|Beyond Forex |
By Natalie Briggs Thursday, June 15 2017
The recent closure of two American restaurant franchises operating in Trinidad and Tobago, Denny’s and Pollo Tropical, raised the forex question again. Both cited the lack of foreign exchange to purchase materials, pay licensing fees and such, as a key factor in their eventual failure. On top of that, complaints by chicken processors that they are not receiving enough US dollars to buy the inputs for their operations has prompted knee jerk public fears, not only on an eventual price increase for chicken, but on the availability of the ever-scarcer greenbacks.
At least one business leader has said the closure of the two food outlets had nothing to do with forex, but with other factors, such as poor customer service and unpopular meal offerings. Finance Minister Colm Imbert weighed in on the issue during a Parliamentary sitting saying the situation may encourage other franchise holders to purchase more local goods.
The closures raise several other underlying issues though. The first: is there now a space for enterprising locals to create their own restaurant franchises, which make use of more local inputs? And, with the lack of forex and the consequent threat posed to import distribution type businesses which proliferate in this country, is there going to be more room and support for entrepreneurs to create good and services for export, eventually becoming net earners of foreign exchange? Furthermore, if these opportunities exist, how does the country take advantage of them? Business Day explored these issues with economist and competitiveness expert, Indera Sagewan-Alli, who discussed both our internal strengths and weakness and our external opportunities and threats.
According to Sagewan-Alli opportunities do exist, but we must keep in mind that we should only pursue those where we have the competitive advantage.
“We have comparative advantage in a number of things,” said Sagewan-Alli. “We have comparative advantage in the type of cocoa that we produce.” She said our location made us a natural safe port of call during the hurricane season. This opened opportunities in yachting. She said several yachties she interviewed during her work, referred to something called the “mystique of the Caribbean” as one of the things that drew them to the area.
The economist also spoke about the country’s trained human capital and the historical knowledge capital we had of the cocoa industry, given the length of our involvement in it.
“We have the knowledge to produce the kind of cocoa that got us the reputation that we enjoy today,” she said.
Sagewan-Alli also noted that innovation was already taking place at a micro level in this country “They are taking things produced locally and adding value to it,” she said.
She gave coconut oil as an example. She said the product, at one time verboten because of supposed health issues was now in demand.
“What we are seeing is people innovating on the traditional oil that would have been offered on the local market. They are making compressed oil for example. Adding value.” She says she has also seen this happening with honey production.
“We also have an advantage in terms of where we are located and the ability it gives us to tap into international markets,” said Sagewan-Alli, “Our infrastructure in terms of transport, both air and sea are well developed. Our communications also relatively well developed.” However, the primary weakness the country faced was the lack of political will to exploit these areas.
“I would go as far as to say that there is not only the absence of political will, but the absence of political understanding of building a country on the competitive advantages that we have,” she said.
“In the absence of that, there will be no policy as to where parity will be placed in terms of state enterprises and their focus and their support, the ministries in terms of their focus and support to develop sustainable industries.” We also do not produce our own technology and have to import it.
This she said required the foreign exchange and the expertise to select the correct technologies.
“We continue to have a business sector, particularly those we hold up as role models, which are ‘conglomerates by distribution’, as I call them,” said Sagewan-Alli. “That is basically the type of entrepreneur that we have. By the late ’90 s and 2000s, we had actually lost a lot of our manufacturing capacity. Firms found that they could not compete with the imported goods that were being brought in by the distributors.” She said the education system was also not producing persons with the entrepreneurial mindset and it appeared that reform of the system was at a standstill.
The country’s financial system was also problematic. Sagewan-Alli called it archaic.
“The banks do not seem to think that they have a responsibility to create different types of models that can service small business development.” Access to market information and the statistics necessary to make business decisions were another weakness she identified.
So, in the face of this, what are our opportunities? Sagewan-Alli said the first thing was to recognize that global demand patterns were changing. She used tourism, which has been earmarked as an area for development to illustrate.
“Demand patterns for tourism are changing. They are moving away from mass market tourism to niche tourism products. The all-inclusive model doesn’t benefit us. The cruise ship model doesn’t benefit us. The value accruing from people visiting on cruises is minimal.” She mentioned Prime Minister Dr Keith Rowley’s announcement that the country will become a hub for sports tourism, but said that he has not gone far enough.
“If you are deciding to pursue sports tourism, you have to decide where we have the comparative competitive advantage. It is probably in football and in cricket and now you have to build out your product around those things.” Using our peppers and related value added products also presents opportunities for export.
“Right now, a bag of hot peppers is more expensive than a barrel of oil. We are not doing much to harness that.” But the primary external threat could actually take us out of the game before we even get started.
Sagewan-Alli said in order to innovate and to make money, we needed to spend foreign exchange, something that we were in dire need of right now.
“Before we become net foreign exchange earners, we will have to use foreign exchange in our production practice. Right now, the situation we are in, that creates a problem.” Competitors who are ahead of us in the areas the economist identified are also threats.
Global terrorism and unfavourable global economic conditions were also things TT has to watch out for.
“We always have to be looking at the world and looking at what is happening to anticipate where threats can come from,” she said.