Vision 10 yrs


From Sustainable Development to Regulated Success

Presented May 30, 2016 by Terrance A. Jennings, Executive Director - Investor Relations of Private Enterprises Fund represented by TAJ & Associates Co. Ltd. via video conference to potential investors buying into the Republic of Trinidad & Tobago. Note; off script comments appear as red text.

Vision 10 years Projections
Strategies for the nation's future development and improving its people’s lifestyles are based on historical trends and current market conditions with an eye on scientific research, technological innovation and risks assessment, making an independent office of budget integrity the most important institution to guide the nation's sustainable success. Such an institution works above and beyond the politics and only for and in the best interest of all the nation's people, analyzing the recent past from data collection agencies, managing the nation's debt profile, controlling both recurrent and capital expenditure, projecting stabilizing revenue, growing assets to benefit cash flow needs, forecasting infrastructural and operational needs far into the future, uninterrupted by changes in the executive branch of Government and considering the nation's geographic location and population size as its first competitive advantage, closely followed by its peoples' skills and creativity, as it analyses future opportunities.

These words are to justify the nation's invitation to Investors; Shareholders, Bondholders, Corporate and Private Equity, Hedge Funds, Mutual Funds, Pension Funds, etc. Noting that, such investors are already here on a limited basis; in the extractive industry, the real estate and construction sectors, the financial, banking and insurance sectors, involved in manufacturing, trade and services. This invitation promotes the nation's maturity, led by its elected leaders, to regulate its economy via collective bargaining, job creating, taxpaying, social partnering, investments, which offer competitive returns.

Analysis of the past
Many nations or economic regions anchored development upon naturally occurring resources, expanded trade routes, product manufacturing and packaging inclusive of foods, tourism, culture and the arts. Such economic drivers are all measured and judged to be successful in financial terms, where revenue from particular sectors are greater than the said sectors, same period, expenditure. A much more detailed and costing calculation, prorating general expenses including but not limited to security, health and education cost, is necessary to judge any sector's feasibility and justify the rate of further investment in that sector. Equally, non-financial checks and balances are essential to monitor infrastructural quality and to measure program effectiveness, numbers of persons served, justifying results.

Investors were firstly invited to build industries and sectors by transplanting workers, applying technology and know-how, transporting products and accessing markets, all of which still requires money for industries and sectors to remain relevant. Profits fuel all living standards and competition is global for the essential development dollar hence, the nation's leaders must constantly proof that such investments are for all its people.

Institutional Analysis
This long proposed and highly recommended Budgetary Institution requires data feeds from other strong, functioning and dependable institutions; an Audit, a Treasury and Statistics, at the very minimum. It is the Auditor General reports which must compare allocated funds, approved by the parliament via a budget debate, to meet and managed obligations, responsibilities and projects, comparing year to year and actuals to estimates; debt management, recurrent and capital expenditures, to projected revenues and, if necessary, quantify deficit financing. The Central Bank or Treasury, speaking direct to the population, uses its moral influence, regulatory powers and monetary policy to control inflation, currency values and interest rates. Whereas, the Statistical Agency, points out through published reports, a wide range of periodic changes to the nation's status that will indicate growth or shrinkage trends. Reporting quarterly to the parliament and to the population, and via special assignments, the Budgetary office must indicate changes to short-term 1-3 year forecast, adjustments to medium term 5 year projections, and when called for, show the effects current decisions would have on the long term 10 years and beyond.

