Excerpts of a speech delivered by Trade and Industry Minister Ken Valley at the  Commonwealth Parliamentary Association/World Trade Organisation (WTO) Regional Workshop for Parliamentar-ians held on July 28-30, 2003 Trinidad and Tobago.

I am especially pleased that a workshop of this nature is taking place for parliamentarians of the Caribbean region. I would like to take this opportunity to extend a warm welcome to the members of the WTO and CPA, as well as to all regional parliamentarians who have journeyed to Trinidad to attend this workshop. As the Minister of Trade and Industry of the host country, I am extremely pleased to have been invited to deliver the feature address. Trade liberalisation and globalisation have today become buzz words. Some of us long for what we consider the good old days of import restrictions, high tariffs and negative lists. The reality is that those days are gone. Today, we in the Caribbean are engaged in trade negotiations in different fora. We have recently concluded the CARICOM/Costa Rica trade agreement and the bilateral level. The CARICOM Single Market and Economy continues to engage our attention at the regional level while at the hemispheric level there is the Free Trade Area of the Americas (FTAA). Overarching all of this at the multilateral level is the World Trade Organisation (WTO) which is the subject of our workshop over the next three days.

Underpinning this trend towards trade liberalisation is the current day thinking that liberalisation and globalisation lead to economic growth. Having said that, however, let me hasten to put on the record the viewpoint of some that the casual relationship is reversed. Some argue that trade liberalisation and global integration are outcomes of economic growth rather than being prerequisites for it. However, the fact is that there is a distinct international trend towards the institution of programmes of economic reform, which seek to integrate national economies into the global economy. As small economies we do not make the rules. We can, however, influence them. We must understand the attendant implications for developing economies in general accruing from the rules, so that we can influence them for our benefit. Trade liberalisation usually represents one component of the economic reform process. Other elements include far-reaching measures such as macro-economic stabilisation, internal liberalisation and extensive privatisation. It should be noted also, that trade liberalisation does not only establish powerful direct linkages between the domestic economy and the world but also increases international competition. Accordingly, the magnitude of growth of market-based trade, financial flows and the harmonisation of trading policies observed within recent times, is to a large extent indicative of the paradigm shift towards the creation of an integrated global economic system. Undoubtedly, this global process and the multilateral trading system have placed numerous challenges squarely at the door steps of the states and organisations that we represent.

WTO : Keeping trade rules

Within all of this, the WTO has emerged as the only international organisation responsible for the administration of multilateral trade rules, whose strength lies in the breadth and scope of the areas under its purview and the efficacy of its enforcement mechanism. In turn, its agreements provide the rules that guide governments in the formulation of policies and practices in the area of international trade. This has become increasingly relevant to democratic parliamentarians, as the pace of the globalisation process has quickened. As a fact, within recent times, developing economies have become increasingly vulnerable to external shocks. Growth in the global economy has slowed in the face of the contagion effects of the September 11 terrorists attack and the downside risks of the geopolitical uncertainties of the Middle-east crisis. Closer to home, these shocks have been most pronounced in `consumer discretionary sectors’ such as the airline and related industries. The contraction of the Regional tourism industry has undoubtedly been an area of concern which has been highlighted since it has been estimated that the Caribbean tourism industry accounts for approximately US$18 billion in annual revenues and provides direct employment for about one million persons. Further, it is estimated that 70 percent of the 20 million arrivals are derived from the US and European markets.

Following the contraction in global aggregate GDP experienced in 2002, the world economy has demonstrated signs of recovery in 2003, with economic expansion for the Latin American region forecasted to be in the region of 1.5 percent for this year and 4 percent in 2004. More importantly, the performance of the Trinidad and Tobago economy within such a sluggish environment, and which has been underpinned by nine consecutive years of growth, has underscored the importance of astute fiscal and economic governance, within a sustainable macro-economic framework. This suggests that under the correct circumstances, small developing economies can indeed derive meaningful gains from the multilateral trading system. Concomitantly, the effects of liberalisation and the accompanying trend towards the erosion of traditional preference margins enjoyed by many regional economies have collectively served to exacerbate balance of payment problems, effectively threatening the survival and socio-economic development of such territories. Not surprisingly, in the presence of the poor performance of the global economy and inequitable distribution of the benefits from trade liberalisation in favour of developed countries, many developing economies seem reluctant to engage in further multilateral liberalisation initiatives such as Regional trading and bilateral free trade agreements (FTAs).

‘You liberalise while we subsidise’

Further, many developing countries have instituted the full spectrum of liberalisation initiatives, both autonomously and under the instructions of the World Bank and the IMF, and continue to acquiesce to pressures to provide additional market access. At the same instance, many developed members continue to provide extensive subsidies to their domestic producers and exporters, effectively distorting global production and trade. This `you liberalise while we subsidise’ phenomenon has also served to weaken confidence in the international trading system. There must be, however, an appreciation of the need to ensure that the fallout of the multilateral trading system and any uncertainty with respect to the future performance of the global economy do not fuel alarmism. Such a situation could prompt countries to embark on a course of `neo-protectionism’ which may entail the use of policy instruments which are in contravention to the spirit and intent of existing global and Regional trade agreements, serving to fragment already small regional markets further and frustrate the hemispheric and international integration processes presently being undertaken.

There also exists some measure of concern amongst some developing countries and many trade luminaries with respect to the proliferation of bilateral free trade agreements (FTAs). This concern is largely confined to bilateral FTAs which essentially undermine the multilateral trading system and force developing countries to provide increased market access to the products of developed countries, while at the same time further eroding already slim margins of preference enjoyed by other developing countries in developed country markets. This domino effeect of FTAs induced by the major global players has the potential of producing a `spaghetti bowl’ of agreements and a conundrum of rules. While such FTAs have been advanced as a means of deepening the integration process, the end result has invariably been the considerable weakening of the leverage of developing countries in multilateral trade negotiations; the introduction of extraneous issues into the global trading system; and clouding of the role of the WTO. Furthermore, in many instances these FTAs reduce the policy space available for developing countries to safeguard their development and strategic domestic industries. If un-regulated these bilateral FTAs pose a serious threat to the integrity of the multilateral trading system, as well as hemispheric economic integration. What is needed are FTAs, which lock-in preferences, provide meaningful market access to the exports of developing countries into the markets of developed countries and reduce the incidence of tariff escalation, tariff peaks, high tariffs and non-tariff barriers on such products. This could serve to level the playing field somewhat.

