Development plans to transform and diverfiy the Tobago island economy of Trinidad and Tobago

The new administration of Tobago takes office at a time of both opportunity and challenge. Tobago is one of the most beautiful, unspoiled islands in the Caribbean, which is a highly attractive proposition in today’s competitive tourism environment.

Tobago is ready for take-off, with the island at a critical point in its economic development. After years of abundance, largely based on a share of the oil and gas revenues generated by the republic of Trinidad and Tobago, the island is now facing a fiscal squeeze. Tobago’s GDP slumped sharply in 2016, while its tourism sector has been underperforming for some time. However, these difficulties also present a major opportunity for growth.

New Government

A new local government took office in Tobago following elections on January 23, 2017. Kelvin Charles was sworn in as the new chief secretary of the Tobago House of Assembly (THA), representing the People’s National Movement (PNM). Charles’ appointment marked the end of four consecutive terms in office – totalling 16 years – for his predecessor and former PNM leader, Orville London. During London’s last term, the PNM controlled all 12 seats in the THA. The party again claimed a majority in the most recent elections, winning 10 of the 12 seats, with the remaining two going to the opposition Progressive Democratic Party, led by Watson Duke. At his swearing-in ceremony, Charles said that his administration would prioritise dealing with crime, agriculture, tourism, productivity, education and customer service. The chief secretary has also previously called for increased autonomy for Tobago within the central government structure.

Young Economy

According to the last census in 2011, the population of Tobago was 60,874, up 12.6% on the previous census held in 2000. This represented 4.6% of the combined population of T&T. Since 1990 the population of Tobago has been growing at a faster rate than that of Trinidad. Population density is greatest in the south-western corner of the island, in the parishes of St Andrew and St Patrick. It is lowest in the opposite, north-eastern end of the island, in the parish of St John.

In Tobago the largest age group is of those between 20 and 29, who make up 17% of the population, and the median age is 28.1. The majority of people identify themselves as being of African descent (85.3%), followed by mixed African/East Indian (4.3%), mixed/other (4.2%) and East Indian (2.5%). The East Indian community makes up a much smaller share of the population than in Trinidad.

There has been significant outbound emigration over the years, with many Tobagonians leaving the island, often in search of employment opportunities in North America, Europe and other parts of the Caribbean. As a result, there has been some concern that Tobago has suffered from brain drain. Census data shows that in 2011 a total of 859 people – just over 1% of the population – emigrated. The majority (62%) went to the US, followed by the UK (14%), Canada (7%) and other Caribbean islands (3%).

GDP Makeup

The composition of GDP is heavily weighted towards three sectors: government, financial services and tourism. The largest single contribution comes from the government (46.9%), according to preliminary figures for 2016. It is followed by finance, insurance, real estate and business services, with 25.3%. Other sectors include distribution and restaurants (8.7%), transport storage and communications (5.4%), construction and quarrying (4.3%), electricity (3.2%), and hotels and guest houses (2.9%). The government’s share of GDP increased from 40.8% in 2011 to 46.9% in 2016, with sectors such as manufacturing and agriculture accounting for only 0.4% and 0.2% of Tobago’s GDP, respectively.

The total non-institutional population aged 15 and over was 48,000 in 2015, and of that number 34,100 were in the labour force, giving a labour force participation rate of 71%. Unemployment as a proportion of the labour force was 3.7%, and has oscillated in the last seven years around 3-4%.

The largest categories in the labour force were classified as elementary occupations (28% of the total), service workers (15.3%), craft and related workers (14.2%), clerks (12.8%), and technicians and associated professionals (10.9%).

In Tobago’s industrial sectors, most are employed in community, social and personal services (41.8% of the total), followed by construction (22.2%), and wholesale and retail trade, restaurants and hotels (14.5%). The majority of those in employment work in the public sector. In 2015, the last full year for which data is available, 73.8% of those in employment worked for the government, public service enterprises, statutory boards or government enterprises, up from 72.2% in 2011 and 70.6% in 2008.

