In the last article, we spoke about some key elements of a business environment. These were: Institutional Strengthening, Supportive Legislative Framework and Lower Levels of Crime. In this article, we will look at two other elements that are critical for a business-friendly environment to thrive.
The fiscal health of a country can influence its ability to attract new investment. If public finance is at a place where the fiscal deficit is large and recurring and government has accumulated a very large debt stock, this can undermine investment, especially against a backdrop of low GDP growth. For developing countries, such a state of affairs could lead to the adoption of IMF programmes, debt restructuring and downgrades of their sovereign credit ratings. Further, the reforms required to bring fiscal accounts back to some measure of rectitude, normally curtail growth over the medium term. In this situation, the motivation to invest may be limited, since it may be difficult for businesses to experience consistent growth in such an environment. In the case of a sovereign rating downgrade, businesses domiciled in the affected country could themselves be subject to credit rating downgrades and will likely face an increase in the cost of credit. Over the last two years, the country’s deteriorating fiscal position was partly responsible for the downgrade of its credit rating by Standard and Poor’s and Moody’s. Despite this, the fiscal accounts are not yet in a place where an IMF programme is needed, but persistent deficits remain a cause for major concern. Public debt remains at manageable levels, despite rising from 58.8 percent of GDP to 61.6 percent in 2017, while the fiscal deficit expanded to 8.5 percent of GDP in 2017 from 5.3 percent.
Finally, to be defined as truly business-friendly, a country should be able to supply industries with trained labour. While it is expected that some talent may have to be imported, the aim is for such occurrences to be in the minority. With increased government spending on education subsidies, the student participation rate in tertiary education increased from 8 percent in 2002 to 65 percent in 2015, according to the 2017/2018 Budget Statement. During the period, government expenditure on technical vocational education also increased significantly. However, with government now facing severe fiscal challenges, it is an opportune time to enhance the effectiveness of programmes, such as the Government Assistance for Tuition Expenses (GATE). It is important to establish greater linkages between these programmes and the needs of employers and with the diversification goals of the country. After all, it can’t be a pleasant experience for graduates to be without jobs for long periods after completing their studies or to be forced to accept jobs well below their competence. For businesses, the absence of that nexus may mean significant delays in filling key positions or having to facilitate extensive training themselves. As a result, the level of productivity in the country may be negatively affected. With regard to diversification, government spending on tertiary education should help to guide students toward courses aligned with the process. For instance, GATE can be transformed so that areas of study that are related to the country’s diversification thrust receive a greater percentage of tuition support than other areas. In addition to the incentives being directed at those sectors, an adequate supply of appropriately trained human resources is also essential.
Given the key role the environment plays in determining a country’s economic prospects, it would be a good idea to devote a greater level of focus on pushing through key reforms in the areas identified above. However, the areas dealt with here are not an exhaustive list, but represent only a subset of the issues we need to address. It should also be noted that the responsibility to create a business-friendly environment does not rest entirely on government, since businesses themselves, trade unions and citizens all have important roles to play. As we go forward, a good practice will be to continually track how we measure up against other nations in terms our business environment. For instance, Trinidad and Tobago’s ranking on the 2017/2018 Global Competitiveness Index improved to 83rd (out of 137 nations) from 94th a year earlier, but was only one spot higher that the position the country held in the 2012/2013 index.
With regard to its Ease of Doing Business ranking, the country fell over the last five years from 66th to 102nd out of 136 countries. This is an indication of the significant work we still have to do as a nation.