July 2017


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WHO DRIVES?

I do not rule out foreign direct investment in areas outside of Energy. It is important that we remain open to foreign direct investment. However, I do not see foreign investors as the key to the kingdom. Our firms also have to pursue investment opportunities overseas in financial services, energy services and food and beverage manufacturing. Foreign direct investment should flow both ways.

WHAT ABOUT GOVERNMENT?

Government has to get the macroeconomic balance right; it has to promote the right incentives and apply the right disincentives to shape private sector behaviour. It has to regulate markets efficiently, fairly and, in limited areas of strategic significance, it should be investor or co-investor in certain business opportunities. To use Eric St Cyr’s phrase, it must ‘hold the ring’ and allow the players inside to perform. Its role is active and dynamic, but in respect of developing and serving market demand, supportive and not leading.

LOCAL PRIVATE SECTOR

I am advocating strongly that our local private sector must lead the diversification effort across a broad front. I know this is likely to be controversial. Since the 1970s, the political directorate and the public service have not held the local private sector in high regard, and the feeling is largely mutual. It is why when oil revenues became available in the 1970s the Government stepped up to play the role of ‘prime mover’ in the economy. The relationship between the public and private sector is also overlaid with ethnic considerations – the elephant in the room.

My argument for the local private sector is pragmatic. The local private sector has better management capability, stronger marketing skills, superior discernment of business opportunities and access to some amount of capital. They understand the global marketplace, albeit mostly as importers, distributors and franchisees.

Their weaknesses are that, with few exceptions, they have not taken the risks of selling into or investing overseas, and they are largely oblivious to the need for R&D and technological innovation, because their businesses have never required them to be innovative. Many are completely reliant on government spending for their business success.

It is better for us to work with the private sector to overcome their weaknesses and enhance their strengths than to condemn them as merely parasitic and exploitative.

HOW DO WE DO THIS?

The first requirement is that we develop a sophisticated understanding of the global marketplace. We need to invest in the capability to discern trends in consumption in areas in which we may be interested. In order to accomplish this, we have to

(a) harness the Diaspora which is potentially significant not only as markets but also as providers of skills and knowledge, capital, and through their relationships, providers of access to markets for our goods and services;
(b) leverage relationships, personal, professional and through economic and commercial diplomacy; and
(c) monitor closely economic, social and political developments in China, India and Africa, as well as in our traditional markets in the USA, EU and UK. While government ministries – Trade and Industry and Foreign Affairs – would be integrally involved along with agencies such as ExporTT and InvesTT, the private sector should be engaged to collaborate in sharing intelligence and perspectives on products and markets.

The second requirement is that we invest in innovation for competitiveness. Innovation is central to competitiveness and competitiveness is key to successful economic diversification. We have to accelerate innovation and competitiveness on the basis of three initiatives:

(a) research and development activity within centres of excellence appropriately staffed, resourced and funded and which target specific areas of technology;
(b) supporting innovation by individuals and firms by providing support, training and guidance, and effective incubation; and
(c) institution of a system of governance which encompasses intellectual property management, commercialisation, and the management of research and development.
The third requirement is that we have structures for effective collaboration and where necessary coordination of initiatives between the Government and the private sector. I am hopeful that the Economic Development Advisory Board, along with agencies such as InvesTT, TTIFC and ExporTT, can play that role.

ALTERNATIVE PATHS?

There are certainly alternative paths to the mountain top of a diversified economy. A believer in industrial policy would not subscribe to my iterative, interactive process for identifying opportunities, but would identify those by other methods. She might argue that government must lead by investing in the areas identified, that there is no need for the elaborate scanning of the international marketplace, nor for collaboration with the local private sector.

There is much room for debate and discussion of alternative paths. I would merely point out that none is going to be easy.

FROM HERE TO THERE

Diversification requires planning and hard work across many fronts. It is going to be hard to achieve because first, we have to make the necessary adjustments to stabilise the economy. Unless and until the economy is stabilised, neither business nor consumer confidence will be sufficiently high to support the investments that will be needed to grow the economy.

Second, we have to overcome the powerful forces which would keep the economy highly dependent on oil and gas.

Third, diversification is dependent on what the private sector does or does not do. It is the private sector which has to step up, to change its mindset from commerce to industry, from focus on the domestic market to focusing on the global market, from avoiding risk in new ventures and technologies to taking on selectively and sensibly risks that could lead to expanding the portfolio of goods and services we produce which find their way into the global marketplace.

While some leaders in the private sector seem prepared to step up and step out, there are still too many who immediately and instinctively look to the government to spend oil revenues on projects or provide land for their projects which produce profits but which earn no foreign exchange, stimulate no innovations and are supported by banks which themselves prefer certain kinds of lending, take little or no risk.

Fourth, diversification will depend on trusting collaboration between the Government and the private sector and the cooperation of the labour movement as jobs are redefined and new industries emerge. I would like to position the Economic Development Advisory Board to assist in bridging the trust gap and the collaboration gap between the Government and the private sector and the labour movement. I think that that work of building bridges of understanding and collaboration, starting with small defined projects or interventions, is as critical to the success of diversification as getting the economic incentives and institutions right.

This is an abridged version of a presentation, Roadmap to a Diversified Economy, made by Dr. Terrence Farrell, Chairman of the Economic Development Advisory Board, in October 2016. For the full document, please visit the website at http://edab.org.tt/. Dr. Farrell spoke on the same subject at the Innovation Conference held at UWI St. Augustine.