Trinidad and Tobago’s manufacturing sector is the largest in the English-speaking Caribbean. In 2016 it was expected to represent 7.8% of total GDP, with total output worth an estimated TT$8.29bn ($1.2bn), according to the government’s estimates in the “Review of the Economy 2016”. This made it the third-largest sector of the economy after the energy and services industries. Approximately 47,700 people, or 7.3% of the total active labour force, are employed in manufacturing.
Structure & Background
T&T’s manufacturing growth has been based on a number of competitive advantages. These include cheap electricity and natural gas, two international ports that are well served by shipping lines and good availability of local or imported raw materials.
Of additional importance is a captive domestic market and relatively easy access to regional markets through trade agreements such as T&T’s membership of the 15-nation CARICOM. Non-energy exports account for around 15% of total exports.
Locally based manufacturing companies account for a significant share of those overseas sales, with a focus on meeting the import needs of other neighbouring Caribbean islands, although attempts are being made to push out further, diversifying into Central and Latin America.
The food, beverages (F&B) and tobacco industry accounts for more than half (58%) of T&T’s total manufacturing output. The segment includes the production of alcoholic beverages, carbonated beverages, juices, cereals, chocolate, confectionery, canned foods, baked goods and tobacco products. There are an estimated 270 companies active in this segment, employing more than 11,000 staff. Many international brands are locally represented, including Nestlé, Unilever and Coca-Cola.
The government and InvesTT, its investment promotion agency, have been eager to encourage more companies to join local manufacturing. To this end, a variety of incentives are on offer. These include a free industrial zones programme, and offering tax reductions and exemptions for export-focused investors in local manufacturing. Other fiscal incentives include some Customs duty and value-added tax (VAT) exemptions for large-scale manufacturing or processing companies. New manufacturing ventures may also qualify for duty-free importation of raw materials, machinery, equipment and packaging. A total of 3485 ha have been earmarked for industrial and business development.
There are 19 industrial parks in the country, including Cove Eco-Industrial and Business Park in Tobago (57 ha) and Tamana InTech Park in Trinidad (445 ha). Plans are also progressing for the development of Piarco Aeropark Park near Port of Spain’s main international airport (68 ha).
A further 617 acres have been allocated for the development of a Solar Industrial Park, intended to host companies involved in the production of photovoltaic solar panels, although the timeline for this development remains uncertain.
Manufacturing GDP
In its annual review of the economy for 2016, the Central Bank of T&T estimated that manufacturing GDP contracted by 5.7% in real terms, which contrasted with a 1.6% expansion in 2015, but chimed with the previous two years of contracting output in 2013 (-2.4%) and 2014 (-3.4%). These were preliminary figures, for the calendar year, subject to later revision and updating.
Largely responsible for the modest upturn in 2015 was the F&B and tobacco segment – the largest in manufacturing – which registered a year-on-year (y-o-y) drop of 1.1%. By contrast with 2015, when there were gains by citrus and other fruit and vegetable processors, for breweries including wine, bakeries, grain and feed mills, and printing and publishing, only the latter increased its output in 2016.
Weaker segments included assembly type and other related industries, iron, steel and metal products, and textiles, garments and footwear – which continued their downward trend of the past few years. The iron and steel industry was particularly hard hit, with a 97.3% decline in production volume from 1.4bn tonnes to 37.4m tonnes from FY 2015 to FY 2016. Difficulties over low international prices, coupled with equipment and supply disruptions, led to lower output levels at ArcelorMittal, T&T’s only iron and steel plant, and an end to its operations in Trinidad in March 2016. “While the challenging environment has resulted in increased competition for a shrinking pie, manufacturers that have invested in their facilities and increased the standard and variety of their products have continued to prosper,” Lucy Walsh, managing director of Unilever, told OBG.
Industry Performance
Perhaps due to a range of outcomes in the different segments within manufacturing, there were a variety of opinions about the current state of the market. “The sector is not doing too bad, but it is not doing great either,” Ramesh Ramdeen, CEO of the T&T Manufacturers’ Association (TTMA), told OBG in 2016. “I haven’t seen any significant slowing down in the manufacturing sector. A number of our companies continue to manufacture for export purposes. Consumption patterns [in T&T] have slowed down somewhat but not to the extent that we need to have operations idle.”
Rolph Balgobin, the TTMA’s former president, made a similar assessment. “Manufacturing is not downsizing. We are consolidating and we continue to do some hiring, so while others pause, we are pressing ahead,” he told local media in September 2016. TTMA officials have also pointed out that slower growth is an opportunity for companies to re-tool and position themselves for cyclical recovery. There is a historical precedent: the country’s three major manufacturing conglomerates are all said to have taken key long-term expansion decisions during the downturn phases of earlier economic cycles.
