LatinFinance - July/August 2014 - 40

ROUNDTABLE
TRINIDAD
AND
TOBAGO

Trinidad and Tobago is pushing ahead with plans to diversify its
energy-dependent economy. Its prospects were debated at a recent highlevel LatinFinance roundtable. By Katie Llanos-Small

Oiling the cogs

mong Caribbean economies, Trinidad and Tobago stands out.
The country has benefitted from an economy based on oil and gas, which has proved stable
over the years of global stagnation - in contrast to its agriculture and tourism-dependent
neighbors.
The country has escaped debt restructurings stemming from heavy international financial
burdens, another problem that has plagued economies in the region.
And, since overtaking the Bahamas in 2011, the country is the Caribbean economy that
receives the second highest volume of foreign direct investment. Dominican Republic tops
it marginally, according to UN data. (Financial hubs British Virgin Islands and the Cayman
Islands, which lead the Caribbean rankings, are excluded here).
Yet the country still faces risks. One is clear: its oil and gas reserves are limited, and
extracting profit from them will get increasingly difficult.
But there are others. Some stem from its size: "As a small island state, it means you are a lot
more vulnerable to external shocks," says central bank governor Jwala Rambarran.
That is a weakness it shares with its neighbors.
Across the region - and in comparison to the rest of Latin America - small economies
and rigid budgets have made the aftermath of the global
financial crisis a challenge, says Shelly Shetty, senior
director for sovereign ratings at Fitch.
"Many of the other Latin American countries which
have done well are more diversified or are just big and have
fundamental domestic demand dynamics that have taken
them forward: financial intermediation and improved
macroeconomic stability," she says.
"What you see in the Caribbean is perhaps that the
cycle has been a bit different." The IMF predicts Trinidad
and Tobago's GDP will expand by 2.5% this year, after
1.5% growth in 2013. The country's expansion has
underperformed other Caribbean small states since 2009,
bucking a trend over the previous decade when it grew
faster than its peers.
Finance minister Larry Howai attributes some of the
lower growth in recent years to the fact that much of
the country's oil and gas infrastructure was offline for
maintenance in 2012 and 2013.
"Last year, September for example, we had about 25%
of all natural gas offline because of the work that was being

40 L ATINFINA NCE.COM - July/August 2014

done," he says. "The non-energy sector has
actually been quite buoyant and that hasn't
fallen away at all."
The country's upward growth trend
was underscored in December when it
attracted overwhelming demand from
global investors for its international bond
market return.
Yet the path is not straightforward. Oil
and gas accounts for 40% of the country's
economy. That not only puts it at the
mercy of global oil prices. It also means
declining oil reserves - or reserves that are
increasingly expensive to tap - will make it
harder to achieve rapid economic growth.
And since US shale gas production has
stepped up, Trinidad and Tobago has been
forced to search for other export markets.
Howai admits there are risks - one
being a sudden drop in the price of oil
and gas. "That would be a risk and we
have to consider how we deal with that, in
NEW APPROACH: Finance minister Larry
Howai advocates diversifying to energyrelated manufacturing products

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