The final budget presentation from this Government looms. Though there has been talk by the Government of an economic turnaround—supported by the reports of expected GDP growth by S&P, Moody’s and confirmed by our Central Bank for the first quarter of 2019—this is as a result of an incremental increase in gas production (which appears to be below what was expected) and the income that flows from it.
However, the country will accrue less rents due to the shortfall and reduced global prices of our energy products. Hence, the Government’s need to increase these rents, the lifeblood of the economy, is focused on increasing foreign direct investment in the local search for petroleum and encouraging of joint ventures with neighbouring Grenada and Barbados to monetise any gas found via T&T’s infrastructure. The deepening chaos in Venezuela has put on hold a similar venture with that country.
An attempt has been made to ease the pain of adjustment for the population, which resulted in a depletion of the foreign exchange reserves, drawdown on the Heritage and Stabilisation Fund, an increase in debt, reduction in funding of local councils, non-return of VAT to contractors and retrenchment with closures of some firms.
The longer term solution is to transform the on-shore economy into one that exports, a difficult task where the rules that govern the on-shore economy for the rent-seeking entrepreneurs, discriminate against entrepreneurs that would be about economic development, innovation-wise. Still, in such a situation one has to create another set of entrepreneurs to compete with the incumbents and this is usually driven by government intervention.
What is very interesting is a comment by the Prime Minister on a conversation he had with an Indian businessman as to what he intends to do when the oil runs out. The PM recognised the need to diversify the economy (that throwaway term used by many, according to the PM) but he asked, “Diversify into what?”
This implies that the Government has no immediate plans to even enter into the process of diversification. Hence we can expect that though diversification is a lengthy journey, this budget and any current activity of this Government will not take the first step on that journey.
But there is a serious and external threat to the existing on-shore economic model, one that provides employment for some 96 per cent of the workforce. This is the impact of the global digital economy on economic activity on-shore.
We have had two recent indicators of this—in the Ansa McAL complaint that its Guardian Media Company lost $11 million due to the unfair competition in the local market from Facebook and the like, selling media products without having to pay taxes etc. in T&T.
We hear a similar cry from TSTT that Skype, WhatsApp, Messenger etc. are taking away market share, while not having an economic footprint locally.
What is on our doorstep is the long reach of the digital economy that is all about creating digital platforms. These provide inter-connectivity among consumers, wherein the wealth accrues to the platform. The associated local economic activity is about consumption and not local wealth generation.
We have seen the impact of Amazon on on-line shopping locally and noted the attempt to discourage it by a local added tax of seven per cent which appears to have had no impact on the use of on-line purchasing platforms.
Moreso this activity provided the platform owners with massive amounts of data on ourselves. Using the emerging data science techniques, they turn this data into intelligence which they use to deepen their activities in these far-flung markets, even reselling the intelligence to others. Improving local Internet access facilitates the local penetration by these platforms!
A recent publication by UNCTAD showed that these digital platforms exist mainly in the US and China with a trickle in the EU. They are designed to exploit the world’s consumers via the Internet. UNCTAD is concerned that in this digital economy the developing countries will not benefit as wealth creators, since the underlying infrastructure of these platforms, and the opportunity to innovate on these platforms with the massive amount of data they collect, cast these countries as consumers.
This concern should also be that of our Government—not only as to diversify into what, but also how do we grab some of the wealth-generating activity of the emerging digital economy.
Is it that we have to build our own platforms? Also, how do we earn even the traditional taxes from these platform companies operating locally but without a physical footprint?
As ex-National Gas Company chairman Gerry Brooks tells us, looking to exploit oil and gas (also in the face of climate change) cannot be the extent of our government’s vision. The budget has to take the first step in our economic transformation.
—Mary K King is an economist