Economic Outlook Forum 2016

President's Opening Remark by Ravi Suryadevara

Topic: “The New Economic Reality – Imperatives for Competitiveness”

Good morning ladies and gentlemen.

On behalf of the Board of Directors and the Secretariat of AMCHAM T&T, to those present and the wider community of Trinidad and Tobago, best wishes from all of us to all of you. The task at hand is one that admittedly brought trepidation initially but transformed to hope as I concluded preparations. Building on last year’s Economic Outlook event themed “Is the glass half-empty or half-full?”. At the present time, we at AMCHAM T&T are of the view that the glass is half-full. There is yet time and opportunity to chart the future for the country that is grounded in the New Economic Reality.

The New Economic Reality is that, globally, economies are more integrated through trade, investment and financial systems today. As a consequence even remote geographic events ripple through our economy in measures of time that are becoming shorter and shorter. Not only change but also rapid-change, volatility, are features that take effect on modern day planning and policy consideration.

Within the hemisphere and globally, the United States of America has been the dominant resurgent economy. It has evolved from being a country whose domestic crude and liquids production went from about 8.5 million bpd in 2007 to just over 14 Million bpd in production by 2014. Notably in crude oil production terms alone, the resilience of shale production through 2015 helped maintain domestic US crude production over 9 Million bpd. While it is expected for production to fall in the foreseeable future with the current price level, in-spite of the production correction, US domestic production is here to stay and stay at significant production levels.

Further, in December 2015, the United States of America lifted the export ban on crude that had been in place since the mid-1970’s response to the Arab embargo. This would allow US companies to export as early as August almost 700,000 barrels of oil daily, under the guidance of the US Commerce Department’s Bureau of Industry and Security. Further, US proved gas reserves alone crested 380 tcf by the end of 2014 and this is expected to rise in the coming years adding to the over 39 billion barrels of oil yet to be produced. Clearly this merits our attention in how we position and treat with what is already our largest trading partner with still favourable balance of payment terms.

In the near-term, expecting a Venezuela that re-aligns itself to economic growth and investment also seems quiet plausible. Even in the post-2017 recovery period, cetirus paribus, “lower for longer” in prevailing commodity pricing is also the generally accepted position. So what of our comparative and competitive advantage that we as a nation have enjoyed over the years?

AMCHAM T&T reiterates the resilience of our local energy sector, its constituent companies and the yet untapped potential within our borders. AMCHAM T&T over the years has advocated diversification within the Energy sector as much as away from over reliance on it. At the present time, continuity in projects to bring much needed reserves on-line needs to be in alignment with the recognition of the competitive landscape in attracting FDI, especially in the Energy sector. Foreign Direct Investment and Domestic Private Capital in other sectors are also faced with multiple competitive options and Trinidad and Tobago needs to be positioned attractively and regulated soundly to continue to encourage investors to come to our shores.

Persistent fiscal deficits since 2009 limit the response options of the government, the year being the culmination of the Great Recession in the US and the beginning of the global challenges of the sub-prime mortgage contagion. It is déjà vu. In 2009 Trinidad and Tobago realized a shortfall of projected revenue of just around $9.5 Billion TTD, emanating from a shortfall in tax collections from Oil Companies to the tune of approximately $5 Billion TTD. In 2015, the country realized a shortfall in current revenue of a just under $8.5 Billion TTD, with the commensurate fall in Oil Company Tax revenue to the tune of approximately $6.5 Billion TTD.

Upon assessment of government revenue in relation to economic output, measured in GDP at market prices, the contraction of economic output is clearly seen post 2009, and is expected to be seen in 2015. The 2015 value is an estimate from the World Bank but intuitively one deduces the position to be lower than 2014 simply because of prevailing market prices. Also of interest is the period post contraction. Note should be taken on the length of time it takes to recover to former positions of output.

While Trinidad and Tobago weathered the 2009 storm, it was not without consequences. The country’s debt position has escalated through the period. The addition of the CLICO and HCU Bonds for the CLICO Bailout resolution in 2012 alone added some $20 plus Billion in debt with the commitment that such debt would have been accounted for from the proceeds of sales of CL Financial assets. This did not materialize and with the present budget scenario espoused by the Minister of Finance, we do not foresee this debt reduction as initially planned as some of these funds are to be used for budget support. Further, there exists another approximately $30 Billion TTD in contingent liabilities representative of state sector and statutory body debt that has accumulated over successive administrations of government, each one burdening the next with more carrying debt.