Shifting to a consideration of the role of parliamentarians from the perspective of the WTO’s Doha Development Agenda, which is the primary focus of this workshop, it would be prudent to recall that the Declaration of the 4th Ministerial signaled the launch of the much heralded and increasingly contentious `Doha Development Round’ of negotiations. The Doha Declaration itself sought to articulate negotiating mandates and imperatives in a range of issue areas. More specifically, the Doha Declaration explicitly recognised the potential role that international trade could play in the fostering of economic development and poverty alleviation, and sought to place the peculiar needs and interest of developing countries at the centre of the work programme, which has been referred to as the `Doha Development Agenda.’

Cancun gridlock

Additionally, there was a re-affirmation of the commitment to the objective of sustainable development to ensure that developing countries secure a proportionate share of the expansion of global income, which subsequently, has been estimated at US$355 billion by the year 2015. Further, enhanced market access; balanced rules; and a sustainably-financed technical assistance and capacity-building programme, were deemed important in this regard. However, five weeks away from the 5th WTO Ministerial in Cancun, the pre-Cancun post-Doha multilateral negotiations are still in a state of gridlock, which has in no small way been precipitated by an absence of accord on several issues that are central to developing economies, and the inflexibility demonstrated by many developed countries in this regard. Thus far, every major negotiating deadline has been missed. This trend has served to bring the legitimacy of the multilateral system and the WTO’s commitment to the development agenda under scrutiny.

Increasingly therefore, there have been calls for political intervention in order to break the deadlock, bringing Parliamentarians and Trade Ministers again to the fore. Although the burden of providing momentum to the negotiations has been placed at the feet of the politicians, in attempting to craft a solution the principles of the Doha mandate must by necessity be revisited. Accordingly, the mandate speaks clearly to the principle of Less than Full Reciprocity and re-affirms the important role that enhanced market access and balanced rules play in ensuring that developing countries secure a commensurate share of the growth in global trade. Clearly, the developmental goals of the Doha Round cannot be reasonably achieved in the absence of targeted, operational measures, which first seek to redress the imbalances that currently exist in the multilateral trading system, as well as provide developing countries with the requisite flexibility in policy intervention. In so doing, the convergence in wealth and development between developed countries, on which the first best argument in favour of free trade has been premised, may be finally realised.

Special & differential treatment

Fundamental to this, is the ability to provide Special and Differential Treatment (S&D) to developing countries. This could prove to be a critical deal breaker at Cancun. In this regard, a proposal floated at the recently concluded meeting of the WTO – Negotiating Group on Market Access for Non-Agricultural products, could prove useful. The proposal called for the classification of Members into three tracks, `the leaders,’ `the adjusters’ and the `new entrants.’ This is consistent with the view espoused by Trinidad and Tobago that a continuum rather than a one-size-fits-all approach to S&D would be more appropriate, given the differences in sizes, levels of development, and peculiar needs that exists amongst developing countries. Given the inability of the Doha round to generate the intended benefits to developing countries, it is important that developing countries seek to achieve an early harvest at Cancun which consists of a basket of measures that seek to address their peculiar developmental needs.

In view of the heightened role that domestic policy makers and the private sector are expected to play during the Doha Development Round, it is important that participants of this workshop make every effort to derive a better understanding of the key issues. This is advised because if the globalisation process is to be a success, they must be the major demandeurs of change within their respective countries. They must seek to play a pivotal role between the private sector, government and the citizenry, helping to inform and educate civil society not only on the challenges but also the potential benefits of the trading system. At the same time, in our capacity as legislators and members of national delegations, parliamentarians must maintain a degree of pragmatism and endeavour to craft ingenious legislation consistent with WTO rules and agreements, geared at safeguarding domestic developmental goals. This can only be achieved realistically if parliamentarians possess an intimate understanding of the multilateral trading system, the WTO and the relevant issues. Conceptually therefore, this workshop should be viewed as an opportunity to acquire the tools needed to function in this liberalised environment; that proverbial footstep along the path towards socio-economic development laid by the WTO, the Doha agenda and the multilateral trading system. Essentially therefore, regional parliamentarians must visualise the socio-economic objectives of their respective countries, which hinge on the competitiveness of strategic sectors, and determine whether these goals can be achieved in the absence of the necessary policy space and targeted multilateral provisions.

What do you want to know about the company you invest in? What about the company you work for and depend on for your pension? Or the company with a large production facility near to your house? Or a supplier who has located most of its manufacturing or product sourcing in low wage economies?

The more you extend this list of questions, the more unlikely it is that the conventional financial reporting package is going to be sufficient to satisfy the competing information demands of an increasingly aware and articulate universe of stakeholders. So, has financial reporting finally reached the crossroads? Is it time to junk our historically focused, financially biased experiment with financial reporting? What the stock market would ideally like from companies are annual profits and cash flow projections which they could then test against their own in-house forecasts. Wisely perhaps, the accounting profession has resisted the temptation to enter into this exercise in crystal-ball gazing, opting instead for the Operating and Financial Review (OFR) statement. The OFR seek to provide an interpretation of current operating results and current financial position as seen “through the eyes of management”, without going the additional step of trying to forecast future trends.

The OFR exercise is gaining increased international support though there is a tendency towards so-called “boilerplate” reporting. Recent developments in the UK , however, are now pointing towards a more rigorous OFR regime, based around management’s evaluation of what is actually material information from an investor perspective. Corporate governance disclosures take us further into the non-financial reporting field. The “comply or explain” approach to disclosure is now well established. Research from well-established consultancies such as McKinsey have pointed to the financial advantages to be gained from falling in line with international governance norms and there is burgeoning market for corporate governance ratings. Nevertheless, there remain significant regional differences in governance practice and disclosure, normally deriving from legal or cultural business approaches. Research conducted by ACCA in 2002 indicated that Asian business models are not well equipped to deal with the full frontal transparency requirements of western governance codes. Similarly, the European Union is cursed (or blessed, depending on how you want to look at it) with a patchwork quilt of governance regimes. 

