To the typical outsider, the mention of Trinidad and Tobago evokes an image of a twin-island tropical paradise of beaches and carnival lively enough to rival Brazil’s. But not everyone sees it that way. Indeed, some visitors – especially bottom-line business aficionados – get more excited about the country’s liquefied natural gas (LNG) and methanol plants than calypso beats.
To get a better idea, just linger in the lobbies of the best hotels in Port of Spain, the country’s seaside capital. There you will see big-league energy executives mingling before rushing off to meetings – or perhaps to the nearest helipad to get a better view of the country’s booming energy industry.
Economic growth
In large part, the energy sector is the main thing that Trinidad and Tobago, a country of 1.3 million people located in the eastern Caribbean basin, has to offer. In 2004, the economy grew for the 12th consecutive year, by 5.7%, following growth of 13% in 2003. This year will also be robust, with 6.5% growth forecast.
At present, the energy sector accounts for about 40% of GDP, according to government data. “We are in a period of heightened economic activity that is benefiting strongly from rising oil and gas prices,” says Shelton Nicholls, deputy governor of research and policy at the Central Bank of Trinidad and Tobago.
“Our economic fundamentals are sound, inflation is contained, we have strong international reserves and a low level of indebtedness.”
These days, energy expansion is concentrated in petrochemicals and LNG, especially as oilfields grow old and creaky. Much of the LNG is destined for local energy generation, the steel industry and the Atlantic LNG plant, which liquefies the product and ships it abroad, mainly to the US where it makes up for shortfalls at electricity plants (most are located in California). Increasingly, LNG is being touted worldwide, with analysts saying that it could eventually eclipse oil as the world’s top energy source.
A major advantage is that an improving global economy will secure demand for Trinidad’s energy exports. Over the next three years, the estimated capital inflow is set to total $3bn, thanks to two new methanol plants and major projects such as the Atlantic LNG “train”, which includes tankers, liquefaction facilities and regasification plants.
Good reserves
In all, Trinidad boasts about 33,000bn cubic feet of natural gas reserves, according to the government, with the amount of unproven reserves expected to grow in coming years. Overall, the reserves are small compared with Middle Eastern giants, but considerable for Trinidad and Tobago, with its land mass of just 5128 square kilometres.
The drive is also on to expand business in downstream products, which tap natural gas to produce methanol and ammonia, among other things.
“We are considered a model for other countries wanting to monetise their natural gas reserves,” says Vernon Paltoo of the state-run national energy corporation, which aims to develop and promote the sector.
“We know that it’s a finite resource that we can’t count on forever. In many ways, Trinidad should be seen as a model for responding to global challenges,” he says.
Cornell Buckradee of, the Tourism and Industrial Development Company of Trinidad and Tobago, agrees. “Just like they do in Saudi Arabia, we need to stop and think about how we’re going to use natural gas for other industries and add value to it, instead of just shipping it off,” he says. “That’s where our increasing involvement in downstream activity comes in.”
Hefty levels of foreign investment in the energy sector, most stemming from Canada, Europe and the US, have helped Trinidad and Tobago ride out external shocks, from Hurricane Ivan to the drop in tourism following 9/11.
International investment
Companies with weighty investments in Trinidad’s energy business include the UK’s British Petroleum, Australia’s BHP Billiton, Spain’s Repsol, and Canada’s Talisman and PCS Nitrogen. All are at the top of their field and cash-rich. Furthermore, energy and the new production plants that come with it have given impetus to a healthy construction industry, which means jobs, albeit low-paying ones.
While the positive benefits of the energy boom for Trinidad are clear to outsiders and top energy executives, ask the average Trinidadian about the country’s economic boom and they will have one question: Where, exactly, are those astronomical profits heading?
Part of the answer is that private companies, both foreign and domestic, pocket a big chunk of energy profits. With the sector contributing only about 3% to employment, the concentration of wealth generated by the sector is enormous.
“It takes lots of money to build plants for the energy sector, but not many people to run them,” says Mr Paltoo.
The government also stashes away a good share of the revenue it earns from energy sector taxes. This year, as in recent years, a record fiscal surplus is expected. Doubtless, the government is keen not to repeat past mistakes. In the 1970s, when Trinidad’s economy boomed on the back of high oil prices, subsidies accounted for the bulk of government costs. Little was put aside and a lot of cash was wasted through official corruption and “white elephant” projects.
