Trinidad and tobago case study

Brief synopsis of the economic activity

❖ Trinidad and Tobago is an upper-middle-income petroleum-exporting country

❖ It is highly dependent on the world price of crude oil and natural gas for economic
growth.
❖ It has the largest total gross domestic product (GDP) of the Commonwealth Caribbean
❖ one of the highest per capita GDPS of the western hemisphere
❖ one of the highest standards of living in the developing world.
❖ In 2009, Trinidad and Tobago hosted both the Fifth Summit of the Americas (V-SOA)
and the Commonwealth Heads of Government Meeting (CHOGM).
❖ The country's GDP in 2012 stood at roughly US$ 26 billion at current prices,or about
US$ 20,000 per capita.

oil and gas industry

➔ Trinidad's economy now is based mainly on petroleum, whereas, in the past, the the
main economic mainstay was sugar.
➔ However, despite the overwhelming financial importance of petroleum,
➔ the industry employs less than 5 percent of the population.
➔ In 1950s, the government embarked on a programme of industrialization by invitation
➔ Which followed the Sir Arthur Lewis's model (see page 320).
➔ The Aid to Pioneer Industries Ordinance' was passed in 1950 to encourage industries

Diversification of the economy

★ Is now based establishment and development of new industries

★ And To make provisions for the granting of relief from and to customs duties income tax
Concessions that the Trinidadian government made

1. equipment for use factories was allowed to be imported duty-free for five to ten years.
2. Raw materials and semi-manufactured goods were also allowed into the country duty-
free to assist the new industries
* it was hoped would be encouraged to start.
3. Moreover, companies involved in starting up industries were given an income tax holiday
on all profits for five years, starting from the date of production.
4. Any losses the companies suffered during the tax holiday could be carried over into the
taxable period and claims made for them against taxable income.
The Industrial development corporation
❖ In 1968, the Industrial Development Corporation (IDC) was established in order to
facilitate industrial development by private enterprises
❖ This was done through the setting-up of industrial estates.
❖ Industrial sites were developed on land granted by the government.
❖ Such sites are found either near or within major towns, and close to main transport
routes.
❖ Cheaper rents were charged for sites away from Port of Spain in an attempt at
decentralization.
❖ Sites were granted on the coast for industries requiring direct access to shipping, as they
needed to import bulky raw materials.
❖ All estates were provided with internal roads, telephone Services and water and
electricity supplies.
❖ Training was Provided in the Government Polytechnic Institute and in the training
schools of the oil companies.
❖ This training continues to this day in the University of Trinidad and Tobago (UTT).

Problems faced in the past with industrialisation

➔ In the early years, when local capital was in short supply and investments were thought
to be very risky,
➔ most of the capital came from foreign investment,
➔ largely from the USA and UK.
➔ Industries also received assistance in the form of import restrictions on competing
goods.
➔ Different types of industries were established.
➔ Some relied on agricultural raw materials that were available locally.
➔ Others provided a commodity in demand locally
➔ some depended on site advantages for the assembly of imported raw materials.

➔ The industries covered a wide range of goods, such as :

1. metal products
2. household appliances
3. Foodstuffs
4. building materials
5. animal feeds
6. alcoholic beverages
7. motor vehicles and accessories.

The benefits of industrialisation in the country

➔ Increased industrial activity had a positive spin-off in generating work in the service
industries.
➔ Commercial and financial services increased
➔ demand for water, electricity, roads and communications grew.
 ➔ More people were employed and salaries were higher than those paid in agriculture,
especially the sugar-cane industry.
➔ Today, the major sectors of the economy are :
1. petroleum and petrochemicals
2. Construction
3. services
4. agriculture.
➔ Petroleum has fuelled the economy since the early twentieth century
➔ in 2012 still represented roughly 24 percent of GDP
➔ 80 percent of exports.
➔ Oil reserves at the current rate of extraction are expected to last approximately ten years
➔ but the country enjoys large reserves of natural gas.

