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The ties that bind T&T and Jamaica

Published: 
Thursday, March 24, 2011

The temperamental trade relationship between T&T and Jamaica is akin to sibling rivalry. Tantrums occasionally punctuate the calm relations between Caricom’s two most powerful member states. Some long-memoried Jamaican still bristle over the fact that the island’s famous Tastee patties were denied immediate access to the local market when T&T’s goods enjoyed a US$526.2 million positive trade balance in 2009. Jamaica has also argued that T&T’s manufacturers benefit from subsidised energy costs, while their manufacturers pay US$0.30 cents a kilowatt, T&T’s manufacturers pay US three cents.
T&T’s energy pricing, as a producer of natural gas, is not illegal under the World Trade Organisation.
Despite the intermittent squabbles, Caricom unity has enabled both members to set up shop in each other’s country. Trinidad businesses—Trinidad Cement Ltd through its subsidiary Carib Cement; Bermudez Ltd; Associated Brands; Neal & Massy; RBTT; Guardian Holdings—all have a presence in Jamaica. Conversely, Jamaica’s GraceKennedy and billionaire businessman Michael Lee Chin’s AIC are two of Jamaica’s best-known brands in the local market.

But trade tensions still affect the relationship. Just last year, Jamaicans threatened to boycott T&T’s products after Prime Minister Kamla Persad-Bissessar said T&T would no longer be an ATM for the Caribbean. “Trinidadian companies now own businesses in Jamaica. Jamaican companies now own businesses in T&T. Trade wars with T&T will not only be detrimental to businesses owned by Trinidadians in T&T. They will also be detrimental to Jamaican-owned businesses in T&T and to businesses owned by Trinidadians in Jamaica, which employ large numbers of Jamaicans,” Kenneth Baugh, Jamaica’s Minister of Foreign Affairs and Foreign trade, told the Jamaican Gleaner earlier this month. In an effort to build the relationship between the two states and to explore business opportunities for Jamaica’s Minister of Industry, Investment and Commerce, Karl Samuda will visit T&T early next week. T&T is Jamaica’s second trading partner after the USA. The value of trade between T&T and Jamaica favoured T&T. Major products were: Petroleum products, mixed juices, detergent, baby diapers, prepared foods, bread and cakes, copper wire urea, sweet biscuits.

The Manufacturer’s Edge

Jamaican manufacturers now face a challenge put forward by its Government—an end of its modernisation of industry programme (MOI) on March 31, and adjustment to the duty regime for raw materials. The MOI is a facility offered to Jamaican manufacturers to retool plants and the regime which existed was a zero duty on raw material. President of the T&T Manufacturers Association (TTMA), Greig Laughlin, says while the MOI would apply to T&T’s manufacturers—like Bermudez, Associated Brands for instance—producing in Jamaica, they do have options. “We are fortunate. We can borrow from our banks which gives us better interest rates and we can buy equipment and ship it there,” he told the Business Guardian. Questioned on whether this puts T&T manufacturers at an advantage over the Jamaicans, which justifies the Jamaican sentiment, Laughlin said: “Businesses have invested in their own self-interest.” Noble Philip, chief executive of Bermudez, said his company will adapt to suit. Bermudez has one factory in Jamaica and compliments production with exports from its T&T factories.
With regard to the MOI, Philip explained that every market changes to the way the Government wants to interface. “If that’s how the rules are, how they want us to play the game, it’s not an issue for me. So why pick on the Jamaican Government? I will adapt to suit. I work with the rules. Manufacturing in Jamaica can be as competitive as you want it to be without compromising our approach to the market,” he told the Business Guardian.

In spite of the competitive advantage, Laughlin explained that T&T manufacturers have constantly re-invested in their factories, their employees and by extension, Jamaica. “We will support the Jamaican manufacturers in anyway we can. When the standard of living of the Jamaicans go up, they demand more products and we’re able to sell more. And manufacturing is a great way to employ people. More jobs means more money,” he rationalised. He pointed out that the Jamaican market makes up half of Caricom which makes it a good place to do business. T&T manufacturers, estimates Laughlin, have invested more than $1 billion in Jamaica over the past 10 years. “When we’ve re-invested in our factories, our unit cost has gone down. This allows us to be more competitive. That’s why our manufacturers can go outside and do well in other countries,” he said. Philip’s take: “We believe what you do is try and understand the local market if you’re going to sell food-based products. We don’t make the distinction. We are a Caribbean country. Both are challenging markets.”  “We see Jamaica as a great market. It’s a great launching point when the Cuban market opens. It offers access to Haiti, Santo Domingo and Central America,” he told the Business Guardian. Laughlin said T&T manufacturers will be affected if duties are raised on raw material but manufacturers retain the option of passing the cost on to the consumer.

