The Social and Economic Impact of the Practice of Industrial Policy in Trinidad and Tobago

• Author: Wendell Mottley
• Profession: New York-based Investment Banker having previously served as executive director of the company which eventually became the pivot of Trinidad and Tobago s natural gas-led industrialization and as Minister of Finance, credited with playing a decisive role in setting Trinidad and Tobago on a sustained path of growth from 1994 onwards
• Pages: 75-117

75

THE SOCIAL AND ECONOMIC IMPACT

Measured in narrow economic terms, the practice of industrial

policy has been remarkably successful. With less than 0.5 per cent

of global natural gas reserves, Trinidad and Tobago has nevertheless

established itself as a global gas-based export centre. The petroleum

sector grew by 4.4 per cent in constant prices in 2007 and continues

to be the driver of the nation’s economy. In 2004, the government

rebased its national income accounting to 2000 constant prices,

largely to take into account the structural changes in the economy,

(primarily the recent ascendancy of natural gas), adjusting the

deflators and extrapolators used to measure growth. The rebased

accounts showed that GDP at 2000 constant prices grew by 14.4 per

cent in 2003, moderating to 5.5 per cent in 2007, making Trinidad

and Tobago the fastest growing country in the hemisphere.

Moreover, the energy-sector in 2007 generated as much as 43 per

cent of GDP and 56 per cent of government revenues. This indicates

that the economy is once again heading into the energy trap from

which economic policies attempted to escape since the last depression

(see Table 6.1).

The sector is globally competitive and comprises some of the

world’s leading corporations such as BP, Conoco Phillips, BG, BHP

Billiton, Norsk Hydro, Methanex, PCS Nitrogen, etc.

An examination of the cost structure of Trinidad and Tobago’s

GDP gives an indication of the structural changes occurring in the

economy as a result of the very large injections of capital in the oil

and gas sectors. In 1994, compensation of employees amounted to

TT$13,149.4 million, which grew to TT$29,323.1 million in 2005.

THE SOCIAL AND ECONOMIC

IMPACT OF THE PRACTICE

OF INDUSTRIAL POLICY IN

TRINIDAD AND TOBAGO

Chapter Six

76

TRINIDAD AND TOBAGO INDUSTRIAL POLICY 1959–2008

At the same time operating surplus, (the reward on capital) grew

from TT$10,646.5 million to TT$51,621.4 million (see Table 6.2).

Employee compensation is shrinking in the cost composition of GDP,

while operating surplus is assuming a greater percentage. This

finding has several implications. First, employee compensation is a

reward on a local factor of production while operating surplus is

largely a return on direct foreign investment. The shrinkage of the

former and growth of the latter imply growing capital outflows,

already being reflected in gaps between the Gross National Product

(GNP) and GDP. This finding has implications for the future. As

Trinidad’s gas economy matures, foreign direct investment inflows

will inevitably decline while dividend outflows will rise, posing

problems for the balance of payments and the foreign exchange

availability.

Table 6.1

Economic Contribution of Energy Sector

Source: Central Bank of Trinidad and Tobago

1: Includes Service Contractors, Distribution and Asphalt Production

2: Other Taxes include Withholding Tax, Royalties, Oil Impost, Unemployment Levy,

Other Companies, Excise Duties and Receipts from signature bonuses for the award

of product sharing contracts. Pensions were made to Other Taxes due to the availability

of additional data on taxes paid by Refining & Gas Processing, Petrochemical

companies and service contractors for fiscal years 2001 and 2007.

Share of GDP/Government Revenue Year

2004r 2005r 2006r 2007p

Share of GDP

Energy Sector 39.0 42.6 46.8 43.0

Exploration and Production 21.9 23.6 27.3 24.9

Refining (including LNG) 6.9 7.6 7.2 6.3

Petrochemicals 6.2 6.8 7.3 6.9

Other1 3.5 4.6 5.1 5.0

2004 2005 2006r 2007p

Share of Government Revenues

Energy Sector 42.4 53.6 61.1 56.0

Oil and Gas Exploration and

Production 26.5 36.4 45.2 40.9

Other Taxes2 15.9 17.2 15.9 15.1

77

THE SOCIAL AND ECONOMIC IMPACT

At present, large foreign investments make the energy-sector

world class. Its inputs of technology, capital and manpower, and its

output, move seamlessly in and out of Trinidad, principally into the

United States. The energy-sector’s insistence on employing worldwide

best practice in technology, management, environmental and safety

standards causes such practices to spread beyond energy and into a

wider radius of suppliers, services, utilities, subcontractors, and even

governmental services that touch on the energy industry in Trinidad.

These suppliers of goods and services to the sector constitute a

‘second world’ in Trinidad. This sector is not yet world class, but is

modernizing. Examples of modernizing tendencies are evidenced

in the following trends:

i. continuing capital investment in plant and equipment in

subcontracting companies like Yorke Structures and Damus

so that these companies might satisfactorily provide the local

construction requirements of the energy companies;

ii. schooling and certification of skills required of contractors

and their employees;

iii. migration of management practices such as strategic

planning, management control and preventative

maintenance to supplier companies as they strive to meet

the performance reliability demands of the MNCs in the

energy-sector; and

iv. the adoption of First-World health, safety and environmental

standards on the insistence of these MNCs. 1

These two sectors, (First and Second World) coexist with a much

larger sector of Trinidad and Tobago that remains untouched by the

modernizing influences of the energy-sector. Much of this third

sector, rural as well as urban, is unskilled and truly ‘Third World’. It

is delinked from the First World energy-sector, no matter how fast

the growth rate of the energy-sector. This Third World sector of the

economy is irrelevant to its First World cohabitants. Its only

association is to share in the recycling of rents extracted by

government from the energy-sector.