THE BACKGROUND INFORMATION

How does the drop in oil prices and gas stagnation

affect Trinidad?
o In 2013, it was recorded that the countrys largest earner of foreign
exchange (FX) is the energy sector, providing 75 per cent of the
supply.
o Even though the country produces much more gas than oil on an
energy equivalency basis, so that its fortunes are more closely tied
to the price of natural gas, the drop in the oil price could still have a
negative impact on the governments revenue and thus its ability to
reduce the fiscal deficit.
In the 2015 Budget Speech:

Total revenue : $60.351 billion

Oil revenue: : $21.223 billion

Non-oil revenue: $39.128 billion

This revenue was based on an expected oil price of US$80/bbl (WTI)

and a natural gas price of US$2.75/MMBtu (NYMEX).
Despite many warning signs that diversification is necessary (eg. The
Barbados Economy), Trinidad and Tobago is seen as having low
capacity for innovation. (Graph sourced from The Guardian Newspaper,
September 28 2014).

In a
publication

by the World

Development
Bank in 2014, it was reported that while the energy sector represented
65.8% of exports and 44 % of gross domestic product it only employed
3.1% of the labor force over the last decade.

Should the drop in Oil Prices been expected?

o Oil Prices go through cycles.
According to Michael Klare (http://www.thenation.com/article/oilprice-collapse-not-just-another-bust-cycle/) Bust cycles like this
have occurred before in the oil industry, most notably in the later
1980s and 90s, when a glut of new production from Mexico, Saudi
Arabia, the North Sea, West Africa and elsewhere depressed prices
and discouraged investment in frontier regions.
But eventually demand, much of it from China, overtook supply,
again boosting prices. This, in turn, prompted investment in new
technologies that permitted drilling in previously inaccessible or
noncommercial areas. With demand continuing to grow, prices rose
from as low as $10 per barrel in 1998 to the recent average of $100

(except for a sharp but temporary plunge after the financial crisis of
2008). It is reasonable to assume, therefore, that prices will again
recover, as occurred in 2009
The oil cycle is like all business cycles/commodity cycles, only
more so. In your typical cycle, cheap oil shuts down supply, as small
firms go under when they can't produce at a profit. Cheap oil also
spurs on demand as people buy bigger cars, drive more, use more
air conditioning, etc. This creates higher prices, more investment,
and

more

drilling,

and

the

cycle

starts

all

over

(http://www.energyandcapital.com/articles/where-is-the-oilcycle/4969)

Recession? Yes or No?

o RecessionisdefinedastwoconsecutivequartersoffallingGrossDomesticProduct.
ThefollowinggraphshowsestimatedandforecastedGDPgrowth:

The Central Bank recorded the following Economic Indicators:

Date

Real GDP
Growth
(year-onyear)

Unemploy
ment Rate

Foreign Direct
Investment
(US$Mn)

Central
Government
Total Revenue
(TT$Mn)

Central
Government
Total
Expenditure
(TT$Mn)

Dec-12

1.4

4.7

-661.5

10,587.30

10,593.40

Mar-13

2.7

3.7

225.1

13,981.30

15,734.00

Jun-13

2.8

3.5

121.3

15,472.70

13,342.20

Sep-13

0.3

3.7

-232.4

12,720.60

18,002.70

Dec-13

2.6

3.8

-180.3

15,445.00

11,294.60

Mar-14

0.2

3.1

305.7

9,301.30

13,204.70

Jun-14

3.5

446.8

16,753.20

15,026.80

Sep-14

2.1

3.3

-84.5

16,813.50

21,507.00

Dec-14

0.1

3.3

809

12,752.80

12,424.40

Mar-15

-1.2

3.7

420.9

12,299.10

12,580.20

Jun-15

n.d.

n.d.

n.d.

14,056.30

15,133.60

Sep-15

n.d.

n.d.

n.d.

n.d.

n.d.

Real GDP Growth (2012-2014)

Real GDP Growth 2012-2014

8
6
4
Agriculture

Financial Sextor
Real GDP Growth in Exonomic Sectors

0
2012

Manufacturing
2013

-2
-4
-6
-8
Year

2014

Non-Petroleum Sector
Petroleum Sector

Date

2012
2013
2014

Agricult
ure 2000=1
00

Construc
tion 2000=10
0

Distributi
on 2000=10
0

Electricit
y&
Water 2000=10
0

-19.1
5.1
0.8

-2
4.1
7.1

-1.5
n.d.
2.8

4.5
3.5
3.1

Finance
Insurance
& Real
Estate 2000=100
4.6
3.3
5.5

Governm
ent 2000=10
0
1
0.5
n.d.

