Increasing non-energy exports a central aim for Trindad and Tobago

 

The slump in oil and gas prices that began in late-2014 has had a significant downward impact on Trinidad and Tobago’s export earnings, and has revived interest in the non-energy export sector as a potential area for diversification, which could allow the country to benefit from new foreign currency revenue. While there has been progress in identifying products and markets for export growth, success will require overcoming a number of prevailing obstacles. “A very important point to note is that T&T’s manufacturing sector overall is a net foreign exchange earner and therefore a critical pillar in stabilising our domestic economy,” Keith Rowley, the prime minister of T&T said to members of the T&T Manufacturers’ Association in June 2016.

International Trade

Before the oil slump, T&T had established what could be called a comfort zone in its international trade performance. In the five years to 2015 annual exports averaged $14.4bn. Of that total, $11.6bn, or 80.4%, were energy sector exports. The remaining $2.8bn, representing 19.6% of the total, were non-energy exports. Using a slightly different classification system, a more detailed breakdown of exports by the Central Bank of T&T in 2014 showed that 55.7% were minerals and fuels, 27.4% chemicals, 9.2% manufactured goods, 3.5% machinery and equipment, 1.3% beverages and tobacco, 1.3% classified as food and 0.8% miscellaneous manufactured items.

As a generalisation, in “normal times” T&T’s manufacturing exports have accounted for between 10% and 15% of the total. This level of manufacturing export sales has traditionally been seen as sustainable and sufficient to meet the country’s needs.

A assumption of these normal times was that in the non-energy sector the country had a clear and stable trading role inside CARICOM. Indeed, the twin-island republic has the largest manufacturing sector in the eastern Caribbean region. This has allowed it to be one of the main suppliers of food, beverages and light manufactured products to its smaller neighbours, many of which rely on them as inputs for their tourism industries. T&T also acts as a sub-regional logistics hub, producing, exporting and shipping produce in the relatively small batches required by its neighbouring islands.

The slump in international oil and gas prices has created new urgency, pushing T&T out of its comfort zone and forcing a reassessment of its export policies. In 2015 exports fell by 26% to $10.8bn, mainly attributable to the decline in energy exports. Total exports were more than 42% below their 2013 peak of $18.7bn.

A New Direction

The government has thus been encouraging a reassessment of export policy. A key stakeholder in this process is exporTT, a government agency. Brian Benjamin, manager of projects at exporTT, told OBG that the agency’s key mission is to develop a sustainable and diversified export sector, and that it is focusing on the need to boost manufactured exports. Working with private sector firms, it is developing a strategy to open up new markets, going beyond CARICOM to compete in Central and Latin America.

The government has been pursuing a number of free trade agreements (FTA) or preferential access agreements in various markets. As a full member of CARICOM it benefits from the FTAs that body signs with other trade blocs or with individual countries. Where a wider CARICOM arrangement is not available, T&T has also been signing bilateral or partial scope deals. For example, T&T continues to benefit from the Caribbean-Canada Trade Agreement known as CARIBCAN, established in 1986, allowing preferential access to Canadian markets for Caribbean goods.

While CARICOM-Canada negotiations on a more expansive agreement have proven unsuccessful, T&T continues to benefit from the agreement following a WTO ruling in 2015 to extend the agreement until 2023. Separately, the government had successfully concluded a partial scope trade agreement (PSTA) with both Guatemala and El Salvador, which are still subject to legislative approval. Another PSTA with Panama came into force in late 2016, while a PSTA with Costa Rica is currently in operation. Trade discussions with Cuba are continuing through CARICOM, while negotiations for a PSTA with Chile have also commenced.

ExporTT has been accelerating the process of issuing certificates of origin for exporters seeking to ship goods to markets covered by FTAs. These certificates can now be accessed online, using the single electronic window. In most years exporTT also seeks to organise two outward-bound trade missions and attend two trade shows. Research by the agency suggests that export potential is greatest in food and beverages (F&B), machinery and mechanical appliances, tobacco, soap, cleaning materials, and processed food and nuts. A key finding of its research is that 93% of the country’s non-energy exports are being shipped to Caribbean destinations, while just 7% are going to the larger Latin American markets such as Colombia.

New Markets

According to exporTT, there is scope to boost exports of speciality F&B to the large Trinbagonian diaspora living in developed markets such as the US and the UK. However, both these areas pose challenges. In Latin America the main issue is competition on price, while the developed markets are challenging in quality, packaging, and health and safety standards.

There are also specific issues in some countries, such as Law No. 173 of 1966 in the Dominican Republic, which requires exporters to have local agents and makes it difficult for companies to switch agents without losing access rights. The Cuban authorities, on the other hand, are looking for reciprocity in trade deals, and for companies that are prepared to invest in local assembly operations. Venezuela is a potentially important market, although its current financial crisis creates uncertainty about reliability of payment. T&T has been exporting a range of food products into Venezuela.

Benjamin told OBG that as the focus switches from the Caribbean to larger Latin American markets such as Colombia, one of the challenges is the ability of exporters to scale up and remain price competitive. “There are relatively few companies [in T&T] with the ability and capacity to easily scale up. Maybe we have 18 to 20 exporters that can do that. Finance is also an issue because the banks tend to be risk-averse on companies selling outside the Caribbean region,” Benjamin said. Therefore, exporTT had to decide whether to prioritise assisting larger firms, or to follow a wider brief supporting small and medium-sized enterprises.

Looking Ahead

The current question is how much export diversification can realistically be achieved. Initially exporTT was given the ambitious goal of doubling non-energy exports in 2009-12. Benjamin says he is fairly certain that the country failed to meet that target, although the issue was somewhat clouded by the lack of reliable statistics. With better statistical support, the current objective has been re-stated as doubling non-energy exports, but during the course of the current government’s term in office across 2016-20. Although still an ambitious goal, this is not beyond reach: doubling the total would require an average compound annual growth rate (CAGR) of 19%. In the five years to 2015 the actual CAGR achieved was 8.6%.

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The Report: Trinidad & Tobago 2017

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