LatinFinance / March 2006
By Larry Luxner
Carjackings, kidnappings and armed robberies are on the rise in English-speaking Trinidad & Tobago, but so far the violence seems to be scaring away neither tourists nor foreign investors.
Nor does the increasingly anti-American rhetoric coming from President Hugo Chávez in neighboring Venezuela - only seven miles from Trinidad at its closest point. In fact, Chávez's populist politics makes Trinidad seem even more business-friendly by comparison.
"Murder and kidnappings are two areas of particular concern, but most of these crimes are gang violence and doesn't affect the general public in a direct way," says Lyndon Guiseppi, managing director at RBTT Merchant Bank Ltd. in Port of Spain. "No one is running down Frederick Street snatching purses."
Even a recent rash of bombings in downtown Port of Spain and a corruption scandal that brought down Trinidad's energy minister haven't dissuaded foreign investors from flocking to the twin-island nation. Thanks to record-high prices for oil and gas, says Guiseppi, "investments have increased on a quantum basis, with more than $1 billion per year in FDI over the last three years. Most of that has been going into the energy sector."
Says Lawrence Duprey, executive chairman and managing director of CL Financial, one of Trinidad's largest conglomerates: "My belief is that the economy will grow in the high single digits for the next five years. But if we're successful in putting in productive infrastructure, we can grow even faster than that. We're talking about things like an international finance center, which could be a key to growing the economy."
Duprey, whose holding company owns 53% of Trinidad's Republic Bank Ltd., adds: "Right now, gas exploration and production is really in the hands of foreign players, and they're all skewed to the production of LNG [liquefied natural gas] for export, which offers a very high return. However, what really creates jobs is the manufacture of petrochemicals."
In December, Trinidad reached agreements with private investors to build six industrial plants worth a combined $7.4 billion. The contracts include two urea ammonium nitrate plants, two aluminum smelters, a petrochemical complex and an integrated iron and steel factory. Together, these projects will produce over 17,000 jobs in the construction phase and over 3,000 permanent jobs, according to Prime Minister Patrick Manning.
Pittsburgh-based Alcoa Inc. will build one of the two smelters, while Venezuela's Sural and Trinidad's state-owned National Gas. Co. will construct the other. India's Essar Steel will build the iron and steel complex and the two urea ammonium nitrate plants will be financed by Trinidadian firms.
Meanwhile, the world's largest methanol plant has opened in the central town of Point Lisas. M5000, which represents an investment of around $850 million, is a venture between CLICO subsidiary Methanol Holdings (57%); Germany's Ferrostal, a division of the MAN Group (20%); Dusseldorf-based Proman (15%) and a third German company, Helm AG (8%).
Duprey said M5000 is producing close to 6,000 tons of methanol per day, with about 80% of that production being exported to U.S. Gulf Coast refineries and the remainder to Caribbean refineries including the Amerada Hess refinery on St. Croix. The plant supplements Methanol Holdings' four existing operations at the Point Lisas complex, which produces economies of scale. Duprey said M5000 will likely see profits within three years. "Debt service will be eight years, but we may get a return on it even before the debt is paid depending on methanol prices," he said.
Rampersad Motilal, CEO of Methanol Holdings, said the plant "now positions us as the No. 1 exporter of methanol to the US market and the No. 2 methanol producer in the world." Experts say the United States will likely cut domestic production of methanol, used in paints and adhesives, and depend more on imports because of rising prices for natural gas, the main feedstock for methanol.
Trinidad currently produces 5 million metric tons of methanol per year. In addition to its four domestic plants, Methanol Holdings is building a $350 million facility in the Persian Gulf state of Oman, which will supply the Far East with about 1.2 million tons of methanol a year.
"Like most small energy-producing countries, there has to be a balance between economic development based on energy and maximizing the rate of return," Duprey explained. "You maximize profits with LNG given the current prices, but you create more jobs when you build petrochemical plants and help local industry."
CL Financial, whose core businesses are financial services, liquor production, energy and construction, has TT$62 billion ($10 billion) in assets. It's financing shopping malls in Barbados, building office towers in downtown Miami and bottling rum in England.
