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Case Study- Economic Environment

By kalel2579 May 06, 2013 3471 Words
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College of Science, Technology & Applied Arts of Trinidad & Tobago

DEPARTMENT OF INFORMATION SCIENCE AND TECHNOLOGY

ASSIGNMENT COVER PAGE

ASSIGNMENT TITLE: Case Study

ASSIGNMENT SUBTITLE: Trinidad & Tobago Economic Environment

COURSE CODE: ENTP 220

COURSE TITLE: Caribbean Business Environments

CRN: xxxxx SEMESTER: 2

STUDENT NAME:
Kevin Bramble -

PROGRAMME:
DATE OF SUBMISSION: SAT. 27th APRIL 2013
LECTURERS NAME:

Table of Contents

1. Examine the economic statistic of the country and determine the health of its business environment……………………………………………………………………………3 - 4

2. What are the major areas of economic activities that firm located in your country are involved in that are targeted towards export markets?...................................................4 - 5

3. Which firms are the major players? Are they locally owned or foreign owned? Privately owned or publicly?...............................................................................................................5

4. Does the government in play a major role or a minor role in setting up and operating business in the county?........................................................................................................6

5. Trace the growth of the manufacturing sector in comparison to the agricultural sector in the CARICOM country over the five year period from 2008 – 2012. How have both performed in terms of their contributions to employment and GDP?............................7 - 8

6. Can industrial policy be used to develop the country? What is your advice to the Government in the use of industrial policy in aiding the country’s economic development? Or if not, what reason would you give?...............................................8 – 10

7. Conclusion…………………………………………………………………………..10 - 11

8. References………………………………………………………………………………..12

Q.1 Determine the health of Trinidad & Tobago’s business environment.

We have examined some basic economic statistics with a view to determining the health of our business environment. In doing so we looked at seven statistics taken from the ‘Review of the Economy 2012’ as published by the Ministry of Finance and found at www.finance.gov.tt. As such we conform to and extract the ‘economic’ feature of the PESTLE analysis in using economic indicators to determine the health of the economic environment of Trinidad & Tobago.

In our research we were able trace the economic GDP as far back as 2008, where it was TT$ 175,287.2 million, we noted that while it declined sharply (30.8%) in 2009 due to the effects of a global recession, it had steadily grown by a total of 25%; since then we found that GDP as of 2012 stood at TT$153,587.9 million.

The retail price index which illustrates headline inflation showed a percentage increase from 2011 to 10.8% in 2012 and an increase in core inflation from 1.8% to 2.8%. The unemployment rate seemed to have declined from 5.2% to 4.2% as of December 2011. The fiscal balance for the year 2012 is at a deficit of TT$6,678.8 million and is the fourth straight year that such a deficit exists at the budget balance. This figure also represents 4.3% of GDP.

We have found that where the report refers to trade with CARICOM countries, while Trinidad & Tobago has increased non-oil imports over time, there has been a loss of almost TT$2,000 million in non-oil export revenue between 2011 and 2012. The result of which is the lowest ever non-oil export surplus. This impacts negatively on the manufacturing sector and indicates a not so healthy regional economic temperament. The export of petroleum and its products however still allows Trinidad & Tobago to maintain a large trade surplus versus our CARICOM neighbors, as has been the case since 1998.

Total visible trade has traditionally been maintained at a surplus for Trinidad and Tobago but this is also largely dependent on the exports from the energy sector, outside of which there has traditionally been a trade deficit. This former trend has since been reversed as of 2010 and has so far been maintained and improved upon with both the non-energy and energy sectors recording trade surpluses. While the economy as a whole seems to generally maintain a positive growth trajectory, it comes with deficit budgeting and falling regional trade. As such we assess the economic environment, while not in the best of health, would still be generally beneficial to businesses especially those who are prepared to export on an international level.

Q.2. What are the major areas of economic activities that firms located in your chosen country are involved in that are targeted towards export markets?

Historically, Trinidad and Tobago is one of the oldest and largest producers of oil and gas (natural) in the Caribbean. The oil refining industry has only been partially integrated with domestic oil supply and although its oil production mostly occurs offshore, the two largest crude oil producers in Trinidad and Tobago are BHP Billiton and the state-owned Petrotrin, with each controlling around approximately 25 percent of the country’s crude oil production.

