With the precipitous fall in energy revenue over the last four years, from $19 billion in fiscal 2013/14 to $2 billion in 2016/17, the theme of engendering sustainable growth in the domestic economy through diversification, has dominated the national conversation. Given the economic hardships imposed by the fall-off in revenue, the increased focus on developing other sectors is indeed warranted. However, it sometimes seems like we place all the emphasis on birthing new industries or developing existing ones without acknowledging how critical a business-friendly environment is to the process. Without the appropriate environment, all efforts to incentivise key sectors, foster innovation and nurture SMEs will likely yield decidedly sub-optimal results. For instance, it is very easy for new innovations to perish and incentives to go unused in unfavourable settings, where there is a high level of apprehension among investors. For this reason and because such initiatives are normally quite costly, it is in our interest to seek to maximise the probability that they will bear fruit. In this regard, a business-friendly environment can be seen as fertile soil, because it not only encourages investment, it also allows businesses to grow, both of which are necessary for diversification.
Although diversification must be facilitated by government, it will be most successful when led by the private sector. For this reason, it is important to remember that investment is in a sense is a living thing, since it goes where it feels welcomed. Nations that fail to create an environment that is conducive to investment and by extension business, consign themselves to long-term economic hardship. This note discusses a few key elements of a business-friendly environment and how they apply to Trinidad and Tobago.
For commercial activity to thrive over the long term, it is essential to have strong and efficient support institutions. Establishments, such as registries, statistical offices and tax offices, provide critical services to society in general and play a major role in determining how smoothly businesses can conduct their affairs. Inordinate delays for simple transactions or burdensome bureaucratic red tape are not only a source of great annoyance but can also be a major hindrance to commerce. Moreover, when the operations of these institutions are inefficient, opportunities are created for corrupt practices to flourish, since individuals will be more likely to try to circumvent processes. For these reasons, for countries like Trinidad and Tobago, institutional strengthening is a vital component of diversification. Without taking action to augment the capacity and efficacy of support institutions, it will be foolhardy to expect to achieve economic transformation.
In terms of the current state of this country’s support institutions, if the repeated complaints from businesses regarding delayed VAT refunds are anything to judge by, then we can certainly do better. Similarly, concerns raised by the International Monetary Fund (IMF) and international credit rating agencies about the quality of macroeconomic data available domestically, paint a troubling picture about the plight of the Central Statistical Office (CSO). Further, over the last five years, Trinidad and Tobago has seen its position on the World Bank’s Doing Business ranking consistently fall. A major reason for this fall is the length of time it takes to secure construction permits, with the country ranking 119th out of 190 countries in this area. According to the report, it takes 253 days and 16 procedures to gain full permission to build in this country. A lot can also be said of the challenges citizens face when accessing key public services. To be fair, the authorities have acknowledged that there is need to reform key institutions and are thus taking steps to inter alia, implement the Revenue Authority, enhance the operations of the CSO and to automate the process for granting construction permits. However, if we are honest with ourselves, we will admit that we often have problems with implementation and more specifically, the speed thereof. Accordingly, it will surprise no one if some key reforms, which have supposedly been underway for years, continue to be delayed, while other new initiatives join the queue.
Supportive Legislative Framework
A supportive legislative framework is also another important ingredient of a healthy business environment. To the extent that there are regulations in place to provide adequate protection for key stakeholders, the incentive to take part in commercial activity will be high. For this reason, it is essential to have legislation that provides appropriate protection for the environment, investors and consumers, to name a few. While the legislative environment in Trinidad and Tobago continues to improve, a bit more attention needs to be paid to the rights of consumers and the environment. For instance, in the World Economic Forum’s 2017 Travel & Tourism Competitiveness Index, this country ranked near the bottom of the pile with regard to environmental sustainability. With regard to the stringency of environmental regulations, it was ranked 124th out of 136 countries, while it was 132nd in terms of enforcement of environmental regulations.
Lower Levels of Crime
An issue that is very much related to legislation and indeed law enforcement is the level of crime. It goes without saying that both investors and consumers require a certain level of security as they go about their daily activities, all of which cannot be provided by the state. In this way, high crime rates can increase both business and household costs, as the demand for security related goods and services normally increases in such an environment. Crime can also directly affect economic activity if it is allowed to deteriorate to critical levels. For instance, the entertainment and restaurant sectors could suffer if citizens curtail their night-time activity for fear of being robbed or worse. Consequently, the high murder count (257 as at mid-June 2018) continues to be a cause for major concern. However, violent crimes are not the only form of illegal activity that worries investors, since white collar crime can also be a bane to business. The more bribes investors have to pay to complete what should be simple transactions, or the higher the level of fraud and bid rigging, the smaller may be the incentive to invest.