Trinidad & Tobago’s economy is open, but small and dependent on oil.
Because of this, it is contracting. When energy prices were high between 1994 and 2008, the country enjoyed a period of rapid growth, averaging nearly 8 per cent per year. During that time, private investors and the government left the non-oil sectors largely underdeveloped. However, the country is struggling amid the global collapse in energy prices – from USD100 per barrel in 2008 to USD48 in 2015, before recovering slightly to USD52 in the first quarter of 2017. Meanwhile, the economic collapse in neighbouring Venezuela is beginning to put further pressure on the country’s economy.
Over-dependence on oil and gas
Almost one-third of Trinidad & Tobago’s GDP is derived from the petroleum and petrochemical industries, and ores and mineral fuels account for over 70 per cent of exports. However, less than 5 per cent of the population is employed in the sector.
Although energy exports make up a comparatively large percentage of Trinidad & Tobago’s economy, the country is a small player in the global energy market, and therefore lacks the capacity to influence prices in the way that the U.S., Russia or Saudi Arabia do.
Additionally, the country’s oil and gas production has dropped since its peak a decade ago, putting further pressure on national revenue. Trinidad & Tobago benefited from highly successful exploration projects, discovering 1.5 trillion cubic feet of gas every year from 1996 to 2008. In the last eight years, however, significant discoveries have been lacking, with the exception of one ultra-deepwater reserve discovered by the Anglo-Australian conglomerate BHP Billiton in 2013, and even this is far from production.
In particular, gas production has shrunk by 20 per cent since 2013, and will likely continue to decline despite the government sanctioning new gas fields. Oil production has dropped by 14.5 per cent since 2012.
Trinidad & Tobago is therefore left with little alternative but to restructure its economy away from oil and gas. However, other sectors have been neglected for decades, with a potentially disastrous impact for the national economy.
Growth outside of oil has been low, and sometimes negative. Despite Trinidad & Tobago’s wealth in comparison with its neighbours, its private sector is underperforming relative to the regional average. Furthermore, the contribution of non-petroleum sectors to GDP is shrinking. In 2016, the non-petroleum sectors constituted 66 per cent of GDP, down from a 71 per cent share in 2001.
While most services, construction and agriculture are slowly growing, Trinidad & Tobago’s manufacturing sector was on track to shrink by almost 6 per cent in 2016. In particular, the food, beverages and tobacco industry – the country’s largest manufacturing sub-sector – is dwindling rapidly.
The agricultural sector is also contracting. Domestic livestock and crops such as rice, vegetables and fruit, are losing out against more competitive imports, weighing on the country’s food security; domestic agriculture produces just eight per cent of the required staple foods. The country’s agriculture was traditionally geared towards export to Europe due to centuries of colonisation and settlement by the Spanish, French and British. The sugar sector, previously a major source of income, has all but disappeared as a result of high production costs. The production of cocoa is steadily declining due to high labour costs and poor road infrastructure development, and in 2016 reached the lowest level ever recorded, just 500 tonnes. In 2012, the government developed the National Food Production Plan, with an initiative to partner with private investors to establish commercially productive farms, but these efforts have yet to bear fruit. The government has also prioritised revitalising the cocoa industry, aiming to attract niche buyers and encourage local consumption, but it will be an uphill struggle, given the neglect of the crop over the last two decades. On average, cocoa plants need four years before they begin to yield the crop, leaving farmers with little incentive to plant them.
A contagious crisis in Venezuela
Neighbouring Venezuela is a cautionary tale. It earns over 95 per cent of its export revenue from oil and gas, with government policies such as price and capital controls, an irrational multi-level exchange rate, and a history of expropriation discouraging investment and squeezing out most other industries. The global drop in oil prices, combined with waning production due to mismanagement, has been catastrophic for the economy, with major societal implications. A popular revolt against the increasingly authoritarian president, Nicolás Maduro, has left scores dead. Shops are regularly looted. Hundreds of thousands of people are going hungry.
Venezuela’s current troubles risk destabilising Trinidad & Tobago. Local media sources estimate that more than 20,000 illegal immigrants have made the journey from Venezuela to the south-western shores of Trinidad, or 15km across the Bocas del Drágon straits to Port of Spain, the capital. In a country with barely 1.3 million inhabitants, the impact is clear, with unsubstantiated rumours that the new arrivals are undercutting local workers and bringing in contagious diseases such as the Zika virus.
There is also a risk of economic contagion from Venezuela to Trinidad. However, there is one sector that is greatly helped by the Venezuelan crisis: Trinidadian smuggling. Smugglers bring basic goods into Venezuela in order to bypass price controls. The illegal trade creates a serious security risk for Trinidad because Venezuela is awash with firearms, which may be traded for goods, as Trinidad’s street gangs create a high demand for weapons. This problem is likely to get worse in the near future: Venezuela has purchased a production line of AK-103 rifles in order to replace its army’s FAL rifles, currently the standard issue. The corrupt Venezuelan military is likely to ‘lose’ many of its new and old rifles, which will end up in the hands of international smugglers. Trinidad & Tobago already has one of the highest murder rates in the world, and more than 80 per cent of murders are gun-related. The influx of weapons from Venezuela, which are bought by increasingly powerful organised crime syndicates, will only exacerbate the situation.