A major expectation of our Prime Minister is that the expenses of the Summit of the Americas and the upcoming Commonwealth Heads of Government Meeting (CHOGM) to showcase this country will attract more foreign investment to T&T in our thrust towards economic development.
This column has championed the call for economic development, diversification, and in particular the establishment of a national innovation system as the catalyst for producing a knowledge-based economy that will provide good jobs for our people, and continue to increase the productivity of both labour and capital. If this is the definition of our Government’s Vision 2020 diversification call, then foreign investment inflows must somehow facilitate any such diversification.
We have indeed depended on foreign direct investment (FDI) for the development of the energy sector and a pre-requisite for this investment was that the companies would be adequately compensated. The present dilemma facing our Government is that the petroleum-bearing countries are competing for FDI in oil/gas exploration and subsequent production. With the increasing cost of operating in, for example, deeper waters (given that the easy-to-get petroleum is done) the oil/gas companies are looking for better financial conditions in, say, our production-sharing contracts. This will translate into less of a take for our Government. The Government knows this, Big Oil in T&T knows this, yet the negotiations to fix the new conditions appear to be at a stalemate.
If the Government’s view of diversification of the economy is to expand the energy sector then FDI is a crucial ingredient of its Vision 2020. This column in defining our economy as plantation sees instead that economic diversification must be aimed at the on-shore non-energy sector while we optimise the use of our depleting oil/gas resources in this era of climate change.
Prof Michael Porter (supported by our own Willie Demas) recognised that FDI can play a part in economic development but warned that it is local investment that sustains this development. Prof Porter concludes that Ireland’s economic development miracle was oversubscribed by FDI and in so doing has put its long term development at risk.
But why should FDI be attracted to a country, particularly a developing country, so much so that these countries consider this an achievement? FDI can be classified as extractive or resource-seeking to exploit natural resources like in T&T, or market-seeking or domestic-oriented investment that focuses on the domestic market of the host country (Japanese investment in the US and vice versa), export-oriented investment that seeks to use the country as a platform from which the firm produces for export to regional or global markets (eg investment by the US into Ireland to exploit the EU market), or factor-driven investments where a multinational invests in a foreign country to benefit from lower production costs.
Our Government is at least looking for the first of these options to further exploit oil and gas. Also, its intent to invest in aluminium smelting is a repeat of the Pt Lisas model, Porter’s investment stage. As before, this will not be globally competitive (like South Korea’s model) without mastering the technology and subsequently via innovation, improving it and creating new knowledge (as China did). However, the Government’s Vision 2020 must also include the separate expansion of the on-shore sector.
Minister Mariano Browne is of the view that the development of the on-shore sector is a task for the local private sector. He is not taking into account the business culture of this sector engendered by the plantation. Yet there is the possibility that the Prime Minister, encouraged by the hosting of the two international meetings, is hoping that the non-energy sector will also benefit from this investment. This view is supported by the EtecK-driven Tamana Park that is (was?) being built to house foreign companies.
However, it is illogical to assume that investment will be attracted to T&T because of the size of its domestic market or as a platform to export into the region or the rest of the world (WTO, NAFTA etc have put paid to such hopes) or to benefit from lower production costs (our salaries and wages are not competitive with China or India). Also we do not have the fourth level people who would attract a Silicon Valley spin-off.
Further, Hausmann et al in ’Policies for achieving structural transformation in the Caribbean’ remind us that T&T is operating on the periphery of the global product-space and that the skills that we may have developed in the energy sector are of no use to us outside of that sector. Without a specific intervention, such as the implantation of the Innovation Diamond, the market alone will not force economic development on-shore.
