2k3 - A year of controversy and upheavals

The year 2003 has finally come to an end and members of the business community may be breathing a sigh of relief and looking towards 2004 with high hopes of better things. The past year was viewed by many as a year of uncertainty as the escalating crime situation has led some businessmen to flee the country with their families. National airline, BWIA, faced closure and controversy. However, reports have revealed buoyant economic growth in Trinidad and Tobago for the first half of 2003, the result of a surge in the energy sector output, low inflation, a strengthening external position and a better than anticipated fiscal outcome. The local economy, it was disclosed, remained relatively resilient against a backdrop of geopolitical tensions following the quick cessation of military conflict in Iraq and the apparent containment of the Severe Acute Respiratory Syndrome (SARS).
Here are the highlights....

BWIA

The year 2003 proved to be one of uncertainty for cash- strapped national airline BWIA which faced major problems when Government refused to meet the management’s request for financial assistance. In March, Government made it quite clear that it was prepared to let the airline go under, only lending a hand if BWIA was prepared to make certain internal adjustments and present a plan which would give the airline a chance of viability by cutting costs to the tune of US$1 million a month. In January the airline retrenched more than 600 workers mostly from the maintenance department. Controversy reared its head when the airline’s promise to pay retrenched workers over TT$ 1.5 million in severance never materialised. Approximately $60 million was owed.

Communications Manager, Clint Williams noted that the money was allocated for the retrenchment in 2003, but was used to meet commitments at the start of the war with Iraq. Earlier this year the Federal Aviation Authority downgraded TT to Category 2 status, which Government blamed on BWIA’s financial problems. The airline, reports stated, was losing US$980,000 a month. On April 17, Government agreed to inject $116.8 million into the airline so that it could continue to fly. However, Cabinet laid down certain conditions for this assistance. Among these conditions was that the airline review and revise executive compensation contracts, as well as review and revise salaries and allowances of all staff from April 1, 2003.
The airline was also told to review and revise its policy on free and rebated travel afforded to staff, as well as the management structure and the management team. In late April, the airline asked workers to take salary cuts of between five and 20 percent in an attempt to cut costs. However, this was refused by the Unions which claimed that wage cuts were illegal. They called for CEO, Conrad Aleong to resign, saying that the airline’s problems were caused by mismanagement.

More problems in May. A B-737 aircraft was seized at Miami International Airport for monies owed to leasing company International Lease Finance Corporation (ILFC), which owns six of BWIA’s seven planes. It was indicated that BWIA was in debt to its creditors to the tune of US$100 million. Government met with the lessors and succeeded in getting 120 days of breathing room for BWIA to clear all of its outstanding liabilities. However, it once again called for changes in the airline’s management structure. In June, President and CEO Conrad Aleong resigned his post and was replaced by General Manager of Tobago Express, Nelson Tom Yew. In December, BWIA was ordered by the Industrial Court to pay out $4.1 million in severance benefits on December 22 to workers who accepted VSEP packages. Another $1 million was to be paid on December 29 and any other outstanding monies to be settled by January 31, 2004. The year 2003 also saw BWIA making its inaugural flights to Cuba — on June 24 — and to the Dominican Republic in November.

UNIT TRUST
CORPORATION (UTC)

In 2003 a rift developed between Government and the Board of Directors of the Unit Trust Corporation (UTC) over the contract renewal of Clarry Benn, UTC’s Executive Director. Benn’s contract ended on August 31, 2003, however, he is still serving as Executive Director. There was speculation that Government did not want to renew his contract, but instead wanted to appoint Renrick Nickie, Executive Manager, Marketing Operations and Information Services, to the post. Finance Minister and Prime Minister, Patrick Manning, limited Benn’s reappointment to a term of six months saying that this period gave the Corporation enough time to find a successor. In September, Government announced that it was considering a suggestion from Chairman of First Citizen’s Bank (FCB), Ken Gordon, that the UTC be merged with the FCB.

Manning noted that Government was trying to streamline corporate arrangements before deciding whether the UTC should go public or be merged with FCB. This announcement met with heavy criticism from both the business community and the public which questioned the legality of such a merger. Prime Minister Manning later announced that there would be no merger. On October 8, Nickie, who was tipped to replace Benn as Executive Director, was sent on 79 days leave by the Board after he allegedly broke the company’s gag-order by doing an interview with a daily newspaper on the possible merger with FCB. Later that month, Chairman, Hubert Alleyne, received a letter from Acting President, Linda Baboolal, informing him that he had been removed from his post. Alleyne was replaced as Chairman by former Central Bank Governor, Ainsworth Harewood. This move came after Prime Minister Manning said that he was having problems with the UTC Board and  if Government was dissatisfied, it was up to Government to change it.

