Rebuilding Competitiveness in Trinidad and Tobago (Guest Contribution)

Dr Terrence Farrell

Economist/Former Deputy Governor of the Central Bank of T&T

The Covid-19 pandemic will cause the demise of some businesses, especially in tourism, hospitality, and personal services.  Other businesses, notably traditional media (newspapers and television) and mobile telephone companies have been under severe pressure for some time due to technological change.  Guardian Media and OCM have seen profitability plunge.  TSTT and Digicel have had to lay off staff.  

These pandemic and technology-related effects apart, this country is witnessing what economists term ‘deindustrialization’, that is where there is more or less rapid attrition of firms in an industry due to loss of competitiveness.  Indeed, deindustrialization is a symptom of loss of competitiveness, whether in manufacturing, agriculture, or in the services sector.

While industrial development is achieved over time periods usually measured in decades, deindustrialization can unfold more quickly depending on how fast competitiveness is eroded and how fast firms recognize and respond to the loss of competitiveness.  Our national competitiveness has been eroding.  The Sugar industry became more uncompetitive into the 1970s and was kept on life support through subsidies for over 30 years after that.  In Manufacturing, it has been eroding anew over the last fifteen years or so.  In the Energy sector, as the era of cheap gas locally has ended, the loss of competitiveness has been of more recent vintage since the shale revolution in the USA.

What is happening now was presaged in the 1970s and early 1980s by the closure of several firms whose competitiveness had been built on import substitution behind protective quotas (Negative List) and tariffs.  Those firms failed to attain sufficient scale in regional or extra-regional markets, and either went out of business (e.g., Neal and Massy’s car assembly plant and the textile manufacturers), decamped elsewhere to get scale economies (e.g., Johnson and Johnson), or eliminated uneconomic product lines (e.g., Nestle and Unilever).  Some manufacturing firms in the Food and Beverage industry were able to survive and grow because they achieved strong market positions in local and regional markets.  

These include Bermudez (biscuits), S M Jaleel (soft drinks), and Associated Brands (chocolates and cereals).  These firms, as well as others with strong local demand, like Carib Breweries and Angostura in alcoholic beverages, and Langston Roach Industries in household cleaning products, benefited from the exchange rate adjustments in 1987 and again in 1993 which improved price competitiveness.  As economic growth and profitability improved in the 1990s, our financial institutions in banking and insurance began their expansion into regional markets, notably, CLICO, Guardian Holdings, Republic Bank, and First Citizens Bank.

We had a long period of improved competitiveness from the early 1990s.  However, we are now into another cycle of deindustrialization similar to the 1970s and early 1980s.  Employment in Manufacturing peaked in 2004 and has declined steadily since.  In Iron and Steel, Arcelor-Mittal departed overnight.  As cheap gas has disappeared, the older, less efficient ammonia plants have been forced to close.   Methanol and ammonia companies are shifting strategically to position their plants here as swing producers and are making any new investments in plants elsewhere where gas prices are lower, and end-markets are closer.  Unilever is basically halting manufacturing here and will become just a distributor.  Nestle’s manufacturing production has been scaled back significantly.  

Our locally-owned Food and Beverage manufacturers have also been making their new investments elsewhere, in Costa Rica (Bermudez), Jamaica (S M Jaleel and Bermudez) and Colombia (Associated Brands).  In financial services, the Canadian banks, Scotia, CIBC, and Royal, have been disinvesting or reshaping their business models as higher regulatory and compliance costs in these small markets with overvalued exchange rates and weak economies are making their businesses less competitive.

Is it possible to revive competitive industries, and how do we do so, beyond public relations visits to factories and pleas for ‘ease of doing business’?  The answer today is more complex than it was in the 1980s because competitiveness is determined by a combination of factors including price, location, technology, logistics, product uniqueness, and the ability to exploit networks in order to access markets.  Price and scale remain critically important and cannot be ignored, even where other factors may, in specific instances, mitigate their effects.  

Firms must learn to innovate, to create unique selling propositions, and to build potentially global brands. However small, they should have the ‘DNA of an elephant’.  Some must learn how to use platforms such as Amazon, Mercadolibre, or Alibaba to penetrate new markets.  They must be allowed, nay encouraged, to invest overseas, regionally, and extra-regionally.

