TT business told look outside

“I think our government is too large, I think the part that they play in our economy is way too big. I think we’ve become a subsidy-drive, handout, State. That is not good for innovation.

That is not good for transformation.

(The) private sector is where the transformation is going to come from.

That is where the transformation came from after the last recession. I remember a long, long time ago, Arthur Lok Jack told me, ‘Brian, the period of recession we went through made Trinidad competitive and that was our impetus to go out into the rest of the Caribbean and develop those markets.’” Noting that TT’s deficit for fiscal 2017 is TT$6.034 billion, about 3.9 percent of Gross Domestic Product (GDP), Hackett asked how attractive our energy assets would be if or when Government decides to sell them as part of its “one-off” revenue-generating measures.

“We know the story. Huge deficit.

We’re going to close it with asset sales, with other one-off measures, we’re going to try and bring private sector capital into this base through the PPP initiatives, but here’s what, A lot of those things can’t be replicated too many times. A lot of the assets that have to be sold in future rounds are energy assets. How attractive are they going to be? How easy is it going to be to monetise those IPOs et cetera if the reserves have nine years to go, eight years to go, seven years to go? So, we have some structural problems.” How should businesses address this? Hackett said they need to start the process of understanding where their “sit strategically”. Then engage with professionals, with their bankers and attorneys; “who have a wide breadth of clients they interact with”, their counterparts, to get the most accurate forecast of what the future will look like and what they need to do to be successful when that change occurs.

Hackett was speaking on the topic, “A Roadmap for Navigating the Challenging Economic Times”, during the third instalment of the Scotiabank INSIGHTS series, this past Tuesday evening at the Hyatt Regency, Port-of- Spain.

Given the aforementioned conditions in TT, Hackett advised everyone to see change or “disruption” as an opportunity for transformation.

He lamented that the majority of companies in TT “do not plan”; they do not have a strategic plan in place. They therefore find themselves reacting to opportunities and threats instead of being innovators and trendsetters in their industries.

“Recognise what your sustainable advantage is and trade off of that...We have to ask ourselves, what business are we going to be in five years from now? What business are we going to be in ten years from now? We do not know how to get there but here’s what, we’re going to go out each and every day and evaluate the assertion...The interaction, the learning, would make the organisation better but you cannot ‘stay inside’, you cannot just focus on the business that you’re in now” Hackett warned that if companies “don’t answer these questions and then set out on a journey to get there, they probably might as well go to the gambling hall and roll the dice.” Geographic diversification is one of the tips in the PwC head’s nine-point plan for “Managing in Uncertain Times.” Noting that Guyana “seems to be on the rise” and that Cuba is “opening up”, Hackett said looking for opportunities outside of TT may be the best way for some businesses to diversify their risk in terms of the local economy.

“We are, for better or worse over the next three years, in my view, a deficit-financed, one-trick pony. It may extend longer than that. You have to ask yourself, ‘(Is) my level of diversification...consistent with that profile or should I be looking outside to diversify my risk?” During the question and answer session that followed, Hackett was asked when the full impact of the recession TT is in would be ‘felt’ in, for example, the turnover rate of goods on supermarket shelves and in the number of bookings at restaurants.

“Common sense tells me that what we’re seeing is the last of the liquidity working its way through the system and when that is finished, and it’s not being pumped in at the other end, there will be a contraction. (This) suggests that there is a window of opportunity to reflate the economy.

Temporary measures yes; all one-off sales et cetera but if that is not done within the near term, then we will start to see a more precipitous fall.” Hackett also highlighted what he described as “a lot of inequality” in income levels, with “the wealth that exists in the country among some sectors having tremendously exploded.” “There are going to be some aspects of the society that are not going to be impacted but overall, when I look at 1.5 percent to 1.8 percent forecast growth over the next three years. I think it’ll probably be negative.” “On a longer-term basis, let’s hope we deal with our structural problem in terms of (oil and gas) supply, both in terms of the foreign companies and the local companies that are potential massive contributors. I think it’s widely known,” Hackett stated, “Trinmar for example, is a fairly sizeable field but it has under-produced almost since it has come online. The question I would ask every day (is) ‘What is the impact of that happening? What is the impact of a corrective action being taken? What comes after that corrective action? And then to align my business accordingly.” GLOBAL PERSPECTIVE Attendees at the latest INSIGHTS event also got a global perspective on the topic from Nick Chamie, International Chief Investment Officer at Scotia Wealth Management.

