In a key role: Private sector development is vital to stimulate the economy

The relationship between the public and private sector in Trinidad and Tobago is both important and complex. At one level it is competitive and sometimes antagonistic, with each side seeking to widen its share of total economic activity and criticising the other, often on ideological grounds. On another level, however, it is deeply collaborative, with both working together in the context of a mixed market economy. The balance between these two tendencies has shifted back and forth over time and changing economic circumstances.

In the context of the current depression in energy sector revenues, there is a clear sense of urgency for both sectors to work together to move forward. The emphasis now is on collaboration, with development of effective public-private partnerships (PPPs) of new and different kinds a priority. In line with this shift, important opportunities are beginning to emerge.

WORKING TOGETHER: From the government’s side, the private sector is viewed as having a key role to play in the search for economic recovery, renewal and diversification. An example of this was a speech by the finance minister, Colm Imbert, presenting the budget for FY 2017. The government, he said, intended to push ahead with investment projects and to enhance and improve its collaboration with the private sector in order to stimulate economic recovery and transformation. He described private sector development as “one of our core objectives”. In addition, he also called for a change in the private sector’s mindset, “from commerce to industry, from focus on the domestic market to seeking to explore global markets, from consuming foreign exchange to earning foreign exchange, from avoiding risks in new ventures and technologies, to taking on new risks and facing new competitive pressures to conquer new fields”.

Private sector leaders responded positively to the call for greater cooperation, although they also said they wanted to see associated changes in the public sector. On the whole, business groups argue that they can achieve more if the government improves its own efficiency, reduces the tax burden and bureaucracy, and helps create a better operating environment. The Chamber of Industry and Commerce responded favourably to the budget speech, describing the announcement of PPPs as “a welcome move”. It added, however, “The apparent lack of efficiency in government spending is evidenced by the continued budget deficit and increasing debt-to-GDP ratio,” going on to express concern over levels of crime, described as a “major impediment” to doing business in T&T”.

OPPORTUNITIES FOR COLLABORATION: The reality is that despite the sometimes adversarial language there are significant opportunities for increased public-private cooperation. An analysis of the Caribbean region in general shows increased private sector engagement could deliver major benefits. The region as a whole struggles with constraints on public sector finances, limited access to financing, inefficient labour markets, emigration of skilled labour, and an innovation and entrepreneurship shortfall. The private sector could play a key role in helping solve many of these issues. PPPs can help fund necessary infrastructure projects that would not otherwise be affordable for cash-starved governments.

SECTOR SPECIFIC: Most Caribbean islands have a highly skilled diaspora population, which may be persuaded to return home and help increase domestic innovation. A more outward-looking disposition may help overcome the “small island” problem where it is hard to be competitive and achieve economies of scale. Private companies are more likely to lead diversification into sectors such as business process outsourcing (BPO), medical and other higher-education sectors, agriculture and food processing, renewable energy and ecotourism. In the case of BPO, Richard P Young, chairman of the Trinidad and Tobago International Financial Centre, told OBG, “Strengthening a base of local shared services operators is key to enticing international BPO providers to establish a presence in the country.”

A LARGER ROLE: All major economic responses to the current recession depend, in one way or another, on an increased private sector role, both within and outside the energy sector. In the energy sector, being able to increase production and revenues will depend on finding the right incentives to attract major oil and gas companies to invest in exploration and production licences. The same can be said of downstream processing activities. Outside energy, the government is looking to private companies to invest in tourism, such as the proposed Sandals hotel project in Tobago, as well as in a whole range of activities from residential home building through to manufacturing, financial services and agro-processing. The government also indicated it would no longer support small, underperforming state enterprises, by announcing in March 2017 the closure of Caroni Green, a pepper production company, and the Government Human Resource Service, a human resource agency targeting recruitment of local and international talent for the public service.

MODELS: There is as yet no single preferred model for the new partnerships that are being sought. A variety of different approaches may co-exist. The authorities are still developing the general policy approach to PPPs and plan to harmonise the regulatory framework with attempts to develop a common CARICOM model. Meanwhile, the terms and conditions of some potential investments like the Sandals hotel project are being negotiated directly between government officials and the company. The PPP Unit of the Ministry of Finance is also seeking to develop a PPP pilot project to operate the newly built Couva hospital, and hopes this might serve as a model for other PPP investments.

From the private sector point of view, the general credibility of the new partnership approach would be increased if the government applied it successfully to solving some of the more intractable and politically sensitive issues on hand. The private sector Energy Chamber of T&T has, for example, suggested that Petrotrin, the loss-making state oil company, cannot survive in its current form and needs major reforms. This is a politically difficult matter for the government, given the strength of the Petrotrin trade union. Nevertheless, the Energy Chamber has cited the reform and part-privatisation of Ecopetrol, Colombia’s state oil company, which was carried out in the early 2000s, as a potential example to follow. It noted that Colombian oil production doubled in the decade after the company was restructured, and Ecopetrol was able to prosper as a listed company in a more competitive industry.

PRIVATE SECTOR WEAKNESSES: If the private sector has some doubts about the government’s ability to lead a drive to transform the economy, the reverse is also true. A study by the Inter-American Development Bank published in January 2017 highlights some weaknesses in the country’s private sector. The suggestion is that because of the long oil boom, private sector development has been held back. The title of the report, “Are oil and gas smothering the private sector in Trinidad and Tobago?” is indicative of its outline diagnosis. Using detailed empirical research, it finds that 82% of the country’s companies can be classified as stagnant or declining in terms of sales volume. The majority of companies are said to be mostly small and medium sized, old, locally owned, privately held sole proprietorships and less open to international trade. It also described the macroeconomic environment as unfavourable, with an overvalued exchange rate – typical of countries highly dependent on hydrocarbons exports – adversely affecting competitiveness. Local companies are reported to invest just 27% of the average invested by companies operating in other small, commodity-dependent economies. Since the global crisis of 2008 labour productivity in T&T has decreased. Local companies were found to under-perform compared to the Caribbean average for sales growth and total factor productivity.

OPPORTUNITIES: The report comes to a stark conclusion, arguing that in its current state the private sector is not up to the challenge of supporting economic growth, creating employment, contributing to government revenues in a significant way or improving the economic welfare of the nation’s citizenry.

Many stakeholders – public and private – will disagree with that assessment. And indeed the report itself recognises that the country emerged from a similar recession before. After the oil price crash of the 1980s it registered flat or negative growth rates for almost a decade in 1983-92. A series of reforms, including structural ones, implemented in the 1980s and 1990s enabled the economy to transition successfully into a period of steady and relatively balanced economic growth. Seen from a medium- to long-term perspective then, the current downturn presents an opening for international companies and investors to seize strategic opportunities, working with local companies in a more entrepreneurial way and helping to improve the business culture and performance.