Development Blueprint

A key feature of Tobago’s economic strategy is the Comprehensive Economic Development Plan (CEDP). The first CEDP covered the 2006-10 period, while an updated, revised version, CEDP 2.0, was developed for 2013-17. Both documents emphasised the need to transform and diversify Tobago’s economy, with the latter developing earlier ideas to formulate eight strategic priority areas for economic development. These priority areas include branding Tobago, good governance and institutional reform, business development and entrepreneurship, human capital development, social development and resilience, improved infrastructure and utilities, enhanced safety and security, and environmental sustainability.

Much of the thinking on branding in the CEDP 2.0 document revolves around the marketing of the island as “clean, green, safe and serene”. The slogan aims to capture the attractions of island life, not just for tourists but also for the domestic population. CEDP 2.0 calls for mass media and social marketing of the brand, and suggests that local companies and institutions should align their own advertising and marketing efforts with that overarching concept.

Taxes

The strategy notes Tobago’s desire for greater devolved responsibility from the central government of T&T, along with greater powers to both raise and spend taxes at local level. The document adds, however, that until Tobago’s relative share of GDP matches that of the rest of T&T it is likely to remain a net recipient of transfers from the central government. At the time the CEDP was written, Tobago accounted for 5% of the republic’s population, but generated only 1.2% of its GDP. Other aims of the good governance priority area include modernising administrative processes within the THA, along with the introduction of improved ICT.

The desire to develop small businesses and promote entrepreneurship has been a consistent part of government strategy, particularly in light of concerns relating to overdependence on the public sector for employment. The document urges Tobagonians to set up businesses, with a focus on tourism, distribution, commerce, agriculture, agro-processing, fisheries and light manufacturing.

There is a commitment to try to create an entrepreneurial class in Tobago, with training and credit provided by agencies such as the Business Development Unit (BDU), the Enterprise Assistance Fund (EAF) and the Venture Capital Equity Fund (VCEF). Another initiative supported in the strategy is the development of Cove Eco-Industrial and Business Park (CEIBP), which includes space for incubators and start-ups. In human capital development the focus is on transitioning Tobago’s labour force into one that is competitive by 21st-century standards.

The plans also call for a range of educational and training initiatives, greater coordination with universities and improved internet connectivity to support distance-learning programmes.

The strategy paper acknowledges that a growing economy will require an influx of labour and new residents. These new arrivals will need to adjust to their new surrounds, while Tobago’s relatively homogeneous society will also need to adapt as it becomes more diverse. There are also commitments to develop health, welfare, sport, recreation, and social and community services, while particular attention is paid to priority area VI: the improvement of infrastructure and utilities. Continued expansion of physical infrastructure is considered to be one of the major challenges facing the island, particularly given the need to update building codes to combat the risk of earthquakes, tsunamis, hurricanes and rising sea levels. Two major objectives are also referenced: to construct a commercial port for Tobago and to build a modern airport terminal at ANR Robinson International Airport (ANRRIA).

Priority area VII, relating to safety and security, stresses the need to protect Tobago from the effects of both international drugs and arms smuggling, and local crime, with the latter seen as having the potential to compromise the island’s image as a safe and secure location. Recommendations include the increased use of CCTV, development of local policing and the introduction of more modern scanning technology at ports of entry to check for narcotics and gun smuggling. Priority area VIII emphasises the importance of collective responsibility to protect the island’s fragile ecosystem. Recommended initiatives include the development of a comprehensive land use plan, better waste management and the drafting of a disaster vulnerability assessment.

Elton Bobb, coordinator of CEDP 2.0, told OBG that the strategy outlined in the document gave cause for optimism about Tobago’s potential. Asked about the economic climate on the island at the beginning of 2017 – the final year covered in the plans – he said, “We are poised for take-off. Out of 100 we are at 45.” He recognised Tobago had not achieved all it had hoped in the plan, citing a combination of adverse international economic circumstances, and a possible lack of commitment and urgency.

