Economist sees end of the Oil Age

Dr Watson was a panellist at a Thought Leadership Breakfast Meeting entitled A 2017/2018 Budget Perspective: Will the Cooperative Sector Factor? held at the Hyatt Regency, Wrightson Road, Port of Spain on September 6.

He said he recognised the government’s inability to finance anything at this time but what he wanted to see was the government playing a supportive role to the credit union movement “in producing innovative products which are geared towards the diversification of the economy, and I think the credit unions are in a position to do precisely that but the government must be able to support it.”

He said one way the government could do this was by providing tax concessions to new activity that would result in the production of goods and services for export. “This is nothing that they are going to be doing on old activity where if the activity doesn’t take place they will get nothing from it anyway and if the activity takes place they give a tax break and they allow this thing to develop,” he stressed. Dr. Watson said it was really the government which should be involved in doing this but the government is unable at this point in

time to provide the financing for that type of activity and if the credit union movement had the funds, they should allow it to be used in that direction. He said one of the participants at the session had stated there were 500,000 people in the credit union movement in this country and if that figure was accurate, “this is a powerful force, this is a group of people who see the need for an organisation and that’s why they are involved in it, so in and of itself and by its very existence it has a role to play and we must recognise that role.”

Dr Watson sees the credit unions as a mobiliser of funds “that I want them to use to help finance the creation of ideas that will get us out of this mess that we are now in, because I swear to you, this mess is not going to get better.” Not optimistic about the price of oil, he said even if the price of oil rises, this country’s oil production is falling and the significance of oil as a fuel is past.

“There is too much investment in other forms of energy sources. More and more products are not using the hydrocarbons, they are not environmentally friendly to start with and people are going and finding other, sometimes cheaper, sources of energy” such as solar and wind energy. He said even BP had recognised the end of oil a long time ago, quipping that “BP doesn’t mean British Petroleum but Beyond Petroleum.”

Another panellist, economist Indera Sagewan-Alli said she has started the Caribbean Competitiveness Foundation because she was tired of talking “and I am going to use this to bring my expertise to whichever organisation is willing to work with me in order to support the diversification thrust.”

She said if the government had a strategy for taking the country out of the current economic malaise that it is in, then the credit union movement and a role for it would factor very heavily, but that vision is absent.

Introduced as a budget analyst, Dr Winford James, president of the Mount Pleasant Credit Union, agreed with Sagewan-Alli, saying he did not believe that credit unions would factor in the budget because as far as he knew, the minister of finance had not approached any of the credit unions or their umbrella organisations. He suggested that the cooperative movement needed to “change that paradigm” and instead of waiting for the Minister of Finance to consult with the credit unions a few months before the budget was due, they should be dictating the shape of the budget.

Sagewan-Alli said one of the challenges facing new sectors is that of raising finance and she believed the answer lay in the credit union movement, which she thought was well poised to create special funds similar to crowd funding. She said these special funds would be distinct and separate from the current offerings of credit unions, “so that people who are putting money into these funds understand the terms of engagement, understand the risks that are involved and understand what are the opportunities that are involved.” She said that credit unions can then use those funds to support economic clusters, particularly at the primary or the grassroots level. “And a lot of activity is in fact happening, if you look around us, we have products like honey making in Trinidad and Tobago, and the production of compressed coconut oil, just to name two of them. And herein lies significant opportunity at the grassroot level to generate and support small business development, not just singularly but in clusters to be able to build the kind of critical mass that is required in order to mitigate and reduce as much as possible the risk. And to get to the point where you can produce enough not just to satisfy local demand but that you are also producing to satisfy foreign demand because we currently import a lot of these things so we have the opportunity here and now to be able to add value and to create local products.”

According to Sagewan-Alli, the fly in the ointment is the tradition-bound local banking sector, which will not lend to these types of businesses because it sees them as high risk and they don’t have the collateral to back the loans that they need. “Because what we do here is collaterised lending. So we have to find creative ways in order to provide them with the financing that is required.”

She said the funding should be linked to technical support “and working through towards the process of having your product on the shelf.” She said this was a niche for the credit union movement to get involved in the funding of small businesses because of their traditional consumer base.

“What I am suggesting to the credit union movement is that they should not wait or look to the budget in order to get involved in this kind of activity. What I think credit unions can do, particularly if they leverage their size, is they can approach government to support an initiative like this by providing some kind of incentive to people who are putting money in to this kind of fund to mitigate the risk and to encourage people to put money because currently the government does not have money to put into this whole question of diversification and economic development. So it can, at no cost to itself, provide a tax incentive so it becomes an opportunity through which people might be incentivised to put money, take a little risk, knowing that they are safe because the price that they are paying for supporting economic development is reduced by the fact that the government would give them a tax break if the particular project that they invest in is successful.”

She said this tax break would not cost the government anything because it would only be given if the project is successful. And she added that while she did not have all of the details worked out “we have to be creative. I am saying also that there is the opportunity for the credit union movement to leverage and to work with the existing state entities to support micro-enterprise development – with your NEDCOs and your exporTTs, etc., so that you bring all of these stakeholders together to support the initiative so that you try to manage as far as is possible the process toward success. None of us have a crystal ball, none of us have the answer, but to do nothing is madness and we have to keep trying, we look at the world, we see (what) they are doing in other parts of the world and we try as best as we can to take from those lessons things that we feel might work but we have to put all of our energies in it hoping that we will at the end of the day get success, that is the best that we can do.”

Sagewan-Alli said it is not all about the money and there would have to be a training component as well, linking training on a cluster basis. “So I am linking training to funding for development because when you go to the market and you see the guy with his compressed coconut oil, you know he needs support. He needs support in marketing so that he could go and market. He needs support in research and development…he needs support in terms of talking to us about what the value of this thing is. So you have to provide money and you have to provide hand-holding technical support through the process if you are going to manage the risk of failure.”

Sagewan-Alli added that politicians and others have been talking about sports tourism and medical tourism for years but nothing has been happening. She suggested that the Children’s Hospital in Couva could be the centre of a whole industry built around medical tourism. “I would go into the world and find the leading hospital that is in the business of medical tourism and then incentivise them to come and take that over in an efficient manner –hotels and all kinds of things you need.”