Skill-based economic transformation

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The comment of many of our economists as they lament (even blame our Government for) the poor state of the energy sector and its inability to supply the natural gas required by the LNG and petrochemical plants (hence the rents needed by the on-shore), is that we have to diversify the economy into new and globally competitive exports.

Though there is some consensus that the local private sector should be the ones to produce these exports, there are calls for the Government to provide incentives and remove the constraints that today inhibit the required export performance—in particular, improve the ease of doing business.

The private sector normally earns 15 to 20 per cent of the forex available to the country. Hence, to stand still economically without the energy sector, the private sector would have to improve its export performance by some 400 per cent. Still, some are doubtful that as a small open economy that does not bene­fit from economies of scale in what we may be able to manufacture, whether we can be globally competitive. This doubt ignores the fact that with today’s technologies in robotics and numerical control, flexible manufacturing can make the small company as competitive as the large ones.

There is the view that the private sector is being crowded out of the on-shore economy by the Government. Yet there is the wide open space of export production with, normally, excess liquidity in the banking system and interest rates not being inordinately pushed by Government borrowing.

It is worth noting that our exports at one time were agricultural, the production of which became globally uncompetitive as the export of petroleum products took over. Even today the ­regional producers of sugar are calling for tariff barriers to be raised by the region to stop the import of extra regional sugar; they are not globally competitive. Few, if any, venture to detail the incentives/actions outside of the ease of doing business (VAT returns, traffic jams, port delays, crime?) that should be offered to the private sector to encourage the production of exports. Recall the negative listing, the building of Pt Lisas and the economic processing zones; all failed to encourage the private sector to get into exporting.

Still, our import activity depends mainly on the earning of foreign exchange by the petroleum off-shore sector. Thus, the concern now about on-shore exporting is being driven by the uncertainty of the continued ability of the petroleum sector to earn sufficient forex, given the uncertainty in supply of natural gas, its cost and moreso the global market’s growing commitment to the reduction in the use of fossil fuels due to climate change.

Hence, the options before us are to build an onshore exporting sector, diversify the economy, and transition the energy sector to green hydrogen and renewables with carbon capture, as we exploit the remaining natural gas.

With respect to the diversification of the economy by exports, the current global competitive advantage is innovation (disruptive innovation to reduce uncertainty), which we have to develop if we are concerned about increasing and maintaining the complexity of our economy and becoming high income earners. This is about acquiring knowledge of the new and emerging technologies, R&D and innovation in those we choose, with the aim of creating new or improving on existing products/services for export via the international networks we have to build. Yet few economists proffer R&D, invention, innovation as the vehicle for onshore diversification. Further, the call is to generally expand our onshore manufacturing into existing export markets in which we think we may be able to sell.

Further, in today’s world, manufacturing will get nowhere competitively without innovation. Some of the local manu­facturers are locating factories abroad to satisfy these markets—WTO Mode 3 investments. However, these do not provide the necessary employment in T&T, and the forex earned is not easily available to the population.

If the exporting companies are to depend on innovation, on its employees to come up with the ideas and be creative, can this be expected of the traditional employee hired for production, administration or management? Indeed some companies hire highly skilled R&D staff to carry out this innovation; at least 10,000 staff are employed by Samsung for this purpose.

The question then is—can we expect all of our potential export companies to have R&D sections? Surely not! This then suggests some centralisation of the R&D effort and a directed choice of a subset of technologies/industrial pursuits that our onshore sector should undertake via a fore-sighting exercise. The classic example in the world that can achieve such a task is the “Triple Helix”, which is an integration of the private sector, the R&D institutions and the government, where, in our case, the Government has to take the lead role since it will indeed require the creation of new and technology-savvy entrepreneurs.

Our local Ministry of Planning, supported by the Ministry of Trade, is the agency charged, if at all, with the development of the economy. However, what is required is a major transformation of the onshore sector. Singapore, under its then-prime minister, Lee Quan Yew, accomplished such a transformation. However, he put a team of experts together under the Dutch economist, Albert Winsemins, which strategically managed this transformation. Similarly, if our government is to transform the economy, like Singapore, such a task force has to be established to manage the construction over the years of a National Innovation System.

In hindsight it would appear that the Economic Advisory Board, under the chairmanship of Dr Terrence Farrell, was evolving into such a team that could build such a system; but this was not to be. Also reports on their own, like the recent Roadmap, are useless without an innovation system.

One cannot blame the Government for its continuing focus on the energy sector and even its green transition. However, blame can be assigned for its neglect of the extremely important task of building our version of the Triple ­Helix.

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