ECONOMIC REVIEW

Mr Speaker, our exceptional football team, the Soca Warriors has taken the world by storm, and I hasten to add, if they were impressed with us in Germany then just wait until they see us in South Africa in 2010.

Our citizens continue to excel internationally in various areas of sport, culture, and academics. Similarly, our economy is buoyant, our energy sector is internationally competitive, our manufacturing sector continues to be the strongest in the Caribbean and our financial sector is poised for takeoff.

Mr Speaker, over the last five years the economy of this country has doubled.

This was achieved through a combination of good policies and favourable commodity prices which have stimulated high quality economic growth and have resulted in a low, single digit unemployment rate the likes of which this country has never experienced.

This economic expansion has been taking place in the context of an increasingly open economy with a buoyant foreign exchange market; a competitive exchange rate; consistent balance of payments surpluses; a healthy build-up of official reserves; prudent fiscal management; and sustainable debt servicing.

Not many developing countries in the world have been able to achieve this economic performance is one that. Let me therefore share with the nation how we were able to achieve our successes.

Our strategy had three essential and inter-dependent components.

The first component of our strategy was implemented when we liberalised the economy. From the beginning of the 1990s price controls were removed. The trade system was liberalised as import restrictions were eliminated, tariff structures rationalised, and the domestic currency was made fully convertible.

Indeed Mr Speaker, markets and the private sector responded and we have witnessed the solid growth rates associated with financial and economic stability.

In short, these measures collectively provided the environment for the vibrant private sector activity that we see today in Trinidad and Tobago.

The second component of our strategy was to stabilise the economy. We made decisive progress towards an environment of low inflation through appropriate fiscal and monetary policies. Our budget and external balances were made sustainable and we have achieved the credibility associated with strong macroeconomic fundamentals.

The third essential component of the strategy was the creation of the institutions and markets that are needed for a competitive economy to function effectively and to serve the broad and higher objective of high quality growth. This is the most complex and time-consuming part of the strategy. It requires a change in our systems of delivering services and it is something to which this Administration is very committed.

Mr Speaker, the Government has not forgotten the social implications of economic reform. We have put in place transitional arrangements to help address the social cost of the economic restructuring. Many of our citizens have suffered hardships during the economic restructuring process and we have created mechanisms to assist them in becoming much more able participants in the new economy. Yet, at the same time we have ensured that the less fortunate in society have the wherewithal to maintain a reasonable standard of living.

Our economic policies have set the stage for an increasingly competitive, flexible and dynamic economy.

We have been successful but the world is ever changing and it is necessary for us to take stock of where we are and determine if we are on the correct path. As we do this, we recognise that we have much further to go, but we are moving onward to developed country status.

Mr Speaker, the economic performance of this country over the past decade has been enviable to say the least. But let me emphasise, that while we have had and continue to face several challenges, we can boast of a large number of significant successes. Permit me to catalogue some of the major achievements of the past year.

In 2005, our real GDP, which is a measure of the goods and services we produce, rose by 8 per cent and is projected to grow by 12 per cent by the end of fiscal 2006, putting the average increase in real GDP since 2001 at 8.7 per cent.

This means, Mr Speaker, that our GDP per capita, which is a crude indicator of average incomes in our society, rose from US$6,970 in 2001 to US$13,978 in 2006. This level puts us among the higher income emerging countries in the world.

Mr Speaker, when we came into office in 2001, we made the bold assertion that we would implement measures that would result in the country achieving full employment in five years or before.

Mr Speaker, those on the other side scoffed at this projection. Indeed Mr Speaker, the objective of full employment was made as early as 1995 and I am sure you will recall the vilification to which I was subjected as a result.

It is now my distinct privilege to announce to this Honourable House that from October 2005 to June 2006 the economy created 12,700 jobs, reflecting an average unemployment rate over the period of 6.9 per cent and this rate is projected to reach approximately six per cent by the end of 2006. The accepted international benchmark for full employment is five per cent given some level of frictional unemployment, that is, where people are between jobs. Even so the

signs that we may have already achieved full employment are evident on a daily basis.

Mr Speaker, our external accounts are robust, characterised by a significant current account surplus, sizeable foreign direct investment and a very healthy foreign reserve position.

The Government has kept public and external indebtedness well under control. In fact our external debt ratio at 7.8 per cent of GDP is extremely low by international standards.

