical and human capital, in education, reduced its cost to do business (which is abnormally high in Trinidad and Tobago) and became parts of various global value chains. Today, Vietnam is involved in the manufacture and export of consumer digital electronic goods and with the increasing salary/wage rates in China is seeing global companies moving production plants there. In short, Vietnam developed a national innovation system based on its participation in global value chains.
We in Trinidad and Tobago have not done the same onshore; we pray to our Trini God to continue the largesse of oil and gas!
Mary K King