He pointed to the effect of the disruption of the global supply value chains and the collapse in part of the demand and consumer supply chains locally, which caused companies to close, reduce operations and employees put on the bread line. These circumstances demanded a response from the Government and coupled with the decrease in earnings from the energy sector, support for companies, the unemployed and the hungry forced the continuation of deficit financing and an increase in our debt. Hence government, even in the recession, had no alternative but to maintain its level of spending. However, with good credit ratings and support from the multilateral agencies, especially the US$644 million in special SDRs from the IMF, the economy maintained some semblance of stability.
The projected upturn locally on the upstream production of gas and oil and the increases in prices of these and the downstream petrochemicals, especially in the EU and Asia, signalled to the Minister a possible turnaround in the near future of the energy sector, though the budget with a planning price of oil at US$65/bbl and US$3.75/mmBtu for gas, still called for a deficit of $9 billion. Further, the intention is to sell some assets, shares in FCB, though Government will remain the largest shareholder.
With the disruption of the global supply value chains, the cost of transportation of goods increased substantially, which added to the inflation locally. In response to the impact on food prices, the Minister has removed the VAT on some imported items. Though the intent is still to remove the ‘subsidies’ on electricity, water and fuel, Mr Imbert says there will be rebates on the electricity bills that are $300 and lower and cards will be distributed to these consumers that can be used in the financing of water and fuel bills. The rebate on electricity bills was in place sometime ago by T&TEC and is also a practice, say, in Australia.
Still, the intent is, correctly, to proceed with the property tax and the formation of the T&T Revenue Authority so as to improve the tax income to government, in recognition now, with its legacy of budget deficits over the last years that increasing government revenue is at a premium.
However the budget included support for companies with the intention of improving economic activity, given both the destructive impact of Covid-19 and the intent to diversify/transform the economy particularly in encouraging and creating export companies, since as a small open economy we must import, earn forex to survive. Thus tax relief of 5 per cent for significant exporters of local goods, loans to businesses with annual gross revenue between $500,000 and $15 million with government guarantees of the entire loan with repayment of seven years; loans for buying company assets, financing of SMEs to mange records and data.
Also a 5 per cent tax reduction and other concession for SMEs with technology solutions and digitalisation skills and in manufacturing such projects; R&D allowance for companies; full tax holidays for new SMEs on the local stock exchange; tax concession to encourage foreign companies to invest locally.
With the completion of Phoenix Park, Chinese companies will have a platform to expand to the Latin American market. It is hoped that all of these initiatives will continue to reduce the decline in the economy (e.g. the decline in 2020 from 7.4 per cent to 1.4 per cent in 2021) and possibly produce a strong recovery in 2022.
The support given to SMEs and the encouragement of foreign investors are directed at diversifying/ reconstruction the economy over time.
Again, this echoes the Government’s view that the private sector is the engine of economic growth and in particular developing non-energy export companies, while the role of government is to facilitate this effort. In other words, the Government intends by financial inducement, tax relief and grants, to encourage a private sector with very little record of exporting, moreso are rent seekers that take advantage of the energy sector rents, to change its stripes and become higher risk takers and build globally competitive companies.
Further, the hope is still that foreign investment will also spark this diversification and the building of a sustainable on-shore economy. Lest we forget, foreign investment both in upstream oil and gas and downstream in petrochemicals have failed to provide us with a long term sustainable economy- the curse of a resource economy.
Many are enthused with the digitisation, digitalisation and the other 4IR technologies. However they are but tools, as the power saw is to the craftsman. They may improve the efficiency with which we do certain things (as our government is attempting to do in its digital/digitalisation project) but their use does not convey competitive advantage.
The key to diversification is what we do with these tools, the ideas and innovations that can produce globally competitive goods and services. I have consistently said that this serendipity approach of our government, hoping for some in the population to have ‘ah ha’ moments, especially those who possess these digital skills, and so produce the exports we require, has failed and will continue to do so.
Today Research and Development (R&D) and innovation are driving global competitiveness and the successful companies are all allied to R&D institutions or have their own research departments; for example Samsung the leading mobile phone producer employs over 1,000 R&D staff. Our man in the street with his hopeful ‘ah ha’ moments is out of the league as a world player. Our-spend of 0.05 per cent of GDP on R&D shows that our private sector has no interest in R&D, innovation to generate competitiveness.
Until, like Singapore, Taiwan or Ireland, we create a national innovation system, an integration of the private sector (or a new one), the R&D institutions and government, we will remain an economy of rent seekers as the petroleum resource dissipates. Though these three players exist locally there is no system, no institutions that can knit them into a national innovation vehicle.