On the back of elevated global oil prices, the economy of Trinidad and Tobago went through a period of rapid expansion in recent decades, resulting in higher levels of development and overall well-being for the population. While diversification efforts have boosted long-term stability, the economy remains vulnerable to commodity boom and bust cycles. As such, the drop in commodity prices from 2014 to 2016 led to a deep recession in T&T. According to the IMF, the economy shrank by 6.4% in 2016, and the energy sector experienced a 10% contraction. Since then, the economy has gradually recovered thanks to a number of new energy projects and natural gas production. While global oil and gas prices have bounced back slightly from their 2016 lows – providing the government with more revenue to invest – they remain subdued compared to the highs of 2014, resulting in a more prolonged recovery than expected.
Structure & Oversight
Following colonisation, the islands’ economies were plantation-based, producing sugar, cotton and cocoa. However, since the mid- to late 20th century, hydrocarbons have formed the backbone of the Trinidadian economy, while tourism underpins that of Tobago. As a result of this shift away from agriculture, T&T is now classified as a high-income developing country, according to the World Trade Organisation (WTO). In 2018 energy accounted for around 30% of GDP and 70% of exports, but less than 5% of employment due to the capital-intensive nature of the sector. In recent years, the country has moved towards natural gas production, which now outpaces petroleum production. This trend is expected to continue in 2020, with several energy projects in the pipeline.
The Ministry of Finance, headed by Colm Imbert, is charged with managing the country’s macroeconomic and fiscal policy, revenue collection and management, budget planning and trade facilitation. The Central Bank of T&T (CBT&T) is responsible for managing monetary policy and ensuring the country’s financial stability. Alvin Hilaire sits as the bank’s governor and the chairman of its board of directors.
Given T&T’s long-standing dependence on hydrocarbons, there has been a focus on economic diversification, in particular since the 2014 fall in commodity prices. “The most important issue for the country to address is the diversification of its economy,” Reshard Mohammed, vice-president of Scotiabank T&T, told OBG. “Although this has been on the agenda for decades, T&T continues to be reliant on oil and gas to drive economic growth. It must do more to create diversified income sources given uncertainty in the global energy sector.” In the latest Article IV consultation released in 2018, the IMF noted diversification efforts are encouraging, but that there is room for improvement, citing the need for enhanced “coordination, implementation and potential of tourism as a diversification strategy due to its indirect impact on agriculture and manufacturing”.
As part of Vision 2030, the government’s 15-year development framework, the National Development Strategy (NDS) was implemented to fulfil the initiative’s longer-term objectives. The NDS has eight areas of focus: bolstering foreign exchange earnings, reducing crime, improving the workforce’s productivity, carrying out institutional and constitutional reform, evaluating the impact of shale gas and lower gas production, reducing economic irresponsibility, boosting efficiency in public services and protecting the environment.
To evaluate the NDS, the government created its own National Development Goals in line with the UN’s Sustainable Development Goals, with 16 targets running from 2016 to 2030, 16 from 2016 to 2025, and 24 from 2016 to 2020. Progress will be evaluated at the end of each of the NDS’ three stages: in 2020, 2025 and 2030. Departments and ministries were instructed to integrate their policies into the goals of the NDS to ensure that the overall policy trajectory is aligned with diversification.
The IMF forecast T&T’s real GDP growth would be flat at 0% in 2019 before rising to 1.5% in 2020 and 2.3% in 2021 – slow but steady growth after a recession. In annual terms, GDP totalled $22.6bn in 2019 and is projected to reach $23.3bn and $24.2bn by 2020 and 2021, respectively, up from $16.2bn in 2005. GDP per capita, meanwhile, measured $16,400 in 2019 and is projected to reach $16,800 in 2020, up from $12,500 in 2005 but below the pre-global financial crisis high of $21,500 in 2008.
Inflation is low, at 0.3% in November 2019, with core inflation (excluding food) at 0.6%, according to the CBT&T. The government attributes this to effective fiscal and monetary policy. Gross public sector debt as a percentage of GDP stood at 74.4% in September 2019, down marginally year-on-year (y-o-y) from 74.9%. According to the IMF, government revenue was forecast to be $27.4bn in 2019, up from $25.7bn the year before. Budgetary expenditure for 2019 was expected to reach $32bn, up from $31.7bn the year before but down from $37.6bn in 2015.
T&T is a member of the UN’s World Intellectual Property Organisation (WIPO). It is also a signatory of the WTO’s Agreement on Trade-Related Aspects of Intellectual Property (IP) Rights that was negotiated in the 1980s to enhance the world’s rulesbased trading system for matters such as copyrights, trademarks and industrial designs. The Intellectual Property Office is responsible for overseeing IP on a national level. In September 2019 Dennis Moses, the minister of foreign and CARICOM affairs, signed four WIPO agreements: a convention on protecting performers, phonograms and broadcast organisations; a treaty on audiovisual performances; a treaty on trademarks; and a treaty to facilitate access to works for persons with disabilities.