Reporting on risk is a relatively new area of corporate disclosure.  Admittedly, financial statements are now benefiting from recent advances in classifying debt and equity. But such risk related disclosures only deal with the current effect of past financial transactions, and do not embrace any discussion of risk arising from  general operational factors — such impaired reputation. The OFR regime is partly intended to counter this shortcoming in core GAAP, as are the risk management aspects of some corporate governance disclosure regimes (for example, the UK’s 1999 Turnbull Report on internal control).  Intangibles pose another problem for accountants. As business increasingly becomes service and IT focused, so the ratio of intangible to tangible assets grows. For financial accountants this represents a major area of concern. Issues like innovation continue to be dealt with in narrative form if at all. We rarely capitalise internally generated intangible assets such as brands, and we cannot, as yet, value human capital from a balance sheet perspective. As a result, balance sheets significantly fail to explain — or support — the valuations placed on a company by the market.

Recent developments in narrative reporting via the OFR are, however, partly designed to close this intelligence gap and provide investors with a much clearer picture of how wealth is both created and sustained. Disclosures in respect of product innovation, patents applied for, research and development trends and brand support are all part of the move towards filling in the gap between the balance sheet and the market valuation. As the scale of environmental degradation and third world poverty becomes clearer to us, it is also becoming clear that business has a role to play in reducing such externalities.  The volume of investment in socially responsible or ethically managed funds has quadrupled in the last ten years and  companies are increasingly recognising this sector of their investor base by providing increased disclosure of social, environmental and economic (as opposed to purely financial) performance. Currently some 85% of the FTSE 100 either issue stand alone reports dealing with aspects of corporate social responsibility or make limited disclosures through the annual report and accounts. 

Being virtuous, however, is insufficient for stock markets. The most respected companies are those which communicate most successfully the marriage between innovative market strategies and socially responsible behaviour. As investors become more concerned with corporate attitudes to child and forced labour, contracts with despotic regimes, fraud and corruption and third world poverty, reporting on these issues is becoming more common. With respect to human capital, the starting point any discussion is usually a statement in the Chairman’s report to the effect that “our most important asset is our employees”. It then transpires that all employee related costs are expensed immediately and never appear in the balance sheet at all.

But of course, employees are valuable. As well as wages and salaries, companies also incur significant training expenditures. In the case of directors, companies make huge commitments in terms of share options (usually ignored for accounting purposes but soon to be expensed along with all other employee related costs). Companies take out “key man” insurance policies and place restrictions on the ability of disaffected employees to move to competitor organisations. It seems unlikely that the traditional approach to dealing with employee related costs is going to change any time soon. What is more likely to happen is that companies will begin to disclose more pertinent information relating to employees so that better informed analysis and bench-marking can take place. These disclosures will either be in the OFR or in a separate section of the annual report, perhaps called an “Intellectual /human capital” report, which will bring together information relating to both costs and innovation. It is clear then that the traditional finance function is facing some stiff challenges.  In conjunction with the Board, it may be equipped to deal with measurable accounting issues and with much of the corporate governance disclosure. But expanding the annual report to accommodate risk, human and intellectual capital and socially responsible behaviour implies a breaking down of internal barriers and a far greater sharing of knowledge and understanding of the inter-relationship of risk, innovation, stakeholders and return than is usually the case.

Accountants of the future will need to be aware of a much broader range of reporting issues than earlier generations. ACCA itself is introducing a range of education and training initiatives designed to equip tomorrow’s accountant for this new role. Social and environmental issues are now part of our core syllabus and we have developed separate diploma schemes — in international financial reporting and corporate governance — which will enable our existing members to add to the their core competences. Our programmes of continuing professional development also reflect this changing agenda. Yes, there is a new frontier, but it is one which accountants and the accounting profession should not shy about venturing across.

The Association of Chartered Certified Accountants is the largest professional accounting body operating on an intyernational basis, with over 300, 000 members and students in 160 countries. www.accaglobal.com  or e-mail: emile.valere@accaglobal.com

No investment is risk-free, but all investments are safe from certain risks. Therefore, in order to insure that no single risk can destroy all of your investments, you must make sure that your investments are not sensitive to any single risk, and that means you must invest in a variety of asset classes, not just one. This is called diversification, and it has become the basis for prudent investment management.

An illustration of the benefits of diversification is best demonstrated using two portfolios: the first invested $25,000 into a time deposit that paid 5.25 percent per year for 25 years, while the second portfolio consisted of five separate investments of $5,000 each. The results of the second portfolio’s five segments were wildly different: The first segment went broke, the second got a return of capital but failed to earn any profit at all, and the third earned a meager 2 percent annually. The fourth segment, though, managed to produce a 7 percent annual return, and the fifth was, relatively speaking, a winner. Although it didn’t set any records, the fifth segment earned 12 percent per year, matching the average return of the stock market. The results: While the first portfolio ended the 25-year period with $96,621, the second, diversified portfolio produced $140,809-$48,188 more than the first. This result is possible due to diversification, which owes its success to the fact that the maximum loss of any investment is limited to the amount of the investment, while the maximum gain is unlimited. Thus, the profits from earning 12 percent on a small portion of the portfolio more than compensate for the complete losses incurred in another portion of the portfolio. Which sets the stage for Rule #40.

INVESTING IS NO LONGER ‘WINNER TAKE ALL’

Do you suffer from “paralysis of analysis?” Lots of people do. Fearing that they’ll be unable to pick the best mutual fund, many people wind up picking none. The personal finance press encourages this attitude, by giving the impression that you had better choose the best mutual fund or risk losing all your money. But that’s no longer the way it is.
Today, investing is not a horse race, where you make money only if you pick the right horse. Smart investors today earn a profit by picking every horse, knowing that the gains earned by the winner will more than offset the losses suffered by the loser.

