By moving to elect three ‘independents’ to serve alongside the stock brokers and listed company directors, the Trinidad and Tobago Stock Exchange, some say, is trying to keep up with the changing times. But the move is also being seen as one needed to prevent both brokers and directors from pursuing their own agendas.

At a special meeting on Monday at the Crowne Plaza Hotel, the stock exchange amended its bye-laws  to have three independent directors appointed. A resolution giving effect to the change will be put forward at the exchange’s next annual general meeting in May. Former Stock Exchange Chairman and listed company director described the independent as “third parties,” noting that the intention was to bring a different level of directorship. It is all part of the demutualisation process, he said. He said it was having independents was something he was working on for a long time.

But CMMB Securities managing director Robert Mayers is of the view that the stock exchange needs people “not involved and affiliated with the stock brokers and listed company directors.” For too long, there has been “wrangling between the listed directors and brokers,” he said, citing the tardy implementation of the Central Depository System. “We had two Chairmen —  Young and Ronald Huggins — and it was still not implemented,” he said of the imbroglio surrounding the implementation of  Depository.      

Before Monday’s meeting, the composition of the stock exchange was  made up of five brokers and five listed company directors. The stock exchange members voted to change the configuration to four brokers, four listed company directors and three independents, one of whom may be Hugh Edwards, manager of the Stock Exchange. The stock brokers at the exchange are: Peter Clarke, West Indies Stock Brokers, Winston Padmore, Trinidad and Tobago Stock and Shares, Kathleen Dhannyram, Chairwoman of the stock exchange and managing director, Reliance Stock Brokers, Subhash Ramkelawan, Bourse Securities and Alvin Johnson of Caribbean Stock Brokers.

The five listed companies directors are : TCL CEO Rollin Bertrand; Scotia Bank managing director Richard Young, Guardian Holdings corporate secretary, Fe Lopez-Collymore, Godfrey Bain, Chief Operating Officer at Angostura and Ronald Huggins, former deputy managing director, who has since retired. “There could be a conflict of interest in that people who own the exchange — the brokers and the listed company directors — have a vested interest in it,” observed one stockbroker, who spoke under condition of anonymity. “The independents will bring a degree of independence to the board,” Bain said, when asked about share holders pursuing their own agendas.

Bain, Chairman of the Central Depository, said he  welcomed having independent voices on the exchange. Noting that while he was aware that both brokers and listed company directors may bring  their own biases on board, he said he had not encountered this to “any great extent.” He said that the independents  will also bring a balance to the governing of the board. GHL’s Fe Lopez-Collymore, another listed company director, noted that there is the public perception that having brokers and company representatives on the stock exchange, is a conflict of interest.

The independents, she felt, could curb such a perception. “Having independents will diminish the perception that there are conflicts of interest,” she said. But there are still concerns. “There are a lot of listed companies who feel that it is not proper to have listed company representation on the board of the stock exchange,” one stockbroker noted. “Listed companies and brokers see things from a different perspective as to what is good for the exchange”. Clarke noted though  the move was meant to broaden the composition of the board and to change the ownership structure.  The change, he said, was in keeping with the stock exchange’s stated objective to move from one being owned by the brokers and company directors to that of a public company.

The independent directors were chosen by majority vote by those holding class A and B shares, the former belonging to the brokers; the latter to listed companies. An independent director cannot belong to either group. Dhannyran said the three independent directors will ensure that the stock exchange is comprised of people whose interest is purely that of the exchange’s development. “It is another step in raising the calibre of the exchange,” she said, noting that it was a move to make the stock exchange totally independent. Young agreed, saying, “it is all about bringing transparency and good governance to the stock exchange.” He said he was aware that 50 percent of the stock exchange was owned by six broking firms and the rest by listed companies who bought shares. This, he said, may have created the perception that a conflict of interest existed.  
 