Manufactu
ring 2000=100

NonPetroleu
m Sector
2000=10
0

Other
Services
2000=10
0

-5.8
-1.8
-0.7

1.8
1.6
2.5

3.3
6.7
3.5

Real GDP
Growth Petroleum
Sector 2000=100

Date

2012
2013
2014

-1.8
1.6
1

Real GDP
Growth Petrochemicals
- 2000=100

Real GDP
Growth - Other
Petroleum 2000=100

Real GDP
Growth - Total 2000=100

-5.8
-1.7
5.2

-1.3
2
0.5

1.4
1.7
1.9

o A period of recession is also characterized by general economic decline.

Did the economy experience any growth in other sectors?

Real GDP
Growth Transport
Storage &
Communication
- 2000=100
14.4
1
-1.6

o Further, during recessionary times, high unemployment rates persists

Compared to major economies, the unemployment rate in Trinidad and Tobago is really low.
However, it increased in the first quarter of 2015 (from 3.30% in the last quarter of 2014 to
3.70% in the first quarter of 2015). The graph below outlines the unemployment rate in
Trinidad and Tobago since July 2012.

Also,afallininflationisexpectedduringrecession:

THE COMPARATIVE ANALYSIS

Current Economic Indicators in Singapore:

Singapore vs. Trinidad

Percent of National Parliament Seats Held

by Women
GDP
GDP Growth Rate
Unemployment Rate

SINGAPO
RE

TRINIDAD

12%

3%

$298 Billion
3.85%
2.8%

$24.6 Billion
1.60%
5.8%

Graph below shows GDP in Trinidad vs. Singapore

In the 1960s, both had similar economic structures, history, and

institutions. But since 2007, Singapore has been one of the 5 most
competitive nations in the world. A major difference between
Singapore and Trinidad is their political strategy. Mr. Lee Kuan Yew was
reportedly in power for 30 years to oversee Singapores Development.
Lee Kuan Yew had charted the course from Third World to First by
strong and decisive leadership, macroeconomic stability, and high
quality institutions and infrastructure. (See:
http://caribjournal.com/2015/05/29/could-the-singapore-experience-have-happenedin-trinidad/#)

In 2010, the Singapore Government published a decade-long strategy

toward development. Singapore does not have the (physical) resource
capacity as Trinidad. In fact, its most dominant resource is human
capital.
Throughout the 10-Year development strategy, the thought what
matters most is the growth of incomes of our people is repeated
throughout.
Major parts of this strategy includes:

to fully utilize the potential of the human capital so as to

increase productivity.
to develop thriving creative and arts clusters
encourage diverse talents to grow and develop. Our
workforce will become significantly better educated over the
next decade. By 2020, 50 percent of our resident workforce is
projected to possess at least a diploma, including 35 percent
holding degrees. This is comparable to the leading global cities
today. However, we have to complement these academic routes
of advancement with a range of new, practice-based

pathways to excellence.
plan ahead for a city that remains extremely liveable
even as we grow.

The graph below, (taken from their Development Strategy) is

Singapores Plan to experience economic growth:

Singapore has based its economic development on a proactive

strategy to attract FDI using its trade openness. According to the World
Bank, Singapore is the easiest country for doing business: favourable
lending to foreign investors, a simple regulatory system, tax
incentives, a high-quality industrial real estate park, political stability

and the absence of corruption make Singapore an attractive

destination for investment.
According to the UNCTAD 2014 Global Investment Report, Singapore is
the 5th largest recipient of FDI in the world, ranking at the same level
as Brazil and the 3rd largest among the East and South-East Asian
countries. In 2014, FDI flows into Singapore increased by 27% from
2013, reaching USD 81 billion.
The main investors are the United States, the Netherlands, the United
Kingdom and Japan.

