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From boom to gloom and back
Citizens of this nation were regarded as the Arabs of the Caribbean in the days of economic boom four decades ago when surging commodity prices led to a dramatic improvement in the country’s fortunes.
Flush with wealth in those heady days of the mid-1970s and early 1980s, T&T revelled in its status as an upper-middle-income, oil-exporting country with the largest gross domestic product of the English-speaking Caribbean.
Oil prices quadrupled in 1973 and, as a result, T&T was able to consistently registered 9.6 per cent real annual growth rate over the next five years. Government revenues from oil increased from approximately 20 per cent of gross domestic product (GDP) in the early 1970s to 41 per cent by 1980 and accounted for 65 per cent of revenues by the end of the decade.
A significant drop in the unemployment rate and large balance of payments surpluses characterised that era of rapidly escalating national wealth, inspiring then Prime Minister Dr Eric Williams to famously declare: “Money is no problem.”
The Williams administration invested more than US$120 million in more than 50 major companies in oil, gas, aviation, agriculture, utilities and banking. The multibillion-dollar Point Lisas Industrial Estate was established and the construction sector benefitted as the State embarked on low-cost housing projects and infrastructural development.
However, it was not all wine and roses.
As the energy sector flourished, agriculture declined. It has not recovered since.
During that time, higher oil prices covered the country’s ever increasing import bill as citizens developed a taste for things foreign.
Then came the severe seven year recession of 1983 to 1989. Most of the gains of the oil boom were lost as a fall in international crude oil prices and domestic production led to a sharp fall in government foreign revenues. Sounds familiar?
The economy suffered steady decline: -2.6 per cent in 1983, -10.8 per cent in 1984, -6.5 per cent in 1985, and -5.1 per cent in 1986. From a high of US$3.3 billion in 1981, T&T’s international reserves dropped to less than US$500 million by 1985.
Those who were part of the work force at that time would remember the pain inflicted as a result of a 33.3 per cent devaluation of the TT dollar in December 1985. By 1987, the unemployment rate was as high as 17 per cent and continued to increase throughout the deep recession which persisted to the end of that decade.
Increasing national debt—it skyrocketed from $2.1 billion (10.9 per cent of GDP) in 1982 to $10.5 billion (48.9 per cent of GDP) in 1990—and depleted foreign exchange led to a standby agreement with the International Monetary Fund (IMF) in January 1989, under which some of the debt was rescheduled. What followed was the structural adjustment period of 1987 to 1991.
In those lean years, many citizens suffered a sharp decline in living standards. With many companies being shut down or downsized, some workers had their wages frozen and many more lost their jobs. Unemployment soared to 22 per cent.
Thanks to a resurgence energy exploration, production, and refining, the economy began to rebound. Real GDP rallying was at 3.1 per cent in 1991 and by the following year stood at 10.1 per cent. Foreign currency reserves increased but the country’s external credit account remained in deficit.
T&T’s next wave of economic prosperity began in 1994 and lasted 15 years, spurred on primarily by increasing energy commodity prices.
From 2002 to 2006 the economy grew at a rate of ten per cent annually, then slowed to 4.8 per cent in 2007. The economy shrank by 4.4 per cent in 2009, remained stagnant the following year, then contracted by 1.6 per cent in 2011, before recovering modestly from 2012 to 2014.
This latest recession, from which the country is only just beginning to emerge, was officially announced in December 2014 by then Central Bank Governor Jwala Rambarran who said there had been four consecutive quarters of negative growth. That year, the economy contracted by one per cent. There was a further decline of 2.1 per cent in 2015 and 2.8 per cent the following year.
I have gone into detail here, highlighting the booms and bust experienced since the early 1970s because it shows a very clear pattern. In all that time, T&T has remained very susceptible to external shocks, so while there have been good time, the propensity to shift from feast to famine remains.
Almost one-third of the country’s GDP is derived from the petroleum and petrochemical industries. Growth in non-oil sectors has been low to negative and contribution to GDP is shrinking. In 2016, those sectors constituted 66 per cent of GDP—down from 71 per cent in 2001.
Note that these economic cycles have continues from one political administration to the other. That is because successive governments have failed to pursue plans for economic reform and diversification, so those seasons of oil-dependent crisis are likely to return.
Diversification has been bandied about for decades. From as far back as the first decade after T&T gained Independence from Britain, the danger of heavy dependence on a single sector had been identified but nothing was done.
In this latest recession, more talk about diversifying has not necessarily led to urgently needed action on that front. A plan of sorts has been enunciated, with sectors ranging from the creative arts to the maritime industry identified as key platforms for the shift away from oil.
Finance Minister Colm Imbert has addressed it in all of his budgetary presentations to date but the country is yet to achieve lift off.
As it now stands, many sectors that have been neglected for decades, including agriculture, are yet to benefit from necessary policy and economic stimuli. Until that happens, the much-talked-about export driven growth that will finally bring about sustainable growth remains just a dream.
Slow or no movement toward diversification is potentially disastrous for T&T. It is time to heed the lessons of our closest South American neighbour, Venezuela, which continues to descend into economic and social turmoil although it sit atop vast energy reserves.
T&T does not have the assurance of any vast reserves of either oil or gas. What we do have are vast reserves of potential in many unexplored sectors. What we need is the political will to take that giant leap toward a vibrant and diversified economy—an economy with enough additional capacity to withstand any shocks that could come if energy commodity prices start dropping again.
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