Of the charge that the independents could  be a buffer against those having their own agendas, Young said he hoped those sitting on the exchange wouild sit with only the interest of the institution in mind. “Not a broker’s interest or a  company’s interest,” he said. The stock exchage may also not want a repeat of what happened last year, when Huggins refused to step down as chairman of the Stock Exchange. For this reason, a committee was set up to look how such issues could be resolved amicably, and to govern the operations of the stock exchange. This is the second change in the composition of the board. In 1981-1999, the configuration was five brokers, two listed companies, and two government representatives. In 1999 the composition was changed again when the exchange became a company to five brokers and five listed companies. 

TCL’s Bertrand dismissed the idea that there was a perceived conflict of interest among the shareholders of the stock exchange, noting that having independents on board was nothing unusual. “We are creating a structure that is in keeping with international norms,” he said. But as one broker pointed out, “the stock exchange must have board of directors who are not easily influenced, who have the stock exchange at heart, to the exclusion of everything else.”    

THE EDITOR: There has been considerable comment on BWIA in the media recently, and most of it appears to be conjecture, or “ole talk”, not supported by hard evidence. As a shareholder of BWIA who has devoted some time to analysing the published material available, I feel that it is time that some facts were put into the “ole talk”.

The numbers I have derived are from Annual Reports and other public documents, and may contain errors of origin, transcription, or calculation, and rounding or scaling may cause some distortion, so they are for general comparison only. Nobody can deny that BWIA appears to be less productive than many airlines in the industry, especially when raw numbers are used, and I will get back to that later. The fact is, however, that even with poor productivity, BWIA’s labour element of its cost of production is considerably below even Southwest Airlines, one of the benchmark “low cost” airlines in the USA. See table 1. It is even slightly below Jet Blue, the current darling of the industry, when whole year 2002 numbers are examined, see table 2. So one must look elsewhere when BWIA’s high cost of operations is being analysed.

The question of productivity is often linked by insinuation to work rules that are supposed to be very restrictive. Even a cursory examination of other airlines’ work rules will reveal that BWIA’s work rules are not outside the average range for the airline industry, and are less restrictive than many businesses outside of aviation. It is in the efficient use of the work rules available that BWIA appears to fall short; this might indicate an oversight or implementation problem. In the case of the numbers published to illustrate productivity in the Recovery Plan 2003, they could be a little misleading in that BWIA performs services for Tobago Express and LIAT, and possibly others, and the manpower necessary will show up in the head count, but the aircraft numbers will not, giving the impression that the employees per aircraft ratio is higher than normal. This will also skew the passengers per employee and revenue per employee numbers. Average sector length, yield and load factor of course make quite a difference too. Even so, it might be fair to say that the ratios could stand some improvement.

Another area frequently criticised is staff travel, or, as our US counterparts call it, pass travel. Once again BWIA staff do not enjoy anything that is not right in the normal band for the industry, and existing practices at reputable scheduled airlines can be checked. Anything that is not in keeping with industry norms can only be the result of abuse of rules, which might indicate an oversight or control problem. Table 3 is extracted from Annual Financial Reports and SEC filings, or in the case of BWIA 2002, from their 2004 Recovery Plan. The blank rows and entries are because of differences in reporting layouts between ATA, IATA, and BWIA formats. There are differences in the definition of categories, so that the information is not necessarily exactly comparable, but the general trends are representative of what is taking place. As can be seen BWIA’s total costs are too high compared to low cost carriers, but that is not the whole picture.

A comparison of operating statistics, Table 4, shows that although the costs are somewhat higher than the “low cost” carriers, the loads, as indicated by the passenger load factor numbers below, are way below the low cost carriers. Even the relatively high BWIA total cost element would be supportable at a slight increase in load factor. If one was to bring the BWIA load factor up (at a constant yield) to that of the lowest of the low cost examples, Southwest at 68.1 percent, than factoring in reasonable extra fuel and catering costs, BWIA’s 2002 operating profit would theoretically have been about USD$21 million. Even a modest 65 percent load factor would have produced a theoretical USD $9 million operating profit. The theoretical BWIA break-even point is about 62.5 percent, not all that far from the 58.9 percent achieved. So near, but yet so far.