Beyond Manufacturing

T&T’s highest-profile investment in Jamaica, of late, was the acquisition of Air Jamaica (AJ).
After being passed over in its first attempt to acquire AJ, Caribbean Airlines was given the nod after it re-bid in May 2010. The Jamaican Government absorbed AJ’s US$1.5 billion debt and CAL put up launch capital of US$50 million. CAL chairman George Nicholas has chosen to retain the Air Jamaica brand and offer domestic flights between Kingston and Montego Bay through one of CAL’s soon-to-be-acquired ATR turboprop aircraft. He’s ambitiously offered AJ to London by July but that won’t happen until 2012.  Unlike manufacturers, the Neal & Massy conglomerate acquired Jamaican business such as HD Hopwood, Gas Products Ltd and a 40 per cent stake in Cool Petroleum Ltd. Illuminat, N&M’s Information Technology and Communications Solutions company, also has a base in Jamaica. N&M’s chief executive Gervase Warner described Jamaica as a level playing field to do business. He observed that since the IMF’s intervention—Jamaica signed a $1.27 billion, 27-month Standby Agreement with the IMF for balance of payment support in February 2010—the country has managed to get a handle on the labour costs and inflation which augurs well for the country’s macroeconomic indicators if it continues to hold up. While he acknowledged N&M is considering further investment, he did not give details. In the financial landscape, RBTT Bank Jamaica operates 17 branches with approximately 790 part- and full-time employees. As for their impact on Jamaica, RBTT responded in a statement that its total assets for RBTT Bank Jamaica Group at October 31, 2010 was $62.4 billion, a reduction of $19.2 billion from the total of $81.6 billion reported at March 31, 2009. The company did not give a reason for the reduction.

Jamaican Investment

Perhaps Jamaica’s biggest venture in the local market was the expansion of Michael Lee Chin’s mutual fund empire, AIC, in T&T. The company haemorrhaged US$100 million before Lee Chin stepped in to change management in early 2007. Lee Chin had told the Business Guardian, in a interview then, that the local operation had not represented “the true AIC values,” admitting that it was partly the fault of the AIC head office “for not inculcating the organisation enough so that the values could be assimilated.”
He had said it was also partly due to the company trying to grow too quickly and attributed the losses to investments in emerging market bonds which he said were made by the local management without his knowledge. He said he accepted the blame for not being aware of those investments but as he was the 98 per cent shareholder, the loss was his to bear.

Jamaica

The Jamaican economy is heavily dependent on services, which now account for more than 60 per cent of GDP. The country continues to derive most of its foreign exchange from tourism, remittances, and bauxite/alumina. Remittances account for nearly 15 per cent of GDP and exports of bauxite and alumina make up about 10 per cent. Tourism revenues account for roughly 10 per cent of GDP, and both arrivals and revenues grew in 2010, up 4.0 per cent and 6.0 per cent respectively.

Exports:
$1.487 billion (2010 est)
country comparison to the world: 137
$1.263 billion (2009 est)
Exports commodities:
alumina, bauxite, sugar, rum, coffee, yams, beverages, chemicals, wearing apparel, mineral fuels
Exports partners:
US 38.19 per cent, Canada 12.2 per cent, UK 10.79 per cent, Norway 4.89 per cent, Netherlands 4.69 per cent (2009)

Imports:
$5.378 billion (2010 est)
country comparison to the world: 109
$4.581 billion (2009 est)
Imports commodities:
food and other consumer goods, industrial supplies, fuel, parts and accessories of capital goods, machinery and transport equipment, construction materials
Imports  partners:
US 28.32 per cent, T&T 22.98 per cent, Venezuela 12.14 per cent, China 4.61 per cent, Brazil 4.18 per cent (2009)

Trinidad & Tobago

Oil and gas account for about 40 per cent of GDP and 80 per cent of exports, but only 5.0 per cent of employment. The country is also a regional financial center, and tourism is a growing sector, although it is not as important domestically as it is to many other Caribbean islands. The economy benefits from a growing trade surplus.

Exports:
$12.06 billion (2010 est.)
country comparison to the world: 80
$9.312 billion (2009 est.)
Exports  commodities:
petroleum and petroleum products, liquefied natural gas (LNG), methanol, ammonia, urea, steel products, beverages, cereal and cereal products, sugar, cocoa, coffee, citrus fruit, vegetables, flowers
Exports  partners:
US 38.53 per cent, Jamaica 8.86 per cent, Spain 6.88 per cent, Mexico 6.23 per cent (2009)

Imports:
$8.234 billion (2010 est)
country comparison to the world: 99
$7.161 billion (2009 est)
Imports  commodities:
mineral fuels, lubricants, machinery, transportation equipment, manufactured goods, food, chemicals, live animals
Imports  partners:
US 30.87 per cent, Colombia 7.1 per cent, Venezuela 7.01 per cent, Russia 6.64 per cent, Brazil 5.53 per cent, China 4.19 per cent (2009)
(Source CIA Factbook)

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