The use of e-commerce to reach consumers is still in the early stages of development. Indeed, only around 10 local retailers offer e-commerce services. Many do not have websites, but rather reach consumers through platforms such as Facebook and Instagram. Online sales are further constrained by the preferences of consumers, who traditionally favour purchasing goods in shops or online from US retailers. Nonetheless, there has been a nascent shift towards e-commerce in recent years, aided by an expansion of credit to consumers, which grew by 6.5% y-o-y in July 2019.
Despite the slow adoption of e-commerce, some Trinbagonian companies have been successful at creating platforms to facilitate business-to-consumer sales. One such company is WiPay, a payment platform that allows users to make, accept and process payments via a smartphone, entered the market in 2017. In August 2019 the company launched Zwillo, an e-commerce service that allows micro-entrepreneurs and other small business owners to pursue e-commerce even if they do not have a website. WiPay has expanded its services beyond T&T, launching in Guyana in December 2018 and in Jamaica in June 2019. WiPay hopes to enter the St Lucia market soon.
The government’s 2020 budget, titled “Stability, Strength and Growth”, concentrated funding on education, training, national security and health. FY 2020’s estimated fiscal expenditure is TT$53bn ($7.8bn), financed by revenue of TT$47.4bn ($7bn), stemming from taxes on income and profits (TT$20.8bn, $3.1bn), taxes on goods and services (TT$8.6bn, $1.3bn), and property income (TT$11.7m, $1.7bn). Non-oil revenue is expected to reach TT$35.8bn ($5.3bn), while oil revenue is projected to be TT$11bn ($1.6bn). The budget estimates the fiscal deficit will reach TT$5.3bn ($783m), or 3.1% of GDP.
Education received the largest allocation, at TT$7.5bn ($1.1bn), including funding for the On-theJob Training Programme, which will accept 8000 trainees over the year. Health was allocated TT$6.1bn ($901.2m) and national security TT$6bn ($886.4m).
The budget also outlined an increase in the minimum wage, from TT$15 ($2.22) to TT$17.50 ($2.59) per hour, which the government estimates will benefit 194,000 people. The budget also included two measures that came into force January 1, 2020 aimed at reversing production declines in the energy sector. The first extended the capital allowance write-off period of three to five years and reduced tax relief for energy companies from 100% to 75%, while the second increased the investment tax credit from 20% to 25% to encourage exploration.
T&T has turned to its fiscal policy to encourage economic growth and create jobs, a goal strengthened by recovering energy prices in 2018 and 2019. As a result, government revenue outpaced expenditure between October 2018 to July 2019, leading to a deficit of TT$4.8bn ($709.2m) over this period, down from TT$6bn ($886.4m) a year earlier.
The CBT&T’s Monetary Policy Committee (MPC) is responsible for the implementation of monetary policy, and has shifted its focus since the 1990s from direct policy instruments to those that are market-based. In 2002 the CBT&T introduced a repurchase rate, also known as the repo rate, or the rate at which the central bank lends to commercial banks and the benchmark for the short-term interest rate. In December 2019 the CBT&T maintained the repo rate at 5%, underscoring external pressures such as slow global economic expansion and geopolitical issues like Brexit.” Domestically, available indicators suggest that while there remains room for macroeconomic policy support towards a durable economic recovery, external balance has not yet been restored,” the bank said in a statement.
Although not pegged to the US dollar, as is the case in many other economies in the region, the T&T dollar is under a managed float foreign exchange system, whereby the CBT&T intervenes in markets to prevent excess volatility and maintain the exchange rate, which stood at $1:TT$6.67 in January 2020. The most recent economic bulletin released by the CBT&T noted that the foreign exchange market was tight in the first eight months of 2019 despite healthy foreign exchange inflows from the energy sector. Over that period sales to authorised dealers amounted to $1bn, up 2.5% y-o-y. Total purchases in the market rose by 8.1%, with sales to the public increasing by 8.8%. Sales to energy companies accounted for 11.6% of the total.
The trend continued throughout the year, with Prime Minister Keith Rowley telling local media in October that the country was not earning enough US dollars to be able to reverse the shortage. “We had up to nine to 12 months cover when we were earning a lot of cash due to high oil and gas prices, but today we do not have these high prices. We have about 7.5 months’ cover,” he said.