Alleyne’s firing exacerbated growing tensions between Government and the Board. At a subsequent post-Cabinet meeting, Junior Finance Minister, Conrad Enill noted that Alleyne had been fired for failing to adhere to Government policy. He noted that Alleyne was appointed by Government in consultation with the Central Bank and was expected to carry out Government’s policies. Prime Minister Manning also indicated that there was a loss of confidence in Alleyne and that the time had come to replace him. Late October saw Alleyne going to the High Court to challenge his dismissal, which he claimed was orchestrated by Manning and Enill. However, the year was not all bad for the UTC, which saw its gross income reach $346.4 million, marginally below the $382.7 million for the corresponding period in 2002. With respect to management operations, income increased by $3.2 million to $87.8 million, while net income increased by $4.9 million. This resulted in a boost to the retained earnings of $43.9 million. Retained earnings as a result, reached $261.2 million as at June 30, 2003.

CARONI (1975) LIMITED

Last year saw the last working days for the majority of employees of Caroni (1975) Limited, which was restructured according to Government’s plan. This followed the ruling of the Industrial Court on June 27, 2003, that the company was in breach of Section 40 (1) of the Industrial Relations Act and was deemed to have failed to negotiate in good faith with the trade union representing some 9,000 daily-paid workers. The Court ordered both parties to meet and reach an agreement on the disputed items in the Voluntary Separation of Employment Package (VSEP). The total package was estimated at $726 million. On July 31, 2003, Caroni Limited officially ceased operations and all workers with the exception of 28 employees accepted the enhanced separation package.

Caroni Limited was reconfigured into a non-trading company whose responsibility was to engage a small staff to manage all the current and long-term debt and other liabilities of the company and to retain the non-strategic business units, including rice cultivation, citrus production and dairy production, which will be divested. In late July the Sugar Manufacturing Company of TT (SMCOTT) was established to be responsible for the purchase of cane from private farmers and the processing and refining of said product. Only one of the two factories previously in operation, namely Usine St Madeline, is scheduled to continue processing cane in order to produce annual levels of between 75,000 to 80,000 tonnes of raw sugar. Another company, Rum Distillers Limited, was also established in late July as a subsidiary of Caroni Limited to carry on the business of rum manufacture.

MINIMUM WAGE

In January 2003, the minimum wage was increased from $7 to $8 per hour, which sparked criticism from a number of local business associations including the TT Chamber of Industry and Commerce, which queried the process used to come up with the new $8 minimum. The American Chamber of Commerce (AMCHAM) and the Downtown Owners and Merchants Association (DOMA) agreed that employers would find it hard to absorb the increase, especially those who operated in price controlled businesses, micro-enterprises and those who employed school leavers.

FOOD

The price of three major food items showed drastic increases in 2003. The National Flour Mills (NFM) came under heavy criticism when it increased the price of its flour by 22 percent as a result of rising prices on the international market. This prompted local bakeries to increase the prices of their products by as much as 10 percent. In May, when international prices fell, NFM reduced its prices, noting however, that they had not returned to the levels they were at in September. Bakers were ordered by then Minister of Consumer Affairs, Camille Robinson-Regis to lower their prices.

Complaints came in from the Bakers Association that it would be impossible for them to reduce the prices on all flour based products, since they were faced with numerous expenses. Chicken prices also went up in 2003 to more than $6 a pound as poultry farmers claimed that Government had inflicted unnecessary charges on a once stable industry. Poultry farmers and Robinson-Regis battled it out as she threatened to expose  them to international competition if they did not reduce their prices.

After a meeting on July 12 between the Minister, members of the Poultry Association and other parties, the Association promised to reduce their prices just in time for the Christmas season. The price of cooking oil also went up in November, due to an increase in the price of soya bean on the world market. NFM adjusted the prices on its bottled cooking oil when world prices of soya beans increased by as much as 55 percent within a six-month period. This trend is expected to continue into the second quarter of 2004. According to preliminary data from the Central Statistical Office (CSO), the Retail Price Index increased by 4.2 percent in April 2003, compared with a four percent rise for the previous year. Prices of food and non-alcoholic beverages rose by approximately 12.3 percent for the year ending April 2003, as compared with a 9.6 percent increase for the year ending April 2002. Main reason for the increase in the food component was the persistent volatility in the prices of agricultural produce, poultry and flour over the period.

LABOUR MARKET

The unemployment rate fell to 10.2 percent in the second quarter of 2003 from 11 percent recorded in the previous three months. Statistics show that an additional 3000 persons found work and that the number of unemployed persons fell by 5200. The Services sector was a significant source of employment as 11,300 and 4,200 persons obtained jobs in the Community, Social and Personal Services and Transport, Storage and Communication sectors respectively. The reduction in employment in the Manufacturing sector slowed significantly during the second quarter of 2003 to 900 compared with a loss of 7,500 jobs in the first quarter. Other sectors which recorded increased employment were construction and agriculture, excluding Sugar.