We don’t need all of InvesTT, TTIFC, ETeck, Free Zones Company and ExporTT.   Tasked with implementing some form of the ‘Triple Helix’ belaboured unceasingly by Mary King, one properly resourced government agency must help firms access research and development resources, obtain funding for innovation, collaborate with universities, exploit diasporic and diplomatic networks, and navigate access to developed country markets in the face of what Paschal Lamy has termed their newer ‘precautionary’ barriers around product safety for consumers and environmental protection.

Deindustrialization flows from Dutch Disease and weak, reactive policy making, which combine to erode competitiveness.  Anesthetized by energy sector rents and government subsidies, we may hardly perceive what is unfolding around us.  But if we are to halt and reverse it, we must appreciate what it will take to rebuild competitiveness, and the risks and costs involved.  We need to be single-minded, not superficial, focused, not fickle.  We have a lot of work to do.

The lessons of history

April 14, 2021

Wesley Gibbings

Two months from now, with the advent of the annual hurricane season, the Caribbean region will come face to face with yet another challenge to its resolve to persist as a viable, sovereign geographical space.

We have latterly added to chronic socio-political dysfunctionality, extreme weather events, earthquakes and volcanoes, the unfolding reality of the climate crisis and now, another pandemic.

We’ve been down all these roads before. It is in the natural course of history that nations are tested from time to time to the limits of their endurance. In most instances they prevail. In others they collapse and disappear – if not from internecine disquiet, from the weight of exogenous destructive and predatory forces.

I have more than once attracted considerable vitriol for suggesting that a long review of history witnesses the disappearance of civilisations far greater than ours, and that there is no objective reason why we should be any less vulnerable or more privileged, particularly as small island states.

Following a public lecture on the future of Caribbean media at the Montego Bay Campus of UWI almost exactly five years ago, an angry university student from an OECS nation walked up to me with a telling-off.

I had wondered aloud during my presentation how, given small space and woefully finite natural resources, his country continued to exist as a sovereign state attempting to make it into the future alone – even frequently denying the value of an integrated regional space.

Then, more recently, one T&T journalist was inclined to reference the “tiny island” state of St Vincent and the Grenadines – blissfully unmindful of the context of our own small size and vulnerabilities. I suppose this means we are a “big” island. Steups.

Here we go again, I told one colleague, the “small island” talk that occupies permanent, obsessive space in the minds of ethno-centric commentators, some of whom have emerged in recent days regurgitating the political myth of imported votes 65 years ago.

Meanwhile, not far from our own small island state, the Mayans once thrived throughout the Yucatán Peninsula. When the pandemic storm ends, travel and see for yourself what remains of their legacy. There are other examples. Look them up. Pre-Columbian Tainos. Indus civilisation. The Khmer Empire.

I have also visited the Pacific region more than once. You can look down from your aircraft and see the disappearing atolls. In Tebunginako, Kiribati, the village church stands in the ocean when the tide comes in. Tuvalu - with a vote equal to ours, the United States, Russia, and China individually – is known as a disappearing island.

I have noted to the consternation of many that, in some instances, the continued existence of some of our regional constituents as states flying independence flags challenges several historical norms – whatever the state of self-delusion. That many of our economies defy the meaning of the texts.

Venezuela once thrived as a modern metropolis next door. We visited frequently for tourism, shopping, and the camaraderie of neighbours. Today, it stands testimony to the ravages of political depravity.

There is very little to suggest our own immunity. The quality of the current responses to adjoining tragedies do little to engender optimism that a wholesome approach by all elements is adopted to prepare for challenges beyond immediate pandemic and economic woes.

Desperate Venezuelans fleeing political and economic disaster are “de Venes”. The government is advised “not to bring the Vinceys here.” There were convulsions when Dominicans were invited to rest their weary heads here following Hurricane Maria in 2019. I shall not be apologetic about insisting that all of this has emerged mainly from the same quarters.

Such is the work of vandals, unmindful of our own susceptibilities and many with one foot planted outside home terrain, who applaud each pandemic misstep and have led the way with everything from early COVID denial to current vaccination hesitancy.  

None of this suggests meek compliance with authority or silence on breaches of rights, proper political behaviour, or plain common sense.

But what we have been witnessing reeks of a sense of invulnerability and privilege. Two weeks ago, someone was declaring the demise of Caricom. Today, an empathetic regional response can make the difference between life and death. Just saying.