According to data from the Central Statistical Office (CSO), there were 16,547 small and medium-sized enterprises (SMEs) in T&T as of February 2019, representing 63% of the 26,062 companies listed on the office’s Register of Business Establishments. However, as informing the register is not obligatory, the CSO estimates the percentage could be as high as 85%. SMEs are an integral part of the manufacturing base, comprising 70% of the total and making up a large proportion of the food and beverage industry. Despite their importance to the economy, SMEs face a number of structural barriers such as access to foreign currency. Many are forced to turn to the black market to pay suppliers, especially during busy holidays such as Christmas, Carnival and Diwali. “SME growth was flat throughout 2019,” Arun Seenath, a partner at Deloitte, told OBG. “Companies that do not compete with international firms saw some improvement in turnover. However, those that do – especially those that sell consumer goods – had to compete with international products sold online and generally do not have the capital needed to invest in such technology.”
SME growth was further constrained by the fact the entrepreneurial ecosystem is still in its infancy, as well as because SMEs have little access to finance and often have organisational cultures that lack a means of rewarding employees, according to a 2017 study published by the European Scientific Journal.
Officials are working to address this. In June 2019 the Caribbean Development Bank announced it will provide a $10m credit line to T&T’s Development Finance Limited (DFL), an organisation that provides loans and foreign exchange services to SMEs. The funding will be earmarked for firms in agriculture, manufacturing and tourism, and will allow the DFL to invest in SMEs, provide better and more inclusive services, and boost its capacity to manage environmental and social risks in the product cycle.
In 2019 T&T was expected to have exported $2.3bn worth of goods and services, $2bn of which were related to energy, according to the IMF. Total exports were slightly down from the $2.4bn seen in 2018, although energy exports were up from $1.9bn. Notably, non-energy exports grew by 22% in the first half of 2019 compared to the same period in 2018.
In a broader sense, the tone and confidence of global trade flows in 2020 are likely to be set by the outcome of US-China trade talks. This is of particular importance as the US is T&T’s largest trade partner by a significant margin, accounting for 38% of the country’s total exports. Other top destinations of exports were Chile (8.9%), Guyana (5.8%) and the Dominican Republic (5.2%), according to the Observatory of Economic Complexity (OEC), a project by the Massachusetts Institute of Technology.
T&T is the world’s largest exporter of ammonia, second-largest exporter of methanol and sixth-largest exporter of liquefied natural gas. Its top exports in 2017 were petroleum gas, which accounted for 28% of all exports; refined petroleum products (20%); acrylic alcohols (14%); ammonia (12%); and crude oil (6.6%), according to the most recent OEC figures.
Despite its high-income status, the country is largely reliant on imports. Around 70% of the food consumed is imported, mostly from the US. The burgeoning manufacturing sector also imports much of its equipment. Imports were valued at $1.3bn in 2019, up from $1.1bn the year before. The value of fuels imported rose significantly over this period, from $199m to $320.5m. The US accounted for 22% of imports in 2017, Russia for 16%, China 9.4%, Colombia 5.6% and Canada 4.6%, according to the OEC. The top imported products were crude petroleum (22%), iron ore (5.6%) and automobiles (4.9%) in 2017.
The country also has a number of trade deals as part of CARICOM. It has investment agreements with European countries such as France, Spain, Germany and the UK, as well as the US, Canada and Mexico, and bilateral agreements with South Korea and India. The country has also inked trade agreements with countries in the region, including Cuba, the Dominican Republic, Venezuela, Panama, Colombia, Guatemala, El Salvador and Costa Rica. It also signed an agreement with the UK in April 2019 in anticipation of Brexit.
In September 2019 the Ministry of Trade and Industry launched the T&T Trade Policy (TTTP) 2019-23 with guidance from the WTO and the UN Economic Commission for Latin America and the Caribbean. The TTTP aims to shift towards the export of high-value goods and services, enhance the competitiveness of exports and increase foreign exchange earnings. The framework underlines steps to capture a greater share of CARICOM trade, as well as a greater share within traditional and non-traditional markets. Importantly, it also seeks to diversify exports away from energy and energy-based products. The document estimated the ratio of trade to GDP to be 132%, the ratio of exports to GDP to be 68% and that of imports to GDP to be 64%, highlighting trade’s role as a driver of development, poverty alleviation and job creation.
Despite its reputation for stable politics, cheap energy, an English-speaking population and proximity to the Americas, T&T has struggled to attract foreign investment. Foreign direct investment (FDI) inflows were negative in 2018, at -$436m, up from -$456m the previous year, according to the UN Conference on Trade and Development. Investors are deterred by difficult weather conditions and sensitivity to commodity price fluctuations.
T&T ranked 105th out of 190 countries in the World Bank’s ease of doing business index, holding steady from 2019. Although the ranking remained the same, the country’s nominal score improved, from 60.8 to 61.3 out of 100. “Enhancing the ease of doing business and bettering the situation for entrepreneurs should be a priority for all parties,” Omar Sultan-Khan, CEO of the T&T International Finance Centre, told OBG. “The government’s efforts should be focused on shortening the time needed to establish a company, making more reliable data available to the business community and improving Customs processes.”
