The People’s National Movement (PNM) has just released its election manifesto 2020. One of the important sections of the document is how the PNM intends to address the diversification of the economy. This should be first and foremost about exporting. We are a small open economy, and in particular we cannot produce for ourselves much of what is essential to our survival, to enjoying a satisfying lifestyle. Hence we have to import, which demands that we export, that we produce goods and services that are competitive in the global market.
The other contributor to the importance of diversification is the current model of our economy, an energy-based plantation; that the major export industry (one that earns some 85 to 90 per cent of our foreign exchange) is the exploitation of our petroleum resource. Today, this export sector is severely challenged both locally (the depletion of both the oil and gas resource) and internationally given the abundance in the world market of cheaper gas and low oil prices and the huge Covid-19 induced drops in their demand; all of this is overshadowed by the pollution of the planet’s environment by fossil fuels, spawning climate change.
Hence, the recent PNM manifesto’s description of that party’s intent, were it to be returned to office, is critical to the adequate economic and social development of the country. Specifically, the diversification mission has to be about building new and globally competitive export companies, ie, the adaptation of the economy to the emerging local and world changes. Further this adaptation is not instantaneous, it takes time, particularly since today competitiveness is not about cheap labour and we no longer have cheap gas to attract massive foreign investment, but on knowledge, R&D and innovations. Another major constraint on our diversification effort will be the rigidity that the history of the commercial behaviour of the import, mark-up, sell, private sector would have placed on their ability to adapt to innovative exporting. This is the context in which the PNM’s discourse on diversification in its manifesto has to be examined.
The manifesto tells us, we must move swiftly to harness local talent and capacity to stimulate and develop other industries and sectors, by providing fiscal incentives, removing impediments to the ease of doing business, digitising all government services and providing general support to the private sector. A lengthy list of industries being considered, includes manufacturing for domestic consumption and export, export of energy services, aluminium products, steel and chemicals, construction and construction materials, housing, recycling, mobile phones applications, agriculture, financial services, ship building and repair, tourism, food and beverages, online shopping for local products. As an open economy we must be aware that any tradables we produce for ourselves also have to be globally competitive since they can face imports from abroad.
The strategies that the PNM Government intends to use to accomplish these objectives include—the provision of tax credits for job creation and exports in all non-energy industries/sectors, reduction of tax rates by five per cent for significant exporters, expand and guarantee soft loans for SMEs, waive income tax for start-up SMEs less that three years old, support local businesses to enter the overseas market, increase financial support through grants and soft loans for farmers, agri-processors and creative and cultural industries, create government entities to help small and medium companies with start-up and working capital.
It is crystal clear that the underpinning philosophy of the PNM’s diversification plan is to facilitate the current private sector via incentives and encouragement to engage in the quoted list or anything they may think of which could produce competitive exports. It is worth noting here that we have chatted about diversification for over the past 50 years, hoping that the current private sector would move out of the low risk import-sell activities into the world of global exports.
It is now important to examine these plans of the PNM in the context of—the need to export; the limited human and financial resources of the country; that today export competitiveness is about the acquisition of knowledge, R&D and innovations; the increasing difficulty to attract foreign investment particularly to benefit from low wages, given now the era of robotics, artificial intelligence and new manufacturing techniques. In other words, simply attempting to enter an industry via head-to-head competition, without being able to offer a differentiated product or service is not advisable—steel, aluminium?
The limits on our human resource, re R&D and innovation and financial resources, demand a focus on the number of industries in which we can hope, in a timely manner, to compete globally. Hence, the first step in any diversification plan is to choose the technologies/industries in which we think we are best suited to compete globally, ie, conduct a foresighting exercise. Since these limited choices will call for innovation, knowledge creation, our universities and R&D centres will have a pivotal role to play—again limiting the number of industries given the constraint on human resources. This approach is fundamentally different from offering research grants/support to anyone with an idea, serendipity.
Given the rigidity of the current private sector to adapt along these lines, the government will have to take the lead initially in driving this innovation system, in funding the R&D, innovation, product prototyping, SME start-up, building international market connections and marketing.
Indeed this is the innovation diamond, our model of the triple helix, which I have been discussing for decades in this space. Maybe the depletion of the petroleum resource will serve as a trigger that starts our diversification, though financing the effort will present a major challenge.