Economic Update

Innovation, investment and incentives have been highlighted as key to unlocking Trinidad and Tobago’s manufacturing revival, with the government urging greater private sector investment to help boost growth and reverse foreign direct investment (FDI) outflows.

Broadening the country’s product offering and exploring new methods of production are key to developing T&T’s non-energy industry, which would subsequently create new sources of foreign exchange (forex) revenue, Paula Gopee-Scoon, the minister of trade and industry, said at a trade and investment convention in July.

Government explores additional incentives for industry

Gopee-Scoon told delegates at the convention that the government was looking at ways to support manufacturing operators.

“Under consideration at this time is a facility to assist small and medium-sized manufacturers, including those in the agriculture and agro-processing sector, which is expected to have the effect of directly increasing the available financial resources for manufacturers to invest in meaningful economic activities,” she said.

While traditional export agriculture contributes very little to the country’s trade balance, accounting for just TT$5m ($740,000) in sales, or 0.01% of GDP, in 2015, the related food, beverages and tobacco segment comprises 4.5% of GDP and accounts for more than half (58%) of manufacturing output.

Developing local capacity in these and other value-added lines of business is seen as key to achieving the government’s goal of doubling non-energy exports’ share of total trade, up from 15% at present.

Gopee-Scoon’s public comments follow a recent interview with OBG, where the minister said certain regulatory measures would also be reformed to facilitate investment and ease business operations.

“The government has also approved and is currently implementing a national policy for special economic zones, which will provide for a new institutional, legislative and administrative framework through which public-private partnerships are encouraged and incentivised in strategic areas of national importance,” she said.

Among the incentives currently on offer are a free industrial zone programme, as well as tax reductions and exemptions for export-focused investment in local manufacturing. In addition, large-scale manufacturing and processing companies are eligible for Customs duty and value-added tax exemptions, while new manufacturing ventures can qualify for duty-free import of raw materials, such as machinery, equipment and packaging.

Some 3485 ha of land have been earmarked for industrial and business development, adding to the 19 industrial parks already in operation in the country.

Manufacturing’s contribution to GDP eases after steel plant closure

While manufacturing is one of the leading non-energy contributors to T&T’s economy, the sector has suffered a contraction in recent times following the closure of a major steelworks plant and weakening demand.

Manufacturing accounted for 7.8% of the country’s GDP last year, according to official estimates, slightly down on 2015 levels of 8.1%.

The March 2016 closure of ArcelorMittal’s iron and steelworks plant at Point Lisas has been cited as one of the major factors behind the sector’s slowdown. The divestment that followed the shutting down of the plant contributed to a net outflow of FDI from T&T and led to a substantial fall in investment in the broader Caribbean region, according to a new report by the UN Conference on Trade and Development.

The country’s negative investment flow reached $60m last year, with the report citing the Point Lisas closure, along with divestments in chemicals, chemical products and logistics, as the major reasons for the decrease.

The closing of the facility has also impacted downstream manufacturers, with businesses involved in the production of building materials and industrial supplies affected by the loss of local capacity.

Despite this drop in manufacturing activity, the sector maintained its position as the third-largest contributor to the economy in 2016, behind energy and services.

While the closure of the steelworks no doubt affected industrial output last year, the impact of ArcelorMittal exiting the local market has already been factored in to manufacturing performance, with further declines in output and GDP contribution unlikely.

Parliament aims to free up forex for manufacturers

Following proposed operational incentives from the government, the Ministry of Finance has also moved to support manufacturers, many of whom have faced challenges due to the decline of forex in the market.

The mid-year budget review, tabled on May 10 by Colm Imbert, minister of finance, stated that manufacturing revenues had been affected by a reduction in hydrocarbons earnings and the subsequent dip in available forex, with the energy sector experiencing cuts to expenditure and investment.

While funding for the sector remains steady, Imbert told Parliament the government would move to free up more forex for manufacturers, facilitating their dealings with overseas suppliers.

“In this respect, I wish to confirm that consistent with our drive to encourage local companies to become net earners of forex and/or to reduce our import bill, we have requested the central bank to give priority to manufacturing and trade whenever it intervenes in the disbursement of forex to the commercial banks,” he said.