Mr Speaker, as you are aware, this Administration has pursued a massive programme to provide quality affordable housing to our citizens through the construction of new houses by the Government and the private sector since 2002.

We have substantially upgraded our health system. We have introduced modern equipment in our health institutions, severely cut waiting time for surgeries and provided free drugs for many common ailments such as diabetes hypertension, and glaucoma.

Mr Speaker, to date over 230,000 persons have accessed the facilities under the Chronic Disease Assistance Programme. This is a Programme, whereby citizens receive state funded medical drugs and is another way in which this Government is committed to making a difference in the lives of our citizens.

We have achieved universal access to primary and secondary education and are well on the way to achieving universal early childhood education.

We increased Old Age Pension from $720 in 2001 to $1,150 in 2005. We also increased the minimum wage from $7 per hour in 2001 to $9 per hour in 2005.

We are responding aggressively to the rise in criminal activity. Kidnappings for ransom have declined significantly from a high of 58 in 2005 to eight cases at the end of August this year. May I take this opportunity to congratulate our security forces for their efforts in this regard and we make bold to say that anyone who kidnaps someone for ransom will be caught.

Mr Speaker, we have had many successes but we continue to work on providing quality service to the nation. We have listed for the benefit of our citizens some of the results of our policies which are contained in a document laid in Parliament today called: "Government at your service: Highlights of Achievements."

Mr Speaker, I am sure that the nation will appreciate that one of the major challenges we face has been controlling inflation. We have targeted an inflation rate of seven per cent but keeping inflation below this target has been difficult and the rate has risen to nine per cent, year on year, as at the end of August. On analysis, Mr Speaker, we note that rising inflation has become a global issue largely due to high international oil and food prices.

To preserve the living standards of our citizens, the Government has decided to maintain sizeable subsidies on fuel and electricity to cushion inflationary pressures.

Another contributing factor to the rise in inflation has been lagging agricultural output exacerbated by reduced imports from other countries in the region that have faced natural disasters. A third factor has been higher import costs as a result of the direct impact of high international oil prices.

As a result, reducing inflation is a major priority in the coming year.

Mr Speaker, I want to repeat that reducing inflation is a major priority of this Government in the coming year.

Mr Speaker, in the last fiscal year actual revenue was $38.6 billion while actual expenditure stood at $38.1 billion which included a transfer of approximately $3,159,863,000 to the Interim Revenue Stabilisation Fund. This represents the largest annual transfer ever made to the Fund and brought its balance to $8,604,571,812 at the end of fiscal 2006.

Of the total expenditure of $38.1 billion we also spent:

$4.1 billion on social programmes;

$2.9 billion on national security;

$2.2 billion on the health sector;

$4.9 billion on education which included $266 million in direct support to persons accessing tertiary education through the

Government Assistance for Tuition Expenses (Gate);

$5.2 billion for infrastructural investments;

$2.4 billion on interest payments;

When total expenditure is further disaggregated:

$5.2 billion was spent on wages and salaries;

$1.3 billion to maintain the subsidy on fuel; and

$2.2 billion for pensions, including old age pensions.

Mr Speaker, several commentators have accused the Government of over- spending; of concentrating too much on the construction of high rise buildings. We have a somewhat different view and the data suggest otherwise.

We have been faithful to our commitment of saving for a rainy day and for future generations. But, as a responsible Government, we must also seize the opportunity to improve the quality of our education, security, health system, enhance our poverty reduction programmes and infrastructure.

We are therefore continuing our programme of house construction to further reduce the housing deficit; we are upgrading our infrastructural facilities and we are easing existing capacity constraints.

Our Government office construction programme will improve the work environment for our public servants thus helping to boost productivity, additionally there will be considerable savings on rental payments for office space on completion of the exercise.

We are convinced, Mr Speaker, that we have been operating a very disciplined and transparent expenditure policy, ensuring that the population gets value for money. And, Mr Speaker, the population could be assured that we would continue to be a responsible government.

Mr Speaker, the assumptions that we have used for the Budget for fiscal 2007 are based on our understanding of the potential developments in the world economy over the next three years. These assumptions are:

1. The experts expect international oil prices to remain over US$60 per barrel over the next three to five years. In line with our usual conservative approach, this year's Budget is based on an international oil price of US$45 per barrel and a notional net back Henry Hub gas price of US$3.50 per MMBTU. On this basis, we would expect substantial transfers to the Heritage and Stabilisation Fund over the next three years.

