straight to the point – from different points of view

Why our diversification fails

Why our diversification fails

Prime Minister Keith Rowley knows why all our multi billion dollar “investments” in diversification have failed. And he has the answer that we all long for. He knows what is required to successfully diversify our economy from its near total dependence on oil and gas revenues.

In a recent speech he was reported in the Newsday as saying “that some efforts at diversification by past PNM governments had failed after a change of government, including the $44 million Labidco Estate, aluminum smelters –after hundreds of millions had been spent to try to establish them – and the eTeck park at Tamana. He also lamented opposition to the Sandals resort intended for Tobago (the Sandals company eventually withdrew its proposal).”

So there we have it folks. If only we had an uninterrupted PNM government all these years then we would have succeeded at diversification and he would not now be exhorting us to end our reliance on future energy revenues. Does his statement make sense? Does our economic salvation really lie exclusively in the capable hands of the PNM?

If it weren’t for other parties occasionally holding the reins of power and if he could only silence people like myself who ask for feasibility studies and such documents before projects are approved, all would be sweetness and light in the world inhabited by our Prime Minister. Or so he would have us believe.

Put anther way, as far as the efforts of the PNM government go towards a successful diversification thrust, his argument and desire is for more of the same. Keep on doing what they have done for five decades and expect a wonderfully different result, according to him. No, I do him a disservice. He is not advocating more “investments” of the type they have given us in the past. He is advocating being able to proceed without interruption by any other party and presumably by commentary from civic minded experts.

If only they were left to their own devices, eTeck would not have been a failure. Nor would Cove Industrial Estate have cost four billion dollars for an empty industrial site (do visit it one of these days). Even Petrotrin would not have wasted 12 billion dollars with nothing to show but a loan that nobody takes credit for approving and which will burden our descendants for decades to come. He wants us to free his hands to deliver even more of such “success”.

Buried within his statement is a curious notion. It is that the projects that were stopped by whatever means would all have been outstanding successes. That is the obvious implication of his lament that their projects had failed after a change of government or been brought to heel by troublesome commentators, critics and yes, opposition politicians. In his view, every “investment” that they made was assured of success if only they were allowed to run their course unfettered by trouble makers like myself or by the inconvenience of their loss at the ballot box.

That, my friends is the lament of a gambler. The next one and the one that they did not back is always the big one, the one that cannot fail. The investor on the other hand, assesses probabilities of potential outcomes, looks at all available data, considers various impacts and more, before making a decision. So why do we not all clamour for this type of analysis that would improve our rate of success with investment of public funds?

Paradoxically, the answer lies hidden in plain sight, tangled in the weeds of this statement and others from the mouth of our Prime Minister. I invite you to consider the Petrotrin fiasco. Recall that mere months before opting to shut down the refinery at a cost of billions of dollars, our Prime Minister assured the nation that he would not be taking precisely that course of action. In that light I invite you to contemplate another scenario.

Suppose that someone else had the authority to abandon that project (the CEO perhaps). Suppose that such a person had made a judgment two years earlier and terminated the project while the cost was say six billion dollars, what would have been the political reaction from our dear leader? Would it not have been the same as for the Sandals project? Would we not now be vilifying the executive who had saved us a further six billion dollars?

I could imagine the rage and vitriol that would have been hurled at that individual. The Prime Minister would certainly not credit that person with saving us six billion dollars. To do so would have required assessment of probabilities, cash flow projections, impact analyses and much more. We know from his prior commitment not to close the refinery that he did not avail himself of such work. Without any analysis, he was absolutely convinced, just a few short months before the decision to close that this project deserved ever more much capital being “invested” in it.

We should have no doubt that a CEO who made the correct decision in such a situation would have been roundly castigated by the Prime Minister and likely removed from his/her post never to see senior office again. This has a disastrous impact on the approach of our political appointees to executive position. Even when they view a project as unworthy of further investment, they know that saving our dollars by making the right decision to not proceed will see them attacked as having “wasted” however much was spent thus far. The Prime Minister makes that abundantly clear by his reference to projects that were terminated. He has not any time or regard for analyses that underlie these decisions.

CEOs would be in the same position as people like myself who are viewed as having deprived the nation of a wonderful investment in a Sandals hotel, which like the refinery projects was unsupported by any studies. Remember that the Prime Minister was angry with those of us who had the temerity to ask for a Feasibility Study before spending 500 million US$ in this way. His unforgettable response was “Sandals is a world class company, and they did a Feasibility Study so we don’t need to do one”. I couldn’t make this stuff up.

If we are to diversify successfully we have to start by embracing some fundamental investment truths. Success comes from careful and detailed analyses and decision making supported by such analyses. We must be prepared to evaluate and reevaluate the future prospects of each project on a regular basis, at least annually. We pay huge sums of money to Project Management teams for such work. We should not only use it to make correct decisions. We should embrace the spirit of consultation and share the results of that work with the public to the fullest extent possible.

Only then might we have a realistic chance of diversifying our economy successfully. That is not the only issue to be addressed but it is the most critical and is an absolute show stopper. Failure is guaranteed if we continue along this path.

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