Looking at data about the link between unemployment levels and recessions in the United States (US), Chamie said “the unemployment rate tends to decline after the end of a recession and then, as we approach a recession, it starts to rise again.” “If you look at the current cycle, in 2009 the unemployment rate, having skyrocketed to around ten percent, 10.5 percent, it’s now dropped all the way below five percent, sitting at 4.9 percent. The unemployment rate tends to start curling up just before the next recession. On average, about a year (but) the unemployment rate is actually continuing to fall.” Chamie added that several indicators “continue to suggest that the next recession isn’t likely until sometime beyond mid-2018, which means we have a couple of years still left in this business expansion phase before we get to the next recession.” The fiscal plans of US Presidentelect, Donald Trump, were also examined during Chamie’s presentation on Tuesday.

“One important aspect of what Trump means for the markets, and means for the economy, is that he actually intends on cutting taxes and boosting spending in a very large way; that’s what he talked about on the campaign trail. We might actually come to expect a fiscal boost in spending and a tax cut boost to the economy that could be somewhere in the region of one percent to 1.5 percent of GDP. If that does come to fruition sometime in 2017 but maybe more likely in 2018, the US economy will continue to show ongoing momentum and economic growth throughout the next couple of years.” Regarding the bond market, Chamie said bond yields skyrocketed following Trump’s victory at the polls.

“Bond markets have been very, very quick in response to this election, in part because he represents a very strong likelihood of fiscal stimulus - increase in government spending, increase in economic growth, at least in the short term (with) that added economic growth giving a boost to inflation prospects in the near future.” Noting that commodity prices tend to move in a “volatile fashion”, Chamie__ reminded that some commodities increased 300 to 500 percent between 2000 and 2010 before they “started to trend a bit lower” in 2011 and 2012.

“Having kissed the top of the range, commodity prices have started on what I believe to be a prolonged super-cycle bear market, following the pattern of the other two long-term super-cycles. What this means is that commodities are unlikely to experience a sustained, strong price increases any time soon.

We should come to expect, we should budget for, low and probably stable commodity prices for the foreseeable future.” Looking at oil, Chamie compared the 1970s supercycle to that of 2000.

He pointed out that they “follow a similar pattern” - a dramatic increase followed by a collapse and then a “prolonged range trading environment.” “Oil prices spiked up to US $120 a barrel and collapsed in 2014 and now once again, we expect that range trading environment is likely to dominate in the coming years, where we can see oil bouncing in between US $35 a barrel to $65 a barrel but probably not exceeding $65 a barrel, since that would bring on new oil supply, and not below $35 because all of a sudden, supply cuts would start to correct the market.” Describing data on Equities as “good news”, Chamie said the US stock market tends to go through long-term secular bull markets and bear markets.

“Bear markets in Equities tend to move sideways and they’re each punctuated by important global economic and financial events (such as) WWI, WWII, depegging of the dollar off of gold and the bursting of the tech bubble but each following bull market in global equities has tended to be sparked once we clear the previous range of the bear markets.” “I have some good news,” Chamie added.

“It seems as though we did that back in 2013.

Historically, those longterm bull markets have tended to last anywhere from 15 to 30 years. So, it’s my view, and that of our group, that we think we’re in the early innings of the next secular bull market in global equities.” Scotiabank says its INSIGHTS series was developed with a holistic approach in mind, bringing to life that sense of deep understanding and awareness that the audience will have through the many areas of insightful discussions. At each event, the featured guest speakers provide the audience with insight into their expertise.