Allocate your assets

Think that’s impossible? It’s not, because when you invest, the most you can lose is 100 percent of what you invested, while your potential gains are unlimited. This principle is demonstrated every year. This is why professional investment advisors don’t merely buy investments for their clients. Instead, they create complete portfolios consisting of representatives from all nine major asset classes. If you choose stocks and stocks fall in value, you might go broke. But if you invest in stocks, bonds, government securities, real estate, precious metals, natural resources, commodities, foreign currencies, and international securities, and stocks then go down, you’ll still be just fine.
But maybe you’re unswayed by this. I can understand how you might feel. You think you must pick the winner, yet you fear you don’t know how. After all, with so many choices, what’s the likelihood that you’ll pick the #1 fund? Well, here’s a new way for you to think about it. Instead of spending your life picking winners, focus on avoiding losers. It’s a lot easier, and your results will be just as good. So don’t worry about not being able to pick the fastest racehorse.  You’re now playing horseshoes, where just being close is good enough to win.

STOP TRYING TO ACHIEVE INVESTMENT SUCCESS THROUGH STOCK-PICKING

If you want to make sure you pick the winning horse, all you have to do is bet on every horse. That, essentially, is how successful money managers now make money. They no longer are worried about picking the right horse, because they know that picking every horse in the race makes winning inevitable. They also know that, in the investment world, unlike real horse races, it’s possible for every horse to win. Sure, some win more than others, but on Ajax Street, merely finishing the race usually proves profitable. That’s why professional money managers are much more focused on deciding how much to bet on each animal, rather than on trying to choose the animals on which bets should be placed. After all, how would you feel if you learned that you picked the right horse, but had placed only 1 percent of your money on him? This is why the most critical investment decision you’ll make now is choosing how to allocate your money among the many investment opportunities that are available to you. So, if you want to succeed with your investments start learning how to allocate your assets, and stop trying to pick the next hot stock.

BE AWARE OF  DIVERSIFICATION’S  EVIL TWIN

The concept of diversification is not new, although the application of it is. Harry Markowitz was the first to relate its benefits, in a paper he wrote as a graduate student in 1952. Although largely ignored for decades, the paper eventually won Markowitz the Nobel Prize for Economic Science in 1990. Markowitz’s paper (which was mostly a series of mathematical formulas) demonstrated that while a diversified portfolio’s average return will be equal to the weighted average of the returns of its components, the portfolio’s average volatility actually will be less than the average volatility of its holdings. We know this is possible from our earlier examination of various investment risks. Different investments react differently to various types of risk. For example, you know that bonds are safer than gold. You also know that inflation, by causing interest rates to rise, causes bond prices to fall. But inflation also causes gold prices to rise. Therefore, during an inflationary period a portfolio that contains both bonds and gold would decline less than a portfolio that contains only bonds. This is because inflation would cause the bond portion to decline but cause the gold portion to increase, thus reducing the overall losses. Yet the fact remains that gold itself is riskier than bonds. Thus, the two are safer when mixed together than when either one is used separately.

In other words, adding risky investments to your portfolio can reduce the overall risk of that portfolio. But this simple concept has been distorted by many financial advisors. Although Markowitz was talking about asset class diversification, many investors — and their advisors — have begun to attribute a different form of diversification to Markowitz’s theory. This new breed suggests that asset diversification  can be enhanced, and in fact, even rendered unnecessary, by time. Some advisors are of the view that the key is not when you invest in the stock market, nor which stocks you buy. The key is how long you invest. They say that you  can convert something as risky and uncertain as stocks into a safe, predictable investment. Although this statement is true in principle, you can build a portfolio that is safer and more profitable by investing in many asset classes than you can by investing in only one asset class. Time diversification is now widely used — and often incorrectly so — by individual investors and professional money managers alike. The problem with time diversification is this: Although it is true that time decreases the probability of a loss, it is also true that time increases the amount of potential losses. In other words, the longer you hold on to stocks, the less likely it is that you’ll lose money. But if you do lose money, it’s likely that you’ll lose a lot of money-far more than if you had only been invested for a short time.

Although you’ve never considered this (and it’s almost certain that your financial advisor never talked about it with you), it’s easy to understand why this is the case. Picture Lall Beharry, a 35-year-old investor who has $10,000 to save for his retirement. Most advisors would agree that you should invest in a highly diversified fashion. But Lall Beharry knows that, historically, stocks have always produced the highest returns. Since he has no plans to touch his money for 30 years, he decides to place his entire $10,000 into a stock mutual fund. Assuming that Lall Beharry’s portfolio grows at the average annual rate of 10 percent (and ignoring taxes for this discussion), his account will grow to $175,000 by the time he becomes an old man. But if, just as he enters retirement, the stock market were to suffer a 20 percent drop, he’d lose $35,000 – 3 1/2 times more than his original investment. (By contrast, if that correction had occurred shortly after he had invested, his loss would have been only $2000, or 1/17th as great a loss, of course). Because his after-correction account value is $140,000, he really has not suffered a loss. He still has far more money than he started with, and to that extent, proponents of time diversification are correct in saying that Lall Beharry, by having invested over such a long period of time, had only a very remote probability that he’d incur an actual loss. But time diversification’s critics have an equally valid point: By having invested over such a long period of time, any declines in value – if they were to occur – would be huge. This is the Dark Side of diversification. To insulate yourself from this risk, you need to make sure that you are not sacrificing asset diversification in favour of time diversification. Because with your luck, that asset will drop in value just about the time you need the money most.
(Continued next week)

Nashi Ali chuckles as he describes the American contractors trying to help resuscitate Iraq’s battered oil industry. “They walk around asking, ‘Where are the schematic diagrams for this? How will we know how it all works?’” says Mr Ali, chief electrical engineer for North Oil Co’s Jambur North oil field. “I tell them, all the diagrams we need are right here,” he says, finger on his temple.

Ordered by Saddam Hussein to produce a million barrels of oil a day, with no excuses, Iraqi oil-field workers have relied for the past decade on homespun ingenuity rather than diagrams, jury-rigging pipeline bypasses, hand-patching leaky flow lines and crafting spare parts out of scrap metal. But the industry’s biggest virtue now could become one of its biggest handicaps, American advisers say the years of gunpoint engineering have created habits and attitudes that are slowing efforts to modernise operations at North Oil — one of the two sate-owned oil companies under the Hussein regime — where the newest equipment dates from the 1970s. “They have an unbelievable capacity to fix things with very limited resources. But it also means they don’t think outside the box” says Maj Joe Hanus of the US Army Corps of Engineers, who has spent two months advising the reconstruction process in the north. “Every time you want to do something, you have to ask around until you can find the one old guy who knows where all the pipes go,” adds Maj Hanus, who still is trying to locate a complete map of the area’s maze-like pipeline system. For the Iraqis, starved of spare parts or new technology after decades of under-investment and 12 years of sanctions, the homemade solutions that kept oil flowing are a source of pride locally and cause for adulation from Western analysts.

