In his October 2015 budget speech, the newly appointed minister of finance, Colm Imbert, underscored the fact that Trinidad and Tobago’s manufacturing sector had fallen below 10% of national GDP. Estimates from the Central Statistical Office (CSO) put the figure at 8.1% in 2015, with food, beverages and tobacco accounting for around 4.5% of GDP.
As of the fourth quarter of 2015, the manufacturing sector employed around 8.1% of the country’s workforce. However, despite having the largest manufacturing base of any CARICOM country, the government focus on energy and relative neglect of manufacturing, as well as a shortage of unskilled labour, has held back the sector in recent decades.
Nonetheless, the country holds many comparative advantages. It has a handful of globally recognised industries, a strong food and beverage segment (see analysis), a rich cultural heritage and a strategic geographical position for the maritime industry – advantages that have yet to be fully exploited. The coming two years will see a renewed government and private sector focus on diversifying the economy away from its reliance on hydrocarbons, providing alternative pillars of growth during times of low oil prices.
Since the 1950s, academics and economists have tried to lay out a path for industrial development in the Caribbean, with a focus on incentivising foreign investment and developing regionally focused industrial manufacturing, given the small size of domestic markets.
To a certain extent, T&T’s position as one of the regions’ larger islands has allowed it to follow aspects of this model. The country’s food and beverage industry has become a leader in the region and has taken advantage of the CARICOM common market to export its products (see analysis). However, the agricultural sector, which once boasted substantial sugar plantations, has all but disappeared. As of March 2016, it accounted for less than 0.5% of GDP and by the third quarter of 2015 employed just 3.2% of the workforce, according to the CSO.
In recent decades, attempts to diversify the economy have focused more on the vertical diversification of the energy sector than the horizontal diversification of new industrial subsectors. As a result, while the oil and gas sector has successfully moved into liquefied natural gas exports and downstream industries, the country’s manufacturing segments have remained somewhat neglected.
The manufacturing sector was forecast to grow at a rate of 1.3% in 2015, according the statistics from the CSO, compared to a 4% decline in 2014. However, according to March 2016 figures from the Central Bank of T&T (CBTT), manufacturing was estimated to have contracted by some 1.6% in 2015. The decline was largely driven by a dramatic drop in the output of iron and steel companies, leading the assembly industries subcategory of the manufacturing index to decline by 68.8% in the second half of the year.
The strong performance of the food and beverage and printing segments, with estimated growth of 6.8% and 6%, respectively, in 2015, masked strong declines in assembly-type and related industries (-16.2%), textile, garments and footwear (-9%), and the miscellaneous manufacturing subsector (-5%).
The decline in steel production was the result of a halting of operations at ArcelorMittal’s facility at the Point Lisas Industrial Estate – the largest steel mill in the Caribbean – in November 2015. The company then announced the closure of its facility in March 2016, resulting in the loss of some 644 jobs. A few days prior to the decision, T&T’s Industrial Court had ruled that hundreds of workers laid off in December 2015 were eligible for the full payment of wages owed to them. According to ArcelorMittal’s management, its Trinidad facility had posted losses since 2009 and had accrued debts of TT$1.3bn ($200.2m). For its part, the government accused the company of failing to engage in discussions prior to reaching insolvency. While the Steel Workers Union suggested in March 2016 that the plant be purchased by private investors, ArcelorMittal said the liquidation process had already begun, and the purchase would have to be made through the liquidator.
Although labour issues were a factor in the plant’s closure, the facility was already in steady decline. According to the Ministry of Finance (MoF), between October 2014 and June 2015, iron and steel production fell by 28.1% year-on-year (y-o-y), including a nearly 36% drop in billet production and a 27% decline in wire rod output. Exports of iron and steel products contracted by around 28% from 1.2m tonnes to 874,000 tonnes over the same period. While domestic sales of steel products rose by 4.8% to 46,900 tonnes, the small volumes had little impact on the overall performance of the sector.
Global conditions have been largely unfavourable, with inexpensive iron and steel products from China flooding Latin American and Caribbean markets in recent years. These conditions saw ArcelorMittal post an $8bn global loss in 2015 and take one of its plants in Spain off-line weeks before the Point Lisas closure, citing pressure from China.
According to the MoF, after posting growth of 22.5% in 2013 and 4.6% in 2014, cement production increased by only 0.4% to 840,087 tonnes in 2015. Domestic demand, which had mostly been driven by government spending in the two years leading up to the 2015 elections, was impacted by the slowdown in local construction activity in the second half of the year, when cement sales fell by 1.5% y-o-y to 655,997 tonnes. Exports to Caribbean and Latin American markets, meanwhile, which had dropped by 13.3% in 2014, increased by 9.3% to 185,904 tonnes in 2015, underscoring the industry’s ability to quickly refocus its marketing strategy according to evolving domestic demand conditions.
