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Diversification and what it means
“You always hearing about diversification, diversification. It’s an annoying word. Because some people are still making $25 a week writing in newspapers and writing columns about diversification. Annoying.
When you ask them ‘diversify into what’ they can’t tell you. What would you do to diversify the economy, especially if you abandon the energy sector? They can’t tell you. But they on television, they on radio, they on newspapers—diversification. Let me tell you what our diversification is. Our diversification is to find the things we can do and just do them.” So said Dr Keith Rowley at the PNM public meeting in Barataria on June 7, 2018.
Mary King has written extensively about economic diversification. The PNM 2015 manifesto also identifies diversification as critical. No doubt the Economic Advisory Board would have raised its concerns. But what is “diversification”?
Economic diversification is defined as the process of increasing the range of goods and services produced locally for export. It can also refer to increasing the number of markets/ countries to which we export.
This means that firms increase the range of items they produce in the local market for export. It is not about abandoning the energy sector. No one has ever said that.
Commentators raise diversification as an issue because T&T has been affected by serious economic recessions resulting from sharp declines in energy prices in 1986, 2008 and 2014. T&T must export to earn foreign exchange if it is to facilitate the import of goods on which it depends for survival. Depending on one export to earn most of our foreign exchange requirements exposes us to “external shocks” over which we have no control.
The energy sector, especially natural gas, earns over 80 per cent of our foreign exchange. Therefore, when there are difficulties in the energy sector the rest of the economy contracts pneumonia. The sharp decline in gas production in 2012 by approximately 25 per cent was followed by a sharp fall in oil and gas prices in 2014. As a result, taxation revenue declined, leading to a decline in government expenditure.
To avoid these sharp reductions in national income from one sector it is imperative that T&T earns foreign exchange from a wider range of activities.
The PNM 2015 election manifesto, which is now the official policy of this administration, lists seven areas for a diversification thrust; agriculture and agro-processing; aviation services; maritime services; fish and fish processing; the creative industries; financial services and software development. These are virtually the same areas listed in the Vision 2020 document. What is critical is how much progress has been achieved in these areas?
The key point to note is that the 2015 manifesto recognises diversification as a priority. Presumably, diversification must still be a priority today. Notwithstanding the upbeat comments of the Finance Minister over natural gas output projections, actual production volumes have not been as robust as projected. This re-emphasises that diversification is a priority which requires the Prime Minister’s urgent attention. Further, the country deserves to know what progress has been achieved to date.
If diversification “is to find the things we can do and just do them”, what things have we found that we can do and how is the Government working with the private sector to do them? At the Buffalypso conference, the Agriculture Minister did not say what he was doing, only what he would not do.
Earlier this year, as the guests of BP, the Energy Minister with other stakeholders visited Altamira in Mexico to visit the fabrication yard where the Angelin platform was being built. The idea was to get a first-hand view of the critical success factors required for the execution of a major project like Angelin. What did he learn and what has been implemented since his return?
For the record, nine platforms have been built to date in TOFCO’s fabrication yard in La Brea and many lessons learnt in the process. In terms of hours worked per ton of steel, it compares well with international standards. Further, given the substantial changes in the project scope, engineering and out of sequence work generated by those changes, the Juniper platform left ahead of the revised delivery schedule. Its health and safety record, repair and rework rate are well in line with international best practices.
In short, diversification can also mean improving and deepening the range of logistical and fabrication support services to support the local energy sector because it saves foreign exchange and generates local jobs. In addition, this improves and deepens the skill sets to facilitate developing rigs for export to other countries. The developments taking place in nearby Guyana and Suriname’s energy sectors are an important export possibility. This opportunity is happening in an area in which T&T has a comparative advantage and available resources, resources and skill sets which could be lost if new business does not come to T&T.
We can build rigs and do the brownfield work associated with platforms. A critical requirement should be to facilitate the sector’s capacity by keeping it going. Supporting the diversification effort also needs leadership and management.
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