Their handiwork is constantly called upon these days. A mid-June sabotage attack on the Iraq-Turkey pipeline that carries exports was patched by welding a sleeve over the hole left by the explosion. The flow of export oil from the north was expected to resume in early July – until it was attacked again this week, again knocking it out of commission. Not far from the converted kindergarten where North Oil’s engineering department now has its headquarters is the largest of the company’s seven workshops. It was built in the early 1930s and still has the original equipment; the cranes and winches are of pre-World War II British manufacture, while the pipe lathes are a mishmash of Spanish, German, Czechoslovakian and Japanese gear. But it all still works, turning out pipe fittings, shafts and new fittings for pumps and valves. “The lesson we learned is that nothing is impossible,” says Ihsan Hussein, now head of the workshop and no relation to the former Iraqi leader. “Anything can be made, fixed or modified right here,” he adds as a 28-year workshop veteran approaches, showing off a pump part made of discarded steel. Despite a good working relationship, Maj Hanus says, his unit and the American contractors from Halliburton Co unit Kellog Brown and Root have butted heads with local engineers over how to get off flowing again quickly.

The mix of old and new ideas has created “a lot of difficulty,” says Rick a contractor for KBR working with the mechanical engineers, who declined to give his surname. “Sometimes you just have to figure out how they used to do something, and it may not be the optimal solution. But if it solves the immediate problem, that’s good enough for now,” he says. “You are not going to just yank these guys into the 21st century. It’s going to take time.” Meanwhile, Iraqi workers fear for their jobs. With Army engineers charting North Oil’s future alongside new management, says Ihsan Hussein, “we don’t really know what will happen to us.” Back at Jambur North field, Mr Ali shakes his head as he looks around the shattered control centre, where almost all the cable cabinets were torn from the walls, gutted by looters and left beyond repair. The first one back in operation was crucial: It controls the lighting systems needed to guard the site from further looters; actual operational systems will have to wait two more weeks. For that, KBR subcontractors are planning to replace all the old analog metres with new digital equipment and standardise the maze of electrical components. “All of the old stuff we could understand just fine,“ Mr Ali says. “But when they bring in new equipment and new technology, we’re going to need new courses. We’ll need to find a way to learn how to run it all again.”

When you hear the word “fine print” you would more than likely associate it with an insurance policy!! However, if we reflect on real life situations, we enter into contracts, many times in any given day, which are either subject to written conditions or implied conditions and these can all be considered as the “fine print.”

Yet we generally associate “fine print” as something negative when matters that concern insurance arise and the public is conditioned to think that the insurance company seeks out the exclusions or “fine print” in the policy to deny the payment of legitimate claims. While it is true that some companies go to extraordinary lengths to find reasons for not paying it is also true that the majority of companies in our market do not behave in this manner and it really depends on the bona fides of the management and promoters. This is no different from any other field of business or profession and it really comes down to values and good business practice. The insurance business is one that the public loves to hate and that is generally the case the world over. The daily payment of legitimate claims to the many satisfied customers is not news and quite rightly so but the relatively small number of claimants who experience problems can easily have their matters ventilated in the media and so reinforce the widely held negative view of the insurance industry. Think of the banking sector. Does anyone read the loan agreement and all the clauses? Absolutely not. The borrower is only interested in the fact that he/she has qualified for the loan and the only concern is the monthly repayment amount and when can the funds be accessed. Concern over the interest rate or the many conditions? hardly likely!!

Think about the mortgage on your house. Have you ever read the mortgage deed? Hardly likely. It is written in a language that it is beyond the comprehension of the ordinary man or woman and generally it is given to you to read in an office and you must sign it within minutes. Your only concern is that you want to close the transaction and upon signing be able to forward the funds to the seller so that you could have title to your property but it is totally impossible to understand what you are signing let alone within a few minutes. That is the reality!! What it tells you is that in any field of endeavour , there are terms and conditions, clauses and covenants and much of this is wrapped up in legal language that require lawyers to interpret. It can be said that the system makes work for the lawyers. The insurance business is no different. The legal language has been tried and tested in the courts for centuries and there have been many decided cases that have set precedent for the insurance business. However, we live in an ever changing world and there are situations that may occur that were never considered by the framers of the insurance contract. This is where some difficulty will arise and a determination has to be made whether what happened could be considered as covered under the policy.

For example, the 9/11 event in the USA is one such case in point. The owners of the Twin Towers are in Court having brought a lawsuit against the insurance companies since the insurance industry view the occurrence as a single event and will pay only one loss. On the other hand, the owners hold the view that there were two claims as there were two (2) separate events. The judge has ruled at first instance that there were two events but the matter is under appeal. In this case, the major insurance groups in the world are involved and the stakes are very high — the difference between US$3.5 billion and US$7 billion. It was held that this event constituted an unusual occurrence not envisaged by the insurance companies. Insurance companies must now limit their ex-gratia settlements since the international reinsurance community want to see a reduction in the incidence of these payouts. If local companies want to pay a claim which is not covered under the policy they must do so from their own resources unless they obtain prior consent from reinsurers. The international insurance and reinsurance community will honour legitimate claims but are less willing to consider claims outside the scope of the policy since they feel that insureds must carry their share of the burden and don’t expect compensation when no legitimate expectation exists.

