Above: Jeetandra Khadan’s IADB report: Are Oil and Gas smothering the Private Sector in Trinidad and Tobago?
BitDepth#1078 for January 31, 2017
The conversation in economic circles is increasingly about diversification.
Two weeks ago, the Ministry of Planning in association with the IADB launched an intitative aimed at stimulating the growth of local services. It was not the first such effort, but this one is well-funded and comes when it is increasingly clear that the hoped for resurgence in oil and gas prices may just be a chimera.
On the heels of that launch comes a report by the IADB’s Jeetendra Khadan that’s equal parts “we knew that,” and troubling revelation.
Khadan’s work is a broad, macroeconomic evaluation of the T&T economy and its challenges with a specific focus on the private sector, but it also identifies trends that are likely to be relevant to efforts to boost national ICT development.
Summarising a robust, often technical report running to more than 150 pages is well beyond the space available here, but there is much to cherry pick from Khadan’s evaluation of the local economy.
The non-petroleum sector, the key engine for sustainable growth, has declined over the past decade, dropping its share of the contribution to Gross Domestic Product (GDP) from 72 per cent in 2001 to 62 per cent in 2014.
In terms of the most compelling indicator of business health, sales growth, 59 per cent of local firms are classified as stagnant, 23 percent as declining, with just 18 per cent of the private sector in a state of expansion.
Local firms identified multiple issues as obstacles to their operations, but leading the challenges is an inadequately educated workforce at 41 per cent, access to finance (20 per cent) and crime (13 per cent).
Despite significant investments in education and much trumpeting of pass rates, student performance in reading, mathematics and science is much lower than other comparable small economies, according to the Program for International Student Assessment, which ranks T&T 48th out of 61 nations.
This is particularly troubling given the need to emphasise exactly those areas as components of studies in STEM (Science, Technology, Engineering and Mathematics).
Of those students emerging from tertiary education and entering the local workforce, there is a substantial mismatch between what is studied and what is required in the workplace across a range of professions.
T&T’s best students target emigration as a path for personal improvement. This country loses 25 out of every 4,000 citizens, ranking 20th in the world for net emigration and of that number, 22 per cent of our secondary educated and 79 per cent of our tertiary educated citizens depart, according to Khadan’s report.
Very little of that comes back. T&T has the lowest level of remittances in the region, averaging 0.3 per cent of GDP between 1980 and 2012. Jamaica’s remittances for the region were, by comparison. 7.4 per cent of GDP during that time.
Private enterprise reports spending 4.5 times as much on crime-related costs as they do on research and development, 3.89 percent versus 0.87 per cent respectively.
The only surprise in that is that there’s any R&D at all.
The profile of local business is dominantly focused on local consumption. Only nine per cent of firms engage in two-way trade. A majority, 69 per cent, only import and 27 per cent do not engage in foreign trade at all.
Innovation is described as the adoption of new machinery, the use of licensed technology, changes in production process or revamping of organisational structure.
“The potential impact of innovation by firms is seen mostly in an improved ability to develop new products, improve the quality of products, increase sales, and open access to a new market,” writes Khadan.
Small and medium enterprises (SME) are most affected by the cost of managing crime and government requirements are problems that tend to affect SMEs disproportionately and this is the sector that is being increasingly identified as the seed bed for innovation and growth in diversification in the ICT sector.
Local small and medium enterprises described as mature (in business for 10 years or more) lead the report’s statistics in paying bribes to get things done.
The report points to multiple points of intervention, and both government and academia have significant roles to play in changing a disturbingly counterproductive status quo.
The operational business environment is in need of dramatic reform with a clear need to move words like transparency and deregulation off the political podium and into action.
Such policy initiatives must identify and target young small and medium enterprises with the capacity to develop exportable technologies and services within the IT sector.
If depressed oil and gas prices continue, it will become untenable to continue to costly defence of the exchange rate and infrastructure and policy will have align then by force to encourage positive investment in the private sector.
The challenges facing technology development run even deeper.
While infrastructure has steadily improved over the last ten years to the point that it’s comparable with most developing nations and some developed countries, innovation efforts have largely tracked those of established businesses, harvesting business opportunities out of established patterns and models emerging elsewhere (some of these issues are raised at the first TTIGF panel discussion).
Skills and services have proven exportable but are currently negligble at the small business scale that most innovators operate on.
Prompting any surge in IT innovation is going to mean aligning existing capacity with specific national goals for diversification through incentives. That’s going to mean putting ICT more firmly at the centre of the diversification discussion and that is still to happen.