T&T has had a very rough 15 months but, to be honest, since 2015 our economy has survived on borrowing and drawdowns from the Heritage and Stabilisation Fund to meet the shortfalls in revenue.
The root of the problem is fairly simple. We have experienced a period of prolonged low energy prices, lower for longer as it is called in the energy sector, and lower production levels. This has led to reduced government revenue and even though the Finance Minister has clawed back spending on the back of simply not paying bills and removing the fuel subsidy, we still have not brought into alignment our expenditure and revenue.
For sure, the Minister of Finance has been dealt a number of poor cards: an economy that never got value for money, a population high on subsidies and transfers, a political environment that encourages an eye on the next election for every decision that is taken and add to that falling global energy prices and lower domestic production and now Covid-19. The perfect storm.
This also speaks to the structure of the economy in which there is a co-relation between the performance of the oil and gas sector, offshore economy, and the onshore economy.
The onshore economy depends heavily on the foreign exchange earnings of the oil and gas sector to fuel its ability to pay for raw materials in manufacturing, for food and other consumer imports if your business is in distribution, and, of course, it’s a major source of government revenue in an economy dominated by the Government and public spending.
But even in the midst of the deaths and sickness that has gripped the country in this latest spike of the virus, last week brought some hope to the country. There appears to be confidence by the administration that it can vaccinate its way out of the pandemic having secured major amounts of jabs.
Oil and gas prices are on the rise and on Tuesday broke US$70 a barrel for the two major markers, WTI and Brent. Natural gas prices remain relatively buoyant in Europe and Asia and petrochemical prices are recovering.
Production of natural gas remains down but this week’s energy conference has shown that the production of both oil and gas are likely to grow significantly over the next 12 – 24 months. In short, things are looking better.
The global economy is expected to pick up speed as countries, starting with the leading industrialised nations, emerge from lockdowns and demand quickens.
This is likely to lead to stronger energy prices and with the lower level of investments we could very well see sustained good prices for oil, natural gas and to a lesser extent petrochemicals.
With T&T and the Caribbean aiming to also open back up by the first quarter of 2022, the signs are there, demand for manufacturing goods will grow and could result in stronger revenue streams for the country.
You add to that pent-up demand, the reopening of the economy and its impact on the distribution sector, schools reopening and well you see the picture.
These developments point to some recovery in the local economy in 2022/2023 but we must not be lulled into any sense of comfort and while I am sure the Government will be tempted and will likely use the additional revenue to increase spending it must only be on projects that will lead to either greater efficiency or capital expenditure that will generate revenue into the future
For sure the economy is still in a precarious position. Public debt is now well over 80 per cent of GDP and the unemployment rate has increased with tens of thousands of people furloughed or having lost their jobs all together.
Many small businesses and bars and restaurants have been hard hit if not decimated.
The T&T economy is at a point of inflection. We are faced with tough choices and while for decades we have been urged to diversify the economy, in other words have multiple sources of revenue other than the energy sector, we have not done it successfully.
If it were easy the number of countries overly dependent on one source of income would have significantly decreased.
The investments in the energy sector and the revenue to accrue to the country as a result presents us with a short window to make a major change in how we operate in T&T.
I agree with the Prime Minister that as a country we still have a future in energy. That future however has a limited time to it and therefore four things must happen.
1 Ensure that steps are taken to transition the energy sector into one that can be relevant post 2050. How do we do that? Well we have to look at what ways we can earn revenue from the significant investment we have in the ground and add value to it. For example, green ammonia and methanol could be possibilities, clean fuel from methanol. Manufacturing from derivatives from the energy sector like using melamine as a building block in the manufacturing process.
2 Ensure the sector is competitive: We have to be laser like focused on the entire value chain, including our fiscal position in the sector so that we are aware that this is a mature hydrocarbon province, that companies have a legitimate role to provide their shareholders with reasonable returns on their investment and that all players on the value chain must benefit for it to work. Gregory McGuire has suggested a market-based net back pricing mechanism for the entire chain and that is an idea worth considering.
3 We have to ensure that we are doing the smart things in the way we utilise our state enterprises. What has come of the plan to put back the refinery on the market for sale? What has come of the $500 million investment in Train 1? Is Train 1 dead? Should the NGC have risked the capital and how much of that announced new gas is going to Train 1 or the other trains?
4 Prepare for life after fossil fuels. We know it is coming because the influential people of the world have made it their agenda and because the science tells us it is what needs to be done.
What happens to T&T post 2050, in a mere 29 years or 2035 when it is expected investments in hydrocarbon will cease? That is in 14 years.
Are we going to allow ourselves to be lulled into believing that the next two to three years of improved economic outlook will last and make us fail to transform the economy?
Will we fail the future generation by preparing them for careers that no longer exists or are we going to be fooled into believing the benevolence of the state will be there from cradle to grave.
If we do, we have another thing coming.