For countries like Trinidad and Tobago dependent on producing and exporting primary goods, there is a desire to revamp the economy and widen the productive base. These aspirations are driven by several factors. These countries are particularly vulnerable to natural disasters, extreme weather conditions and in some cases geopolitics. As such, they walk a tight rope.
They grapple with issues of supply/price shocks which lead to lower revenues, economic instability and depleted resources. Any sort of variability in revenue especially at a sustained level can cost a country its development ideals. Often this can lead to lack of investment in key areas such as infrastructure, utilities, healthcare and education. It also starves the country of the opportunity to divert funds from the primary sector to reinvest in other sectors such as manufacturing and tourism.
Why Seek Diversification?
Diversification therefore offers countries the opportunity to create structural shifts in the productive assets of its economy. This inevitably results in the movement of economic resources within and between economic sectors. This fundamental shift in economic concentration of resources results in the transformation of a nation as the base of economic contributors becomes wider. Diversification could be horizontal, which entails venturing into new goods and sectors to reduce dependence on a narrow range of commodities, or vertical, which involves moving throughout the value chain of a commodity to increase its worth.
Within Trinidad and Tobago, this particular effort has not come without challenges. Weaning away from the primary and in particular the extractive sector is not a clear cut transaction. It is especially daunting if there are no viable replacement for the tax revenues or foreign exchange previously available through the extractive sector.
Whilst there is a prevailing expectation that diversification efforts should be propelled by the Executive arm of government, at this juncture of our 58th Independence anniversary, the time has come for a different paradigm.
Local companies need to contemplate and reframe their contribution to national development through the diversification thrust. Let's hope they will take up the mantle and embark on that mission!
This article has been adapted from an article I wrote for GASCO magazine.