Investors and their numerous advisors depend heavily on regulatory institutions for trusted information, and if that trust comes under question or is perceived as manipulated, the damage, if not dealt with decisively, can be rippling. Investors expect protection under the law; hence, the Security and Exchange Commission and the Stock Market must be seen bringing cases to the judiciary. Investor Confidence is further boosted when Government divest its interest in key sectors.
Debt Management
Debt Servicing is very predictable as contractual arrangements are examined and reposed by the Auditor General as borrowings, both from local and foreign sources, primarily employed to fund operating deficits. Other obligations signed and intended to be honored from cash flows, inclusive of account payables, due to public officers' salary negotiations, which may trigger a large back-pay, and other bills left unpaid for work expensed in a prior accounting period. New borrowings, a calculation of current deficit financing, development programme funding and its resulting repayment schedule, must be the responsibility of this independent budget office, removing any perceived political influence by a minister of finance from the process, and allowing lenders more comfort across long-term contracts. Many state owned and/or operated enterprises would have enjoyed and benefited from loans guaranteed by Government, as industries and sectors are firstly developed, releasing such letters of comfort as operations matured, allowing enterprises to achieve economic viability. Such debts appear off balance sheet but must be viewed as part of the nation's total debt when discussing Government or the nation's debt profile. Similarly, open market trading allows the Central Bank - Treasury to borrow, to fund daily obligations, from the population via the sale of Government's Bills, Notes and Bonds, this too remains off balance sheet but is still part of the nation's total debt. The objective being to consolidate loans or bonds, over the longest terms and attract the best interest rates, to fund sustainable development efforts, while controlling recurrent expenditure, noting that any default in principal repayments or interest charges will cause, via reduce credit rating, more difficulty to secure further borrowings and will increase the cost associated with such finance via higher lending interest rates.


In the case of a nation experiencing revenue reductions, out of its direct control, and having to rely on deficit financing (New Borrowings) to balance its budget, which has expanded by an average of 45.02% over the last few years and is presently estimated to require a 297% increase, its debt profile would need special attention. Total Debt / GDP at constant prices grew from 65% to 119.78% over the last few years, with increases in public sector salaries, a resulting back pay liability and other outstanding bills from prior period included, and are predicted to further increase in this current year with borrowings mainly to fund the Public Sector Investment Programme (PSIP). The aim is to reduce public sector borrowings below debt servicing, which is maintained at current levels, and to increase GDP through fiscal policy (New Investment), while consolidating the nation’s total debt over the long-term.

Recurrent Expenditure
Operating cost is also examined by the Auditor General office to identify trends and enforce compliance with the parliamentary approved appropriations for the given period and, even with short falls of resources within that agency, the audit function must satisfy cost to benefit analysis. Grouping expenditure in its simplest form, such as; Resource Preservation - protecting the nation's borders, population and property, Human Development - examines public health, education and social welfare, Infrastructure Management - speaks to the maintenance of landmarks, public buildings, roads and spaces, Economic Drivers - expenditure aimed at generating revenue growth, Fiscal Policy - addresses debt management, savings and investments and, of course, Governance - which is the key to public morality, institutional oversight, checks and balances, allows for all its historical comparison. Such annual comparisons of expenditure must guide the budgeting process as to strategies that work and those which do not, projecting the best use of funds to achieve the particular mission.

Total Expenditure over the last few years grew by an average of 5.25% and in this current period it is estimated to increase by 7.25%. This is mainly due to the increase of Personnel Expenditure from an average of 7.71% to estimates of 35.22%, an implementation of public officers’ salary negotiations, agreed and signed in the last fiscal year, and an increase in debt servicing from an average of 3.17% to this current period estimate of 7.12%. The Objective is to maintain public sector expenses at current levels and negotiate low 3% increases as circumstances allow.
Capital Expenditure
Development Programme, although fully examined by the Auditor General, requires a much harder look, simply based on the amount of money involved and the time between initial investment and commissioning, as to its priorities, dependencies and long-term feasibility. This is the main function of an independent budgetary office, as many such projects will extend across political terms and hence, require full parliamentary support. For example; water and waste management, food security, mining and extraction of raw materials, energy and electricity expansion, air, land and sea, cargo and passenger, ports. Development Projects calling for a viable and bankable proposal, international and multi-national support agencies, technical assistance and multi-year financing; Private Equity Investment, Government backed project Bonds and Guarantees, Build, Operate, Lease, Transfer (BOLT) instruments.


