Trinidad & Tobago – Overview

POLITICAL

Political Structure Constitutional Republic/ Parliamentary democracy
President George Maxwell Richards
Prime Minister Patrick Manning
National Legislative Body
Bicameral Parliament, sits for 5 years
• House of Representatives (41 members) – elected by direct popular vote
• Senate (31 members) – 16 appointed by the ruling party, 9 by the President, and 6 by the opposition party. Major Parties (by seats in House of Representatives)
• Governing Party: People’s National Movement (PNM) – rightist (26 seats)
• Opposition: United National Congress (UNC) – centre-left (15 seats)
Last Elections
November 2007 (General)
January 2005 (Tobago)
Next Elections
General Election 2012
Press Freedom Survey:
• 2008 Score: 23 (0: Free; 100: Not Free) www.freedomhouse.org
Control of Corruption Index:
• 2007 Score: -0.19 (-2.5: Worst; +2.5: Best) www.worldbank.org

October 2008 Barbara Grinfeld

General Political Environment:

Politics in Trinidad & Tobago (T&T) are defined by ethnic cleavages. There are two major parties, and generally speaking Afro-Trinidadians support the ruling People’s National Movement (PNM) headed by Patrick Manning, and Indo-Trinidadians support the United National Congress (UNC).

From the early 1990s, Patrick Manning and Panday alternated in the roles of Prime Minister and Leader of the Opposition. In 2001, the UNC government collapsed under the pressure of internal dissidence. Elections were held but inconclusive results led to a legislative stalemate. Another election was held in 2002 in which the PNM prevailed and solidified its control of Parliament.

In September 2005 the UNC voted to replace long-time leader Baseo Panday with a new leader, Winston Dookeran. Despite this loss, Panday maintained his influence by refusing to relinquish his position as Leader of the Opposition. Panday was charged with corruption, and his insistence on preserving his status broke his party apart. In 2006, Dookeran formed the Congress of the People (COP) with dissidents of the UNC. Despite suffering high-level corruption scandals, the PNM retained power in the November 2007 elections. However, this was, at least in part, due to discord within the UNC and the COP capturing 23% of the popular vote.

All major political parties in T&T are supportive of market-oriented policies and favor foreign investment. However, vote-splitting along ethnic lines and a lack of cooperation between the parties on most issues, with the exception of security, there is an enduring threat of deadlock in the House of Representatives.

The government is under pressure to increase funding for employment and social programs. Government critics, including the local business community, have called for returns from T&T’s abundant oil and natural gas reserves to be directed to benefit the population at large.

Investment Environment:

Trinidad and Tobago offers one of the most favourable business environments in the Caribbean. Foreign investment is a central element of economic policy and is supported by the business and labour sectors. The country also has a well-developed financial sector. Personal security is an issue of mounting concern.

Foreign investors have, however, complained about a lack of transparency and delays in the investment approval process. T&T is a signatory to international investment dispute settlement mechanisms.

Scandals threaten to tarnish the country’s credibility with investors. In April 2006, Panday was convicted on charges of failing to declare a London Bank account while Prime Minister. In March 2007, the appeals court overturned the conviction citing ‘procedural issues that created an appearance of bias’. In 2008, corruption allegations are accumulating against Manning’s government. Transparency, including fair bidding procedures, is an issue for investors to note.

Political Violence:

Serious episodes of political violence are unlikely, but radical groups may engage in violent activities. The Jamaat-Al-Muslimeen (JAM) – the group behind a 1990 coup attempt –is a Muslim Afro-Trinidadian group with alleged links to Al-Qaeda, and was thought by some to have engineered a rash of small-scale bombings in 2005.

The principal issue facing Trinidad is the rise in violent and petty crime and its potential to act as a disincentive for investment. Kidnapping rates eased in 2006, but are rising in 2008. Several high-profile business families have been the victims of kidnap/murder. Both local and foreign businesses are exposed to violent crime. Drug trafficking and related gang activity in low income areas are the primary factors.

 

Political Outlook

Manning’s electoral victory combined with the PNM’s relatively stable parliamentary majority and a strong economic outlook will ensure policy continuity in the near future. The PNM needs to address the pressing issue of rising crime levels, particularly the increase in kidnappings. Failure to rein in crime and deal effectively with corruption has led the business sector to become a more vocal critic of the government. Given Trinidad and Tobago’s demographics, ethnic divisions and tensions will remain part of the islands’ political culture and pose a challenge to governance in the country for the foreseeable future. Prudent management of oil sector windfalls, natural gas exploitation, and economic diversification would mitigate those challenges.