Both natural gas and oil exploration activities in Trinidad and Tobago have continued at a fast pace since the beginning of the 21st century. Economically, there has been growth between 2000 and 2007 averaged of over 8%, which has been significantly above the regional average of about 3.7% for that same period. However, the economy suffered a decline in 2011 of 2.6%, and GDP slowed since then due to depressed natural gas prices and changes in the market. Fostering this recovery however, was a growth in the non petroleum sector and the service sector of 1.9% and 2.4% respectively.

The energy sector being our most dominant sector has been deemed very successful in comparison the other industries; Trinidad and Tobago Oil and Gas accounts for approximately 40% of GDP, 80% of exports and only 5% of employment, compared to the service sector which has a share of 14.6% and manufacturing and agriculture 6.3% of the GDP. While the business platform is soaring, many firms in Trinidad and Tobago lack the necessary strength, with the exception of the energy sector, no healthy clusters have been developed and few local firms can provide much sophisticated services to foreign energy company (Fairbanks et al, 2006). However, the economy continues to benefit from a growing trade surplus, and the energy sector, oil and gas, has made significant impact to the GDP of this country, laying down phenomenal foundations of industrial growth and development.

Indeed, the energy sectors existence has differentiated the economy from the rest of the Caribbean; giving the country one of the highest standard of living ratings among the insular Caribbean but if the country wants to achieve more balance economic growth and rid its dependency on energy, it has to identify the constraints facing the non energy sectors.

Q. 3. Which firms are the major players? Are they locally owned or foreign owned? Privately owned or publicly owned?

In order to identify major players we first identified the four main sectors beside taxation that contribute to GDP as being: the Agricultural sector, the Petroleum/Petrochemical sector, the Manufacturing sector and the Services sector. Of these four we noted two industry leaders in each sector. A look into the Agricultural sector revealed that poultry and grain production accounts for the major success with the complementary impact therein. Two of its industry leaders are Nutrimix and Arawak. These two companies are both locally and privately owned.

Within the Manufacturing sector, the food and beverage industry is the largest of producers. Two of the major players therein are Carib Brewery Limited and Coca-Cola Caribbean Bottlers (T&T) Limited. Carib Brewery Limited is a member of the Ansa McAl group of companies which is publicly traded and locally owned. On the other hand Coca-Cola Caribbean Bottlers (T&T) Limited, while being publicly traded as well, has foreign owners. The Petroleum/Petrochemical in Trinidad & Tobago has as its major players; Petrotrin on the one hand which is state owned and multinational companies like BP or Bg. who are publicly traded but whose ownership resides abroad.

Lastly, we looked at the Services sector which is centered around Tourism and Construction. In the case of Tourism, the state is the major player in the form of a state owned company, TIDCO. In relation to the construction sector however we have significant firms such as the HCL group of companies which is itself a part of the CL Financial Group which is publicly traded and locally owned.

Q.4. Does Government in Trinidad& Tobago play a major role or a minor role in the setting up and operating of business in this economy?

The government does play a major role in setting up and operating of business in the economy, as the most diversified economy within the Caribbean that is quite advanced in industrialization. Trinidad and Tobago has traditionally been an important oil and gas producing country with the largest supplier of liquefied natural gas (LNG) to the USA.

The government of Trinidad and Tobago has made a grand obligation to actively encourage foreign investment, formulating economic policy to develop and drive an open robust market along with trade liberalization and public sector rationalization.

With intensified efforts at diversity the government has implemented legislations to remove restrictions on most foreign investment and foreign exchange controls in order to provide various incentives which would encourage investors to sectors such as oil and gas, light manufacturing and service just to name a few. This has buoyed the economy and driven growth giving rise to the standard of living in terms of the GDP, income and expenditure.

Although, there are many various bodies who facilitate investment the main catalyst is the Government of the Republic of Trinidad and Tobago or GORTT, as it is known who focuses on encouraging new business by creating new opportunities with investors seeking incentives, duty free imports or concessions etc. Substantial to this the government also facilitates investors wishing to lease lands, acquire license (work permits, drilling etc) or simply registering a foreign base company locally. Their main objection is furthering the national trade development agenda by providing more secure and predictable market access for local goods exported outside.

The government’s recognition of resources is finite and long term achievements of growth and development must be emphasized from energy in order to diversify. Thus the role is to generate economic growth through diversity and the development of business in the non energy sector; including expanding and developing job creating possibilities in areas of substantial resource bases.

Q.5. Trace the growth of the manufacturing sector in comparison to the agricultural sector in Trinidad & Tobago between the years 2008-2012. How have both sectors performed in terms of their contributions to GDP and employment.

