Some countries are luckier than others. In Latin America and the Caribbean, some have been endowed with an abundance of oil, gas and mineral reserves. This is the case for Chile, Colombia and Peru, where mineral extraction and oil drilling have been important sources of income. However, this abundance can backfire in the long run. Empirical studies have shown that economies that are excessively dependent on mineral resources tend to have slower long term growth. Their productivity is undermined by an excessive exposure to commodity prices, rent seeking opportunities and a loss of competitiveness due to an overvalued exchange rate. And, to the extent that these resources are non-renewable, economies face the impending risk of depletion. Clearly, it is not a good idea to put all of your eggs in the same basket and this is especially risky when dealing with fragile eggs that can’t be renewed.
Trinidad and Tobago, one of the few high-income countries in Latin America and the Caribbean, is now facing a grim scenario. The twin island-republic has a per capita income close to Portugal’s, and low unemployment and poverty levels. Education is free, social investment is high and pensions are generous. Trinidad’s prosperity is mostly due to its abundance in oil and gas: the energy sector represents more than 50% of the national GDP. However, a recent IDB report noted that Trinidad’s reliance on oil and gas production makes it especially vulnerable to global energy market fluctuations and this has related impacts, such as subdued growth in other economic sectors. The bad news doesn’t end here: at the current level of exploitation, the country can run out of its oil and natural gas reserves by 2030.
Looking for new sectors with high potential
In light of these risks, the country is promoting a diversification agenda and has identified strategic sectors with high potential. One of them is the Information Technology Enabled Services (ITES) sector, in which Trinidad and Tobago arguably has major advantages: first, an English-speaking population; second, a time zone that is compatible with North American large consumer markets; and third, a workforce with high levels of education attainment.
But diversifying an economy is not easy. In addition to overcoming macroeconomic and institutional obstacles, endowing the labor force with a new set of competencies is critical. No country can, for example, develop its ITES industry if there are no software developers. To develop new sectors, countries need to teach its workforce new talent and skills. But this entails a challenge that resembles a chicken and egg dilemma as explained by Harvard economist Ricardo Haussman: new industries cannot be developed if critical skills are absent, but people won’t invest in skills that are specific to non-existent industries.
Train the workforce for new jobs
The solution to this dilemma is two-fold. The first one consists in designing a comprehensive productive development policy in which a set of interventions generate employment and develop skills in a coordinated fashion. In line with this perspective, the Ministry of Planning and Development of Trinidad and Tobago, with the support of the IDB’s Integration and Trade Department, recently launched the Global Services Promotion Programme (GSPP). This programme seeks to attract investment to the ITES sector through a comprehensive effort that encompasses changes in regulations, foreign investment promotion, and skills development.
The second pillar consists in the implementation of a skills development strategy that is led by the private sector. Private sector leadership is key to ensure the development of skills that are relevant to industry growth. This is especially critical in the ITES sector, where rapid changes in technology call for constant skills updating. With this goal in mind, the Skills for Global Services initiative was launched as part of the GSPP, with the support of the Labor Markets Division of the IDB. Through this initiative, businesses throughout the ITES sector are invited to partner with academic institutions and training providers and present proposals to develop skills, create jobs, and ensure the pipeline of talent that is needed for sector growth. Applicants compete for funds to finance their proposals through a transparent competitive process that is led by representatives from the private and public sectors. This initiative promotes the funding of cost-effective, well-designed skills strategies that promise to deliver the most meaningful impact on the diversification agenda. It also fosters a closer collaboration between businesses and training institutions.
The Skills for Global Services initiative is an example of how skills development may have a pivotal role in economic diversification strategies. For decades, Trinidad and Tobago has depended on the abundance of its mineral resources. But its future success will depend upon the skills of its human resources.
For the Spanish version, please click here: https://blogs.iadb.org/trabajo/2017/05/24/habilidades-para-crecer-sin-petroleo/