Consider the case of an entrepreneur looking for an opportunity to start a business.
She can consider importing and selling but there is a continuing shortage of foreign exchange.
She can consider manufacturing for local use but this also needs imports and the problem of forex is also there.
She can consider providing a service like construction but construction locally depends massively on imports.
But she can consider exporting which circumvents the forex problem but this demands being competitive in the global market, which in many cases requires the country to have the institutions that give it economic complexity re knowledge and skills which can drive innovation.
Hence, the choice of such a product is difficult for a country of low economic complexity.
T&T is such a country, which is making diversification difficult for the private sector; hence, the forlorn call to the government to diversify the economy with little concrete ideas on how to get this done.
Thus the talk is to look for low hanging fruits, exports of low original content, like tourism or basic agriculture.
T&T does have an area in which it posses latent and demonstrable knowledge, skills and innovative ability, song, music, Carnival but it remains haphazard in its utilisation of these attributes.
Interestingly the new PM has indicated that this is an area of interest to his government. The ability is there, but the organisation required is the bugbear.
The outcome of this scenario is government’s focus on the petroleum sector, especially finding new sources of gas for current activity and talk by the way of diversification.
Others have been in this situation and have diversified with government’s direct intervention mainly in attracting foreign direct investment: But, with the current knowledge and technologies, robotics and AI, this option is fading into the sunset.
Besides the difficulty for the entrepreneur to obtain the forex either to import or they earn it from exporting, there is an associated difficulty the population finds itself in because of the shortage of these forex rents.
It is a well observed fact that when there is a shortfall in forex available locally, the level of the economy of the country decreases.
This implies that imports decrease and but their demand does not fall. Hence, prices increase.
Also, these rents allow the government to fund transfers and subsidies, which include, for example, public education, health and other social services, pensions, reasonably priced electricity and water, transport systems, public housing, CEPEP and GATE.
Hence, a decrease in rents negatively impacts the population at large. Since the responsibility for the provision of these rents is seen as that of the government as is diversification, any disruption in these rents results in a political backlash to the incumbent government, which is particularly damaging in this time nearing a general election.
Hence, the current government attempted to ensure that the onshore sector did not feel the effect of the current reduction in rents by using its forex reserves, HSF and foreign debt to inject forex into the local market.
Indeed, we have seen the forex reserves drop from some US$11 billion to some US$5 billion, which includes money borrowed. But these actions (on a cloud problem) have had the effect of encouraging adverse criticisms from local commentators on the degeneration of the country’s wealth parameters.
This approach has had some success for the government as there has been positive growth of the onshore sector in the period.
Still, the government knows that this approach is unsustainable but it could help mute the complaints by the population of government’s poor performance at this crucial time.
Further, government is hoping in the short term that gas from the Manatee field will become available and in the more uncertain case that the US government will allow us to trade in gas with Venezuela.
Indeed the recent meeting in Jamaica of PM Young with Marco Rubio, Secretary of State of the US, has given some assurance that the US permission may be obtained.
However, this will help only in the short to medium term which unfortunately seems to be the range of vision of our governments!
This reduction in the local production of gas, though there is also talk about exploiting the higher priced Calypso gas, together with climate change, demand that we desist from the use of hydrocarbons and also demand that we reconstruct the political economy to produce the necessary rents from exports from other sources, particularly by the efforts of the onshore private sector.
LQY of Singapore told us that if a government and its population are interested in diversifying the economy they will get it done. If however the population has no interest in this, no government alone can get it done.
This is the case of our onshore private sector that Prof John Foster tells us could have become rigid and unable to adapt given their total historical record of economic a activity is in a plantation economy.
Still, the T&T government has demonstrated that it has some interest in such diversification.
For example, there were two major interventions as platforms upon which it was hoped the local private sector would perform.
The first was the negative listing of certain imported products, which was intended to give that sector time and the protection to develop export based companies. However, the local businesses simply imported knock-down kits and were nothing more than screwdriver manufacturers.
When the negative list was withdrawn they simply reverted to importing. The other attempt was government’s investment in Pt Lisas for the local production of petroleum products with which the private sector was hoped would go downstream into exports. This never came about even when most of the initial plants were sold to foreign investments.
Is it then that we are bound by the dictum of LQY? One encouraging fact is that we have a reasonably effective stock market.
So if successful export startups were placed on the stock market local investors would buy-in. Further the UWI has shown it is capable of creative research via the international patents its staff have won.
Given the government’s historical interest in creating export companies and even its track record of maintaining state enterprises, its joint effort with UWI could generate innovate startups for the stock market. The first step then would be to choose areas for this creation of knowledge and then innovative products.
So much so, Prof Anthony Clayton, also of UWI, has suggested the general area of disruptive innovation. This approach seems to present a way to build the required institutions that would improve our economic complexity and usher us into the production and the export of high value goods and services for the global market. Given the current US generated turmoil of the global market the choice of exports will have to be strategic given also the multi polarisation of the world economy.
Yuri Pekar
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