The manufacturing sector entails Iron and Steel production, cement, textiles, etc and manufacturing exports which includes food and beverage production. Manufacturing is the second largest non-petroleum sub sector. It has seen a contraction by -1.1% in 2011followed by another contraction of -0.4% in 2012. As a percentage of GDP it has been 9.0% in 2011 at TT$7,775.5 million and fell to 8.8% in 2012 at TT$7,746.5 million. This was complemented by an increase of employment in the manufacturing sector of 3,300 persons in 2012.

From 2008-2012 the changes in the manufacturing and agricultural sectors were noted at constant (2000) prices, in TT$ and percentage of GDP. For the manufacturing sector the dollar contribution to GDP moved from TT$7,626.9 million or 8.2% in 2008 at a percentage increase of 4.1% over the previous year to TT$7,770.0 million or 8.7% in 2009 at a percentage increase of 1.9%. In the year 2010 it was TT$7,861.9 million or 8.8% at a percentage increase of 1.2%. which then decreased to TT$7,775.5 million or 9% of GDP in 2011 at a percentage of -1.1%.

For the agricultural sector the dollar contribution to GDP moved from TT$511.4 million or 0.6% in 2008 at a percentage increase of 7.6% over the previous year to TT$345.9 million or 0.4% in 2009 at a percentage decrease of -32.4%. Then to TT$611.6 million or 0.7% in 2010 at a percentage increase of 76.3%. Then to TT$610.9 million or 0.7% in 2011 at a percentage decrease of -0.1%.

Agriculture which is another non-petroleum sub sector contracted by 0.1 % in 2011 and a further 4.9% in 2012. From TT$610.9 million to TT$581.1 million. This sector accounts for 0.7% of real GDP as of 2012. The agricultural sector is comprised of the Distilleries sector, export agriculture, domestic agriculture, other crops, poultry and livestock and dairy products. Employment in this sector increased by 3,000 persons in 2008, decreased by 2,800 in 2009, remained flat in 2010, increased by 5,200 persons in 2011 and increased again by 1,900 persons in 2012. Employment in the manufacturing sector rose by 1,500 people in 2008, rose again by 2,700 people in 2009, showed an increase of only 100 persons in 2010, and rose by 1,100 people in 2011 and the aforementioned 3,300 persons in 2012.

In terms of employment and contribution to GDP, the manufacturing sector has demonstrated sustained growth over the period 2008-2012. The agricultural sector however has shown major shrinkage and rebounding for the period but ending on a negative note. We can conclude therefore that the manufacturing sector has exhibited superior economic performance.

Q.6. Can industrial policy be used to develop Trinidad & Tobago? If so, what would be your advice to the Government of Trinidad & Tobago in the use of industrial policy in aiding in its country’s economic development? If NOT, what reasons would you give?

There’s a theoretical assumption that for the Caribbean economies to be competitive they will require Industrial Policies. In other words Caribbean economies will not be able to achieve desirable economic goals unless there is an active, production-oriented State utilising an appropriate variant of industrial policy (Dennis Pantin, 2005). Industrial policy then is defined as policy that attempts to achieve the national economic and non-economic goals of a country, by intervening in the allocation of resources among industries or sectors of the country, or in the (industrial) organisation of an industry or sector. (Itoh et al 1988:234).

From the standpoint of Trinidad and Tobago, the use of industrial policy in the development of the country found that there are advantages that are difficult to develop or hidden comparative advantages due to the effects of the Dutch disease. As such a country found to have such dependency could be ineffective in expanding away from prosperous energy sector exports. Such was the case of the agricultural, fishing, yachting and merchant marine sector, which are only in their infancy compared to the energy sector. Conversely, the government of Trinidad and Tobago has for the past four decades, employed a number of strategies towards the industrialisation and diversification of the economy. An idea that is associated with the production process of direct public intervention, aimed at reducing the dependency of petroleum and even agriculture. Sectors that due to their natural conditions is geographically located.

The Ministry of Trade and Investment which has been mandated with the formulation of the policy; when contacted concerning Industrial Policies stated that the policy was under review which is still in planning stage and that no steps where adapted yet as to the implement it. In addition to which, currently there are no written or stated Industrial Policy legislations that governs the trading system in Trinidad and Tobago. Systems, processes and procedures where trade liberalisation is concern is said to be happening vis-à-vis; within the realms of the rules and regulations of the World Trading Organisation trading policies.

