Sustainable Growth – Economic Diversification
As Andrew Sabga begins his second term as the President of the Trinidad and Tobago Chamber of Industry and Commerce, many may ask – what are the Chamber’s priority areas of focus which he will push for during 2012? Five focus areas have been identified for the National Agenda: Crime, Competitiveness, SME development, Governance and transparency, Tobago development and the Economy with specific focus on diversification and sustainability.
With the latter in mind, we invited Robert Riley, Head of Safety and Operational Risk Competency and Capability Development, BP Group in the UK to be the feature speaker on the topic “Sustainable Growth – Economic Diversification” at our Annual Meeting’s Business Luncheon held on 25th April. We felt that Mr. Riley could bring a unique perspective, and draw from the history of our success in the development of the national energy industry, given his wealth of business experience in both the local and international energy sector.
In his speech Riley postulated three perspectives which we concur should guide discussion on the diversification of the economy. He first noted that we should start thinking of ways to maximise the current value of our energy sector, while exploring opportunities for economic diversification that are based on the same energy sector. This will have to be done taking into account that a low price environment for gas, which has been the country’s major revenue source for the last 14 years, is likely to be the economic reality over the short to medium term. As a result there will be less value to share between industry and government, as is already happening. Windfall, particularly from periods of economic boom, which should have been invested in new productive capacity and placed in our Heritage and Stabilisation Fund, has, in actuality, gone into a plethora of recurrent expenditure and white elephant projects.
As such Riley recommended that to now guide value maximisation, the fiscal regime governing the energy sector must be reviewed periodically for balance between encouragement of firms to engage in maximum exploration and drilling and T&T’s right to earn a fair value for its material. Further, the role of the National Gas Company (NGC) may need to be re-examined, as margins are squeezed. He noted NGC’s role of aggregator, and ultimately a risk buffer, has served us well in establishing our industry but the time has come where we need to consider a different configuration and distribution of risk along the value chain. The value created should then be used in a more disciplined way than in the past to fuel growth elsewhere in the economy. Riley was adamant that we keep focus on what we are good at, however, with new perspective, since we can no longer afford the inefficiencies and wastes that have characterised our utilisation of the value created from the energy sector.
The second perspective he presented was learning from the lessons of the past to create new opportunities. Our nation should build on our current strengths gained over the last 100 years of energy sector development to create new opportunities for ourselves. This may happen through the development of value added industries that build on our resource-based industries.
Taking our experience and talent to emerging energy players is a critical business development idea for our next phase of economic development. This is attested to in the Prime Minister’s recent announcement that T&T has received requests from the Canadian Association of Oil Well Drilling Contractors to fill positions of drillers, derrick hands and motor hands and that there are approximately 300 vacancies which have been identified for which T&T has a combination of skilled labourers who can fill these vacancies in Canada.
The private services’ companies in the energy industry must take advantage of the opportunity to market and sell their services to other countries where this expertise is needed.
With plans for the internationalisation of NGC, we support Mr. Riley’s suggestion that a new Energy Export Development Fund be developed to provide lower cost funding to energy service companies for new ventures into foreign markets, in order to address/cushion the risks involved. Where possible this should be aligned to the current NGC ventures in external markets with NGC as the lead investment vehicle.
With respect to the non-energy sector Riley noted that Government’s role is to provide enabling infrastructure, seed investment to kick-start new industries and develop industrial infrastructure. Further, Government should begin easing its way out of some of sectors where it now –arguably – plays too heavy a role. It should also carve out positions for mobilisation of existing private sector capital and skill in traditional developmental arenas such as roads, water, prisons and hospitals, for the full life cycle of the projects.
The Chamber has been advocating for the implementation of the public-private partnership model for infrastructural projects. A Public-Private Partnership Unit within the Minstry of Finance was announced in the last Budget and it would certainly be interesting to receive a status report on this proposal.
Riley noted that fair play and stable, sound policy will create an atmosphere to attract investment. Efficient and consistent regulatory standards and processes are also necessary to ensure that when investment happens, it can be retained. This also speaks to our ability to deliver projects on time and to ensure our investments are maximised. Projects such as Tamana Park, cancellation of the Aluminium smelter project, reports that the gas-to-liquids plant at Petrotrin may become either derelict or used as scrap metal do not create attractive scenarios for investors. Added to this, an enabling environment must be coupled with the development of a dynamic and innovative workforce to create an efficient and globally competitive business.
The creation of a “shared vision” is also necessary for successful diversification. Riley stated that in countries or even organisations where the vision is not clear and where the conversation is reactive and fear abounds about the future, what commonly occurs is finger pointing and blame games, grabs for power and wealth take place and there is little ownership of the welfare of the group or state along with a dangerously high emphasis on individual achievement.
Some say that Trinidad and Tobago has failed to articulate a clear plan for the future – a ‘navigational beacon’, as it were, to set the broad direction that all economic development stakeholders can work towards to ensure sustainable economic development which The Chamber believes that clarity of the nation’s diversification agenda and its continuity is key for diversification plans and so government and industry must have a shared vision of goals which foster collective accountability and engagement.
Robert Riley stated it well when he said that “evolving economic development should not be driven by hysteria of the end of oil or gas” and that “it is important that we have a compelling vision for ourselves as a country – within the region, the hemisphere and the global economy”. Without such vision, we will never see where we are going.