Development Programme cost was held flat over the last few years and is estimated in this current year to grow by 1.26%. Noting that, it is spending under this category, settling at an average 20% annual increase, which will offer the essential and necessary increase in GDP.
Total Revenue
Revenue collected is also examined by the Auditor General, Tax Revenue - taxation on income and profit, on Property, on Goods and Services, on International Trade and on Other Taxes, Non-Tax Revenue - Property Income, Other non-tax income and Repayment of Past Lending, Capital Receipts - Capital Income, as to the calculated price schedule of Government services and the actual amounts deposited in the treasury. Constant checks are made to reduce leakage both at the corporate and individual levels, and to strengthen the collection of Import Duties, Sales and Value Added Taxes due. Some very short-term income predictions are estimated using trends and other forecasting tools but its again rest with the budgeting office to engage scientific methods in setting and updating, using industry measures and prices, medium or long-term revenue projections.


Total Revenue over the last few years averaged 5.85% increase and this current period is estimated to drop by 2.35%. This was mainly due to large extraordinary items under Capital Receipts, such as; NGC large unscheduled dividend payouts and FCB capital gains from an Initial Public Offering, and along with a significant drop in global commodity prices. The way forward is to accept the drop in commodity prices as permanent, divest and dispose of operations to realize Capital Gains and more Dividend Income.

Assets Management
The Central Bank -Treasury Division manages liquidity; multiple special purpose cash control accounts, together referred to as the Exchequer Account, used to receive and payout daily income and expenditure. Savings and investing budget surpluses or windfall cash revenue in top rated global financial instruments via National Sovereign Funds to help fund future budget deficits is standard practice. A Heritage fund, of principal built on the sales of depleting minerals, non-renewable assets, is conservatively managed by a parliamentary appointed trustee to provide income for future generations, monitored by both the Auditor General and the Central Bank. The Auditor General annual report of the nation is compiled and presented on a Cash Basis, hence, funds, transferred and used for state enterprise development, are expensed and written-off in each period as Capital Expenditure. While, investing initial contributions of Development funds into industrial sectors, through a State Enterprises Investment Programme (SEIP) is monitored and measured by the Investment Division of the Ministry of Finance and the Economy, to generate and earn future dividend payouts from viable operations and, as the sector matures, for future public divestment, via a stock exchange at market prices, to refund and re-circulate this said investment, following the policy to regulate rather than operate. Noting that, investing in Multi-Purpose Facilities, hospitals, schools, stadiums, offices, etc., at fair value, which can generate its own income or, at the very least, reduce associated expenditure, will help strengthen and stabilize a significant portion of projected revenue into the treasury.


 Sample
State Enterprises Equity Analysis
Fair Value
Public Ownership
Initial Public Offering
Capital Receipts
TT$
%
TT$
%
Shares
TT$
TT$
National Utilities Corporation (NUC)
100,000,000,000
10
10,000,000,000
5.00
50,000,000,000
Water Treatment Assets & Operations
50,000,000,000
100
50,000,000,000
Water Distribution & Maintenance
10,000,000,000
100
10,000,000,000
Sewerage Liquid & Gas Operations
2,000,000,000
100
2,000,000,000
SWMCOL
500,000,000
100
500,000,000
T&TEC
5,000,000,000
100
5,000,000,000
Cove Power Station
1,000,000,000
100
1,000,000,000
Scarborough Power Station
1,000,000,000
100
1,000,000,000
POWERGEN
50,000,000,000
61
30,500,000,000
National Transportation Corporation (NTC)
66,200,000,000
10
6,620,000,000
4.00
26,480,000,000
Airports Authority of Trinidad and Tobago
6,000,000,000
100
6,000,000,000
Caribbean Airlines (Tobago Air Bridge)
2,000,000,000
100
2,000,000,000
Port Authority of Trinidad and Tobago
15,000,000,000
100
15,000,000,000
PLIPDECO
20,000,000,000
51
10,200,000,000
LABIDCO
5,000,000,000
100
5,000,000,000
Tobago Sea Bridge
2,000,000,000
100
2,000,000,000
Water Taxi
1,000,000,000
100
1,000,000,000
Public Transport Service Corporation
15,000,000,000
100
15,000,000,000
VMCOTT
10,000,000,000
100
10,000,000,000
Proposed Mass Transit
2,000,000,000
0
0
National Tourism Property Corporation (NTPC)
5,006,092,889
10
500,609,289
2.00
1,001,218,578
The Hyatt Regency Trinidad
1,786,092,889
100
1,786,092,889
The Hilton Trinidad
2,750,000,000
100
2,750,000,000
The Magdalena Grand Beach Resort Tobago
300,000,000
100
300,000,000
Manta Lodge at Speyside, Tobago
20,000,000
100
20,000,000
Sanctuary Villas Resort at Black Rock, Tobago
50,000,000
100
50,000,000
The Trinidad & Tobago Hotel Facilitation Co. Ltd.
100,000,000
100
100,000,000