(For a more detailed view:

http://www.guidemesingapore.com/incorporation/foreigncompany/why-foreign-companies-relocate-to-singapore)

A look at Trinidad
I)

Diversification Pillars

In the Trinidad & Tobago 2015 Budget Speech, reference was made to
focus on:
a. Manufacturing
i. comprised 9.0 percent of gross domestic product.
ii. Tamana InTech Park built with an investment of $2.2 billion
iii. invesTT and exporTT - to facilitate the creation of competitive
firms in the non-energy manufacturing and service sectors.
iv. Plans were made to export creative arts and
entertainment, yachting, Maritime Sector, Food &
Industry
b. Financial Services
i. contributing approximately 15.0 percent of Gross Domestic
Product
c. Tourism
i. Trinidad and Tobago Tourism Development Fund
ii. Total Contribution to GDP- 8.2 % in 2013
iii. Direct Contribution to GDP- 3.1% in 2013
d. Agriculture (Food Sustainability)
i. National Food Action Plan (2012-2015)
ii. Contributed 0.62% to GDP in 2013
e. Energy
f. Information and Communication Technology

II)
Foreign Investment Pillars
Openness to foreign direct investment inflows is the most fundamental
driver of diversification. Greater openness to foreign direct investment

and improving the business climate appear to be key policies the twinisland republic could implement further in order to expand the range of
activities of its economic structure.
According to InvesTT, flows to Trinidad and Tobago increased by 21 per
cent as the result of the $1.2 billion acquisition of the remaining 57 per
cent stake in Methanol Holdings Trinidad Limited (MHTL) by
Consolidated Energy Company (Mauritis)
The stock of FDI in Trinidad and Tobago has not stopped increasing in
the recent years to reach USD 23,420.6 million in 2013, thanks to the
excellent investment opportunities in the region. The company BHP
Billiton is planning to invest in four projects aimed at hydrocarbon
production. In 2013, it invested USD 565 million in the first stage of
exploration and has continued its investment since then. Mitsubishi
also plans to invest USD 850 million in an ether dimethyl plant, a new
second-generation biofuel produced from methanol. The Chinese
president Xi Jiping recently stated that China too was planning to invest
in the hydrocarbon sector. Thanks to cheap energy, the country has a
good chance of attracting FDI, especially to open new data centres.
Factors that discourage foreign investment include the difficult weather
conditions, the lack of a skilled labour force and the country's heavy
dependence on oil prices at the international market. In 2014, the
country ranked 79th out of 189 countries in the World Bank's Doing
Business report.
Hydrocarbons, petro-chemicals and metals are the sectors that attract
most of FDI. The main investing countries are the United States, the
United Kingdom, Canada and France

III)

Growth Pillars

In the 2015 Budget Statement, there were 5 growth poles identified:

The ones in Trinidad, of course, are East Port-of-Spain, the north

coast, central, southwest and Tobago. These are the five areas
we would like to see increased economic activity in the attempt
to diversify away from the energy resource base of the
economy.

In addition, the commissioned Galeota Port, was to provide

significant logistic support to the oil and gas industry and in the
process, generate economic development and job creation.

Innovation Fund capitalised with $50.0 million to be utilised as

matching grants for the innovation needs of companies.

What measures should we put in place as a country

to stave off the shocks for the economy? What does
this mean for the Budget?

Rebound, not Recession should be the watchwords

On the downside, lower oil prices could spur a prolonged recession
in T&T's economy, particularly if foreign investment into the energy
sector dries up on the back of smaller prospective profit margins.
On the upside, we will be watching to see if the Trinidadian
government looks to secure any major bilateral loans, which could
help to soften the impact of lower oil prices on the country's fiscal
accounts

 Strategic Measures
o Spend less we need to reduce our spending. Critical will be to
decide what items to give up.
On Thursday, October 1 2015, there is a debate between
USC and UWI on the moot: cutting expenditure in the
Health Sector during periods of low economic growth is a
viable option.
The levels of spending in the budget cannot be the
same as last year, since we will definitely have a
retracted revenue base. Something must be cut. The

issue is identifying where.

In the Express Newspaper (September 30, 2015), Dr. Roger
Hosein
(a senior economics lecturer from UWI) is quoted as
expressing that GATE may need to be restructured.
While educating citizens is a great strategy to invest
in future productivity, there needs to be a way to
measure returns on investment. Possibly, GATE can be
restructured to focus on the sectors that are projected
to contribute significantly to GDP.

o Use past savings or reserves did we put aside some cash when
the going was good? When the oil prices were high?
o Augment existing income; in other words, DIVERSIFY our sources
of income
The PP and the PNM have indicated (via PNM Manifesto and the Budget
Speech in 2014 & 2015) areas of possible diversification. Other than
those already identified as diversification strategies previously: