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Developing capacity

Thursday, June 7, 2018

No economic policy will achieve growth or diversification unless it is supported by a sustained business focus and a strategy.

Since 1956 the approach to economic development in T&T has used two policy approaches: Industrialisation by invitation from 1956 to 1986 and Trade Liberalization from 1987 to today. The first is associated with the work of St Lucian Sir Arthur Lewis as contained in his books, Industrialisation of the West Indies (1950) and Economic Development with Unlimited Supplies of Labour (1954). Trade liberalization, also known as the “Washington consensus,” is associated with the IMF structural adjustment programme which commenced in 1987.

Lewis argued that the region needed to kick-start its development by inviting capital using incentives and concessions as the region was short on capital and entrepreneurship. He proposed a parallel approach, first expanding the industrial sector paying modest wages whilst using the large agricultural sector as a springboard. By keeping wages constant, the industrial sector would grow, surpluses re-invested, and excess labour absorbed from the agricultural sector. Living standards would rise and the needs of a growing population satisfied. Tariffs and other trade protection devices were used to support this approach.

Trade liberalization emphasized an indirect governmental role, more open markets international competitiveness, efficient domestic firms, macroeconomic stability and good corporate governance. Policy measures included easier immigration flows, reduced tariffs and subsidies, encouragement of savings and investment, an emphasis on property rights, and easier trade and investment flows. This is reflected in the emergence of indices which compare and rate countries competitiveness eg, the World Bank ease of doing Business ranking and the World Economic Forum Global competitiveness report.

There is no magic formula

Notwithstanding the liberalization approach, capital and capacity constraints still require substantial foreign direct investment. The ongoing dependence on multinationals in the energy sector and the implementation of an incentive package in 2014 to encourage gas exploration and production after the emergence of gas shortages in the 2012 period is evidence enough.

Research shows that there is no complete theory of economic development. No one can pinpoint the precise mix of reasons why nations grow or fail to grow. The Asian tigers used some mix of the Arthur Lewis model along with an export orientation to bolster growth and development. The main differences were a focus on strategy, clearly defined outcomes, capacity building, and continuous improvement. There is no magic formula, only a long list of ingredients as the factors driving growth in any given country are always in a state of flux.

Neither foreign direct investment, nor the acquisition of physical assets (hospitals, boats) can guarantee economic transformation or “developed country status.” Transformation depends on many things including technology and knowledge transfer. This requires learning capacity and the development of horizontal and vertical linkages in and between sectors to allow for cross fertilization of ideas and business practices.

The discipline structures which exist in the foreign-owned energy sector routinely produce a much higher productivity level as compared to domestic firms.

Henry J Brunton, writing in the Journal of Economic literature in 1998, indicates that the more complex issue is to understand the way in which exporting and domestic learning interact. “Studies of knowledge accumulation—especially the ideas of tacit knowledge, on-the-job learning, learning by doing and by using—combined with studies of technological change in individual firms and industries offer strong evidence that simply exporting is not sufficient to result in or to substitute for the creation of a strong indigenous learning process.” This was Arthur Lewis’s point.

‘We lack exploration and drilling capacity’

After more than a century in the energy business and despite the emergence of technically competent geologists and engineers, we lack exploration and drilling capacity. We can build and manage plants but not design them. Exporting gas or intermediate product derivatives such as ammonia and methanol are not enough. We need to develop other export products in the energy business such as services and platform fabrication to name two areas.

We have had opportunities. In 2010, Ghana attempted to start a natural gas driven industrialisation drive leaning heavily on the expertise and experience of NGC. The new UNC administration had no appetite for the opportunity and lost the initiative. In 2017, the Juniper platform was successfully completed despite work stoppages and a 39 per cent work scope expansion at TOFCO’s facility in La Brea. It is their ninth platform (6 BP, 2EOG, 1BG).

There is capacity and track record; we praise BP for taking steps to increase local content. If T&T is to benefit, much more must be done. Excellence and competitive advantage can only be secured by gaining more experience, building more rigs and platforms underpinning a sustainable fabrication capacity geared to domestic and international demand. The loss of the Angelin rig is salvageable if the Government were to use its negotiating position on ALNG Train 1 to sensible effect. Similarly, what is the approach to Guyana?

This requires a supportive, proactive, policy approach not currently evidenced by the Government. The absence of a policy backbone is exemplified by the Government’s silence in the face of OWTU’s comment on BP’s decision, re the Angelin platform, “to take your platform and go,” or the agriculture minister’s comments at the buffalypso conference. Both demonstrate a lack of vision and inability to spot an opportunity.

Without a LAMP (Leadership Accountability Management and Productivity) no policy prescription will work.

Mariano Browne


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