In recent years, the country’s only cement producer, Trinidad Cement Limited (TCL), which is majority owned by Mexico’s Cemex, has focused on improving efficiencies in its export business. The plan has had some success, and in 2015 the firm, which has production facilities in Trinidad, Jamaica and Barbados, posted a TT$429m ($66.1m) profit, up from a loss of TT$211m ($32.5m) in 2014. In Jamaica and Barbados, costs were cut by reducing labour by 20% and 28%, respectively, with further restructuring expected in the coming years to help regain competitiveness. “The second phase requires internal efficiency transformation, which would include spending capital on the plants that have not been adequately maintained for years. As a result of the lack of maintenance, we had to satisfy those inefficiencies by retaining more labour than was required,” Wilfred Espinet, chairman of TCL, told local daily the Guardian in March 2016.
Like cement, T&T’s quarrying industry is an important supplier to the national construction sector. The segment is dominated by two national companies, namely National Quarries and Lake Asphalt of T&T. National Quarries produces an estimated 1m cu metres of sand and gravel from its Trinidad quarries, as well as limestone from a site spanning 970 ha. Lake Asphalt of T&T, meanwhile, is based in the southern city of Brighton, near the Pitch Lake – a 40-ha bitumen lake that is among the largest sources of asphalt in the world.
In addition to these two national players, there are a total of 86 private and public mining companies in the country, approximately half of which operate sand and gravel quarries. A white paper, released in June 2015, on national minerals policy by the Ministry of Energy and Energy Industries (MEEI) revealed that only 42 of these were licensed, while the majority were operating under expired licences. The paper added that under-reporting of production and royalty payments had led to only 10% of due royalties being collected between 2001 and 2013.
Speaking at a T&T Extractive Industries Transparency Initiative event in April 2016, Nicole Olivierre, minister of energy, noted, “Given the precipitous decline in the price of energy commodities, keeping an eye on revenue from the extractive sectors is an important and necessary exercise.” She added that the June 2015 amendments made to the Minerals Act regulating the industry will provide the government with “greater powers to oversee the mining sector and ensure that companies pay their just due, comply with our environmental laws and appoint competent staff”.
The development of major road projects is crucial to the quarrying industry, which produces many of the raw materials necessary for road construction. The victory of the People’s National Movement in the 2015 elections meant that by early 2016, firms were still not sure which projects were moving ahead. However, during the mid-year budget review, which took place in April 2016, Imbert restated the government’s commitment to all major road projects, with the upgrading of the country’s road infrastructure prioritised following the decision not to push ahead with a mass transit system.
“What we do next will be informed by the rolling out of government projects,” Bevon Cook, CEO of National Quarries, told OBG. “We have had some preliminary information about the projects that will go ahead, and we need to streamline our aggregate production to be congruent with those plans.”
T&T is also a significant producer of chemicals. The country has 11 ammonia plants and seven methanol plants, which are located in the Point Lisas Industrial Estate, making T&T one of the world’s largest exporters of both commodities.
The country’s methanol plants are operated by local firm Methanol Holdings (Trinidad) Limited (MHTL), which runs five, and Canada’s Methanex, which operates the remaining two facilities. National output totalled approximately 5.5m tonnes in 2015, a moderate 0.6% y-o-y increase, according to MEEI figures. Two urea plants are also located in Port Lisas, one at the facility of PCS Nitrogen Trinidad, which has a capacity of 2023 tonnes per day, while the second plant is part of the urea ammonium nitrate and melamine complex owned by MHTL. This plant opened in 2010 in an effort to diversify the industry’s operations, incorporating Japanese technology, and has a 2100-tonne-per-day capacity.
From October 2014 to March 2015, urea production fell by 25.7% y-o-y to 297,500 tonnes. Ammonia production also decreased, albeit by a more modest 6.1% to 3.4m tonnes. This was mainly due to the routine maintenance of the Tringen I, Tringen II and NS2000 ammonia plants, as well as PCS Nitrogen’s urea plant during the period. When the plants reopened in the second half of 2015, national fertiliser production jumped by 17.1%. Overall, ammonia production reached 4.9m tonnes in 2015.
MHTL also produces melamine, a white, crystalline powder produced from urea and used in the production of laminates, wood adhesive resins, surface coatings, textile treatments and dinnerware, among others, at its facility. The plant has a production capacity of some 60,000 tonnes per annum, around 99% of which is exported, with 40% going to North America and 60% to Europe.
