Caribbean gov'ts must work together or suffer separately

Dennis Morrison, Contributor

When Jamaica's negotiations to secure supplies of natural gas from Trinidad and Tobago (T&T) were torpedoed in 2006, it came as a big blow to the country's economic prospects.

It was said at the time that T&T's gas-production capacity could not accommodate the demand from Jamaica, with the US taking up 90 per cent of its gas exports. Ironically, the American market for Trinidad's natural gas has now plummeted, with the burgeoning production of gas from shale rock in the US.

As the US is currently taking only 19 per cent of T&T's liquefied natural gas (LNG), the twin-island republic is facing serious risks to its markets and must now turn to the Caribbean and Central America as a new outlet.

It is also faced with the issue of lower prices as the projected expansion of shale gas in the US and elsewhere is expected to exert downward pressure on prices. It is another irony that pricing was a sticking point when the deal fell through, with strong resistance in T&T against any concessions, as prices were rising sharply in what was a seller's market.

The deal that was being negotiated back in the mid-2000s involved a gas-supply arrangement that would have provided competitively priced energy for an expanded Jamalco alumina plant, and 70 megawatts of electricity to the national grid. Under a memorandum of understanding signed by then Prime Ministers Patrick Manning and P.J. Patterson in 2005, it was anticipated that the gas-supply facility in Jamaica would have been jointly owned by the two countries.

significant economic benefits

It was also contemplated that Jamalco would have been the source of alumina supply for a planned aluminium smelter to be established in Trinidad by Alcoa. By combining T&T's natural gas resource with Jamaica's bauxite, both countries would have derived significant economic benefits.

For Jamaica, the expansion of the Jamalco plant would have involved an investment of more than US$1.2 billion with a sizeable immediate impact on the construction and other sectors.

It was projected that upon completion, there would have been additional gross foreign exchange earnings of more than US$250 million per annum. The electricity component would have marked the beginning of the diversification from our total reliance on oil.

Apart from alumina to meet the requirements of T&T's entry as an aluminium producer, along with new industries that could be spawned, the deal would have bolstered that country's trade prospects.

Specifically, the expected expansion of the Jamaican economy would have, in turn, increased Jamaican demand for Trinidadian goods. In recent years, Jamaica has become T&T's major export market for manufactured goods, and, therefore, the vibrancy of our local economy has a direct bearing on the twin-island's manufacturing sector.

Despite years of discussion about Caribbean economic integration and agreement to establish the CARICOM Single Market, progress has been slow in actual implementation. The success rate is low in terms of investment flows between member countries, and the aborted Jamaica-T&T gas-bauxite deal is a grim reminder of our failure to combine our economic resources to move from being mere commodity producers to creating regional manufacturing industries.

regional economies challenged

As things stand, regional economies are severely challenged by the lack of competitively priced energy. At the same time, T&T's gas industry has become vulnerable as shale gas production has introduced new market dynamics. Are these circumstances likely to encourage the combining of resources to enhance the competitiveness of the region's industries and expand the economies?

By comparison, Central American countries have made strides in economic integration that have helped to cushion the effects of the global recession. Increased trade between countries of that region has served to speed up recovery and a return to growth, while the downturn in the Caribbean has lasted longer. For example, a weakened Jamaican economy has reduced demand for imports from T&T and put pressure on its manufacturing output.

The fact that key industries in the Caribbean are externally owned and directed is of major importance in determining investment plans and location of production capacity. Hence, decisions are not usually made in a framework of promoting regional integration. But even where Caribbean governments have influence over the exploitation of natural resources, they have not used that as leverage to create viable regional enterprises.

Dennis Morrison is an economist. Email feedback to columns@gleanerjm.com.