Manufacturing in the country was positioned to grow over the next five years, Ramdeen told OBG, not least because it was helping to meet the country’s top challenge: the need to diversify away from excessive dependence on the hydrocarbons sector. The TTMA has been assessing a range of potential new export markets, including Venezuela, Cuba, Guatemala, El Salvador and Panama. In short, T&T needs to earn more foreign exchange.
Through its exports, manufacturing was the country’s second-largest foreign currency earner, coming after the energy sector and ahead of the services sector. Ramdeen believed that with a concerted effort, manufacturing might grow from the current 8-9% of GDP to 15% over the next three to five years.
Obstacles
The sector did face a number of constraints, however. Local companies could produce competitively priced products “at the factory gate”, but beyond that point costs increased because of issues such as inefficient transport, slow Customs procedures and a high crime rate. The TTMA has said that growing traffic congestion limits the number of containers that can be moved to port on any given day. Around 10 years ago it was possible to move five containers a day by road to key ports. Now, because of heavy traffic, the average is no more than two containers a day. While the TTMA acknowledges government efforts to simplify export procedures and strip out red tape, for example by introducing the single electronic window (SEW) – an online Customs, trade and tax portal – the SEW’s functionality is still regarded as less than optimal.
The manufacturing sector as a whole is a net foreign exchange earner, but many companies with import needs – for raw materials or for machinery and equipment – have found it difficult to access the necessary foreign exchange to pay for their overseas purchases in a timely manner. There are also complaints of delays in the payment of VAT refunds due to exporting companies.
Gabriel Faria, CEO of the T&T Chamber of Industry and Commerce (TTCIC), told OBG that local manufacturing companies were facing a number of challenges. The all-important F&B sector was facing a marginal fall in demand – because of the economy-wide recession – but more significantly, was also facing rising costs, as the government increased national insurance contributions and other taxes such as the business levy. In 2017 the government introduced the so-called “millionaire tax” – a higher, 30% personal tax rate on individuals earning more than TT$1m ($149,000), coupled with a higher tax rate on company profits exceeding TT$1m. The re-introduction of a property tax, which had not been levied since 2009, is also scheduled for 2017. While there was general acceptance of the need for austerity and support for the concept of a property tax, Faria said a degree of ambiguity over how properties would be assessed for the tax, and what the tax rate would ultimately be, was generating some uncertainty for local businesses. “Combining these factors, what we are looking at is a squeeze on profits,” Faria told OBG.
Creative Industries
Government and business leaders believe there is scope for the country to develop a series of niche export markets that are linked to the creative industries. While many of these involve the development of services, some have a specific manufacturing component.
In 2013 the government established T&T Creative Industries, known as CreativeTT, with a brief to stimulate and facilitate the business development and export activities of the creative industries. CreativeTT, in turn, set up three subsidiaries, focused respectively on the music, film and fashion industries, and known as MusicTT, FilmTT and FashionTT.
T&T’s burgeoning film industry has seen it host more than 320 separate international productions, and interest in the country as a film destination appears to be growing, with more than 14 international film crews arriving on the dual-island nation in January and February 2017 alone.
Proposals to strengthen production infrastructure and further raise the international profile of the film industry are currently in the pipeline. In consultation with FilmTT, the Ministry of Trade and Industry and InvestTT are studying the feasibility of developing a production facility with between three and eight sound stages ranging in size from 185 sq metres to 1858 sq metres (see Guide).
FashionTT
In December 2016 Lisa-Marie Daniel, the general manager of FashionTT, announced that under an agreement with the University of T&T plans were in hand to set up a local garment production facility, intended to support local fashion designers. While there were already a number of small production facilities operating in the country, the intention was to introduce something with larger capacity. Daniel said the intention was to develop a business plan – with the help of Raymond Wong, a professor at the Fashion Institute of Technology in New York – based on making the facility self-sustainable within its first three years. “We’re trying to put T&T on the map from a fashion industry perspective because we have a lot of skill and creativity here locally,” he said.
Foreign Currency Issues
The availability of foreign exchange continues to be a specific issue for the manufacturing sector. The overall problem is caused by the steep fall in oil and gas prices, which means that T&T’s hard currency earnings have dropped drastically. Private sector demand for foreign currency has been exceeding supply. Under the managed currency float regime, the central bank has allowed a gradual depreciation of the T&T dollar, but this price adjustment has not been enough to fully balance hard currency supply and demand. In the year to October 2016, for example, the T&T dollar depreciated by 6.1% against the US dollar to reach an average of TT$6.75:$1. In those 12 months, a total of $5.91bn was sold to authorised foreign currency dealers, a 25% y-o-y decline. Of that total, $1.46bn was sold by the central bank – a 47.4% fall from the same period for the previous year, reflecting the central bank’s desire to safeguard its existing foreign currency reserve levels.