Despite these setbacks Bobb was passionate about some of the policy directions mapped out in CEDP 2.0. These included the need to reduce the proportion of the population dependent on the THA for employment, and the case for diversification, particularly in local food production and processing. He felt that any island depending on tourism should be able to feed its visitors, which would mean reviving the rich local agricultural tradition that had been neglected in the years of thriving oil and gas revenues. Regarding the possibility of a CEDP 3.0, covering 2017 onward, Bobb said that much would depend on the wishes of the new THA administration, with details expected to emerge in 2017.

2016 GDP: According to preliminary data for 2016, Tobago’s GDP dropped by 6.4% relative to 2015. However, this came after a year of strong growth, with GDP rising by 7.2% in 2015. The weakest sectors in 2016 were construction and quarrying (-48.7%), the government sector (-6.7%), agriculture (-4.6%), personal services (-3.4%) and electricity (-13%). In contrast, some areas of the economy recorded growth, including manufacturing (17.4%), petroleum distribution (6.2%), hotels and guest houses (3.1%), and transport storage and communications (1.6%).

The downturn in economic activity in 2016 is consistent with reports of a drop in tourist arrivals and hotel occupancy rates. In December 2016 industry sources estimated that international tourism arrivals had slumped by 25% during the year, affecting hotel occupancy rates and visitor spending. According to local media, citing THA data, occupancy rates averaged 36.3% for hotels and 29.9% for guest houses, compared with a combined average of 41% in 2015.

In a sign of the downturn in tourism in Tobago, Wendy Hamlin, reservations manager of the Blue Haven Hotel in Scarborough, told media that occupancy rates were down by 40% towards the end of 2016. Roger Patino, one of the owners of the Enchanted Waters restaurant in the south-west of Tobago, attributed the fall in the number of clients to the lack of destination marketing, and deficiencies in the air and sea bridge connecting Tobago to Trinidad.

Sister Act

Due to the nature of its relationship with its larger sister isle, Trinidad, Tobago’s economy is heavily influenced by the ups and downs of the wider economy of T&T. One way of envisaging the relationship is to say that the performance of the wider economy sets the general cyclical trend, but that Tobago can be more volatile, performing above or below the trend line depending on specific factors such as the ebb and flow of local government spending or tourist arrivals. According to the IMF, in 2016 the twin-island economy saw a 5.1% contraction, less than the preliminary estimate of a 6.4% fall in Tobago.

Despite the contraction in activity levels in 2016, officials remain confident of the island’s strategic direction. Joel Jack, Tobago’s secretary for finance and the economy, told OBG that global uncertainty and low oil and gas prices were having a negative impact on the finances of T&T, resulting in a knock-on effect for the Tobago administration. However, he said that the THA remains focused on the diversification of the island’s economy, with a focus on the development of tourism, while the THA has already invested approximately $50m in programmes aimed at developing the private sector.

Jack expects the oil and gas price cycle to begin to move up again in the last quarter of 2017, with further increases in 2018 and 2019. “I am very optimistic about the economic outlook for Tobago, and for T&T together,” he said, describing the current environment as “positively challenging”.

Budget

Due to its dominant role in the local economy, any changes in overall THA spending have a major impact on Tobago’s economy. Under existing agreements, the THA budget is fixed within a percentage band of the national budget, ranging from 4.03% to 6.9%. Two key variables therefore affect the total THA spend; first, the size of the national budget, and second, the exact proportion of it, within the agreed band, that is allocated to the THA.

In recent years the national budget has come under pressure as a result of the sharp drop in oil and gas revenues. Spend peaked at TT$64.7bn ($9.7bn) in 2015, then fell by 2.5% to TT$63.1bn ($9.4bn) in 2016. However, Tobago was cushioned from the reduction in 2016 because the central government agreed to increase the THA’s share of the national budget from 4.03% to 4.4%. As a result, Tobago’s total budget allocation actually rose by 6.2% in FY 2016. Although the central government agreed to hold Tobago’s share of the budget at 4.4% in 2017, the island could not be protected from the effects of a shrinking national budget. THA’s allocation looks set to fall to TT$2.35bn ($351.1m), a reduction of 15.1%. However, the necessary savings were evenly spread between the two islands, with central government expenditure set to fall by 15.3%.

