Transcript Trinidad and Tobago`s main challenges and Lessons for Mozambique

EFFORTS TO PREVENT THE
RESOURCE CURSE PARADOX: CASE
OF TRINIDAD AND TOBAGO
Ewart Williams
22 February 2013
Trinidad and Tobago: Our Location
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Background
1.
2.
3.
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.
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Background (contd)
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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.
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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.
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Economic Contribution of the Energy Sector
/per cent/
1992
2002 2012
Energy GDP/Total GDP
26.2
28.3
43.7
Energy Revenue/Total Revenue
29.8
23.4
54.3
Energy Exports/Total Exports
68.4
75.7
80.01
Energy Sector
Employment/Total Employment
3.8
3.3
3.62
1 Estimate for 2012
2/ For the first quarter of 2012.
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Background (cont’d)

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
Foreign exchange reserves now stand at US$9.1
billion, the equivalent of close to 12 months import
cover.
Buoyant energy revenues have reduced the need
for government borrowing, leaving public debt at
manageable levels.
Trinidad and Tobago has had a investment grade
sovereign rating for most of the last decade.
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Selected Economic Indicators
Trinidad and Tobago
Real GDP Growth (%)
4.9 (Average 2000-2012)
Energy (%)
7.6 (Average 2000-2012)
Non-Energy (%)
3.5 (Average 2000-2012)
GDP per Capita (US$)
16,000 (2011)
(y-o-y: December
2012)
Inflation Rate (%)
7.2
Unemployment Rate
(%)
5.4 (Mar 2012)
Population (millions)
1.3 (2012 )
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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.
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Un-intended Consequences (cont’d)
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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.
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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.
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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.
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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 nonenergy 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.
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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.
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END OF PRESENTATION