In this regard, there is a need then to step away from the processes and procedures which was used during the ISI that would be untenable and irrelevant to the current era of globalisation and focus on more specific market failures, especially those related to technology and skills development. The new Industrial Policy then must be incorporated with a development strategy that will suite the region in which it tends to operate and should house a process for promoting growth in terms of improved employment.

Technology given its crucial role in transformation processes, competitiveness and driving productivity; government in turn needs to update, upgrade and assist in technology advancement particularly vital for small firms in order to alleviate unemployment in the region. According to Lewis (1978:74), the engine of growth in developing countries should be technological changes, with internet trade serving as lubricating oil and not as fuel. Action therefore is crucial to production where technology is concerned. To complete globally technological and institutional capabilities needs to be attained at a high level and not just for capital investment.

Service sector which is a commercially feasible cultural goods and services that’s dispersed and commoditised to mass audiences (tourism, music etc..) is one of the fastest growing sectors worldwide an should be viewed as a target for Industrial Policy implementation. Intervention from the government is therefore needed in terms of human capital which is critical to the cultural industry, for example our very own Brian MacFarlane, who’s lack or little of support mechanism from the government has caused a loss of creative, artistic and cultural capability. Cheap labour is no longer influential to foreign investment as before making skills and productivity of labour essential determinants of investment flows. This requires joint government and private sector partnership in training and retaining human capital.

Trade Agreement Policies – this limits or affects the use of trade-related measures that influence Foreign Direct Investment (FDI). In such a dual economy, external trade plays an important and even dominant role. The government should note the value of the country’s external transaction relative to its total outputs and realise that any type of expansion or contraction in the country foreign trade regime would have an immediate trickledown effect on its GDP and by extension affect revenues and expenditures. Therefore, diversification away from or other than the energy sector would ensure sustained balance in the country’s external accounts. Hence, government should seek further penetration into more protected markets of the Latin America and even beyond, as the country is capable of responding to successfully new market opportunities and thus try to do more to optimize responses.

As the wind of change (global economy) embarks upon us, the government still has many playing cards at its disposal which it can play and should in order to maintain and expand its industry. In my opinion there is no competitiveness and Trinidad and Tobago doesn’t seem to be grasping at opportunities that continue to present themselves. Much of the opportunity for Trinidad and Tobago completely lies in identifying their strengths and niches, where they would be needed. Opportunities which are numerous (Roger Packer). Nonetheless, Trinidad remains a regional business hub and continues to forge partnerships with international investors on favourable terms, and which should continue long into the future.

Conclusion

The challenge that Trinidad & Tobago faces is to overcome a natural tendency to suffer from the natural resource curse, developing strong anti-cyclical fiscal policies (first priority), and overcoming the limitations found in order to increase the private returns to investment in the non-energy tradable sector. The government of Trinidad & Tobago therefore need to invest more in several areas - such as core infrastructure and education to increase productivity in the non-energy sector.

When compared to other developing countries in similar level Trinidad & Tobago underperforms and is more similar to other Caribbean countries rather than fast growing and diversified economies. In other words, Trinidad & Tobago has many constraints causing reductions in social returns, poor management, low profitability, lack of human capital, poor access to foreign markets and poor infrastructure.

References

1. Pantin, , Dennis. "the Caribbean economy. 2005.." THE CASE FOR THE STUDY OF CARIBBEAN ECONOMY. Randle Publishers, n.d. Web. 26 Apr 2013. .

2. Dookeran, Winston. "Government of the Republic of BUDGET STATEMEN T 2012 Trinidad and Tobago." Budget statements. Paria Publishing Co. Ltd, 10 Oct 2012. Web. 26 Apr 2013. .

3. Hawai, Larry. "Stimulating Growth, Generating Prosperity. "Government of the Republic of Trinidad and Tobago. Paria Publishing Co. Ltd, 1 Oct 2012. Web. 26 Apr 2013. .

4. Soria, Claudia. "Trinidad and Tobago Economy - overview." . Index Mundi, 21 Feburary 2013. Web. 26 Apr 2013. .

5. "Energy and energy affairs." Goverment of the republic of Trinidad and Tobago. Copyright © 2009 Ministry of Energy and Energy Affairs. Web. 26 Apr 2013. .

6. "Enterprise Development Policy and Strategic Plan 2001 – 2005." Enterprise development policy and Strategic plan 2001-2005. Ministry of Enterprise development and Foreign affairs , n.d. Web. 26 Apr 2013. .

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