In June 2018 the IMF released a statement on Trinidad and Tobago, embracing the reforms undertaken by the twin-island sovereign state in recent months. After two years of economic recession, the supranational institution projected a return to growth in 2018. While such a recession is to be expected in a country that is very dependent on its commodities – particularly gas reserves, in the case of T&T – the reforms could be a game changer. The rebound in commodity prices is certainly welcome news, but the progress towards fiscal consolidation and economic diversification is even more significant for the sustainability of T&T’s long-term development.
According to the IMF, GDP contracted by 2.6% in 2017, a marked improvement from the 6.1% drop in 2016. While gas production rebounded in late 2017, oil output remained flat. The non-energy sectors also failed to provide respite from the oil and gas crisis, with construction and financial services largely idle as a result of delays in public projects and the persisting foreign exchange shortage.
REBOUNDING COMMODITY PRICES & SWEEPING REFORMS: The reforms have brought about improved fiscal performance and a brighter – albeit modest – medium-term economic outlook, which was reflected in our third Oxford Business Group Business Barometer: T&T CEO Survey.
Regulatory changes and the recovery of commodity prices have led local business leaders to adopt a more optimistic perspective. In fact, their forecasts for GDP growth far exceed those of the IMF: while the fund expects nearly flat growth of 0.25% for 2018, 52% of survey participants project expansion of up to 1% for the year, and 15% expect this figure to surpass 2%. Furthermore, 69% have positive or very positive expectations of local business conditions in the coming 12 months. This marks a considerable rise from the 57% who had positive expectations in our survey released late last year, and it is a nearly four-fold increase on the 18% figure recorded in our inaugural OBG Business Barometer in T&T two years ago, when the nation was in the midst of an economic crisis.
This wave of recovering optimism is a key factor motivating plans to make capital outlays, with 67% of participants reporting that their company is likely or very likely to make a significant capital investment in the next 12 months.
TAX ENVIRONMENT COMPETITIVE DESPITE RISING RATES: In a recent interview with OBG, Christopher Lewis, president of InvesTT, the government’s investment promotion agency, said that the relatively low cost of doing business in T&T makes the country a particularly attractive investment destination. “In spite of the recent increase in corporate taxation, with rates going up from 25% to 30%, the country is still very competitive when compared to other jurisdictions in the Americas or the Caribbean,” he said.
CEOs appear to agree, as a notable majority (64%) find the tax environment to be competitive or very competitive on a global scale. This was only a slight decline from 67% in last year’s survey. Given the global trend of declining corporate tax rates, T&T’s 5% increase is likely to weigh on global competitiveness. However, the government needs to prioritise fiscal strength over the global tax race for the time being Although the government’s focus has been mostly internal, the trends of its Caribbean neighbours remain key to the country’s economic performance. Guyana is perceived to be the largest player by far influencing T&T’s interests, with some 56% of respondents in our survey naming it as the CARICOM country with the most potential as an export and/ or investment destination. This was followed by Jamaica, a distant second with 27%, and Barbados with 9%.
SHORTAGE OF SOFT SKILLS & TRAINING: The country is also facing a skills mismatch. As we see in many emerging markets where we conduct our CEO surveys, leadership (49%) was cited as the skill in greatest need in the country, followed by customer service (29%). This indicates there is a greater perceived shortage of soft skills than that of science, technology, engineering and maths capabilities.
Other studies, however, have noted a shortage of other skills as well. In 2017 the Inter-American Development Bank (IADB) compiled the results of a number of surveys and found that there was “an undersupply of workers with university degrees, secondary education and secondary education with training”. The IADB recommended the development of training programmes that would help to fill the skills gaps that exist in the local labour market.
CHALLENGES TO ADDRESS FOR LONGER-TERM GROWTH: With all this in mind, our outlook for T&T is cautiously optimistic: indicators have certainly taken a positive turn, but we must also understand the unique challenges facing the twin-island nation, including volatility in energy prices, pending reforms, delayed public projects and a lack of soft skills, among others. The development of continued vocational training programmes and a progressive shift in the country’s business mindset overall could help the domestic workforce meet labour demands in the coming years.
To maximise growth potential, the government will need to promptly execute the tax reform and address the foreign exchange shortage. C-suite executives agree that these efforts will require consistent measures to diversify the economy and increase the competitiveness of non-energy sectors.