Through the same period, 2000-2015, government expenditure has generally expanded, with two notable but nominal dips. The growth of expenditure was fuelled through debt without the commensurate productive output increase. However, you would note the growth in the cost of government operations. Government’s consumption of goods and services in the provision of services to citizens has escalated from $4.044Billion TTD in 2007 to $7.8 Billion TTD in 2015. This item of expense and personnel costs of expense account or almost 1/3 of government expenditure in the 2016 projections.

Habits of expenditure are most difficult to change but a reality check is most necessary at this time. Individual and institutional responsibility must be exhibited firstly to understand the severity of the situation. Thereafter, we need to recognize the opportunity as a nation to form a consensus in breaching the “Dutch Disease” that has been both boon for and bane of our economy.

The government, by setting the example of the socio-economic discipline required, can manifest this breach of the “Dutch Disease” by developing new productive sectors, with new comparative and competitive advantages. The government by focusing its efforts on a few such new sectors can bring them to fruition in the near term, as part of the New Economic Reality.

Therefore, competition and efficiency are as critical features of the New Economic Reality as are volatility and connectivity. Comparisons of one locale to another are carried out by institutions to afford investors and comparative positions on each locale. Amalgamations of these comparisons become collated into indices for relative ease of comparison. One such index that AMCHAM T&T utilizes has been and continues to be the World Economic Forums, Global Competitiveness Index (GCI). The work surrounding the index and its review are highlighted by the Arthur Lok Jack Graduate School of Business, usually in or around the last quarter of the year.

Briefly in review on the 2014-2015 report one notes it is for 2013 data so expect the coming years to have lower ratings, especially for the 2015-2016 and 2016-2017 periods. This especially prevalent due to the deterioration in the macroeconomic environment.

When one reviews the sub-components of the Macroeconomic Pillar, it becomes apparent for the deterioration. Growing near term deficits, falling credit ratings, growing debt burden, and the expected decrease in national savings as part of the HSF will be used for budget support. This last point of tapping the HSF after segregating it into two separate funds, one for Heritage and the other for Stabilization, is a very sensitive point indeed as these funds have taken over 15 years to accumulate. Whilst sensitive, the utilization of these funds require extreme diligence and the platform of the new Public Procurement regime.

At AMCHAM T&T, we have been over successive administrations advocating for positions that yield greater efficiency of public expenditure such as increasing funding to the FIU, bringing the FIB under the FIU to pursue suspicious financial activity, and increasing the resources allocated to the Auditor General. Greater oversight leads to less corruption and leakages from the system of resources meant for the common good. Greater audit and oversight ensure greater compliance and greater value for public spend.

The New Public Procurement regime will help progress many of the sub-requirements under the 1st Pillar, Institutions, working hand in hand with the proposed Internal Control Framework for financial management of state affairs. The overseer of the integrity of this mechanism is the Auditor General.

AMCHAM T&T supports the government’s view that the cost of government operations can be reduced, and has lauded the Prime Minister for his instruction to cut non-personnel expenses by 7% in the first instance. AMCHAM T&T still remains vigilant to see this 7% reduction materialize and await the mid-year review where we expect further announcements reflective of the present scenario.

Within the rubric of the government making structural adjustments and otherwise changes within the economy, the announced tripartite approach is welcomed. To face the challenges of the New Economic Reality, Trinidad and Tobago needs an improved mechanism than what prevails for labour-business-government dialogue. The sub-components of the index provides useful insight, especially in the ranking. Cooperation in labour-employer relations at 133 out of 144 is indicative of the vast room for improvement.

The employment challenge however in a small island developing state is not limited to the context of labour and employer but is also affected by subventional programmes aimed to help the indigent. It is noteworthy that AMCHAM T&T’s membership is willing through the assimilation of CEPEP workers into their workforce, in not only helping fill their vacancies but also exhibiting the need to bring more people into the formal economy. This is a proposal AMCHAM T&T continues to spearhead, up to our most recent meeting with the Minister of Labour and Small Enterprise Development, Minister Baptiste, at which time she also re-affirmed pay to productivity. It would be remiss of me if I did not recognize Minister Gopee-Scoon’s advice and guidance in the matter when we first met with her some months prior.

It is my hope, the hope formed from the initial trepidation when I began my preparations for this morning’s proceedings, and that you have also garnered a measure of optimism in that the glass is in fact half full. After all, every dark cloud has a silver lining. I wish to close by re-affirming the confidence in Trinidad and Tobago, its future and locale as a great place to business and live.

END.