Republic Bank: Crime putting squeeze on business

Even as the TT economy surges forward, Republic Bank, is warning the government that the crime situation is going to add to the cost of doing business in this country. “Going forward, one cannot overemphasise the urgency of curbing the deteriorating crime situation, reflected in the recent upswing in murders and kidnappings,” the bank said in its March 2005 newsletter. “Beyond the fear and helplessness felt by the local population, this epidemic has the potential to hasten the brain drain, cause communities to decline and divert public resources away from productive uses.”

“Crime, especially in the non-oil sector investors, will add to the cost of doing business in this  country,” it was noted. “The Government, as well as the citizenry, must act before it is too late,” it warned. In its newsletter, the bank said strong growth coupled with rising food prices have begun to tell on the overall inflation rate. The Central Bank’s response in March to keeping inflation in check was to lift the rate at which commercial banks can borrow from it (the “repo rate”) by 25 basis points. Buoyed by strong hydrocarbon prices, the Trinidad and Tobago economy performed well over the last three months of 2004.
 
The bank said it estimates that GDP is likely to have grown at a faster clip in the latter half of the year compared to the first six months. This view is strengthened by an upbeat MFO/Republic Bank Consumer Confidence Index and by stronger credit growth in the last few months of the year. GDP growth for all of 2004 is estimated at just over 6.0 percent. Inflation jumped by 1.83 percent in the fourth quarter, more than double the rate of a year ago. The unemployment rate is expected to end the year around 8.6 percent. Notwithstanding this good performance, a rise in kidnappings and murders continues to be a major source of worry to investors and to the citizenry in general, the bank said.

COMMODITY PRICES
Middle East geopolitics, strong demand and minimal spare capacity kept energy prices high. Fears of an escalation in violence in the run-up to Iraqi elections in January 2005 and the narrow margin between supply and demand continued to hold oil prices high through the fourth quarter, with an average price of US$50 per barrel. Natural gas closed the year at US$6.36 for the final quarter. Both oil and gas ended the year with their highest annual averages in years at US$41.28 per barrel and US$5.89 per mcf, respectively. Methanol prices were solid at US$308 per tonne, an increase of 1.8 percent over quarter three while ammonia prices rose by 13.0  percent to US$297 in the quarter, due largely to a jump in natural gas prices.

ENERGY SECTOR
Prices remained high but domestic oil production declined in the quarter capping off a year in which oil production fell to an estimated 122,911 barrels per day down 9 percent from 2003. However, the dynamism displayed by the sector throughout the year continued in the fourth quarter. The Nitro 2000 ammonia plant was commissioned in October, 4.5 months ahead of schedule. Chevron Texaco, operating out of Venezuela, discovered 5 to 7 trillion cubic feet (tcf) of natural gas in the Loran field which straddles the Trinidad and Tobago, Venezuela maritime boundary. While the details and logistics are still being finalised, it is estimated that 1.5 tcf of gas lies on this country’s side of the boundary. Also in December, bpTT announced the discovery of an estimated 1 tcf of gas at its Chachalaca One field off Trinidad’s east coast. This newly discovered 2.5 tcf of gas is a welcome addition and should increase total reserves (proven, probable and possible) from 33.3 tcf to 35.8 tcf. Total crude oil reserves presently stand at 2,762 million barrels. It is heartening to note that the Government recently made a firm commitment to institutionalsing the Stabilisation and Heritage Funds.

MONETARY PERFORMANCE
Increasing pressure on domestic prices pushed the Central Bank to raise the ‘Repo rate’ from 5.00 percent to 5.25 percent effective March 4, 2005. This action would normally lead to a chain effect that would see commercial banks raise their rates in response. However, in the context of high liquidity and tight competition among financial institutions, this effect may take some time to materialise. In the interim however, the Central Bank action is expected to at least halt further declines in interest rates. Interest rates have fallen since the scheduled reduction in commercial banks’ reserve requirement, beginning in October 2003. No doubt, rising domestic demand and corporate sector credit, evident since the third quarter might have spilled over into 2005.

STOCK MARKET
The stock market continued its bullish run in 2004. The Composite Index increased by 13.3 percent in the fourth quarter to close at 1074.63 points, while the All Trinidad and Tobago Index ended the year at 1290.15 points, an 8.3 percent increase over the third quarter. Of particular note is the outstanding achievement of Republic Bank Ltd. The company’s share price reached the $100.00 mark on March 8, 2004, a record performance for any listed company in the country.

CONSUMER CONFIDENCE
Reflecting strong consumer sentiment in the fourth quarter, the MFO/Republic Bank Consumer Confidence Index rose to 92, its highest level since September 2003. The Sub-indices of Current Consumption (102) and Consumption Expectation (86) both improved since the last quarter. Consumers claimed that they felt better about their personal finances and business conditions, although crime and increases in the cost of living were issues of concern.