Negotiation

The THA budget emerges from a negotiating process conducted between the island’s authorities and the central government. In his national budget speech on September 30, 2016, Colm Imbert, T&T’s minister of finance, dedicated a special section to Tobago’s funding allocation for FY 2017, which consists of the 12 months leading up to the end of September 2017. The minister praised the island’s long-term development, noting that unemployment had fallen to around 3%, down from 11% in 2001. Imbert also highlighted the fact that the proportion of the labour force with a university education had grown to 19% (up from 5% in 2001), and that headline and food price inflation had come down to moderate levels following double-digit growth a decade earlier. Despite these improvements, Imbert said that there was still much to be done to increase developmental momentum. The minister reiterated the importance of tourism for the island’s economy, emphasising its capacity to earn much-needed foreign exchange. He said that the refurbishment of the existing terminal, and the construction of a new terminal at ANRRIA, would commence during the course of the financial year. In addition, there was a promise to enhance the management and operation of inter-island air and sea transport. The minister said that there was currently a mismatch between supply and demand for these services, leading to delays and inconvenience. The THA budget allocation for 2017 also includes funds to strengthen tourism marketing and expand room stock. Other key points in the budget speech included a reaffirmation of existing diversification and entrepreneurship initiatives, with specific mentions of the CEIBP, and the Enterprise Assistance Grant Programme. A commitment was also made to accelerate the building of publicly financed new houses, given that some 7000 applicants were on the housing waiting list. While noting that Tobago’s crime levels are below both the national and CARICOM averages, Imbert nevertheless pledged funding to build new police stations at Roxborough and Old Grange, describing the developments as part of an upgrade to modern security architecture.

In the context of sharp reductions in government expenditure at both national and Tobago level, Imbert stressed the need to continue investigating other sources of finance. “We will continue to collaborate with the assembly in finding novel ways to supplement their budget allocations through alternative financing mechanisms, including public-private partnerships (PPPs),” he said. According to Imbert, central government ministries would also be carrying out work in Tobago in line with their national responsibilities, in addition to the THA budget allocation. Under these funding streams efforts would be undertaken to address chronic water shortages in south-west Tobago, as well as to increase the reliability of electricity supply across the island.

London, then-THA chief secretary, welcomed the announcements. He acknowledged that both islands were seeing “strained economic times”, but considered there had been equity in the allocation for Tobago. London highlighted the importance of central government commitments that will be funded from outside THA’s budget allocation, including the expansion of ANRRIA, the construction of a new desalination plant and improved electricity supply for the CEIBP. He also pointed to the announcement of fiscal incentives for agro-processing.

Innovation & Entrepreneurship

The THA, as part of its diversification strategy, has been seeking to promote innovation and entrepreneurship as part of its vision to create a more dynamic private sector. The aim is to reduce the relative size of the public sector by promoting greater private sector employment. Initiatives aimed at boosting the private sector include the creation of the EAF and VCEF. Through the EAF the Tobago government provides grants of up to TT$25,000 ($3740) for new start-ups, and loans of up to TT$250,000 ($37,400), which are repayable over five years at a flat interest rate of 5%. The VCEF can provide anywhere from TT$250,000 ($37,400) to TT$2m ($299,000) of equity or partnership funding. Shelly Ann Baptiste, enterprise assistance fund manager from the THA’s BDU, the body that administers these funds, told OBG that during the course of 2016 a total of TT$1.25m ($187,000) had been disbursed in loans, with a further TT$900,000 ($134,000) awarded as grants. These totals were slightly down on 2015 levels.

The BDU was also seeking to intervene in a catalytic role to try to kick-start entrepreneurship in particular business sectors deemed to be promising. In recent years there had been a focus on garment manufacturing, the fashion industry and agro-processing. As an example of this approach, Baptiste said that the BDU had helped send a group of would-be entrepreneurs to the Caribbean Fashion Week show in Jamaica in 2014 and 2015, and enabled some to attend a “Fashion Upgrade” workshop in Tobago, with others going on to work with the national FashionTT agency. As part of this push, promising young Tobagonian designers and entrepreneurs could receive mentoring and training organised by Raymond Wong, a professor of fashion technology at New York University. The aim was to help local designers to monetise their talent and study the feasibility of setting up a Tobago-based garment production facility. The initial thinking was that such a facility might concentrate on local demand – for items such as school uniforms – but also provide a platform for exploiting more fashion-oriented export markets. In November 2015 London said that the THA had spent close to TT$500m ($74.7m) over 13 years to stimulate and nurture business development on the island. A total of 262 Tobagonians had received TT$27.1m ($4m) in loans, while another 688 had received grants totalling TT$11.8m ($1.8m), with many of these recipients young people and women.