"We try to grow the company by 25% in assets every year, so sometimes through borrowing and financial arrangements we sacrifice profits," he said. "But profit isn't important to us. What's important is asset growth. We realize we're from a small country, and that entails natural disasters and economic, political and social risks. So what we have done is sort of insulate ourselves and balance our ownership so that we can withstand any of these risks."
Like CL Financial, RBTT is also involved in many offshore projects. For example, the bank recently financed a $120 million toll road in Jamaica and a $120 million expansion of Princess Juliana Airport in St. Maarten, as well as hydroelectric dams in Costa Rica and Guatemala. RBTT's Guiseppi said Trinidad's banking sector is growing at a rapid pace, fueled by increased loan demand. "Government spending has increased phenomenally," Guiseppi said. "They've embarked on a number of construction projects which are definitely needed. They've also recognized that the gap between rich and poor needs to be addressed. The windfalls that the government is experiencing have been utilized judiciously - some to improve the country's physical infrastructure but quite a bit in social and educational programs."
Another key area for growth is tourism, though that sector has a long way to go, said tourism industry pioneer Hans Stecher, founder of the Stechers retail luxury chain. "It took me a long time to get the government and the public to realize the tremendous potential of this sleeping giant," he said. "When I started preaching about tourism, people didn't want to know. They weren't able to make a distinction between service and servitude."
Currently heading Trinidad's tourism promotion efforts is James Hepple, president and director of the newly established Tourism Development Co. of Trinidad & Tobago Ltd. In May 2005, the development authority replaced the now-disbanded Tourism and Industrial Development Co. in a government restructuring that acknowledged the need for an entity focusing strictly on the tourism industry.
In 2004, according to official statistics, the country welcomed 442,000 air arrivals; of that total, 380,000 came to Trinidad and 62,000 to Tobago. Hepple estimates that in 2005, those numbers rose to 500,000 tourists (420,000 to Trinidad and 80,000 to Tobago). Total tourism expenditures came to $420 million in 2004 and around $450 million last year.
"The numbers keep going up every year," Hepple said, despite concerns over Trinidad's alarming increase in violent crimes, including kidnapping. "We've seen three years of back-to-back 8% growth, so crime is clearly not having much of an impact." In fact, he added, the country should build more upscale hotels if it wants to meet demand for vacations there; the twin-island nation has only 1,500 rooms in four- and five-star hotels and had an average hotel occupancy rate of around 85% in 2005.
Hepple acknowledged that more tourists might visit Trinidad if its capital city were more appealing. Despite the country's oil wealth, Port of Spain has a dingy, industrial air to it, with raw sewage often flowing in drainage ditches along city streets. Its waterfront is distinctly ugly, and it lacks the romantic charm of San Juan, Santo Domingo and other Caribbean ports of call. To that end, the government has proposed an international waterfront project expected to cost around $400 million in its first phase alone.
The project is being overseen by the quasi-governmental Urban Development Co. of Trinidad & Tobago on land being leased from the Ports Authority. Envisioned is a 428-room Hyatt hotel composed of twin 26-story towers, along with retail facilities, a conference center and a car park that can accommodate up to 1,200 vehicles.
A division of CL Financial Ltd. is involved in construction of the hotel and other aspects of the waterfront project, which should be finished by November 2007. Part of the redevelopment plan also involves relocating the cruise-ship port. The current facility, measuring 13,000 square feet, was opened Jan. 17 at a cost of around $1 million.
Balkaran Maharaj, supervisor of cruise shipping at the Ports Authority of Trinidad & Tobago, said he expects 85,000 cruise-ship passengers in the country this year, up from 67,000 in 2005. Port of Spain will see 30 to 40 cruise vessels, he reckons, while Tobago will receive between 40 and 50. "We look at working together with our neighboring destinations," said Maharaj. "We have a close relationship with Barbados, Curaçao, Margarita and Grenada. We don't really see them as competition, rather as the deep southern Caribbean. We all have a chance of getting a piece of the pie."