For this reason, there is likely to be less “easing up” and as the world moves forward countries and their peoples must become more responsible and shoulder their responsibility. Take for instance the recent report on illegal drag racing. The police know of drag racing but no action was taken either on the grounds of lack of manpower or that it would be too difficult to prove the case in court. People were injured and the problems of compensation come to the fore. The policy excludes such events. Insurance policies do not cover every eventuality and there are reasons for that. Dangerous sport for example, bungee jumping and sky diving are excluded from life policies for good reason. Drag racing and  rallying, for instance, are excluded in motor policies and many legal issues will arise. This is where responsibility comes in and the simple answer is that everyone must behave as though he/she has no insurance and to exercise due caution. Taking out an insurance policy should not be the passport for reckless behaviour. This is where the fine print kicks in and it would serve us well to appreciate this first principle of risk management. However, we are quick to beg for an “ease up” — overlook the blatant disregard for policy conditions and exclusions. You can see it in the PH driving and the open soliciting for passengers and the sad part is that the public is only too willing to travel with the PH car until there is an accident!! The fine print is there to deal with these excesses and abuse.
E-mail: daquing@cablenett.net

Financial planning is a topic most people shy away from. Trying to find a way to save money, plan for their children’s education and still have enough for a pension and life insurance, consume the thoughts of many of us.

The good news is, planning for a financial future is not as daunting a task as most people think. According to Nigel Deosaran, a product specialist at RBTT Bank, financial planning can be a very simple process.  His philosophy is: you can find a solution to any financial problem, once you plan. The first step is to lay out your expenses, income, assets and liabilities in what Deosaran calls a “fact finding” processing. “This process allows us to see how much money you have available to invest in a financial plan,” said Deosaran. Even with a mere $100, you can start saving towards a financial goal. But to make this even simpler to understand, Deosaran used two life models and developed the best financial options for each.

OPTIONS FOR SINGLE MOTHER: 

The first model was a 25-year old single mother, Sharlene, who has a three-year-old son. She earns $4,000 a month gross income and her biggest expense is $900 in rent. Her goals are to save money for her son’s education, take out life insurance, buy a car and find a way to further her own education. After clearly listing out expenses (table 1)Sharlene found out her expenses equaled $3550. While this may seem daunting  at first, Deosaran said it is still impressive for a single mother. She is in a position to invest 10 per cent of her income. Ten per cent of your income is the recommended amount for investment. It means she has $450 to start working on achieving her financial goals. Since life insurance is always a top priority, Deosaran suggested she set up a Life Insurance Plan with a savings option, included. This way she can satisfy two goals with one plan for only $200 per month. By the time she retires at age 65, she will have approximately $1.3 million. This projection is done through a special system used by RBTT/ Guardian Life at 11.2% per anum. Other banking institutions will have specialised systems set up.

SPENDING MORE THAN YOU EARN?

A major deterrent to setting up a financial plan, can be the realisation that your net worth is negative, meaning you spend more than you make. But this is not a lost cause. Deosaran said, if your net worth turns out to be a deficit, you have two options. He said in cases like this, a financial planner will advise the person to re-evaluate their expenses and make some additional sacrifices like cutting down Internet bills and telephone bills or advise them to find an additional source of monthly income. “Never take for granted a talent you posses. If you can sew, then sew on weekends and bring up your net worth,” said Deosaran. But in Sharlene’s case, Deosaran said all she needs to do is prioritise. She had to make a choice between furthering her education and buying a car. He advised her to invest in her education. “By furthering your education you put yourself in a position to get a better job and with a better job your income increases and you can then think about buying a car,” Deosaran advised.

To achieve this goal, Sharlene would need to approach a bank for an education loan. By doing this she can accomplish two very significant things: she will get an education loan with a payment of about $150 per month, to go back to school and she will develop a credit rating with the bank. “Developing a good credit rating is a very important thing for a young person. Once a bank sees you can repay your debts, they will not hesitate to help you with bigger loans in the future,” said Deosaran. With the plan Deosaran set in place for Sharlene, she will be able to achieve all her goals and still have $100 left over to put into an emergency fund.

MARRIED COUPLE PLAN

Deosaran was also asked to come up with a financial plan for a married couple in their early 30’s (table 2). The couple, Mr and Mrs Mohammed, has a combined income of $15,000 and pays a rent of $3,000 per month. They also have two children, one age 7 and the other 3. Their goals are to invest in life insurance, start a retirement fund, buy a home and plan for both their children’s education. “I added another goal for them. They needed to have a critical illness fund to deal with any emergencies,” said Deosaran. Another important consideration for the Mohammeds is the amount of taxes they pay every month. Together, their total monthly tax on their salaries come up to $3,500. To help them achieve these goals, Deosaran set up a clear, concise plan for them to follow. “The first thing they need to do is set up an insurance and critical illness fund. This is a life insurance plan with $100,000 coverage and an extra $50,000 for the critical illness. They each will need to contribute about $250 a month,” said Deosaran.

The great thing about coverage like this, added Deosaran, is that it also includes long term savings and this will go towards their children’s education. The government gives tax allowances for a mortgage up to $18,000 and pension up to $12,000. By setting up a pension plan with a monthly contribution of $200 each they can save towards a retirement fund. The Mohammeds already started a mutual fund account two years ago, to which they contributed $500 per month. Deosaran said they would now be able to afford the down payment on a house, their next goal. This is a critical goal since they have kids. He advised that if you don’t have enough for a down payment, you can borrow this, along with the mortgage from the bank. “It is better to have the down payment though since banks usually ask for a 5 to 10 percent,” said Deosaran. Since the mortgage on a $250,000 will cost the Mohammeds $2,300 a month, they will be able to save money from the $3,000 they pay on rent, with the purchase of their home. And as a result, their taxes per month also declines.

“But this is not the end,” said Deosaran. “For the Mohammeds a little risk can go a long way.” He advised them to invest in an income and growth fund, starting small with $200 a month. “This is not a big risk. But as their situations improve, they can taker bigger risks if they feel comfortable.” Deosaran also stressed the importance of having coverage in pension and insurance for both spouses.  He said married couples tend to only cover the husband, forgetting that if the wife dies, the husband will need help to take care of the kids and himself. “Don’t be a hero, plan for yourself and your family.” He said people don’t give enough time and thought to planning their finances. Financial plans are not set in stone, they can be modified as your situation changes, said Deosaran. “It is one of the top three most important things in life. Right up there with health and peace of mind. If none of these things are working, the whole party can fall apart.” Gayle Daniel-Worrell, marketing manager for the Unit Trust Corporation (UTC) advised the use of similar financial instruments. However, instead of asking Sharlene to sacrifice the purchase of a car to further her education, Daniel-Worrell, advised her to open a money market account as a short term savings option. Also for both parties she suggested a term insurance instead  of life insurance with an investment option like Deosaran advised. “A person is better off purchasing term insurance at the lower price and investing the difference in a mutual fund account in which the savings and returns are accumulated immediately,” said Daniel-Worrell.