T&T performed well in terms of starting a business, however, scoring 88.6 out of 100 and ranking 79th globally. This puts it ahead of the Latin America and Caribbean average of 79.6. Owing to its hydrocarbons production and low energy costs, it scored well on access to electricity, ranking 43 and scoring 84.3 out of 100. Indeed, it was the best ranked in the region for this category and well above the regional average of 71.7. It scored less favourably for paying taxes (53.5), registering property (46.7) and enforcing contracts (35.6), implying the need to make the country’s regulations and bureaucracy more agile. “The government needs to create an enabling environment to promote the private sector’s role in diversification,” Rocío Medina Bolívar, country representative for the Inter-American Development Bank, told OBG. “For example, the ease of doing business can be improved by simplifying administrative processes and strengthening the electronic single window for trade.”
The country’s potential for investment was highlighted in the World Economic Forum’s “Global Competitiveness Report 2019”, with a ranking of 79 out of 141 countries on the forum’s global competitiveness index, down from 78 in 2018. Although it fell by one place compared to 2018, T&T’s nominal score improved by 0.4% to 58.3.
The country also performed well in terms of macroeconomic stability (58th place, with a score of 89), health (78th place, with a score of 78) and the financial system (45th place, with a score of 68). The report emphasised room for improvement in terms of product market (122nd place, with a score of 46) and innovation capability (87th place, with a score of 34).
It performed well alongside more advanced economies in financial system metrics such as market capitalisation as a percentage of GDP and banks’ regulatory capital ratio as a percentage of total riskweighted assets, ranking 22nd and 23rd, respectively. It also ranked first in terms of inflation under the macroeconomic stability pillar, 16th for the costs associated with starting a business under administrative requirements and 21st in mobile telephone subscriptions under ICT adoption.
Despite challenges in the business climate, unemployment remains relatively low, at 4.7% in 2020, down from 4.8% in 2019 but up from 3.4% in 2015, according to the IMF. The labour force participation rate as a percentage of the population aged 15 and above was 60.2% in 2019, a decline from a high of 64.7% in 2005, according to the International Labour Organisation (ILO).
The labour force participation rate for females was 50.1%, down from 53.5% over the same period. Youth, however, can struggle to find a job, with the participation rate for those aged 15-24 at 39.1% in 2019, down from 43.7% in 2015 and a high of 54.5% in 2005. The ILO estimated that there were 669,324 in the workforce in 2019, up from 655,138 in 2015.
Wage growth was moderate in 2018, according to the CBT&T’s most recent “Annual Economic Survey” (AES). The median wage increase for the year was 3%, with wage growth ranging from 2% to 7% that year, compared to between 0% and 7% in 2017. Transportation, chemicals, petroleum, manufacturing and food processing saw the lowest pay increases, averaging 2%. Wage expansion slowed in distribution, petroleum, construction and food processing, but accelerated in finance and chemicals.
Overall wages received a boost in late 2019, however, with the minimum wage hike included in the 2020 budget. The new wage came into effect on December 1, 2019. The government also announced in October 2019 that it would establish a contributory pension plan for daily-paid public workers. Previously, these workers received a lump sum upon retirement. The new plan is expected to take effect in 2020.
Despite relatively low unemployment, there is room for improvement in terms of productivity. Labour productivity increased in 2018, with the index of productivity up 7.4% over the year, according to the AES. The central bank noted higher production levels over the year, even as fewer hours were worked in both energy and non-energy sectors. Overall, the index of domestic production increased by 4%, while the hours worked fell by 3.1%. The most significant rise in came from drinks and tobacco (26.3%); food processing (16.4%); manufacturing, which includes leather, ceramics, jewellery and other products (7.6%); and chemicals (4.1%).
In 2019 the Tobago House of Assembly established two new bodies to help the island improve productivity: the Tobago Productivity Council and the Public Service Academy. On a national level, the National Productivity Council (NPC) is responsible for improving productivity, competitiveness and quality awareness. The NPC helps the government formulate guidelines and strategies, and its members are drawn from academia, the government and civil society.
In October 2019 the CSO announced it would conduct the first individual economic census in Tobago in 2020. The census will shine light on the island’s businesses and their specific needs. Much of the data the CSO collects is nationwide, and the authorities hope the more targeted information will shine light on the intricacies of Tobago’s economy. The move was welcomed by business leaders, politicians and citizens, many of whom underscored the need for more tailored policies for the island.
It will be crucial for T&T to maintain the momentum towards recovery and diversification seen in 2019 in the coming year and beyond. The budget’s focus on boosting energy production and investing in education and training is expected to help the country address some of the structural challenges that hinder growth, and create a more sustainable and dynamic economy. However, this will need to be accompanied by long-term efforts to improve access to foreign currency, reduce bureaucracy and encourage greater private sector participation.