Sagewan Alli: Renew focus on diversification

The Rowley administration appears not to be able to catch a break, only days before making the announcement of a continued US$5 billion-dollar investment over the next five years by BP, before sustaining this blow. Even in better times, the loss of the Angelin would have roused commentary. In the new reality of low commodity prices and, with the country clutching at straws to shore up revenues, BP’s decision has serious implications.

But did it have to?

For decades since Independence, governments have recognised this country’s need to diversify away from its dependence on oil and latterly, natural gas. But as of 2013-2015, the energy sector still contributed over 40 percent of GDP, adjusted downward to the late 30s when oil and gas revenue losses are taken into account. Because it is liable to make up a significant part of our revenues for the forseeable future, it remains in the country’s interest to seek out opportunities in oil and gas. But is this being done at the expense of the non-energy sector?

The manufacturing sector averages an eight to nine percent share of GDP over the same period, while the financial sector contributes 14 percent, Distribution and Restaurants, 12 percent, Transport Storage and Communication seven to eight percent and Construction and Quarrying between about five percent. Tourism contributes just one percent to TT’s GDP. This, despite successive governments giving incentives, setting up programmes and funding special purpose enterprises to the tune of hundreds of millions to develop non energy sectors in the economy. Getting diversification right is important. The country is on a deadline. By 2025-2030, studies show that TT’s current oil and gas reserves will be depleted. Why hasn’t diversification progressed further?

“It is not correct to say there is no diversification. There certainly is an amount of diversification. We do have a manufacturing sector, we do have agriculture, and we have agro processing. We do have a tourism sector. For what it’s worth, a variety of sectors exist,” said Indera Sagewan Alli, a competitiveness consultant and regular commentator on the country’s economic affairs.

What has been happening in TT said Sagewan Alli is not true diversification. For that she said, there should be a more balanced contribution from the other sectors of the economy to GDP. Oil and gas should not contribute more than 20 percent.

“The problem is we’ve paid an inadequate amount of attention to these different sectors and what has happened is that they have all contracted,” she said.

Some, have disappeared entirely.

Using the car assembly industry as an illustration, she said, “We used to assemble vehicles in Trinidad. That was value added taking place in Trinidad. We no longer do that. Now we are simply importing vehicles.” She said this was a lost opportunity for us to move up the value chain, perhaps specialising in creating certain parts for specific models of vehicles.

“If we were thinking strategically, what we could have done was have foreign investment that would have supported the assembly already taking place. We did not do that.”

She believes since then the country has compounded the situation by having no clear vision for our non-energy sectors. The problem, she said, was a lack of vision, versus a lack of political will, because over the last 20 years diversification efforts were some of the most well-funded government projects to date.

“I believe much of what has been done has been to satisfy calls for diversification.”

She said there continued to be too much disconnection between the various areas needed to make diversification work.

“Even if we have a vision of where we want these sectors to go, their development can’t happen in a vacuum.”

First, Sagewan Alli said, TT must realise that since many of these diversification initiatives were started, the world had changed. The ability to be competitive in producing goods and services had become paramount.

“We must be able to figure out what goods and services we can offer competitively, as well as the world demand for it. And there should be a match between the two.”

Beyond this, the country then has to work out a strategy for achieving this and plot this plan out on a timeline with a deadline for execution, she said.

There should also be better linkages between the sectors identified for development, educational training to support them and the use of research and development coming out of the University of the West Indies and the University of Trinidad and Tobago.

Additionally, there also needed to be proper legislative and fiscal support for non-energy sectors during diversification and most importantly, measurement of the use of resources to see if the sectors were developing as envisioned.

“Questions need to be asked,” Sagewan Alli said, “By spending this money, what do you hope to achieve in this fiscal year? By the end of the year, there needs to be measurement to see if they are achieving those objectives. This simply isn’t being done.”

“We need to start looking at what we want to achieve. What kind of country we want to have? What kinds of jobs we want to create? What do we have in this country that will enable us to achieve these objectives? What can we borrow from the rest of the world to help us be more competitive and create products and services that customers want?”

“The dynamic must shift revenue earning capacity to other sectors,” she said, “While they may not earn as much as the energy sector, they are still capable of earning foreign exchange and creating sustainable employment.”