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EFFORTS TO PREVENT THE RESOURCE CURSE PARADOX: CASE OF TRINIDAD AND TOBAGO. Ewart Williams 22 February 2013. Trinidad and Tobago: Our Location. Background.
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EFFORTS TO PREVENT THE RESOURCE CURSE PARADOX: CASE OF TRINIDAD AND TOBAGO Ewart Williams 22 February 2013
Background • Trinidad and Tobago is a small island in the Caribbean, with a population of 1.3 million. We are a small oil producer, with output currently at about 100,000 barrels per day down from a peak of 230,000 barrels per day in 1978. • Around the late 1990s, gas began to take over from oil as the major energy commodity and oil and gas combined now amount to about 800,000 bpd, oil equivalent. • In addition, the availability of natural gas has facilitated the development of a diversified downstream energy industry comprising methanol, ammonia and iron and steel plants.
Background (contd) 5 The energy sector makes a major contribution to GDP (now 44 per cent); to total government revenue (54 per cent in 2012) and to total exports (83 per cent). However, it employs only 3-4 per cent of the total labour force.
Background (cont’d) The energy sector has contributed enormously to Trinidad and Tobago’s economic and social development over the past five decades. • High oil and gas prices have led to long period of rapid economic growth. • This has led to a doubling in per capita income to US$16,000. • Poverty levels have declined markedly to around 17 per cent. • There have been major improvements in economic and social infrastructure, highlighted by significant investment in education, which has included free tertiary education.
Background (cont’d) • Foreign exchange reserves now stand at US$9.1 billion, the equivalent of close to 12 months import cover. • Buoyant energy revenues have reduced the need for government borrowing, leaving public debt at manageable levels. • Trinidad and Tobago has had a investment grade sovereign rating for most of the last decade.
Some un-intended consequences of the energy bonanza The management of the our energy resources has had a number of un-intended negative consequences. • The economy has been subject to booms and busts, with booms characterised by overheating, significant price and wage pressures and housing bubbles. • Downturns have seen sharp increases in unemployment, large fiscal deficits and stresses in the financial system. • The severity of the downturn in the mid-1980s, forced Trinidad and Tobago into a standby arrangement with the IMF.
Un-intended Consequences (cont’d) • Evidence points to some increase in income inequality. • Growth in the non-energy sector has come largely from non-tradeables, as manufacturing exports and tourism activity have stagnated and the agricultural sector has languished. • The abundance of energy revenues has prompted an erosion of the non-energy tax base and a proliferation of government subsidies, which have weakened the underlying structure of the public finances and reduced the efficiency of the economy.
Un-intended Consequences (cont’d) • Efforts to significantly ramp-up public investment have exposed weaknesses in project implementation and serious skills and management gaps in the public sector. • These efforts have led to cost overruns, a lack of transparency and actual or perceived corruption. • Complicating the Trinidad and Tobago situation is the fact that proven oil and gas reserves have declined markedly and there may be only 12 years of reserves. • Of course successful exploration could extend the oil and gas horizon significantly.
Un-intended Consequences (cont’d) • There is also the issue that market prospects for gas could be negatively affected by the expected expansion of shale gas in the US and elsewhere.
Trinidad and Tobago’s main challenges and Lessons for Mozambique Based on the Trinidad and Tobago experience, Mozambique should pay close attention to the following areas • Fiscal policy management, should, as far as possible, seek to maintain a counter-cyclical stance, keeping a close watch on the preservation of non- energy revenues, containing the growth of subsidies, insisting on value for money, including by avoiding make-work schemes, and taking steps to increase the level of project implementation. • It is important to have an efficient energy tax regime – one that maximises the government’s take, while providing adequate incentives for foreign and local investment. It is important to note that the energy tax regime should be specific to the energy product.
Trinidad and Tobago’s main challenges and Lessons for Mozambique • The development of a vibrant, competitive non-energy tradeable sector. • Promoting increased local participation in the foreign-dominated resource sector. • Sharing the wealth between current and future generations through some kind of savings fund.