In April 2015 T&T was forced to halt sales to the US after the US Department of Commerce issued a preliminary ruling that MHTL and several Chinese exporters were selling melamine at below fair market value. In its final determination in December 2015, the US International Trade Commission (ITC) ruled that imports from T&T did not cause any material injury to Cornerstone Chemical, the sole US melamine producer. The commission did, however, uphold its ruling that Chinese producers were indeed selling melamine below fair market value.
According to the investigation, Chinese producers were selling melamine at a dumping margin of more than 350%. The ruling paves the way for MHTL to resume sales to the US in 2016, helping T&T regain its standing as a significant offshore supplier to the US market. Prior to the ruling, T&T and China were the two largest melamine exporters to the US market, where domestic production capacity stands at 75,000 tonnes, compared to some 37,000 tonnes of imports in 2014, according to figures from the ITC.
With low oil prices continuing in 2016, the foreign exchange shortages that became evident in late 2014 have intensified. In January 2016 the CBTT recorded net official reserves of $9.6bn, down from $10.9bn in 2015. Authorised dealers can request foreign exchange for specific transactions through their banks; however, the process is often slow, with requests queued until they can be dealt with at the CBTT. This poses particular challenges for the manufacturing sector, which requires US dollars in order to import raw materials.
In March 2016 Paula Gopee-Scoon, minister of trade and industry, announced the government had made $1.1bn available to firms since September 2015, slightly down on the $1.27bn released over the previous six-month period. In total, $7.4bn in foreign exchange was made available to commercial banks in 2015, up from $5.5bn in 2010. While some manufacturers generate their own foreign exchange from exports, others have little access to US dollars. “We would like the CBTT to allocate a certain portion of dollars to manufacturers to buy raw materials,” Ramesh Ramdeen, CEO of the T&T Manufacturers’ Association, told OBG. For its part, the government has announced its intention to secure a US dollar credit line through the Export Import Bank of T&T in order to provide funding to allow exporters to buy raw materials from abroad.
Energy & Water
One of the benefits Trinbagonians have enjoyed as a result of the country’s large energy sector has traditionally been cheap fuel and electricity for their vehicles, homes and businesses. With an average price of between $0.03-$0.06 per KWh, T&T manufacturers enjoy some of the cheapest electricity in the region. By comparison, the price is $0.35 per KWh in Barbados and $0.38 in Antigua. The country also has a reliable and well-connected transmission and distribution system. In the World Bank’s 2016 doing business index, T&T scored highest in the getting electricity category, ranking 27th out of the 189 countries that were evaluated.
Industrial users can also access water from the Water and Sewage Authority of T&T (WASA) at $0.36 per cu metre, a rate that has remained unchanged since 1993, Ancil Antoine, minister of public utilities, told local daily Newsday. Electricity prices, meanwhile, were last increased in 2006. However, WASA is operating with a cumulative deficit of TT$1.6bn ($246.4m), and electricity and fuel subsidies put significant pressure on government coffers. According to Antoine, an increase in utility rates is likely to occur over the course of 2016, which will have cost implications for manufacturers in T&T.
“I think it is understandable for the government to consider raising water rates, as it has been over 20 years since it last did so,” Dominic Hadeed, managing director of local beverages producer Blue Waters Products, told OBG “But T&T’s competitive electricity rates are an important component for industry and many exporters are heavy energy users. We need to keep some subsidies, especially for the citizens,”
One issue that has been raised by business leaders in T&T is that of labour supply and relations. In the fourth quarter of 2015 T&T had an unemployment rate of just 3.5%, according to the CSO. However, this figure conceals significant underemployment in the country, particularly due to government make-work programmes.
Under schemes such as the Community-based Environmental Protection and Enhancement Programme (CEPEP) and the Unemployment Relief Programme (URP), Trinbagonians can earn a modest wage undertaking half a day’s low-skilled work, often cutting grass or painting buildings. In his budget speech, Imbert announced that the two plans had cost the Treasury a combined TT$1.3bn ($200.2m) in 2015. “The main challenge for industry is that unskilled labour prefers these programmes to working on the factory floor,” said Ramdeen. “We are in discussions with the government to put in place a system whereby unskilled labour enters the social schemes on a temporary basis, with a goal to provide permanent employment in the manufacturing sector.” A survey by T&T’s export facilitation organisation exporTT showed that 55% of the country’s exporters identified labour shortages and a lack of skilled workers as significant hurdles.