This has meant that some manufacturing companies, seeking to buy foreign currency to pay for imports of raw materials or equipment, have been placed in a queue by their banks, or have been subject to a de-facto form of rationing, where they are offered less than the requested amount.
Companies that rely on imported raw materials can have as much as 30-50% of their total costs in foreign currency, so the issue is considerable. In December 2016 Shiva Roopnarine, president of the Penal/Debe Chamber of Commerce, said many of his members had been placed on lengthy waiting lists to access foreign currency. This was forcing some companies to use credit cards to pay for small-scale imports, incurring costly charges. “We call on the banking sector to immediately correct this dilemma, assist us in conducting our business, and end this banking monopoly,” Roopnarine said.
Faria told OBG he sympathised with the authorities and understood their need to manage the rate of currency depreciation. In his opinion, if an entirely free float was allowed, the national currency might depreciate to as much as TT$10:$1, which would cause financial turbulence and a sharp rise in domestic inflation. However, he argued that a slightly more rapid rate of depreciation than the one currently in place might be preferable, to help relieve some of the foreign currency problems encountered by private sector companies operating in the country.
Competitiveness Is Key
Plans to expand total manufacturing output in the twin-island republic depend on improving the sector’s export performance, and this, in turn, requires local industry to be more internationally competitive.
One widely recognised measure of competitiveness is published in the annual global competitiveness index (GCI) compiled by the World Economic Forum. In the 2016-17 edition, T&T ranked 94th out of 138 countries surveyed, five places lower than the previous year. In the last five years T&T has fluctuated in the rankings in a declining trend. In the 2012-13 edition of the index it ranked 84th out of 144 countries. Compared to its immediate Caribbean and Latin American neighbours, T&T now lags behind Panama (42nd), Mexico (51st), Colombia (61st), Barbados (72nd), Jamaica (75th), Guatemala (78th) and the Dominican Republic (92nd), but is ahead of countries including Nicaragua (103rd), El Salvador (105th) and Venezuela (130th).
A country’s GCI score is calculated on a scale of 1-7 by assessing 12 main pillars each composed of a number of subcategories, themselves a combination of hard data and business survey scores. The 12 pillars are divided into three groups. The first – basic requirements – focuses on institutions, infrastructure, the macroeconomic environment, and health and primary education. The second group are described as efficiency enhancers and focus on higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness and market size. The third group are known as innovation and sophistication factors and cover two pillars – business sophistication and innovation.
In the 2016-17 report T&T performed better than the Latin American average in areas such as infrastructure, health and primary education, and technological readiness. Unfortunately, it was notably below the average in terms of macroeconomic environment and market size. Compared to global average scores, the country performed best in technological readiness (ranked 50th), infrastructure (54th), health and primary education (61st) and financial market development (also 61st). Compared to its global ranking, T&T lagged furthest behind in terms of its macroeconomic environment (114th), institutions (107th) and innovation (105th). Looking at the sub-categories, the country’s poor score for the macroeconomic environment pillar seems to be primarily due to poor scores for the government budget balance and the gross national savings rate, both expressed as percentages of GDP.
Doing Business
The annual GCI report also includes an executive opinion survey in which respondents are asked to rank the most problematic factors for doing business. The most mentioned of these factors was a poor work ethic in national labour force, identified by 19.8% of respondents, followed by corruption (14.4%), inefficient government bureaucracy (13.9%), crime and theft (11.9%) and foreign currency regulations (10.7%).
Another important assessment of the operating environment for the manufacturing industry is provided by the World Bank’s annual “Doing Business Report”, which is based on a survey of the ease of carrying out basic business activities within a particular country. In the 2017 edition, which was published by the organisation in October 2016, T&T was ranked 96th out of 190 countries, down from 88th out of 189 countries in the 2016 survey. This survey is based on analysing 11 main areas of business regulation: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority shareholder interests, paying taxes, trading across borders, enforcing contracts, resolving insolvency and labour market regulation.
The latest survey results showed that T&T earned the highest scores for getting electricity (31st), getting credit (44th) and protecting minority investors (53rd). However, the country was weaker in areas such as enforcing contracts (168th), registering property (150th), paying taxes (145th) and trading across borders (123rd).