CEDP 2.0 also highlighted targets in relation to entrepreneurship and local enterprise. The strategy aims to launch more than 75 new start-up companies at the CEIBP, increase the supply of local goods and services to the tourism sector by 25%, boost exports of small and medium-sized enterprises by 10%, and increase the overall number of new viable businesses by 25%. No detailed outcomes against these objectives is publicly available yet.

Sweden Hewitt, a Tobago-based programme support officer for the Arthur Lok Jack Graduate School of Business, told OBG it was hard to obtain reliable statistics on the performance of business start-ups. However, in its first seven years of operating in Tobago, around 50 people had graduated from various business courses offered by the school. Hewitt believed only four or five had launched their own businesses. She put this partially down to differences in the business culture between Tobago and Trinidad, noting that while most Tobagonians inherit family-owned property, many Trinidadians – as a result of different conditions on the island – are forced to take out mortgages in order to acquire property. However, she believed that increasing levels of education, and the return of Tobagonians who had worked and studied abroad, was gradually creating a more business-friendly local environment.

Public-Private Partnerships

In the current period of fiscal austerity, both the central government of T&T and the regional government of Tobago are showing increased interest in cooperating with the private sector through PPPs.

Work on developing the PPP framework is at an early stage. At national government level, Nadira Lyder, coordinator of the national Ministry of Finance’s PPP Unit, told OBG that while a central tender board traditionally managed government procurement, attempts to fast-track private contracting had resulted in the creation of stand-alone state companies known as special-purpose vehicles. A new procurement law had been introduced in 2015 and amended in 2016, and regulation of the law is in the process of being drafted.

Caricom

Separately, an initiative launched by CARICOM countries to standardise their approach to PPPs, which is expected to be finalised by mid-2017, could further influence T&T’s rules and practices regarding public-private cooperation. Lyder said the ministry was focusing on a potential PPP arrangement covering the operation and management of the newly built Couva hospital in Trinidad. Such a development could serve as a pilot or breakthrough project, setting the standard for other PPPs across the country. It is expected that the central government will lead two potential PPPs in Tobago, while the THA would manage several other projects on the island. Giselle Small, technical advisor of PPPs at the THA, said that the proposed upgrade of ANRRIA and plans for a new commercial port both currently come under the remit of the national government. However, the THA is looking at a number of other opportunities to work with the private sector. Work is now under way to develop the Tobago Infrastructure Investment Strategy Plan that would set out the strategic priorities over the medium term and would be guided by the national procurement legislation.

While the approach is still under discussion, officials have identified a number of areas where PPPs could be effective. Among these is the affordable housing programme, where the THA has more than 7000 applicants for housing, and is considering how to build additional residential units in the most cost-effective way. There could be private sector participation in projects to manage urban sprawl in south-west Tobago, and to develop eco-friendly tourism on the eastern side of the island. PPPs might be considered to fund light manufacturing and a new power station at the CEIBP. However, Small indicated that not all PPPs would necessarily conform to a design-build-finance-operate-maintain model. The THA was interested in performance-based contracting modalities in the social sector, particularly in health care and education, as well as projects in water and sanitation. The overall thrust of the regional government’s thinking was to use PPPs, and the revenue streams they create, to relieve the pressure on public funding, allowing the THA to protect its core public sector investment programme during this period of fiscal austerity. One example cited was Tobago’s portfolio of national parks, ecotrails, and archaeological and heritage sites. Entry to these is free to the public, and the THA covers all maintenance and upkeep costs. Consideration might be given to having these sites run on a more commercial basis, allowing the THA to benefit from increased efficiency as well as utilising the savings to redeploy funds into other high-priority projects.

