No real GDP growth
Minister Suruj Rambachan tells us in a newspaper article of the expansion of business activity in the South and, in so doing, wondered how the GDP (gross domestic product) was being measured. Based on his qualitative analysis of our economic "recovery", he suggests the Central Bank Governor is being cautious when he announced there has been a mere one per cent growth in the economy in the third quarter of 2102.
He tells us about the new businesses that have emerged in Rio Claro and Talparo, in construction and entertainment; of new restaurants in Chaguanas, and he has counted 320-plus businesses along the way to Debe. He also pointed to the number of new cars being sold (2,500 per month), that the restaurants are filled to capacity and fast food chains Burger King and Wendy's are expanding their outlets.
To him, all of this is a sign of confidence by our people in our economic recovery and, surely, this translates into a greater increase in GDP. This expansion in the retail sector is confirmed by the CSO (Central Statistical Office) figures, which show the retail sector of the economy increased by 14 per cent in the third quarter of 2012—a sector that contributes some 14 per cent of our GDP. What screams out is his silence on the lack of any new businesses in export manufacturing and services where the investment risk is much higher than importing, mark-up and selling—a characteristic of the onshore sector.
There are two concerns which should be examined. The first is that today, given our economic model, any real development in our economy has its genesis in an improvement in the fortunes of the energy sector. There have been declines in the production of both oil and gas since 2007-2008. In November 2012, oil production was again lower at 78,846 bbl/dy, and gas production still had not recovered and is at 3,662 mmcf/dy—both down from 118,456 bbl/dy and 4,127 mmcf/dy in January 2008. The Central Bank confirms the energy sector is still in decline though oil prices are holding up. The second concern is what is driving this resurgence in the retail sector, given the energy sector, the traditional driver of the economy, has not recovered?
The energy sector provides some 45 per cent of GDP and a similar amount to Government's coffers. The increasing spending of Government as documented in all of its budgets (the 2013 budget being the largest ever in the country) and a decreasing income from the energy sector show the budget—Government's spending—is being bulwarked by fiscal deficits funded by debt. This spending has stimulated the onshore retail sector, but it has not encouraged investment in the production of manufactured goods and services, especially for export; it has done nothing to diversify the economy.
Full restaurants and the booming sales of imported cars do not make us globally competitive or economically sustainable. Budget deficits funded by debt and spent on non-productive transfers, subsidies and infrastructure may give blips in GDP growth as we proceed to our own fiscal cliff.