The low score for trading across borders is particularly relevant at a time when the manufacturing sector is looking for export-led growth. According to the World Bank’s analysis, gathering the required documentation to export takes an average of 32 hours and costs $250. Customs procedures take an additional 60 hours and cost $499 on average.
Industrial Relations
Various stakeholders have called for T&T’s industrial relations (IR) framework to be reviewed and updated. Some, including employers, favour the modernisation and reform of existing provisions, most of which date back to the 1970s. Ahead of the September 2015 elections, the People’s National Movement party – led by Keith Rowley, who subsequently became prime minister – signed a memorandum of understanding with the main labour union umbrella organisation, the Joint Trade Union Movement (JTUM), where both sides committed themselves to holding meaningful negotiations including a review of existing IR regulations. This was, however, not thought to be as far-reaching as the employers, who have also submitted a clear reform agenda, would like.
Employers say that existing legislation is designed to preserve the rights and power of trade unions as opposed to employee rights. It makes it difficult for private firms to respond to the recession with what they see as the appropriate combination of wage restraint, flexibility on terms and conditions, and organisational change.
Some of the regulations now being criticised were brought in to reduce a wave of industrial disputes in the 1970s. Owing to the fragmented negotiations and wildcat strikes experienced then, regulations still on the statute book are designed to reduce the number of participants in any dispute. In the view of many employers, they achieve this by giving unions disproportionately greater negotiating power.
In order to obtain official recognition, a trade union has to show it has the support of over 50% of the employees in what is known as a bargaining unit or community of interest – a group of workers with similar functions. Once a union is approved, it then becomes a recognised majority union (RMU), which has near “closed shop” powers: it is deemed to represent all employees – even those who did not want to join it in the first place.
The contract of employment is not directly between the employer and the employee, but between the employer and the RMU. This means that disciplinary and other issues cannot be resolved directly by management on a one-to-one basis with the employee concerned, but must instead be negotiated through the union, often through lengthy and adversarial procedures. It also means that employees cannot negotiate their terms individually, and can only do so through the RMU. Employers say that this can prevent them from dealing in a timely and effective manner with productivity-related issues.
Wages
The issue of wage restraint is sensitive. Despite the recession, unions have continued to insist on annual increases in wages and allowances. Wage increases are usually set for three-year periods. A suggestion in November 2016 by Colm Imbert, T&T’s finance minister, that a three-year settlement for 2017-20 with the public service unions should be based on a 0%-0%-0% formula was widely criticised by the unions, and the opposition parties. It was interpreted as representing a wage freeze, embarrassingly for the government only weeks before local elections were due to be held.
Rowley notably did not support his minister on this issue, saying that no 0%-0%-0% offer had been made. Imbert himself later called a news conference to insist that his comments did not mean he was calling for a wage freeze. The implication was that for political reasons, and to preserve its relationship with the labour unions, the government might feel more comfortable with settlements that were based on small nominal wage increases.
Mediation
From the private sector employers’ point of view, this environment creates pressure on them to award higher wages than they might otherwise contemplate. If a private sector employer and its RMU fail to reach agreement on a three-year wage deal, the issue becomes subject to mediation by the Ministry of Labour. If that fails to produce a settlement, the matter is referred to the Industrial Court (IC) for adjudication. Many employers believe the IC’s judgements, which are retroactive, tend to be unduly weighted in the labour unions’ favour.
In December 2016 criticism of the role of the IC led to it filing contempt of court charges against three senior executives of the TTCIC. According to newspaper reports, during a TTCIC discussion panel Frank Mouttet, one of the executives named in the charges, had blamed the court for low productivity levels in the country, and said it was difficult to dismiss any employees there because of the IC’s record of judgements in wrongful dismissal cases. He was also quoted as saying that the court had been “harsh and oppressive” in its judgements against employers and in favour of unions and employees. The contempt of court charge came after the IC had earlier warned, “boundaries between criticism and seeking to influence outcomes must not be blurred”. Deborah Thomas-Felix, the IC’s president, rejected claims of bias, saying that between 2011 and 2015, the total percentage of judgements in favour of employers was 54.9%. JTUM has now been joined as an interested party in these proceedings.
However, Nirad Tewarie, CEO at the American Chamber of Commerce of T&T told OBG, “Right now, there is not the kind of predictability and linkback to impact on the operations of the company that we think was intended when the court and its rules were set up. We’ve had examples from companies, from owners, who say it is difficult to deal with issues of discipline and issues related to productivity on the job, and that those things are affecting their ability to run their businesses profitably.” Diana Mahabir-Wyatt, of HR consultancy PMSL, told OBG that existing employment legislation has anomalies that can create imbalances on both sides of industry. She gave some examples. While some unions have negotiated generous compensation packages for laid-off workers, employees of the local ArcelorMittal steel plant, which closed in March 2016, received no compensation, because of a loophole in the law which exempts companies in bankruptcy proceedings from the obligation to make such payments.