2. Real GDP growth will average 6.2 per cent per year.

3. We will reduce inflation to seven per cent. This will require a halving of the increase in food prices from between 20-25 per cent currently to 10-12 per cent.

GROWTH AND THE DIVERSIFICATION CHALLENGE

Energy

Mr Speaker, the energy sector will continue to be the main engine of growth over the next several years, with increased production coming from the existing plants.

The Government's policy towards the industry is expected to greatly facilitate this process of growth and expansion in fact the projection is for the doubling of our GDP before 2014.

Firstly, tax incentives will continue to be offered to support an appropriate programme of oil and gas exploration.

Secondly, the Government intends to ensure that, in future, new downstream industries provide significant value-added and involve meaningful linkages between the energy sector and the rest of the economy.

Mr Speaker, the petrochemical sector now comprises ten ammonia plants, seven methanol plants, three Direct Reduced Iron modules, one hot briquetted iron plant and a gas-processing plant. Several additional petrochemical plants are currently under construction. There is also a pipeline of petro-chemical projects to come on stream over the next two to three years which will increase downstream activity significantly as well as generate substantial employment opportunities.

Some of these plants manufacturing mainly ethylene, polyethylene and propylene will now establish the basis for a plastics manufacturing sector.

This will complete the raw material base that we have determined to be necessary for the establishment of the modern industrial state of Trinidad and Tobago.

This modern industrial state, Mr Speaker, is happily not only the forte of foreign companies investing in Trinidad and Tobago, but it is also the area of large investments by local companies and joint venture arrangements between local and foreign companies.

Ansa McAl Urea Ammonium Nitrate Plant

Mr Speaker, Ansa McAl is currently in the process of establishing a petrochemical complex to produce 300,000 tonnes per annum of Urea Ammonium Nitrate (UAN) solution. The project will be located at Union Estate and will cost US$835 million and create 2,000 job opportunities during the construction phase.

Ammonia/Urea/Melamine Project (AUM)

Methanol Holdings Limited/Clico is undertaking an Ammonia/Urea/Melamine (AUM) project. The proposed capacity of the plant is 1.4 million tonnes per annum of Urea Ammonium Nitrate and 60,000 tonnes per annum of Melamine. Construction of the plant began in May 2006 at the new extension of the industrial estate at Point Lisas. In addition, there is a proposal for the construction of a new pier to facilitate exports from the proposed plant. This project will cost US$1.5 billion and employ 2,500 people during construction.

Westlake Ethylene Complex

Mr Speaker, in April of this year the Government and Westlake Chemical Corporation of USA signed a US$1.5 billion Memorandum of Understanding for the construction of an ethylene complex in Point Lisas. Construction of the plant is scheduled to begin in the fourth quarter of 2007 and is due to be completed in 2010. The integrated complex will comprise an ethylene cracker complex and a polyethylene plant complex.

The capital cost of the project is estimated at US$1.5 billion subject to further definition of the venture.

The Malaeic Anhydride Processing Facility

The establishment of a Malaeic Anhydride Processing Facility is to be undertaken by Isegen (PTY) Ltd, a wholly owned private company incorporated in South Africa.

This company is a global manufacturer of chemicals for food additives. The capital cost of the project is US$64 million and construction is scheduled to commence in the fourth quarter of 2008.

Both the Ethylene Complex and the Maelic Anhydride Processing Facility will produce over 5,600 jobs during construction and a total of 540 permanent positions. Most importantly, close to 6000 sustainable jobs will be generated through the stimulation of new businesses in a wide range of new downstream manufacturing activity.

Aluminium Smelter Projects

Mr Speaker, it is proposed that two Aluminium smelter plants; will be constructed one by Alcoa, at Cap-de-ville and the other, the Alutrint Project, at the Union Industrial Estate, La Brea. Mr. Speaker, the Government understands the concerns raised by citizens regarding the construction of these smelters.

However, I use this opportunity to reassure the national community that both plants will met the most stringent environmental standards consistent with international practice as determined by the Environmental Management Authority. These plants will be utilising the most modern technology to meet the highest international and safety standards.

Additionally, Mr Speaker, the establishment of aluminium smelters in this country will result in the further diversification of the economy. The world market for aluminium is characterised by increasing demand due to increasing usage. This will impact positively on exports and employment opportunities in high end job opportunities.

These plants will be highly energy efficient due to the use of the utilisation of the combined cycle process for electricity generation which will reduce our natural gas resource utilisation.