AGRICULTURE

During the 2003 crop, production of raw sugar amounted to 65,700 tonnes, marginally above the revised target of 65,000 tonnes. However this was 33.2 percent below production in 2002 which stood at 98.3 thousand tonnes. This weak performance was due mainly to the impact of numerous unplanned cane fires, dry weather conditions, industrial unrest and the upheaval in the industry arising from the restructuring of Caroni (1975) Limited. During the first six months of 2003, exports totalled 52,600 tonnes, three percent less than the volume shipped during the corresponding period of 2002. Domestic sales in agricultural products reached 27,800 tonnes compared with 32,800 tonnes during the first half of 2002.

MUTUAL FUNDS

During the first quarter of 2003, the mutual funds industry reported net incremental investments in excess of $1,032.6 million, with the TT$ money market funds accounting for 68 percent of the new investments of $710.3 million. Fund managers were successful in mobilising $183.2 million in the TT$ equity funds, thereby increasing net subscriptions in these funds by 17 percent. Additionally, the overall fund value for the industry rose five percent to $14,918 million, $762.6 million higher than the industry’s closing position at the end of 2002. Holdings in the US$ money market and US$ equity funds increased by TT $115 million or six percent to TT $1,965.6 million, with the latter accounting for just $1.4 million.

Positive performances in stock prices and market capitilisation over the first quarter of 2003 were large enough to boost the capital gains of the underlying equity portfolios, with the two TT$ equity funds posting quarterly returns of 13.72 percent and 2.21 percent respectively. Quarterly returns to investors in the TT$ money market funds were competitive, relative to alternative short-term instruments and varied between 5.83 percent and 6.49 percent, with an average return of 6.12 percent. The industry’s two US$ money market funds paid to investors returns of 5.20 and 5.35 percent respectively.

NATURAL GAS

Natural Gas production increased significantly to 18,405 million cubic metres during the period October 2002 to June 2003, 46.4 percent above the previous nine-month period of 2001/2002. During the April to June 2003 period, there was an increase in the production and international shipments of natural gas liquids (NGLs) as most of the petrochemical plants at Point Lisas operated without major disruption.

Additionally, the Atlantic LNG Train III facility was successfully commissioned in April. Output of NGLs averaged 2.6 million barrels, an increase of 10 percent as compared with the previous quarter and 33.5 percent above production in the corresponding period of 2002. Exports of NGLs, which stood at 2.52 million barrels, increased by 18 percent and 30.3 percent from the previous quarter and the corresponding quarter of 2002 respectively. The prices of propane, butane and natural gasoline trended slightly downwards, reflecting the trends in crude oil prices after the war in Iraq.

CABINET RESHUFFLE

On November 7, 2003 Prime Minister, Patrick Manning reassigned the portfolios of a number of his front-line ministers in a move which shocked many. Dr Keith Rowley, who had previously held the portfolio of  Planning and Development Minister was replaced by former Legal Affairs Minister, Camille Robinson-Regis and received the Housing portfolio. Agriculture Minister, John Rahael was moved to Health and his portfolio taken over by former local government Minister, Jarrette Narine Health Minister Colm Imbert was reassigned to Science Technology and Tertiary education, while former National Security Minister, Howard Chin Lee was reassigned to the Tourism Ministry.

BUDGET 2003/2004

The Budget for the fiscal year 2003/2004 was hailed by many as “a Budget for the Poor” as it placed emphasis on a number of social programmes. The budget, which was based on an oil price of $25 and set at approximately $22 billion provided for an increase in allowances for pensioners. It also provided for a housing subsidy of $36,000 to those in income brackets of $12,000 to $27,000 annually, while those whose salaries are between $27,000 and $44,000 will receive a subsidy of $24,000. The disability grant was also increased from $600 to $650 and now includes those from age 18. Other budget highlights included the removal of the five percent tax on interest earned for individuals who invest in Trinidad and Tobago as well as the settlement of VAT refunds where interest on outstanding refunds would only begin to accumulate after six months from the submission of completed VAT returns.

The business community expressed general satisfaction with the budget, which was presented in Parliament on October 6, specifically the initiatives geared at reducing the escalating crime situation.  It provided for the implementation of a riot squad as well as an increase in foot patrols, vehicle fleets and security equipment. Members of the gaming community, however, were up in arms against the Finance Minister’s decision to increase the taxes on slot machines and gaming tables. Employees of one members club held a demonstration outside Whitehall to protest this move, claiming that it was taking away their livelihood since their employer had announced moves to retrench staff as these increases meant that he could no longer pay their salaries.