THE Covid-19 pandemic will cause the demise of some businesses, especially in tourism, hospitality and personal services. Other businesses, notably traditional media (newspapers and television) and mobile telephone companies have been under severe pressure for some time due to technological change. Guardian Media and One Caribbean Media Ltd (the parent company of Trinidad Express Newspapers) have seen profitability plunge.
Telecommunications Services of Trinidad and Tobago Ltd (TSTT) and Digicel have had to lay off staff. These pandemic- and technology-related effects apart, this country is witnessing what economists term “deindustrialisation,” that is where there is more or less rapid attrition of firms in an industry due to loss of competitiveness. Indeed deindustrialisation is a symptom of loss of competitiveness, whether in manufacturing, agriculture, or in the services sector.
While industrial development is achieved over time periods usually measured in decades, deindustrialisation can unfold more quickly depending on how fast competitiveness is eroded and how fast firms recognise and respond to the loss of competitiveness. Our national competitiveness has been eroding. The sugar industry became more uncompetitive into the 1970s and was kept on life support through subsidies for over 30 years after that. In manufacturing, it has been eroding anew over the last 15 years or so. In the energy sector, as the era of cheap gas locally has ended, the loss of competitiveness has been of more recent vintage, since the shale revolution in the USA.
What is happening now was presaged in the 1970s and early 1980s by the closure of several firms whose competitiveness had been built on import substitution behind protective quotas (Negative List) and tariffs. Those firms failed to attain sufficient scale in regional or extra-regional markets, and either went out of business (eg, Neal & Massy’s car assembly plant and the textile manufacturers), decamped elsewhere to get scale economies (eg, Johnson & Johnson), or eliminated uneconomic product lines (eg, Nestle and Unilever). Some manufacturing firms in the Food and Beverage industry were able to survive and grow because they achieved strong market positions in local and regional markets. These include Bermudez (biscuits), SM Jaleel (soft drinks), and Associated Brands (chocolates and cereals). These firms, as well as others with strong local demand, like Carib Breweries and Angostura in alcoholic beverages, and Langston Roach Industries in household cleaning products, benefited from the exchange rate adjustments in 1987 and again in 1993 which improved price competitiveness. As economic growth and profitability improved in the 1990s, our financial institutions in banking and insurance began their expansion into regional markets—notably CLICO, Guardian Holdings, Republic Bank and First Citizens Bank.
We had a long period of improved competitiveness from the early 1990s. However, we are now into another cycle of deindustrialisation similar to the 1970s and early 1980s. Employment in manufacturing peaked in 2004 and has declined steadily since. In iron and steel, ArcelorMittal departed overnight. As cheap gas has disappeared, the older, less efficient ammonia plants have been forced to close. Methanol and ammonia companies are shifting strategically to position their plants here as swing producers and are making any new investments in plants elsewhere where gas prices are lower and end-markets are closer. Unilever is basically halting manufacturing here and will become just a distributor. Nestle’s manufacturing production has been scaled back significantly. Our locally-owned Food and Beverage manufacturers have also been making their new investments elsewhere, in Costa Rica (Bermudez), Jamaica (SM Jaleel and Bermudez) and Colombia (Associated Brands). In financial services, the Canadian banks, Scotia, CIBC and Royal, have been disinvesting or reshaping their business models as higher regulatory and compliance costs in these small markets with overvalued exchange rates and weak economies are making their businesses less competitive.
Is it possible to revive competitive industries, and how do we do so, beyond public relations visits to factories and pleas for “ease of doing business”? The answer today is more complex than it was in the 1980s because competitiveness is determined by a combination of factors, including price, location, technology, logistics, product uniqueness, and the ability to exploit networks in order to access markets. Price and scale remain critically important and cannot be ignored, even where other factors may, in specific instances, mitigate their effects. Firms must learn to innovate, to create unique selling propositions, and to build potentially global brands. However small, they should have the “DNA of an elephant”. Some must learn how to use platforms such as Amazon, Mercadolibre or Alibaba to penetrate new markets. They must be allowed, nay encouraged, to invest overseas, regionally and extra-regionally.
We don’t need all of InvesTT, TTIFC, e-TecK, Free Zones Company and ExporTT. Tasked with implementing some form of the “Triple Helix” belaboured unceasingly by Mary King, one properly-resourced Government agency must help firms access research and development resources, obtain funding for innovation, collaborate with universities, exploit diasporic and diplomatic networks, and navigate access to developed country markets in the face of what Paschal Lamy has termed their newer “precautionary” barriers around product safety for consumers and environmental protection.
Deindustrialisation flows from Dutch Disease and weak, reactive policy making, which combine to erode competitiveness. Anaesthetised by energy sector rents and Government subsidies, we may hardly perceive what is unfolding around us. But if we are to halt and reverse it, we must appreciate what it will take to rebuild competitiveness, and the risks and costs involved. We need to be single-minded, not superficial; focused, not fickle. We have a lot of work to do.