➔ In 2009, the government had even considered building a rapid rail system
➔ They even started the construction of an aluminium smelter
➔ but this was eventually discontinued because of environmental concerns and the high
cost involved.
➔ Trinidad and Tobago is the most important exporter of oil to the USA from the Caribbean
Basin and the largest supplier of liquefied natural gas (LNG).
➔ Unlike most other Caribbean countries Trinidad and Tobago enjoys yearly trade and
balance of payments surpluses.
➔ Most of its trade is with the USA
➔ the country also maintains valuable trade relations with its CARICOM neighbours and
the EU.
In 1970s OIL BOOM

❏ The quadrupling of oil prices in 1973 revived the country's economy and was the
impetus for great in-dustrial change.
❏ The country benefited immensely from the energy crisis that followed the formation of
the Organization of the Petroleum Exporting Coun- tries (OPEC).
❏ The national treasury enjoyed a large balance of payment surpluses that stimulated the
economy at large and cut unemployment by half.
❏ Between 1974 and 1979 there was a 9.6 percent real- terms annual growth rate.

❏ New petrochemical plants, utilizing the country's natural gas resources, came on stream
in the early 1980s
❏ They included plants for ammonia, urea and methanol.
❏ These large industrial projects are located at Point Lisas Industrial Estate,
❏ These industries have provided Trinidad and Tobago with an industrial base that is
unmatched throughout the Caribbean
 The construction industry
❏ Construction is a major employer in the country
❏ the impetus for general economic activity, has expanded and contracted with the rise
and fall of the price of oil.
❏ During the oil boom in the 1970s and early in the twenty-first century, it expanded rapidly
❏ It contracted severely in the 1980s when the price of oil plummeted.

Financial services
★ Services, such as financial services and utilities, have also expanded rapidly since the
1970s
★ It has played a major role in the economy

Note: Tourism, in contrast to other Caribbean islands, hasn't developed.

How the oil industry undermined the agricultural sector ?

❖ Nevertheless the oil boom contributed to the has remained largely underdedemise and
underdevelopment of domestic agriculture,
❖ which declined by 25 cent
❖ Due to the resulting shortages of labour that migrated to towns and cities where wages
were higher in number in the public service.
❖ However, the fall in oil prices early in the 1980s encouraged the government to revive
the shrinking agricultural sector to some degree.

General benefits of the oil industry and the growth it brought to trinidad
1. citizens also benefited from a quality of life that surpassed that of not only most
other Caribbean islands but also of other western hemisphere oil exporters, such as
Mexico and Venezuela.
2. The country also enjoyed a literacy rate higher than Italy's
3. A high a per capita energy con- sumption rate one that exceeded the UK'
4. a per capita newspaper circulation above that of several western European countries.
5. The income distribution was also comparable to that of the USA
6. access to electricity and potable water was better than most developing countries.
7. Some of the country's surplus wealth was also used to assist its poorer Caribbean
neighbours.

When oil wasnt booming ?

 ● The downturn in oil prices in 1982 sent the economy into a deep depression in 1983
● that lasted until early the 1990s.
● In fact, the country experienced a coup in 1990.
● Negative growth peaked in 1984,
● when the economy contracted by nearly 11 per cent.
● In the late 1980 Trinidad and Tobago was in need of external financing from the
International Monetary Fund (IMF) and the World Bank (WB) in order to weather its
economy adjustment period.

● the country also suffered from the problems of more developed countries, such as
1. Pollution
2. entrenched labour disputes
3. obsessive consumerism
4. drug abuse

Private and public sector cooperation

★ The extensive role of the government in the economy

1.providing subsidies
2.transfers
3. joint ventures
★ between the state and the private sector
★ created an intertwining of the public and private sectors
★ that often blurred distinctions between them.
★ During the 1970s, the government purchased a share in over 50 major companies in
banking, insurance, agriculture, utilities and manufacturing.
★ As a consequence, the government became the largest single employer in the country.
★ The foreign and private sectors were regulated by the government
★ By the 1980s the country's mixed economy allowed for a level of government
involvement second only to that in Cuba among countries of the western hemisphere.

The oil boom of the 21st century

★ Excessively high oil prices of over US$ 100 a barrel in the first decade of the twenty-first
century
★ contributed greatly to the accumulated wealth of the country
★ permitted it to weather the impact of the international recession better than most
developing countries
★ to avoid the debt crisis that confronted its Caribbean neighbours.
★ Money was put aside in the Heritage and Stabilization Fund,
★ and there was sufficient discipline in public finance to allow the country to elude the fis-
cal crisis that confronted other oil-exporting developing nations, such as Nigeria,
Venezuela and Mexico,