THE INDUSTRIAL Court has found it unfortunate that a certain worker, who from all reports, was competent and efficient, ended up being the author of her own demise. 

The Court’s sentiments were expressed in a judgment relating to the termination of the services of Brenda Mayers by the Institute of International Relations of the University of the West Indies, St Augustine. The Court found that Brenda Mayers exhibited utter disregard for her employment, her employer, and for the employer/employee relationship. Mayers lost her job in September 1997. It also noted the disrespectful attitude of the worker to her employer. She tried to get it back through the Industrial Court, using the Oilfields’ Workers Trade Union to fight her case. The Union asked the Court to find the Institute’s action of termination to be harsh, oppressive and contrary to proper industrial relations since the worker was not given the chance she was promised. But  the Court said that on the totality of the evidence, it could not support the union’s claim.

In dismissing the dispute, the Court commented: “If the Institute erred, it was in its tardiness in taking decisive action at an earlier date.” It was after a series of absenteeism, unpunctuality, failures to advise her seniors of her whereabouts and in general, displaying a behaviour considered to be inimical to the well-being of her workplace that her post was declared vacant. And in coming to its conclusion, the Court took note of such history. A sumarised version of the facts of the case shows: The worker was given permission to proceed on annual vacation leave from September 5 to November 3, 1997. Two days before her leave started, Mayers was informed by the Director of the Institute that a review of her attendance record as well as her punctuality showed an alarming pattern of absences. He also noted that as far back as 1992, the worker had been informed about this problem on several occasions. He indicated that he was prepared to give the worker one last chance before taking disciplinary action, and he was going to monitor her performance closely on her resumption of work from vacation leave.

Ignoring the Director’s warning, Mayers took two days off, immediately prior to her leave. The Institute decided to consider the two days as part of her leave. In Court, Mayers admitted that she was aware of the Institute’s policy that casual leave should not precede vacation leave.  On this score the Court commended the Institute. It said: “There is good reason for any prudent employer to institute such a policy, since prior to an employee proceeding on vacation leave, there must be some handing over or steps taken to ensure the continued smooth running of the employer’s business during approved leave period.” Mayers also admitted that casual leave was not to precede vacation leave, since she had been previously warned. She admitted that she was not always ill, but she also cared for her mother who had to be taken to the clinic. She therefore used some of her sick leave entitlement for these purposes “since there is no provision for leave for parents”. The Court comprised Ramchand Lutchmedial — Chairman; Herbert Soverall and L Harris, Members.

A new crop of medical graduates from Mount  Hope recently entered our hospitals as interns after utilising a minimum of five  years for intense study of the theory and practice of medicine. They are destined to spend another two years  as interns under the supervision of  senior medical practitioners of several disciplines before qualifying to practise medicine unsupervised.

Do all these years of study qualify them to practise medicine with confidence during their internship or have they simply cracked the tip of the iceberg during their structured learning programmes? An informal survey of the graduates painted a picture  of  relative chaos and disinterest among many teachers especially the senior consultants. High absenteeism, use of the fear method of teaching and hopeless scheduling of classes and ward exposure characterised the process. All these factors as well as the death of the best teacher did not inspire confidence. When the new doctors complete their internship and consider specialisation, they will need to appreciate medicine of the future as projected by Cetron and Davies. When medical students reach their senior year, half of what they learn in their first year about the cutting edge of technology is basic, obsolete, or revised, since medical knowledge doubles every eight years. Medical research is responsible for a great deal of the astonishing developments in medicine. The Human Genome Project promises possible cures for haemophilia, cystic fibrosis, familial hypercholesterolemia, cancers, and AIDS.

As many as 300 treatments for hereditary disorders are expected to enter clinical testing by 2005 and eventually, about 4000 hereditary disorders could be prevented or cured through genetic intervention. If early tests prove successful, by 2010 or earlier, tumors caused by cancer could be treated routinely and successfully with injections in the family doctor’s office. By 2005, artificial blood will begin to stretch the supply of natural blood which has been in short supply here and elsewhere in the world. The fear of AIDS-tainted blood has also led those in need of blood to be circumspect in accepting donor blood. The population of TT aged 60 and over is now about 10 per- cent. It is an age at which memory loss in expected to increase. The good news is that memory enhancing drugs should reach clinical use by 2010. Surgery, which most people fear, is expected to undergo advances too, in that new computer-based diagnostic tools are providing unprecedented images of soft and hard tissues inside the body, eliminating much exploratory surgery. Patient trauma will also be reduced through bloodless surgery using advanced lasers. An added advantage will be reduction of hospital stays, thereby lowering the patients’ medical costs.

Laparoscopic and endoscopic surgery are already addressed to specific areas of the body thereby reducing the possibility of side effects to other areas of the body. The side effects of drugs have always been a cause for concern. However ‘magic bullet’ drug delivery will enable enormous doses of medication to be directed exactly where they are needed. This will be beneficial in respect of cancers and other conditions requiring the use of powerful drugs. Developments in transplants will be numerous by 2005. They will include brain-cell and nerve tissue transplants to assist victims of various kinds of neurological disorders inclusive of retardation and head trauma. Muscles from other parts of the body will be used in heart transplants.  Animal organs will be in common use. Laboratories will be used to grow bone, muscle and blood cells for transplants.

Cloning and related technologies to grow stem cells can be expected to be available for use in transplanted tissues for intractable diseases such as diabetes and Parkinson’s disease within the next five to ten years. These are radical new treatments and the debate on the morality of their use is still strong. Some countries like Trinidad and Tobago may not permit their use. Bionic limbs will no longer be largely the subject matter of movies. In the next ten years bionic limbs, hearts and other organs are anticipated. Drugs will be used to prevent disease, not only to treat symptoms and body monitors will warn of impending trouble.  In terms of nutrition, nutritional supplements and foods with drugs either added or genetically engineered into them will be in common use. Later in time, by 2025, the first nanotechnology-based medical therapies should reach clinical use. Microscopic machines will monitor our internal processes, remove cholesterol plaque from artery walls, and destroy cancer cells before they have an opportunity to form tumours. There are several inferences based on these developments. 

