Up and down TT’s growth path

Now, however, we are experiencing negative growth. Based on comments made by the Minister of Finance and the Prime Minister we do expect an economic plan to be unveiled sometime soon. There may be a skeletal framework that will be fleshed out after discussions with the citizens. On the other hand, it may be a unilateral plan with no input from those for whom it is intended.

The approach remains to be seen.

Against this backdrop, what has been our growth over the last 55 years and what growth and development plans or strategies have been adopted? It is important to firstly enquire how the economy performed since independence. Trinidad and Tobago experienced an upward trend in GDP over the last 50 years with two very significant growth spurts. The first took place in the 1970s and very early 1980s and the second, starting in 1994 and ending in 2008. We have moved from a few hundred million US dollars of GDP in the early 1960s to peaking at just over $28 billion in 2014. Growth in Trinidad and Tobago averaged six percent per year since 1994, among the highest levels in the Latin American and the Caribbean region. After a very weak performance in 2009-12, with some modest recovery of 1.7 percent in 2013, the last two years the country has experienced negative growth.

The fall in growth could be traced to four main factors. Firstly, the 2010 Macondo disaster in the Gulf of Mexico which resulted in the need for BP to engage in a major upgrade of its global facilities to address the failings unearthed from this disaster. This led to a curtailment of production at various times to facilitate replacement of machinery. Secondly, there was the end of the commodities super cycle around 2008, before which most commodities experienced double-digit price growth. Thirdly, the possible terminal decline in oil production with output well below what it was over the last five years.

Therefore, there are falling levels of production with no significant replacement coupled with a significant fall in oil and natural gas prices. Lastly, of course, was the dampening effect on the non-energy sector which almost always takes place once the energy sector’s performance is not robust or has begun to decline.

There were a number of growth and development strategies tried over the last five decades, starting with “Industrialisation by Invitation” using the model of Arthur Lewis.

This was an attempt to create a production platform appreciating the lack of capital endowment that existed. There was assistance given to investors by providing them with incentives, especially exporting firms.

The Industrialization by Invitation model failed essentially because Trinidad and Tobago could not compete with Puerto Rico.

The government also introduced “Import Substituting Industrialisation”. This was consistent with the use of high import tariffs, “Negative Lists”, a Buy Local campaign and the creation of industrial parks. This led to the development of assembly-type production such as mattresses, radios, TVs, motor cars, home appliances, processed foods and furniture.

“Resource-based Industrialisation” was another strategy pursued. The idea was not to export raw materials but exploit greater value-added by moving up the value chain. The strategy also involved public sector investment in the offshore sector so as to increase the national take from resource exploitation for distribution onshore.

There were persons who criticized this strategy indicating that distributing rents from the offshore sector as handouts to unproductive consumption, low productivity public sector make-work schemes (URP and CEPEP) and support for large non-traded sectors in distribution and services onshore is good politics, but does not raise the standard of living permanently nor creates selfsustaining growth or development.

They argued that while there may be a temporary period of prosperity the fundamental issue of growth and development is not addressed.

Vision 2020 was a very comprehensive development plan.

Here, the Government targeted seven sectors - Food and Beverage, Printing and Packaging, Merchant Marine, Film, Music and Entertainment, Fish and Fish Processing and Yachting.

Information Communication and Technology were also included. New sectors were supposed to create export led growth in the non-energy sector. The plan also involved the creation of entrepreneurs through NEDCO, the reform of the public service, the development of E-commerce, E-business, financial and capital markets as well as the Human Resources. Vision 2020 was discarded after a change in government.

No discussion of economic planning could occur without a comment about government involvement in the economy.

After the 1970s the state took over the “commanding heights of the economy.” However, by 1979, the public utilities had a cumulative deficit estimated at TT$900 million. In 1985, the State- Owned Enterprises (SOE)/Utilities contributed 16% to GDP, total employment was 53,700 or 13% of the labour force. Investments increased from $24.4 million to $1 billion or 26% of national investment.

This led to Government owning $4 billion in shares in SOE covering 62 enterprises including airlines, cement, telecommunications, hotels, food processing and of course, energy.

SOEs and Public Utilities proved a drain on the treasury. Total public debt increased to $1 billion.

The economy went into a recession in the 1980’s when the price of oil collapsed. For close to a decade, the economy contracted persistently.

Fiscal deficit was 6% of GDP. The Current Account deficit on the Balance of Payments account rose to 15% and was financed by utilizing $2.4 billion of foreign reserves. This led to a stabilisation programme in 1988, which saw a devaluation of the dollar by 15%, a 10% cut in wages and salaries of public servants and resulted in the State having to borrow from the IMF and World Bank.

Against this backdrop, we will examine next week the issues that should form part of a national development plan.