The final budget presentation from this Government is upon us. Though there has been talk by the Government of an economic turnaround 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.
Though this state of affairs existed throughout the last four years, an attempt was made to ease the pain of adjustment by the population, which resulted in a depletion in foreign exchange reserves, drawdown on the HSF, an increase in debt, reduction in funding of local councils, non-return of VAT to contractors and some retrenchment with closures of some firms. The upcoming Budget will continue in the same vein.
A general comment across the on-shore sector is that economic activity is being stymied by the shortage of foreign exchange, which impedes local on-shore service providers, the import, mark-up, sell entrepreneurs and the manufacturers; the last depend on imports that feed their processes. However, these entrepreneurs etc. see the responsibility to provide the foreign exchange as being that of the Government; the implication is that on-shore entrepreneurship is not really about exporting, but using the rents earned by the energy sector to fund consumption, not any wealth creation.
Surely the longer term solution is to transform the on-shore economy into one that exports. 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 as in, say, the Triple Helix.
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 petroleum runs out? The Prime Minister recognised the need to diversify the economy but he asked, “Diversify into what?” This implies that his Government has no immediate plans to even enter into the process of diversification. We will continue to seek petroleum rents wherever they appear to be, and engage in the failed activity of building industrial parks and hoping to attract FDI- viz the recent talk of Phoenix Park and the Chinese. It is enlightening to see that Gerry Brooks, formerly of NGC, is also calling for the diversification of the on-shore economy.
But there is a serious and external threat to the existing on-shore economic model. This is the impact of the global Digital Economy on the economic activity on-shore. We have had two recent indicators of this–in Ansa McAL’s complaint that its Guardian Media Company lost $11 million due to the unfair competition being provided in the local market by 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, 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 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 online shopping locally and the attempt to discourage it by adding a seven per cent tax, which appears to have had no impact on the use of online purchasing platforms. More so this activity provided the platform owners with massive amounts of data on ourselves, which, 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 are designed to exploit the world consumers via the Internet. It also showed that these companies are now among the highest capitalised in the world. Hence, 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? Build our own platforms? As Gerry Brooks tells us, looking to exploit oil and gas cannot be the extent of our Government’s vision. Budget of 2020 has to take the first step in our economic transformation.
• Rev Charles J Gordon
returns next week