The Nation's Stabilization and Heritage Fund currently holds over US$5bn and the current estimate calls for US$1bn to be re-injected into the economy this period and another US$0.5bn next year to reduce deficit funding. Finding for this example, Development Investments in utilities operations; Water and Electricity are matured, Commercial Banking, Energy and Telecommunications are listed on the stock exchange, Transportation Ports, Industrial Parks, Office Complexes, Hotels are ready to be divested to refund Development Funds, Capital Gains of over TT$77Bn and financing New Revenue Streams.
Analysis of present opportunities
The nation's budgetary office must employ scientific methods and forecasting tools, based on historical Auditor General reports, to meaningfully project calculated revenue and expenditure, along with Statistical reports on every targeted industry and sector and merged with Central Bank reports, hence, within a small margin of error, actually forecasting the tax and non-tax revenue into the treasury in the current and medium terms. Constantly measuring the feasibility and effectiveness of Economic Drivers; the extractive industry, trade routes, product manufacturing and packaging, tourism, culture and the arts, is the budgetary office main activity. It is this office of budgets that will calculate and predict the economic impact of any sale, divestment or disposal of any of the nation's assets, reporting the likelihood of any future loss of capital receipts and dividend incomes. The budgetary office must work along with and report to the population, via parliamentary committees, on the likely effects of any proposal on the nation's eco-socioeconomic condition in the long-term.

The Budget Division is presently under and part of the Ministry of Finance and the Economy reporting to the Minister, who can alter its reports, instead of, independently reporting directly to a joint select committee of the Parliament.

Future innovation and opportunities
The Nation, the State, the Government, the Cabinet, the Party in Power, the Executive, call it what you must, is responsible for Resource Preservation, Human Development, Infrastructure Management, Economic Drivers, Fiscal Policy and Governance, and must budget for such expenditure, funded by Taxations, Tax and Non-Tax Revenue. As a nation matures, the aim is to earn more revenue for its Investments; Capital Receipts and Dividend Income, than from its taxations. Hence, Borrowings must be primarily employed to foster such investments. The traditional model, the funding of industrial sectors to reap futures rewards, still applies, with investments being made in higher education to develop science, engineering and technology sectors downstream from the local extractive industries, is one such example. Other examples are the investments in combining sectors with strong synergies; Garden Restaurants, Fish Farming, Medical, Sport and Culture Tourism, etc. Investments in; Water and Waste recycling, Food and Fuels, and Electricity, renewable must also be considered, as for the potential savings offered. Such thesis and business plans should be encouraged and submitted to the Office of Budgets for serious consideration and investment funding.

Therefore, it is proposed to bring all the necessary legislative works to the parliament for resolution to establish such an aforementioned Office of Budgets - Headed by a Director of Budgets, analyzing past and current financial statements and projecting future outcomes, and reporting to the parliament. Ordered to lay and present an annual budget, a quarterly review of the current estimates, and report on the effects of proposed policies on the ten 10 years projections.
In Summary
The best advice, with the functioning of the aforementioned Office of Budgets, is to strengthen the nation’s Parliamentary Oversight with Non-Members, specifically skilled, appointed on Committees. Improve data coming out of Audits, Treasury, Statistics and other supporting and regulating institutions. Enforce financial regulations through the Security & Exchange Commission. Create more Transparency in State Enterprises by Listings on the Stock Exchange, which will allow for the retaining of total directional control in all Strategic Operations, while boosting Efficiencies and accessing Equity Financing from such new Divestments to further fund growth Industries and, of course, new Jobs. Reduce the need and usage of borrowings, only to finance deficits. Hence Confidently, leading the way for New Opportunities to attract New Investors.


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