I hope that the figures that I have supplied help clear up some of the misconceptions that exist, and engender an increased level of support for BWIA which will show in the form of increased load factor! A little bit is all it takes. It is notable that the US aviation industry is at this time clamouring for a total reduction in all taxes on the industry. In the light of the current world travel decline, consideration might be given to the removal of VAT and duty on all travel or tourism related industry in TT. The dollar and percentage breakdown of BWIA’s ticket costs reveal that the VAT and surcharge elements are quite significant, representing more than the staff pay and pilot pay elements of BWIA’s ticket cost breakdown, respectively. See table 5. It is hoped that facts and figures will help drive the recovery of BWIA rather than “ole talk”.
Time for “ole talk” done.

SIMON KELSHALL
Diego Martin

In order for Trinidad and Tobago to face the challenges of globalisation and the FTAA, it must first change the perception of the country away from one of just a “Carnival Destination” to one of a serious business and investment location.

This is the view of Earle Baccus, president, Business Development Company Limited (BDC). At an exporters’ workshop titled “Meeting the Global Challenges Facing Local Exporters,”  at the Crowne Plaza Hotel last week, he spelt out the hardships facing exporters on the open market. The BDC plans to set up an Export Service Facility to assist local companies sustain and increase their export market share. “After decades of shelter from open market competition, local producers and exporters now face shocks occasioned by globalised economies and liberalised markets and now have to accept the changes and challenges these bring,” he told a packed workshop.

Baccus said the history of doing business in TT has in the past been one pursued within a framework of “produce what you consume, consume what you produce” — with production entities operating behind high tariffs and quotas. He noted that the inefficiencies, which these protective policies engendered, were exacerbated by the preferential, non-reciprocal access arrangements to regional and extra regional markets within agreements such as Lom?, the Caribbean Basin Initiative (CBI), Caricom and Caribcan among others. He said the need to operate out from under a protective environment has spurred the need for these operations to enhance and in the majority of circumstances, to become internationally competitive.“Our small size with limited production bases, similar production systems and products, inadequate transportation links, weak management systems and obsolete production technology makes more daunting the challenge our companies face in this global environment.”

At the regional level, he said liberalisation has opened up this country’s trading environment. He cited Caricom as an example and noted that the reduction in the Common External tariff (CET) from a high of 45 percent to a maximum of 20 percent has created a need for a “buffer” for companies to adapt to the lower level of protection by way of very low and in the majority of cases, zero tariff on raw materials and other inputs into the production process. “Other support measures must include the offer of technical assistance and implementation of human resource development programmes at the management, supervisory, and operational levels as well as low cost funding for export initiatives. Baccus said at the national level, trade agreements have been entered into with other countries and groupings, so as to boost investment in production and increase access to larger markets.

“Policies have also been instituted to enable our local enterprises to take advantage of cumulative treatment arrangements allowing them to utilise raw materials and other inputs from Latin American countries in order to more easily access markets in Europe.” However, he said more needs to be done at the policy and infrastructure level including upgrading TT’s support facilities such as the Bureau of Standards, statistics department and customs administration in order to facilitate a more conducive and business environment so that local firms can do business locally, regionally and with the rest of the world. He noted that at the level of enterprise, the challenge to exporters and would-be exporters is  not only the need to produce at an acceptable price and to the required market demand, but also to meet environmental norms, adapt to loss of preferences and conform to particular standards.

“There are examples of textile products rejected in Germany as dyes used were not environment friendly, cut flowers returned as the packaging did not conform to certain environmental requirements, other products not meeting pesticide residue levels, production depleting the ozone layer, beverages unsold as the business did not have a deposit and return system and shrimp caught in trawlers not fitted with turtle exclusion devices not gaining entry into the United States (US) market. Additionally, loss of preferences are exemplified by the various and several actions taken at the multilateral and bilateral levels in respect of bananas, rum, rice and apparel. Baccus said the question then arises, ‘how should exporters respond to these challenges?’ There is the need for companies to recognise the impact of global changes on their business and their business practices, he said.