Eco-Industrial Park

One of the government’s major initiatives has been the creation of the CEIBP. A public-sector company, the Eco-Industrial Development Company of Tobago (E-IDCOT) was created to set up and run the park. Bernard Mitchell, former CEO of E-IDCOT, told OBG that the company’s mandate was to aid the development of the economy of Tobago beyond the tourism industry. The park was not seen as an alternative to tourism, and indeed might prosper by serving the needs of tourism-related companies, but the ultimate vision was that it would not be limited to that sector.

CEIBP is based in the south-western peninsula, close to both ANRRIA and Scarborough, Tobago’s main town. It consists of 57 ha of land, currently divided into lots ranging from 1200 sq metres to 10,000 sq metres. Four major factory shells have been built with the intention of housing small and medium-sized businesses, along with multi-producer units that could benefit from a business incubator environment. The vision is that these businesses may expand within the park to occupy and develop larger lots. Meanwhile, E-IDCOT is currently seeking to attract larger utilities, creating a cluster of companies with the ability to develop critical mass between them. In addition, the park contains a shared business centre, an innovation centre and E-IDCOT’s administration building.

Mitchell said that T&T’s economic downturn had constrained the pace of development at CEIBP, but that if allowance was made for that and some other obstacles he was happy with the pace of growth. The park was on track to add 10-20 new jobs every year, while the four factory shells were close to being fully subscribed. The new start-up and small company tenants in the business park include a fruit juice manufacturer, a steel and aluminium fabrication company, a furniture-maker and an agro-processor producing items such as pepper sauce, ketchup and cake mix. The larger industrial tenants include the Trinidad and Tobago Electricity Commission, which since 2009 has been operating a 64-MW duel-fuel (natural gas/diesel) generator at Cove Park, and Tobago Natural Gas Receiving Facility, which is owned by the National Gas Company and has the capacity to process 100m cu feet of gas per day.

In Mitchell’s view, for the CEIBP to take the next step the island must develop a commercial port and establish another fibre-optic link. He believes that a number of light manufacturing and other companies would rent space in the business park if there was a more efficient transit link for imports and exports. Reacting to the demand, authorities have committed funding towards a feasibility study looking into a possible location for a commercial port in Tobago, and are considering whether to develop the project through a PPP. The CEIBP itself has been highlighted as one possible location for the commercial port, which would boost the park’s attractiveness to prospective tenants. Given the time needed to undertake a feasibility report and decide on how to tender the project, Mitchell believed the port could become a reality within three to four years.

Partly in response to this issue, E-IDCOT has encouraged local start-ups and entrepreneurs to enter the IT sector, with an emphasis on audio-visual and creative industries. During his time as CEO, Mitchell was keen to promote the development of local computer animation skills, setting up a training programme for those interested in the industry.

Given that the island is unlikely to have a commercial port until the early 2020s, Mitchell’s plans are part of his vision for Tobago to pursue “intelligent industrialisation”, focusing on light industries, environmental awareness and trying to position the island to adapt to the evolving global digital revolution. This has resulted in interest from operators in the virtual and IT-based services sector, which have the potential to diversify Tobago’s economy away from purely physical products.

However, the e-business route has some challenges of its own, including the need to develop skills and talent. Importantly, Mitchell noted that Tobago still has only one fibre-optic cable linking it to the global internet – though efforts are in place to activate a second fibre-optic internet link, which would give the island and any nascent domestic IT industry the necessary resilience.

Outlook

Tourism is set to play a key role in the THA’s efforts to stabilise Tobago’s economy. At the same time the focus on using alternative sources of finance, such as partnerships with the private sector, is expected to ease the pressure on public funding. A potential investment by the Sandals hotel chain may help kick-start a recovery in the tourism sector, as well as accelerate investment in infrastructure. The fall in hydrocarbons revenues over the past three years is likely to act as a further catalyst to change, invigorating long-standing plans to diversify the economy and promote an entrepreneurial culture.