Other issues include absenteeism and labour laws that strongly favour employees over employers. According to the World Trade Organisation, T&T has the fifth-highest rate of worker absenteeism in the world, and companies tend to overstaff in anticipation of lost work days. Moreover, firing employees can become a somewhat difficult process regardless of the reasons for dismissal.
T&T has a highly unionised workforce, and labour strikes are a fairly common occurrence. In addition, recent industrial court rulings have tended to be on the side of employees. Such outcomes have made companies reluctant to fire workers even in clear-cut circumstances, and stakeholders have suggested that a review of the Industrial Court’s procedures and rulings could be beneficial.
For its part, the government appears to acknowledge the labour challenges facing the country’s industrial sector. Many in the business community believe a system of controlled immigration could help satiate the shortage of unskilled labour, but Keith Rowley, the prime minister, previously rejected this policy, saying that the CEPEP and URP should be upgraded to provide “real jobs”. In January 2016 Rowley told business leaders that his government would look into refocusing make-work programmes back to their intended purpose as business incubators, providing additional skills training to enrolled workers to prepare them to re-enter the workforce. In his mid-year budget review speech, Imbert said, “We intend to return the programme to its original moorings. Starting in FY 2017, therefore, the government’s direct financial support for contractors in CEPEP will be reduced over time to encourage CEPEP contractors to become entrepreneurs”.
In March 2016 the government also announced the launch of the National Tripartite Advisory Council (NTAC), which is an advisory body that is made up of 19 members from the government, private sector and trade unions. It aims to provide advice from multiple stakeholders to the government on various topics ranging from diversification and improvements in productivity to the creation of new jobs. Rowley called the NTAC “the most far-reaching measure that we have undertaken” and one with “enormous potential for resolution of important economic and social challenges”.
The private sector also has relatively clear goals on what they expect to achieve in cooperation with the new group. “One of the manufacturing sector’s proposals is that we avoid laying off workers in return for reduced labour actions and the government agreeing to invest in new industries and incentivise the consumption of local products,” Ramdeen, who sits on the NTAC, told OBG. “If we can get all parties on board, we think T&T’s economy can ride out the recession. We cannot let the recession just pass us by, and we need to retool and retrain, as well as position the industrial sector to be able to take advantage of all subsequent opportunities.”
Many business leaders have echoed the belief that the recession could provide short-term pain but long-term benefits to T&T’s industrial sector. In the 1980s, when the price of a barrel of oil fell below $10, T&T faced a similar scenario. The country’s previously closed economy was opened up, and the industrial sector became a national saviour. “This is the most significant downturn the country has faced since the 1980s,” Navin Seeterram, trade and business development manager for the T&T Chamber of Industry and Commerce, told OBG. “There is little choice for the government but to tackle this problem head on. We need to make transformative changes which will create an enabling environment before we can start to diversify.”
Despite being among the top-10 improvers in the World Bank’s doing business index in 2015, the twin-island nation’s ranking slipped slightly from 85th out of 189 countries in 2015 to 88th in 2016. In addition to labour regulations, the country scores relatively poorly in the paying taxes category at 114th, trading across borders (114th), dealing with construction permits (144th), registering property (151st) and enforcing contracts (167th). “T&T’s manufacturing industry is competitive at the company level, it is the costs outside companies’ control that affect us negatively,” Ramdeen said.
There is also general agreement among business associations that the government should act as a regulator and encourage entrepreneurship. Sacha Cosmetics, a company that has successfully exploited a niche for cosmetic products for darker skin tones in warm and humid climates, is often used as an example of the country’s entrepreneurial potential. “No one would have predicted that cosmetics manufacturing would take off in T&T,” Nirad Tewarie, CEO of the American Chamber of Commerce of T&T, told OBG. “With layoffs in the oil and gas industry, skilled labour will become available. Some might move into manufacturing and help improve efficiencies. Others will become entrepreneurs, and we need to make sure we have the right environment in place for them to succeed.”
According to figures released by the CBTT, 2585 job cuts were announced between September 2015 and March 2016, with the most significant cuts taking place at the ArcelorMittal steel plant, at 644 job losses and Construtora OAS, at 860. Construtora OAS is the Brazilian contractor engaged by the previous administration for the construction of the highway connecting San Fernando to Point Fortin.
When pressed for ideas of sectors in which the diversification of the economy could be achieved, many business leaders identified areas outside the manufacturing industry. Medical tourism and business process outsourcing are frequently mentioned. Given labour costs, manufacturing segments that are either highly capital intensive or yield high margins are viewed as having the most potential.