“They need to stop thinking local and begin thinking global.” He said there will therefore be the need to plan and implement measures to include being more open to forming strategic alliances with external partners within and outside the region, upgrading plant, equipment and technology, improving waste management, improving plant efficiency by utilising excess capacity, increasing the productivity to wages ratio and upgrading products and packaging requirements. Secondly, he said companies need to maximise the competitive advantage they hold in the regional and international market place. “The demand for our sauces, condiments and other foods is the fastest growing segment in the US and UK gourmet food markets. Our products have moved from ethnic to mainstream and are now in major outlets in Europe and North America.” At the end of the day though, Baccus noted that the major concern is the transformation of the production structure of these local enterprises to one that is consistent with the structure of international demand.

“The emphasis must shift towards adding new and improved export goods and services and exploring new markets.” He said this may result in a change in the sectoral structure of production through investment in machinery and equipment and technological innovation. He added that the production slate may, in light of competition from low-cost production centres in the Far East be biased towards the higher valued, knowledge based goods and services or those that can satisfy niche markets. “In other words firms must gear themselves to choose a position within an industry and develop a sustained competitive advantage relative to their competitors.”

Q: I always hear that owning your own home is the way to go. I am single, in my early fifties with no children. I do not own property and live in a rented house. I’m sure I could qualify for a small mortgage, but is there really that much benefit for someone in my situation to become a homeowner?
Asha, Sangre Grande

A: Owning a home is always the best way to go. But it may not be practical to do this at your age. The reason is that the maximum repayment period that you would probably obtain from a financial institution at this stage would be about ten years. Consequently, the monthly installment might be too much for you to pay. However, if you can arrange your finances in such a way that your total debt servicing per month is less than 40 percent of your monthly income, you should be able to handle the mortgage along with other household expenses and still put aside something for your retirement. In this way you would be able to take advantage of the tax deductibility of mortgage payments on your tax return until sixty. Another option you can consider is taking out a joint mortgage with a  younger relative to whom you would eventually leave your house. This would enable you to stretch the mortgage over a longer period and take out some life insurance, which would eventually pay off the mortgage in case of untimely death.

Q:   I know there is always a risk involved when you invest money, but is there a way to make sure that the original sum doesn’t get blown away?
Pamela, Carenage

A: There are two major categories of investment instruments. Firstly there are fixed income instruments like Savings accounts, Certificates of deposits and Money Market Accounts where a built-in feature of the investment is to keep the principal protected. However, this is not to say that your principal is “guaranteed”. Like an insurance policy the risk coverage is dependent on the ability of the insurance company to pay. So even if you prefer fixed income instruments your principal is only as safe as the strength of the institution in which you are placing your funds. As we saw with Finance Houses during the 80s while clients invested in fixed income instruments, which supposed to have kept capital intact, these financial institutions went bankrupt due to imprudent management and people lost a lot.

The other type of investment is referred to as equities. Examples are local and foreign stocks. Embedded in these instruments is what is referred to as downside exposure, where there is a possibility that your principal could be eroded. However, for the higher risk involved the investor is given a much higher return than can be expected on a fixed income instrument. Therefore, if you are not prepared to expose yourself to high-risk, then fixed income instruments is the choice for you. Even if the financial institution offering an equity-based product is strong, one can still lose part of the capital since this is an expressed feature of equity based products. Investigate the features of these instruments or talk to a qualified financial planner to get advice.

Q: Almost every week in your column you tell people to diversify their investments. Why do you stress it so much and why would that reduce any risks? I would have thought that if you spread your money around in too many places it’s like being “jack of all trades and master of none”
Anand, Couva

A: There is an old adage in life “do not put all your eggs in one basket”. It is also relevant to investments and is the essence of diversification. Spreading your investments across a variety of instruments reduces the overall risk of your investment portfolio. A portfolio is the group of investments you are holding. There is no mystery to diversification. For example, if one or more investments is not performing well, then the others may be doing better than expected thus maintaining an overall high composite return on the portfolio. This is diversification in action.

In this way the probability of attaining the expected return on a portfolio is increased when income is coming from a variety of sources rather than from just one or two. You are right in that spreading your investments does tend to require your knowing a little of a lot of different things. However the market has been structured in such a way to prevent one from becoming too much of a “jack of all trades and master of none”. Investment Managers are now being given incentives to become highly specialised in a particular field of finance. For example there may be analysts who know a lot about biotech stocks, but little about banking stocks. The overall manager of a diversified mutual fund would thus have to hire other specialists from different sectors of the market to draw on expertise from a variety of areas. A mutual fund would have many different managers each hired to take care of a particular sector.

