Diversification and the energy sector

Updated On: Jan 12th 2015

The recent plummet of oil prices has put the issue of economic diversification in the spotlight. To date much of the discussion about economic diversification in Trinidad and Tobago has been based on the premise that a diversification strategy should be driven by Government support of new and emerging sectors. The Energy Chamber firmly believes that there needs to be a focus on established firms who are able to compete in international markets.

Over the years numerous consulting studies have identified the energy services sector as having a core group of specialized and experienced firms who have a great potential to be internationally competitive and break into new export markets. An Inter -American Development Bank’s private sector assessment report identified the energy services sector as having the greatest potential to develop international markets and recommended that diversification policies should concentrate on assisting firms in this sector. Until very recently the policy on diversification has generally been to ignore the energy sector if you wanted to drive diversification. The mandate of key Government agencies driving business development specifically excluded any firms working in the energy sector.

This idea is based on a two misconceptions. Firstly it is based on the idea that we should be diversifying away from the energy sector as a whole, rather than trying to diversifying away from reliance upon a handful of commodities for our export revenue. The energy sector holds the promise to diversify our exports through both the export of energy services and the export of more complicated products downstream of the existing petrochemical plants. The energy sector must be an integral part of the diversification thrust.

Secondly, the concept of ignoring the energy sector is based on the assumption that the energy sector comprises large multi-national or state-owned production companies and that these firms do not need any Government support to develop export markets. While the majority of gross domestic product from the sector is accounted for by a few large companies, the majority of firms within the sector are actually small to medium-sized service companies and contractors, typically family-owned businesses.

These are the firms who sell services to the large multi-national and State-owned production companies and who account for the majority of people employed in the energy sector. As the sector has never had trade barriers preventing foreign competition these firms have had to be internationally competitive just to survive and they have had to develop sophisticated management systems in order to do business with the multi-national energy companies.

There has been a long-standing tradition of Trinidadians migrating to work for energy service companies in other parts of the world and Trinidadians have developed a very strong reputation for their technical abilities in the energy sector, especially in services related to drilling. Furthermore, Trinidad & Tobago has developed a strong international reputation for its ability to effectively develop a world-class gas-based industrial sector and Liquefied Natural Gas (LNG) export sector. This reputation means that the Government of Trinidad & Tobago is often approached by other countries seeking advice on the development of their gas-based industries. Inevitably this means significant opportunities for consultants, companies and training institutes associated with the expansion of the Trinidad & Tobago gas industry. Both of these factors mean that Trinidad & Tobago already has a good international reputation in the energy services sector, which can be built upon to develop a Trinidad & Tobago energy services sector “brand”.

Leveraging on this the Energy Chamber has led several outgoing trade missions to various countries. To date the Energy Chamber has visited Suriname, Guyana, Cuba, Nigeria, Ghana, Uganda, Tanzania, Kenya Rwanda, Brazil and French Guiana. Our goal is to assist strong local companies to export their services regionally and internationally. We firmly believe that the potential and existing strength of the Trinidad & Tobago energy services sector must be developed to create and sustain an energy sector related industry that can export services to the rest of the world.

Trade missions are just one part of the bigger picture of promoting energy services internationally. The Energy Chamber is aware that competitive local companies are an essential part of this thrust as such, we have implemented several initiatives aimed at assisting local companies to be more competitive in order to fully benefit from international opportunities. Some of our initiatives include: the Safe to Work initiative, the Energy Industry Competency Initative (EICDI), the Energy Chamber Learning Centre and promoting local content policy.

Over the past few years, however, we have seen Government policy make a very significant shift with respect to diversification through the export of energy services. After many years of lobbying by the Energy Chamber, the energy services sector has now been recognized as a key sector for diversification of exports in the official Government planning documents (especially the plans developed by the Economic Development Board). It has also been recognized as a key sector for export growth by ExporTT.

This change in policy now means that for the first time locally-owned firms in the energy services sector are eligible for direct support from the Government export promotion agency. The Energy Chamber of Trinidad & Tobago has developed a very strong relationship with ExporTT and we are working collaboratively on a number of projects to help firms in the sector break into export markets. ExporTT has helped finance outgoing trade missions organized by the Energy Chamber and we are working together to make sure companies have information about opportunities and that the supporting infrastructure is in place to help our energy services companies to export.

This is a very significant shift in policy and the Energy Chamber is pleased that our years of advocacy for this change have now borne fruit. However, further shifts in policy are still required, for example, innovation policies. The current innovation thrust led by Government agencies has placed an emphasis on finding, support and encouraging new entrepreneurs through things like the Ideas to Innovation competition and the various incubator projects. While these programmes can help unearth new ideas they might be missing the opportunities for innovation that exist within well- established existing firms. Policy measures are also needed to develop innovation within the existing companies who have been successful in the domestic market to get them into new export markets. The Energy Chamber believes that energy services companies need to be at the centre of any diversification and innovation policy.

Click here to register for Energy Conference 2015.

Follow us/Like us on: