Advertise on Caribbean Construction Digest
Advertise on Caribbean Construction Digest

Innovative Solutions Required to Combat Worries Over Economic Recovery

KRams1

Kavena Ransoobhag  MSc. Economics

Introduction

Global economic recovery is mounting an unbalanced recovery with growth being slow in advanced economies and much stronger in emerging market economies. The International Monetary Fund (IMF) forecasts that the global economy will expand by 4.8 percent in 2010 amongst feelings of over zealousness in the number by some. Is Trinidad & Tobago to be included in the list of emerging market economies that are expected to experience rebounded economic growth in 2010? The following section focuses on a brief economic review of the local economy.

The Domestic Economy

Economic indicators show that the economy has remained at depressed levels in 2009 as the Central Bank of Trinidad & Tobago (CBTT) has indicated that the Gross Domestic Product (GDP) has declined 3.2 percent for the year. Despite this overall decline in economic activity in 2009, GDP rose 2.3 percent in the first quarter of 2010. However, this does not arrest the negative economic growth. The non energy sector which comprises the construction, manufacturing, distribution and agriculture sectors remained flat, in the first quarter of 2010, after four (4) periods of negative growth; whilst the energy sector grew by 5.5 percent. Interestingly, the data shows that the construction sector activity rebounded from the previous quarter, growing by 5.1 percent. Inflation has once again become a source of concern for the monetary authorities as it has risen to an all time high of 16.2 percent in the twelve months to August 2010. Headline inflation continues to be driven upwards by rising foods prices as domestic food production have fallen on account of persistent rain falls and the accompanying floods. At the end of quarter four 2009, the unemployment rate stood at 5.1 percent, with the employment within the construction sector declining by 6.1 percent from the previous quarter. Of the sectors surveyed (Petroleum, Manufacturing, Agriculture, Construction and Services) the construction sector lost the most amount of jobs for the quarter.

According to CBTT data, exports in quarter one of 2010 fell an alarming 31 percent from the previous year, indicating a deeper problem of loss of foreign exchange revenues for central government; imports grew 7 percent for the same period. As at May 2010, the Real Effective Exchange Rate (REER) showed a loss in the country’s level of competitiveness in terms of its foreign trade. Domestic demand conditions remained sluggish as private sector credit, in July 2010, declined by 6.2 percent. This decline in private sector credit was led by an 11.2 percent decline in business credit with consumer credit staging a negligible 0.4 percent recovery for the period. One can reasonably assume that business and consumers remain cautious. Real estate mortgage lending data in July showed that this sub sector has remained relatively robust, climbing 6.7 percent on a year on year basis. Short term interests continue to tumble as a result of buoyant liquidity conditions. The three month Treasury bill rate recorded a historic low of 0.34 percent in September 2010 on account of heightened demand for short term government securities. Economic indicators has shown little or no sign of economic recovery within the non energy sector and it is with this in mind one focuses on the provisions made for the Construction sector in the 2010/2011 Budget.

The 2010/2011 Budget on the Construction Sector

The 2010/2011 Budget laid before parliament on September 8th 2010, has disappointingly little to add to the development of the Construction sector; a sector whose growth was propelled by the previous administration’s drive to develop the nation’s infrastructure. Whilst one applauds the attempt by the administration to pay the debts owed to the contractors, to the sum of approximately TT$4 billion, one wonders what are the measures to help promote this fragile sector? The Budget, however, is not devoid totally of proposed construction projects as it proposes to commence construction of the Sangre Grande Enhanced Health Facility and the Chaguanas District Health Facility within the current fiscal year 2010/2011. Of these two short term projects, one has to ask how many of the contractors would benefit immediately from these projects. In the medium term, the administration is proposing the construction of the Sangre Grande Magistrates Court and the Arima Judicial Complex. Also, in an attempt to meet the demands of tourist accommodation, the proposal for the construction of a 251 room Radisson Hotel and a luxury hotel in Tobago are under review. These latter projects, however, are still on the drawing table and may not come to fruition depending on the outcome of the review. One wonders if these projects will be sufficient for a sector that has become heavily dependent on public sector investment for its growth.

One holds the view that the recent increase in the minimum wage will, in the short term, increase the number of unemployed persons within the sector as the construction projects remain at a minimum.

Creative Solutions for a way Forward

The phrase ‘creative solutions’ seems to be the new way for trying to bring the economy out of its stagnation given the limited financial resources available to the government. Therefore, one thought that maybe ‘creative solutions’ can be found to assist the construction sector in its fight to survive. Commercial banks, in recent times, have attempted to increase their private sector credit business by reducing lending rates on mortgages and car loans. One suggests that the negotiating body for the construction sector persuade commercial banks to provide a list of contractors for bank customers who borrow funds for home improvement or construction. Commercial banks can also benefit from this venture. For instance, a contractor and a commercial bank can enter into an arrangement where the bank offers customers of the contractor a 50 basis point discount on the loan rate. The contractor can then recommend the bank to his/her customers, thereby increasing the private lending business of the bank. In this scenario, the bank, the contractors and the customers benefit.

Contractors can also team up with architects as they can both benefit from each other with referrals. The same concept of providing discounts to customers of contractors by architects and other construction consultants and vice versa can apply here. Further, contractors can create value added for their customers by surveying a list of hardware stores and other building material companies for prices, so as to provide with a list of where they can find their materials at the lowest cost. In addition, the Caribbean Single Market Economy (CSME) provides contractors with a great opportunity to market and provide their skills to our Caribbean counterparts. Lastly, the importance of skilled labour within the construction sector cannot be overlooked. Improving on labour skills can always benefit the employee and the contractor. In this time of slowed construction activity, contractors can persuade their employees to participate in training programs being provided for free of charge by the Adult Education arm of the Ministry of Education as well as the National Training Agency (NTA).

Conclusion

Economic activity continued to remain sluggish in 2010 against the backdrop of declining exports, rising inflation, declining interest rates and a lack of domestic demand as indicated a declining private sector credit expansion. The construction sector has been affected the most as a result of slow payments of government debts and declining demand for large scale construction products. Further adding to its problems, the construction sector now faces an increase in its wage bill with the minimum wage being increased. In an attempt to endure the downturn, one suggests a list of ‘creative solutions’ as the way forward. One hopes that these suggestions are of value to the contractors in their continued struggle to survive.

Kavena Ramsoobhag is a Research Analyst. Email Kavena via: [email protected]