Man has always pined for immortality and medical developments will continue to increase the human lifespan perhaps to as long as 200 years. Humans will enjoy good health for longer periods of time. Concurrently, there will be dramatic increases in health costs which  will  include artificial organs, new pharmaceuticals, and computerised monitors. The span of the normal working life will require re-examination. The number of medical specialties will increase in high-tech areas while shortages in current skills such as nurses will continue. Our newly graduated doctors will have to be involved in continuous research to keep their medical practice current with emergent medical developments and will have to become more business oriented by observing trends and employing new technology. 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

Kase Lawal, CEO of CAMAC Holdings Ltd, an oil and gas exploration company in the US, wants Trinidad and Tobago to put its own stamp on oil exploration and gas production.

Lawal said there was no reason why TT could not look to explore its marginal fields with teams of local professionals. “It does not take much to start a company,” he said, adding that government could provide incentives for local companies that wish to go into oil and gas exploration. “Let the government bring in professional managers and let them run it.” He dismissed the view that this was risky business, noting that a company could turn over a profit on 500 bpd, a money-making machine. Lawal’s company has about one billion in turnover annually. He described Petrotrin as bloated and a company with high overheads. Petrotrin, he argued, does not need a partner. What the state-owned company needed was to be privatised. He said TT most wanted to get to the point where there will be no need to bring in foreign managers. That, he said, is the key to empowerment, adding that this could stimulate entrepreneurial activity. 

In Nigeria, he said, there were local energy companies owned and operated by the private sector, noting that this is where TT should be headed. He made reference to ‘cabotage law,’ operating in Nigeria, where local companies are given controlling interests in the formation of any joint venture, sometimes 60 percent: 40 percent.  In an adress to business people at the annual Trade and Investment symposium organised by the Emancipation Support Committee last week at the Hilton Trinidad, Kase made the case for TT and Africa to strengthen energy ties. The first step to furthering cooperstion in the energy sector was the signing of a Memorandum of Cooporation between NGC/Petrotrin and the Africa company, Petro SA. The memorandum will look at exploration and production as well as petrochemicals and refining, according to Eric Williams, Minister of Energy and Energy Industries, who gave a presentation on “Growth in the Energy Sector.” This deal, said Lawal, was not a charitable deal, or an emotional tie. It was economic reality, he said. According to Lawal, this link between the two regions is long overdue, especially with our entwining histories. “As people of African decent, we know that millions of our people in Africa, America and the Caribbean are poor. We know that underdevelopment has plagued most of the nations of Africa and the Caribbean,” said Kawal.

In an interview later at the Hilton Trinidad, Lawal made the case for TT to take more control of the oil and energy sector. He stressed that there was no need to destabilise the existing agreements with the international oil giants like BP and British Gas. He added that both regions are blessed with significant natural resources and by combining these resources both can become a force to reckon with. “Using the critical mass and economies of scale it is a place where investors will take advantage of. But as the minister mentioned, you need to combine this productivity with the resources you are endowed with into monetization for the people,” said Lawal. He added the Government should consider setting up an empowerment fund to finance various empowerment groups that qualify for the acquisition of assets within the local energy sector. “Such funds can be set up in conjunction with the International Finance Corporation, a private arm of the World Bank,” said Lawal. “The leadership is here, the resources are here, make it come together,” he said. Government, he said, should make it mandatory for local companies to enter the oil industry.

Richard Young, Managing Director, Scotiabank, Trinidad and Tobago, is urging TT business people to be aggressive about turning  their businesses into global brands.

He was speaking at a “Doing Business in Jamaica” conference organised by Scotiabank, TIDCO and the TTMA last week. As for Scotiabank’s role in the initiative, he said that having the same bank on both sides “ensures a smoother transaction flow and reduced costs to the businessman.”  The mission to Jamaica  to explore trade possibilities is scheduled for September 7 — 12 and approximately 25 companies have registered so far. Foreign Affairs Minister, Knowlson Gift said the FTAA will bring challenges and noted that Jamaica exported less to Caricom in 2002 than it did in 2001. The deficit stood at 89.4 million in December 2002, approximately twice the figure of the previous year. Recent figures show, however that of 17 billion dollars worth of Jamaican imports, 13 billion originated in TT. “Our trade with Jamaica continues to be robust,” said Gift.

Lorne McDonnough, High Commisioner for Jamaica, disclosed that Jamaica is the second largest market for TT products, just after the US, amounting to about 2.2 billion dollars TT. The evolution of a balanced trade would lead to a win-win situation where both economies can  benefit. He emphasised that Jamaica’s support of liberalisaton in telecommunications has led to more options for the consumer in terms of price. Overall, Jamaica was fourth in the region in attracting Foreign Direct Investment flows, from 130 million in 1994 to 730 million in 2001. Tourism in Jamaica, he said, attracted 128 million of FDI within the last three years. The tourism sector is also showing remarkable resilience, having the highest rate of repeat visitors in the Caribbean. International reserves in Jamaica have increased by 400% to 1.85 billion dollars between 1999 and 2001. The government targets reducing the fiscal deficit and the dollar has been revalued and stands at approximately 58 to 1 US dollar. He highlighted the notion that opportunities exist in Jamaica in the agro-industries, processed food, industrial minerals, lime derivatives, tourism, IT, and spin-offs from the Highway 2000 project. “With globalisation comes liberalisation and with liberalisation comes dislocation adjustment.” he said. He expressed concern that some manufacturers have not taken the time to re-invent themselves using new technology while others are too small to survive without preferential treatment.

Janice Robinson, General Manager, Scotia Jamaica Investment Management Ltd, said that prior to Dec 2002 there was relative exchange rate stability. She listed improvements which were underway in Jamaica like expanded port facilities, upgraded airports, Highway 2000 and conference facilities. Other advantages are a liberalised foreign exchange environment, excellent telecommunications , a strong brand and the beauty of the country. The informal sector accounts for 53 percent of total employment and there is a 43 percent ratio of informal sector to registered GDP.