However, the Occupational Safety and Health Act offers the option of refusal to work in a specific area where life or severe harm is threatened. The workers can be assigned elsewhere in the business. The ambiguous wording of the act gave the more militant trade unions a pretext to call multiple stoppages.
Steel Plant Closure
International steel company ArcelorMittal operated a major plant in the Point Lisas Industrial Estate, taking advantage of low local energy costs for gas and electricity to import direct-reduced iron from mines in Canada and Brazil, and to process it into steel billet and wire rods for domestic markets and re-export. However, during 2015 the fall in international steel prices took a toll on profitability and increased the competitive pressure from cheap steel imported from Asia. The company reported net losses of $281m in 2015, compared to losses of $44m in 2014. During the second half of 2015 the company laid off a number of its workers, triggering disputes with their union, the Steel Workers’ Union of T&T (SWUTT).
On March 10, 2016 the IC ordered ArcelorMittal to pay back wages owed to laid-off workers and fined the company for the lay-offs, which were described as a form of illegal industrial action, following repeated attempts by ArcelorMittal to agree a lay-off with the union in order to save the plant from closure. The following day, on March 11 2016, the company announced that its T&T subsidiary was declaring insolvency and terminating the employment of the remaining 644 workers. The closure had an immediate knock-on effect on another privately-owned company, Central Trinidad Steel, which depended on inputs from ArcelorMittal, and also subsequently announced a further 200 job losses. The closure was a setback for the wider manufacturing sector, the overall economy and the long-standing government policy of using its oil and gas resources to leverage comparative advantage in related downstream or high energy-use manufacturing sectors such as petrochemicals, iron and steel, and metal fabrication.
Jennifer Baptiste-Primus, the minister of labour, regretted that due to the bankruptcy the laid-off workers had not received compensation and said the government would look into strengthening the Retrenchment and Severance Benefits Act, to prevent other companies doing the same thing in future. A number of efforts continued in subsequent months to try and find a buyer for the plant, capable of restarting operations there and re-hiring some of the skilled workers who had lost their jobs.
Chris Kelshall, the company liquidator, told local media in December 2016, nine months after the declaration of bankruptcy, the process for selecting a preferred purchaser was likely to conclude by March 2017. Kelshall would not comment on speculation that China Steel was one of the interested parties. According to press reports, the plant may be worth $70m but there were significant outstanding debts, many subject to legal action in the courts. Kelshall expected creditors to eventually receive around 20% of the face value of their claims, due to the depressed state of the global steel market.
Separately, SWUTT leaders said they had made contact with investors in the US and Canada who were potentially interested in acquiring the plant. Union representatives met Prime Minister Rowley at the end of December 2016 and said they were encouraged that the government had given their plans to find new investors a hearing. SWUTT leaders said they were not asking for the government to take over and run the plant, but for it to help ensure that new private investors would keep it operating in T&T. As of May 2017 no buyer had been publicly named.
Aluminium Potential
Despite the difficulties in the steel sector, the government continued to work on the possibility of developing a downstream aluminium industry. An original project launched in 2005 had involved talks on a potential partnership between T&T’s National Energy Corporation, Sural of Venezuela, Alcoa and China Machinery Engineering. The project encountered difficulties over environmental approvals and legal issues between some of the partners. In 2016 Prime Minister Rowley said that, while original plans to build a smelter had been discarded, there still remained opportunities for an aluminium downstream industry using imported aluminium ingots. Government officials were reported to be exploring options for aluminium.
Outlook
Ramdeen remains broadly optimistic about the future for manufacturing. Provided that the government helps resolve or attenuate challenges relating to the availability of foreign exchange and labour and industrial relations inefficiencies, he expects local companies to expand and improve their export sales. The larger companies are net foreign exchange earners, which put them in a key position to help T&T diversify its economy.
Ramdeen also stresses that small and medium-sized enterprises are potential engines of growth. “I am an optimist. I would say what we do in the next six months will determine the kind of future we have in manufacturing,” Ramdeen told OBG. Mahabir-Wyatt also said that manufacturing will benefit from the country’s highly literate workforce and the fact that the recession should drive a new wave of innovation and non-energy manufacturing sector growth, focused mainly on export markets.
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