Questions can be sent to:
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Port-of-Spain. Or Email:
cmmbsecurities@mycmmb.com

“Without a viable quarrying industry, Trinidad and Tobago cannot develop further; there will be no First World status by 2020” according to Ramdeo (Dan) Persad, President of the Quarry Association of Trinidad and Tobago, at the recent installation of the Association’s executive. In an address that pulled no punches, Mr. Persad outlined a litany of the problems that face the industry and restrict its development.

Included in his list of woes were the importation of aggregate that could be produced locally, the escalation of illegal quarrying on state lands; the non-release of state lands for quarrying purposes; and the lack of implementation of the Minerals Act 2000, with particular reference to the appointment of a Director of Minerals. In an equally hard hitting response, Dr. Keith Rowley, the featured speaker at the installation pointed out that “if an importer can ship crushed rock from Canada, pay the 40 percent duty and still sell the commodity on the local market, it meant that local quarries were not competitive.” This comment has to be taken in the context that for international producers, transportation costs are frequently higher than the cost of the actual product.

Should an industry as mature as the quarry industry be in trouble? After all, it is not high tech and Trinidadians are intelligent enough to have mastered it by now. The Centre for Development of Industry commissioned an assessment of the local industry to determine whether there are sufficient resources locally to meet projected needs, and also to determine any technical constraints on meeting those needs.

With respect to the first objective, it was suggested that the industry needs to be capable of meeting a typical annual demand of three million tons, but with the capacity to meet peak demands of four million tons. The data appeared to indicate quite clearly that there should be adequate physical resources for this, taking into account all the quarries that can be brought into production, and all the processing plant available. Despite this, there have been times when the demand has outstripped supply and serious limitations have occurred both in quantity and in quality. This has led to predatory pricing for local consumers, and importation to meet the needs of larger scale users.

With regard to the second objective of the assessment, it was observed that many of the supply problems appear to be caused by equipment failure through inappropriate equipment selection and plant layout, by inadequate preventative maintenance and spares, and by inadequate knowledge of the correct planning of extractive procedures.  The report drew attention to the less than satisfactory approach to systematic quality control, and the result observed in poor material quality. Testing was not regularly applied to maintain minimum standards of product quality, and there was a corresponding lack of visual awareness of poor quality. Even when testing was stated to be regularly applied, the product did not always meet expectations corresponding to international standards. The Report concluded that all the problems are closely allied, in that there is a shortage of properly trained people at every level in the industry. This shortage of appropriately qualified people is, effectively, a serious shortage in technical resources to the industry.

It was recognised that the provision of a wide range of craft, technician and managerial training directly specific to the quarry industry is not yet available locally. The industry has frequently voiced a wish for more training opportunities oriented to the industry, but is too loose and fragmented to initiate the solution, with a few very substantial operators facing competition from numerous small operators working with minimal investment.

Many people still believe that anyone can get into quarrying; it is just a matter of having a deposit, and getting a backhoe, a couple trucks and a washing plant. This is very far from the truth.  The users of aggregate, especially for civil engineering purposes, are very demanding about the specifications of the aggregate that they use. In addition to strict requirements for size and cleanliness, issues such as shape, hardness and susceptibility to sparking require a high level of product knowledge. Efficient operating and maintenance procedures are also necessary to have reliable operations that deliver the required volumes on time. New demands based on compliance with environmental legislation also make the situation more complex.

The challenges of inadequate technical resources and an undeveloped regulatory environment are not unique to the quarry industry. To meet them the industry needs a vibrant aggressive association that would collate its needs and advocate them at the highest levels. It would also have to play a strong role in developing its members and helping them to meet new competition while satisfying the new demands for environmentally responsible operations. The President of the Association recently complained about the difficulty in getting a quorum for his meetings. Members of his executive would be well reminded of the childish but true saying: “ If you snooze, you lose.”

The views expressed in this column are not necessarily those of Guardian Life. You are invited to send your comments to guardianlife@ghl.co.tt