Trinidad and Tobago (T&T) has had a robust economy over the last decade primarily because of rapid growth in its production of natural gas and the country's substantial exports of petrochemicals. The income earned through the energy sector constitutes a large percentage of T&T's total GDP, government revenues and foreign exchange earnings. Although T&T has been heavily reliant on energy-based revenues, the government implemented initiatives to diversify their economy. Specifically, T&T's manufacturing sector is benefiting from a suite of government incentives directed at reducing costs and hurdles to doing business. The government is also encouraging foreign and local investors who are interested in tourism-based enterprises.
T&Ts energy sector is one reason the nation boasts one of the highest per capita incomes in Latin America. Economic growth between 2000 and 2007 was slightly above 8% per year, on average, which was above the regional average of approximately 3.7%. However, GDP contracting from 2009 to 2012, increased slightly in 2013 and contracted again from 2014 to 2017. T&T has substantial foreign reserves and a sovereign wealth fund that is one-and-a-half times the national budget. Still, the country is in a recession with gas shortages and low prices, but large energy projects are mitigating the gas shortages, according to Moody's Analytics. (For more information on how countries record their monetary transactions, and what a surplus in a country's current account means, read: Exploring The Current Account In The Balance Of Payments.)
The Energy Sector
Energy production and downstream industrial are the primary drivers of T&T's economy. Oil and gas typically account for approximately 40% of GDP and 80% of exports but less than 5% of employment. The country has one of the largest natural gas liquefaction facilities in the Western Hemisphere, and gas contributes approximately two-thirds of energy sector government revenue. The United States is T&Ts largest trading partner providing 28% of its imports and accepting 48% of its exports.
T&T had proven crude oil reserves of approximately 200 million barrels as of 2019, a sharp drop from the 700 million it had in 2016 partly because of waning exploration. Proven, probable and possible natural gas reserves totaled 10.2 trillion cubic feet in 2019. The twin-island republic engages in a range of energy and petrochemical activities including the production of liquefied natural gas (LNG) and crude oil. In the past, most of the LNG produced (nearly 90%) was sold to the U.S. market. Since the shale revolution in the United States, T&T has had to find other regions in which to sell LNG. Additionally, T&T produces large amounts of ammonia, urea ammonium nitrate -- used as fertilizer -- and urea. T&T is also one of the largest exporters of methanol in the world. (To understand more about the shale revolution in the United States, which has impacted the strategies of countries like Trinidad and Tobago, see the article: Guide To Oil And Gas Plays In North America.)
The other three major sectors in the economy of T&T each contribute a significantly smaller share of total output than energy. According to the Government of T&T, manufacturing contributed 18% of total GDP in 2017, mining and quarrying contributed 19.1%, trade and repairs contributed 15.6% and financial and insurance activities contributed 10.1%. In the 2017 review of the economy, the government stated that the finance and insurance sector was expected to show growth in 2016 to 2017 (4%) along with the transport and storage industry (7%).
Economic diversification is a government priority, particularly in areas such as tourism, agriculture, IT and shipping. However, diversity efforts have been stymied by government bureaucracy and corruption. The T&T government has been devoting resources to the development of infrastructure and to the encouragement of foreign direct investment, particularly in Tobago. T&T has relatively cheap energy and easy access to Latin America and the Caribbean. Some companies, such as the Caribbean arm of Unilever and West Indian Tobacco, are leveraging these advantages, and the government hopes that other foreign companies will follow suit.
The Bottom Line
T&T has a strong energy sector that has boosted its economy. However, T&T is susceptible to shocks in commodity markets, and these potential shocks can be minimized through expanded economic diversification. For an island with a tropical climate, the amount of income generated by tourism should compose a much larger percentage of T&T's total revenue. The tourism sector is an area where T&T can build a more sustainable economy.