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Still nursing a dependency syndrome

Published: 
Thursday, June 8, 2017

It is said that to diversify an economy, say from being a plantation, what is needed is a crisis and a political leader with a vision for its reconstruction and the determination to get it done.

In the minds of this government it appears that the current recession is/was just an interlude before we find more petroleum and the prices in the world market turned up again. At worse, we were told to tighten our belts.

Hence, the management of the economy was simply to keep the on-shore ticking over until such time: by selling assets, borrowing, small reductions in subsidies and tax increases and drawdowns from the HSF and foreign reserves with a negligible depreciation of the TT dollar.

But the Trini-God has come to the rescue, or did she?

BpTT has found 2tcf of natural gas along with 590 cuft/day from Juniper this year and another 690cuft/day from Angelin in the first quarter of 2019.

The exploration technology has improved such that the petroleum locked away from sight has now become visible given the new seismic technologies. The earth has reopened her resources to our foreign investors who are promising us the sought after billions of investment locally along with and subject to the collateral incentives.

The Barbados God has not been so generous to the Bajans.

The Barbados economy is similar to ours in that it depends mainly on one product, tourism, to bring in the foreign exchange that is the lifeblood of a small open economy that must import almost all that they need to exist at a tolerable standard of living.

DeLisle Worrell, the ex-Governor of the Barbados Central Bank, is on record as recommending that the aggregate demand has to be reduced in Barbados to match the dwindling supply of foreign exchange and its reserves.

The Minister of Finance of Barbados has, at last, recognised that he cannot continue printing money even to keep some economic activity going.

Hence the recent budget of that country just read, includes measures to severely reduce aggregate demand; increase of the levy from 2.0 per cent to 10 per cent on all imports and domestic production in addition to VAT, all foreign exchange transactions will accrue a tax of 2.o per cent, gasolene and diesel prices are to increase, improvement in tax collection to include self-employed, sole trader, artisans and sale of assets (the Hilton Hotel).

At least Barbados recognises it is in a crisis and it has moved to cut demand in the country and has chosen fiscal means instead of a devaluation of the Bd$. However, the opposition leader, Mia Mottley, says that these fiscal measures have in effect devalued the Bd$.

Diversification in our plantation economy is about trying to free ourselves from the dependence on the rents from the commodity sector, from the off shore. Hence living it up in the boom and managing to adjust during the bust does nothing to free the economy from this dependence. Yet, escape from this phenomenon requires an integrated effort among the government, a private sector that can adapt and the knowledge, R&D, institutions.

This is the only way to create a sustainable economy as articulated first by Schumpeter, through Porter then Etzkowitz, the last in his theory of the Triple Helix.

In the interim, it is possible to compete with other underdeveloped and low-skilled nations by offering incentives to the developed world to provide off-shore services, ie competing on our comparative advantages.

We have indeed been actively pursuing this option via, Tamana and Cove Parks, the International Financial Centre.

Further, we hear a minister of the last People’s Partnership government talking about embracing the green economy and, in particular, a position of the current prime minister in encouraging the use of green energy; solar cells, wind, etc. These may indeed reduce our production of greenhouse gases, but they do nothing to diversify the economy in the context of providing competitive exports.

Asking a Chilean university to help our UTT is at best a waste of time, until we have an innovation system set up in which industrial activity for export can be driven by acquired and created knowledge, and financed by our savings.

Building such an innovation system was mentioned in the PNM’s Vision 2020.

The implementation of such a system was started under the PP government which was dropped after ministerial changes and replaced by, at best, serendipity- the i2i programme, business incubators and whatever growth poles were, with the celebrated liming spot, the Chaguramas boardwalk, not to mentioned the zip line.

Vision 2030 again mentions a national innovation system though the immediate interest of this government seems to be about resuscitating the energy sector, the generator of the traditional rents and, lately, facilitating the Chinese attempt to expand its global trade network to Latin America with the hope that T&T could be China’s gateway into those countries.

 

Mary K King

St Augustine