This salutary experience has taught the government to save for a rainy day. In 1999, a revenue stabilisation fund was created, with the idea of cushioning any drop in energy prices. It is a common back-up employed by energy-rich countries such as Venezuela and Kuwait.
Volatility protection
“We get the bulk of our taxes from energy, so we must prepare for any volatility in this sector,” Mr Nicholls told The Banker from the Central Bank’s offices in Port of Spain. “With our fast-rising economy, we have to be wary of the ‘Dutch Disease,’ [referring to an oil-rich country’s tendency to subsidise non-energy sectors]. We plan to invest part of the stabilisation fund in international securities.”
Indeed, if oil and natural gas were to disappear from Trinidad, the country’s exports would collapse. A recent report by the Washington DC-based Inter-American Development Bank (IADB) underlined the point: “Even Trinidad’s relatively large comparative advantages are not significant enough to impede sustained competition from outside the Caribbean.”
For now, there is no serious threat of a fading energy sector. Even considering the eventual depletion of oil and gas, most commentators agree that leaders in the energy sector are taking the steps to transform the business so that Trinidad will become a long-standing player with a more diverse array of energy-related products.
Credit rating upgrade
Although some critics say that the government could loosen its purse strings slightly to help those excluded from the lucrative energy game, the government’s prudent policies generate kudos from outside observers. Trinidad’s foreign currency credit rating was recently upgraded a notch by credit agency Standard & Poor’s to BBB+, reflecting the country’s strong fiscal position.
But building a pool of resources does little to erase the idea held by many locals that the energy sector is only creating a population of haves and have-nots. Poverty and inequality remain major challenges, despite the country’s steady economic growth and its relatively high ranking in the United Nations Development Programme Development Index.
What is more, red flags appear when taking a closer look at the non-energy sector, which grew by a mere 2.9% in 2004. While the non-oil manufacturing industry is humming away in the background, backed by exports to Latin American and Caribbean neighbours, agriculture presents a growing worry. The sector was dealt a blow recently when a major state-owned sugar cultivator closed, leaving about 10,000 employees and 3000 sugar cane farmers out of work.
Following the trend in other Latin American and Caribbean countries, the government plans to redistribute land to the shut-out farmers under the condition that they will cultivate alternative, so-called “micro crops”. This means growing products such as hot peppers, peas and black pepper, in the belief that these goods will find a better-priced, more sustainable market overseas than sugar will.
A similar challenge confronts local flour mills, which continually operate at a loss as global competition heats up, despite efforts to diversify into the dry mix and pet food businesses.
On the surface, the alternative-crop programme may appear viable, but it has yet to be tested extensively in Trinidad. The shaky fate of thousands of sugar farmers and the general feeling that agriculture is being displaced by industry has many Trinidadian farmers believing that the energy boom is more of a curse than a blessing.
Long-term challenge
The government’s continuing challenge is to improve the outlook for non-energy workers and create long-term employment. One hope is that Trinidad’s calls for Port of Spain to become the headquarters for the proposed hemisphere-wide Free Trade Area of the Americas (FTAA) will be answered. This would give a fillip to the underdeveloped tourism industry, as hotel and resort developers would move in to accommodate visiting diplomats and deep-pocketed executives.
The government is already pushing for Spanish to be taught at elementary schools (it will become a requirement this autumn). However, the initiative goes beyond the FTAA, as increasing language skills can only help Trinidadians to build personal and professional ties with their South and Central American neighbours.
Meanwhile, a soaring crime rate remains the country’s top concern, affecting the general public and, some worry, threatening to erode investor confidence. Last year, yet another record was set for murders and kidnappings. In March, the authorities reported a total of 65 murders for the month, up from 51 in the same period a year ago. A weak judicial system, corrupt police, criminal gangs and drug trafficking – Trinidad and Tobago is a popular trans-shipment point for cocaine from Colombia heading to the US and Europe – provide some explanation for the current crime spike.
Top foreign executives and local business leaders – who are prime kidnapping targets – are joining the public in pressuring legislators to work together to tackle crime. Late last year, Christian Mouttet (who at the time headed Trinidad’s Chamber of Industry and Commerce) called crime the “single largest problem” facing the so-called Tiger of the Caribbean. “It is one factor that can derail our economic growth,” he added.
Unfortunately, politicians are not helping. Crime is increasingly used as a political tool in Trinidad, with the ruling People’s National Movement and the opposition and United National Congress more concerned about blaming each other for the problem than tackling it. If politicians continue to dither, they may yet see their long-term plan for maintaining Trinidad’s economic prosperity cut short.