One favourite for consideration is the printing and packaging industry, which expanded in the 1970s to meet local and then regional demand. Today there are more than 200 Trinbagonian companies engaged in commercial printing, labels, paper items and packaging. In 2014 the country exported over TT$406m ($62.5m) worth of paper products to CARICOM countries, according to data from exporTT, up from TT$389m ($60m) in 2009. However, more investment in research and development, and skills training for workers is required if the segment is to capture a greater regional market share.
Maritime industries also present opportunities for growth. Located outside the Caribbean hurricane belt, T&T has a long history of offering safe harbour and maintenance service for ships. The yachting industry is estimated to bring in $20m in foreign revenues annually, mainly from Chaguaramas.
However, competition from newer marinas in Grenada has seen business decline in recent years. In 2000 a total of 2654 yachts dropped harbour in T&T, but by 2014 this figure had decreased to 1060, according to the Yacht Services Association of T&T. Moreover, in February 2016 the T&T government ended a 30-year policy of value-added tax exemption for services and parts provided to yachts, many of which belong to Venezuelans. Nevertheless, the comparative advantages offered by T&T’s geographical location make it a source of new business given the right investment and tax conditions.
With its annual Carnival and unique musical heritage, the government is also making efforts to stimulate business opportunities for T&T’s creative industries. In 2013 the government established CreativeTT, which is an umbrella company tasked with promoting the development of businesses in the music, fashion and film industries. The company’s subsidiaries – FilmTT, FashionTT and MusicTT – are set to receive a total of $10m in government funding as a stimulus to develop business projects.
CreativeTT has already organised local fashion trade shows and created the Caribbean Aesthetic fashion brand. It has also provided production assistance for local films and put on music video workshops. However, progress has been somewhat slow, and stakeholders requested an investigation to be started into the company’s expenditures and implementation of its strategic plans.
The T&T retail sector is driven by arcades and shopping centres. In the supermarket segment, Massy Group controls 20 stores in the country, including 18 branded under the Massy Stores name and two Discount Marts. The group opened a store in December 2015 in the Mid Centre Mall in Chaguanas. Derek Winford, CEO of Massy Stores, told the Guardian, “It is our plan to keep expanding. We are looking at a number of areas. We have customers that we do not reach and we want to reach all those customers.”
In other retail segments, however, competition from online shopping is increasing, and local retailers are finding themselves in direct competition with multinational shopping outlets. “Online shopping has seen a huge spike in the past three to five years,” Franco Siu Chong, chairman of T&T’s largest department store, Excellent Stores, told OBG. “We are no longer competing within the boundaries of T&T, but internationally, as a significant portion of the population currently shops on foreign online websites. There has also been a corresponding increase in the number of logistics companies, with more than 20 currently operating in T&T, facilitating the import of those foreign online purchases.”
As such, Excellent Stores has launched its own online platform to compete and regain market share. Educating the local market on the cost efficiencies of volume purchasing that ultimately result in lower ‘landed’ consumer prices, combined with the convenience of easy returns and customer service at local outlets, are also key initiatives for local retailers to compete against foreign online websites and reduce the flow of currency to other markets.
Beginning in September 2016, the government will charge a tax of 7% on all goods and services that are purchased from non-resident online retailers. “This tax is intended to help manage the increase in foreign exchange outflows resulting from purchases made online, reduce revenue leakage and assist local manufacturers and service companies to compete with overseas retailers,” Imbert said.
As with the manufacturing sector, some of the most promising opportunities for retailers in T&T lie outside the country’s borders. Massy Stores, for example, have 10 outlets in Barbados, as well as St Lucia and St Vincent, and in March 2016 the firm opened its first store in Guyana. However, for T&T retailers looking to sell products online to neighbouring countries, challenges remain. “There are opportunities to do e-commerce business regionally, with the most attractive markets being Guyana, Barbados and Jamaica,” said Siu Chong. “However, CARICOM countries are quite protective in their trade policies and rebate systems for duties. Customs practices and irregularities for shipped imports also create uneven competition for local retailers.”
It seems clear that 2016 and 2017 will be tumultuous years for T&T-based manufacturers. Many non-energy heavy industries are experiencing lower output as a result of labour issues, a lack of foreign currency and the possible removal of utilities subsidies. Meanwhile, with the notable exception of the high-performing food and beverage segment, smaller industries with potential for growth will likely require a clearer government strategy and incentives to make headway. Nevertheless, there is optimism among some in the business community. If the Rowley administration can foster the right enabling environment, manufacturing could come to represent up to 12% of GDP, Ramdeen said. With the economy expected to continue to be in a recession in 2016, there is hope for the political will to make significant changes with the goal of benefitting industrial investment. “If handled right, the next two years could fundamentally transform the T&T economy and set it up to grow for decades to come,” Tewarie told OBG.