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Here’s how T&T can compete

Sunday, May 20, 2018

There have been suggestions as to the industries which should engage our attention as we seek to diversify the economy. These include marine (with a port to service the traffic of the expanded Panama Canal and, more generally, the blue economy), agriculture (including our fine cocoa to which we can add our prize winning honey), financial services ( given our population of well-trained accountants), energy services for export, expansion of the on-shore manufacturers, support of start-up SMEs via the innovation fund, business process outsourcing, even the manufacture of aluminium motor car wheels, improved tourism and the creative industries.

This is quite a varied list. However, the philosophy is that every drop earned in foreign exchange goes to filling the bucket. Some commentators point to the industrial mix of Germany, which shows that some 68 per cent of that country’s export activities, the Mittelstand, comes from its SMEs, as a justification for such a diverse basket of industries. Import substitution is another string to the diversification bow, particularly food.

Still, the economic history of our country, even of the region, is one of the plantation where capital and technology are imported and the output commodities exported to earn the foreign exchange that the local private sector uses to import/markup/sell goods and services to the population.

Hence, diversification would be a major paradigm shift, one which for the past 50 years is recognised as being desirable given the volatility of our petroleum-based economy.

Yet it has not been achieved. Is this because of the rigidity of the private sector, its inability to adapt from sourcing/selling imports to exporting? Whatever it is, there has to be a government driven initiative to construct this new economy.

Evidence for this kind of initiative is the economic transformations of Singapore, Malaysia, Taiwan, S Korea that all depended on strong, determined and enlightened leadership of the respective governments.

The question then arises whether government policy should simply be that of a facilitator, for example, providing funding for serendipitous industrial projects of the population at large, eg the “i2i” of the PP Government—a sort of bottom up approach to diversification- or simply encouraging foreign investment?

The basic specification for our diversification as a small open economy is that we have to export to earn the foreign exchange we require, at least to fund the imports that we cannot/do not produce ourselves. Hence, in these export activities we have to be globally competitive and this differentiation is today achieved/maintained via the use of knowledge, its creation and invention/innovation in the products/services we export.

Therefore, one wonders if building a transshipment port locally in competition with Jamaica, Bahamas, Port Houston—Texas, Dominican Republic, Cuba, all clustered in the larger Caribbean area and/or a dry docking facility with the Chinese, make economic sense.

Maybe the real immediate opportunity is in the near-sourcing that reduces transport costs and time, given the rising costs of manufacturing in China, Asia.

There are three ways in which we can achieve such competitiveness: exploiting local comparative advantages, business conceptual innovation and by creating structured advantages.

T&T’s natural/comparative advantages include tropical agriculture, tourism, some oil/gas, culture, an educated and trained labour force with moderate wage/salary demands and even its location.

Business innovation is about the deconstruction and reconstruction of existing business, the use of existing technologies to create new Internet based businesses.

Structured advantage is the use of the results of R&D with the IP protection offered by patents etc.

What is important to note is that simply having a natural/comparative advantage or being able to do something does not make the country globally competitive in the associated industry.

For example, we indeed have a very fine cocoa, Trinitario, but apart from selling the beans on the global market, it needs more if we are to compete with the likes of Cadbury or Toblerone. We need in-depth knowledge, novel products and global market development and marketing.

Still, we have been told by Richard Baldwin in his book, “The Great Convergence”, that instead of an emerging economy building the whole value chain of an industry locally or even initiating it, the globalisation of the value chains by the developed economies (splitting the production process into different modules that are performed in various countries) allows the developing nation to join international production arrangements to become competitive and then industrialise by getting more good jobs inside the international value chain.

Moreso, the highest rewards in the value chain also goes to branding, market development and marketing. This is a natural advantage of the T&T on-shore sector; however, its market focus is local.

Hence, this on-shore sector is a prime choice for business innovation, its deconstruction and reconstruction to focus its activity instead on the regional and global markets.

Indeed, attaching oneself to a link on the global market chain based on local comparative advantage is a quick way to diversify into the export market.

However, in order to move up the reward value chain the developing country in the longer term has to have built its own structured advantage by indigenous R&D, innovation or by branding, marketing and sales.

The playbook for our diversification then is first to identify the natural advantages we possess and their possible uses as leverage to join related global value chains. It is interesting to note that the growing trade model of China with the developing countries, particularly Africa, is not about distributing its product value chain among these countries but in selling cheap goods and procuring from the developing countries, commodities (see Chinese Imperialism in Africa).

Together with this, joining a product value chain, we must start our R&D activity, which should aim at creating knowledge towards innovation into novel products and services.

The immediate task now is a selection exercise, foresighting, since our limited human and capital resources do not allow many disparate areas of endeavour, especially as competitiveness is maintained by R&D/innovation. This approach may be more structured than the serendipitous path, but it does not inhibit the loner who may have a world beating idea, a potential SME.

Still, it is important to note that countries that use knowledge as a competitive advantage are richer/capita that those that use, say, cheap labour.

St Augustine


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