 

Economic

Credit Agencies
Moody’s: Baa1
S&P: A
Fitch: —
Nominal GDP (USD, 2007)
USD21n
Population (2007):
1.3mn (estimate)
Merchandise Trade / GDP:
92%
Currency: Trinidad and Tobago Dollar
Exchange regime: Managed Float
Merchandise Exports from Canada (2007):
CAD210mn
Main sources of Foreign Exchange (excl. FDI):
Fuels
Largest Merchandise Export Destination (2007):
US (60%)
Main imports (2007):
Intermediate Goods (18%)
Consumer Goods (16%)
Risks to the Outlook
Higher than anticipated energy prices.
Lower than anticipated energy prices.

August 2008 Geoff Stone

Market Spotlight:

Canadian exports of goods to Trinidad and Tobago have risen 20% ytd (up to June) and have increased an average 20% in each of the last three years. ■ GDP growth has averaged an impressive 9% in the 5 years ended 2007 and should average 6% in 2008-09. ■ Inflation is the highest it’s been since 1994 and the unemployment rate has plummeted. The economy is overheated and skilled labour shortages / high construction costs could constrain investment going forward.

Real Economy:

GDP growth was an estimated 12% in 2006 and 5% in 2007. Growth prospects remain positive with annual increases over the medium term of 4-7% annually. Government spending has increased considerably and should continue to do so, supported by energy related revenues. Investment in heavy industries offers considerable prospects as the country leverages its energy resources (including the supply of energy/feedstock needs for steel, potentially aluminum and downstream chemicals production). But with gas reserves equal to only 12 years of current production (BP, 2008) the government is working to further diversify the economy into ICT, finance and tourism. Skilled labour shortages / high construction costs could be a near term constraints, but the greatest long term risks are a sustained plunge in natural gas prices or continued drop in reserves. Last year oil and natural gas production were 154bps and 39bcm respectively.

Monetary:

The Central Bank has maintained a de facto peg of US$6.3 since late 1997. Fundamentally the currency should be appreciating but it is unlikely to move up or down in the medium term. Inflation continues to rise and the Central Bank has tightened monetary policy. A rapid reversal of inflation is unlikely considering higher food prices and the booming economy, including government’s spending plans.

Fiscal:

The government is rated investment grade by both Moody’s and S&P and public sector net debt is very low. 2008 Q1 government revenues were up 64% y/y while spending rose 25%; the government maintains a moderate surplus position while contributing to the Heritage Stabilization Fund (now equal to approximately 10% of GDP). Revenues are up on increased prices and production of energy related products. The boom is driving significant spending increases which are likely to be sustained over the medium-long term as the government pursues its Vision 2020 plan, which seeks to secure developed nation status. Given rapid economic growth and low unemployment rate there may be capacity constrains within the government that limit its ability to execute its spending plans. The non-energy deficit is significant, and gas reserves finite, thus the need to diversify the economy while building government savings. The latter is being pursued via contributions to the HSF.

External:

T&T has ample hard currency reserves and a massive current account surplus. Foreign exchange earnings rely heavily on exports of natural gas but there is wiggle room if natural gas prices were to fall. T&T is the largest supplier of liquefied natural gas to the US and a global player in the exporting of ammonia and methanol. Inbound foreign direct investment is significant and is expected to remain so.

Outlook:

Trinidad and Tobago remains one of the safest sovereign risks in Latin-America. The country’s high level of exports flowing from oil, natural gas and related downstream industries allows for significant fiscal flexibility. Over the medium term, FDI flows of about US$1 billion annually will help boost export capacity which will continue to support the country’s debt payment capacity and industrial development. Energy intensive industries are likely to be attracted to the country by the abundance of energy resources and the government’s aim to diversify its industry. On the downside, violent crime, such as kidnappings, poses a threat the government’s economic diversification plan.

Sources: EDC, EIU

NOTE: This is a partial repost of the original report made by the Economic Development Bank and is meant to be information shared only with the members of Caribbean Entrepreneurs Association Online (CEAO).

The Caribbean Entrepreneurs Association Online (CEAO) assumes no liability for the accuracy and reliability of the market information and intelligence provided herein.

D.R. Ramsundar

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