The price structure of aluminium on the world market when compared with that of oil and natural gas will provide a more predictable source of Government revenue.

I wish to point out that Aluminium smelters are already established in both developing and developed countries including Australia, New Zealand, Canada, Brazil, Argentina, Venezuela and Mexico.

These projects are estimated to create up to 5,000 thousand jobs during construction and approximately 1,500 permanent jobs on completion. In addition, it is anticipated that over 850 persons will be employed in the downstream industries.

Diversification

Mr Speaker, while we are having considerable success in extending the frontiers of the energy sector, diversification of the non-energy sector remains an ongoing exercise.

The growth in construction activity and in distribution services is making a very important contribution to employment generation.

And while this growth is sustainable over the medium term, we need to set the basis for a more aggressive expansion of our already robust manufacturing sector, for new internationally competitive niche activities, and for a greater push into tourism and financial services.

Mr Speaker, the Government has identified and targeted seven key industries for intensified developmental focus. These industries are Yachting, Fish and Fish Processing; Merchant Marine; Music and Entertainment; Film; Food and Beverage; and Printing and Packaging. The Government is now involved in intensive promotional activities to attract investments in these areas.

The policy package for this group of industries includes tax and custom tariff incentives, marketing and promotional assistance, skills training, research and development assistance and productivity enhancement support. In the case of the merchant marine, the Government will update key pieces of relevant legislation and establish a maritime authority to administer the sector.

Mr Speaker, the Government will boost the competitiveness of the industrial sector by establishing a National Research and Development Fund to stimulate innovation and investments when the Tamana Technology Park at Wallerfield is completed.

This will spearhead technological upgrading in the economy and the modernisation of existing industrial parks and the development of new ones.

Mr Speaker, the establishment of an international financial sector will be another mechanism for broadening our productive base, increasing our foreign exchange earnings and furthering economic diversification. Trinidad and Tobago has already been established as the financial centre of the region.

We are the main capital market for regional governments and corporate firms.

We have the dominant regional stock exchange, which already boasts a number of regional listings; and we are also the home of the Regional Credit Rating Agency, CariCris.

Experts have confirmed that our strong financial base, our robust balance of payments and our ideal location are significant attractions for international banks and investment firms interested in doing business in the wider Caribbean, Latin America and even further afield. To seize this opportunity, the Government intends to create the Trinidad and Tobago International Financial Centre.

We will create a financial park to house local and international financial institutions focusing on investment management, international loans syndication and back office activities.

In addition to the provision of the physical infrastructure, to facilitate the establishment of the international financial centre, the Government is intensifying efforts to strengthen the regulatory and supervisory framework, encourage the expansion of education and training in finance, and taking steps to modernise the technological infrastructure.

The expansion in hotel capacity and the new convention centre being built on the Waterfront will also add to our attraction as an international financial centre.

The establishment of an International Financial Centre represents a bold new initiative which promises to give Trinidad and Tobago the quantum leap to make this country world class in the provision of financial services.

Medium, Small and Micro Enterprises Sector

Mr Speaker, Government has recognised the significant contribution that Small and Micro Enterprises (SMEs) make to employment creation and poverty reduction.

As such, the promotion of SMEs has been a main objective of the Government, manifested through initiatives such as the establishment of the Business Development Company (BDC), the National Entrepreneurship Development Company (NEDCO) and the Enterprise Development Division (EDD) of the Ministry of Labour and Small and Micro-Enterprise Development.

The BDC will work with stakeholders in developing their new Business Development Facility. This facility will support clients with their businesses from conception through growth to maturity and expansion. At all phases, the BDC will provide relevant services to ensure business escalation by increasing the levels of loan guarantees.

Mr Speaker, may be considered one of the Government's success stories as to date, NEDCO has provided training in various aspects of small business management to over 5,000 persons and granted over 6,800 loans for the establishment of small and micro enterprises.

NEDCO's newest initiative, the Entrepreneurial Training Institute Incubation Centres (ETIIC), will further solidify the viability of businesses in this Sector.

Mr Speaker, these Centres, in a relatively short space of time, have become a valuable resource to many small business operators, providing mentoring and advisory services, Information Technology support, and training in entrepreneurial development and business enterprise. In addition, the Centres facilitate an online marketplace where clients are exposed to buyers from around the world.

Several Centres already exist in Port of Spain, Barataria and San Fernando and in fiscal 2007, an additional centre will be located in Tobago.