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Regional News>Port of Spain looks 'offshore' to build business at home - Lays claim to 'rich' capital market activityLinda Hutchinson-Jafar - Business Writer |
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Trinidad and Tobago's plan to transform its capital city, Port-of-Spain, into an international financial centre (IFC) will skirt the traditional offshore banking model, government officials say.
Instead, the focus will be on a range of financial services, including banking, asset management, specialised insurance operations, and futures transactions on the international commodities markets.
Oliver Wyman, whose business is management advice, strategy and risk management, is consultant on the project.
Steering Clear Of Label
By emphasising its market positioning strategy, Trinidad, like Jamaica which is also looking to develop itself as a business processing centre, appears to be steering clear of the label as a 'no-tax' jurisdiction to one of 'low-tax' but characterised by the ease of doing business.
To devise the model, Trinidad is drawing on resources from its lucrative energy sector.
Though vibrant now, the gas-rich twin-island state is planning ahead for the day its reserves run out.
"The utilisation of our oil and gas revenue to build a modern, viable and competitive financial services sector represents an important public policy initiative in the same way in which the monetisation of gas reserves was utilised to transform the economy from oil-based to gas-based," said Finance Minister Karen Nunez-Tesheira.
Trinidad is a top producer of liquefied natural gas and the world's largest exporter of methanol and ammonia.
Import Cover
Its foreign exchange reserves amount to US$6.1 billion, representing 10 months of import cover, well above the international benchmark of three months. The Heritage and Stabilisation Fund in which profits from oil revenue are deposited, reached US$1.766 billion at the end of fiscal 2007.
But Trinidad's financial sector is also no slouch. It has been growing annually at 8.2 per cent since 2000, and last year, its contribution to GDP was 13.5 per cent, outperforming the non-energy sector's 5.6 per cent.
No projections were immediately available on the expected value-added from the financial centre, nor when the benefits were likely to start flowing, but Trinidad anticipates that it will be a strong pull for foreign funds.
Nunez-Tesheira, at a government forum on the IFC, likened the Trinidad model to that of Singapore, Dubai, and Ireland which created an environment for growth, progress and economic development, while operating under rigorous standards.
International Business
Dublin's IFC, since 1987, has attracted business from more than 400 international operations, including half of the world's top 50 banks and half of the top 20 insurance companies.
Market regulators in Trinidad say the country is already poised for similar business, pointing to churn of just under US$4 billion in the past two years.
Within that period, and despite the significant downturn in the equity market, the Trinidad and Tobago Securities and Exchange Commission (TTSEC) has registered 53 fixed-income securities with a value of US$2.4 billion, while a US$1.5 billion market for repurchase agreements has been created.
Derivative Securities
The records of the TTSEC, said deputy general manager Charles de Silva, reflect the production of a number of forms of derivative securities such as:
Participations - sharing of ownership in a loan by two or more investors;
Strips - the separation of a security, example a bond, into components which are then resold separately;
Asset-backed securities, and; Structured products.
And, in the last 10 years, de Silva said, there has been considerable capital market activity across the Caribbean in which Trinidad institutions have featured prominently.
In that time, there have been more than 90 mergers and acquisitions (M&A), the most recent being the combination of the regional banking operations of Royal Bank of Canada (RBC) and the RBTT Financial group, a deal valued at US$2.2 billion.
Acquisition Transactions
That RBC/RBTT merger is also the latest of 22 transactions involving the acquisition of Caribbean institutions by non-Caribbean interests.
Another 41 deals have involved the acquisition of Caribbean institutions by other Caribbean companies - for example Angostura Limited's purchase of Jamaica's Lascelles de Mercado and Company, valued at about US$650 million - while 29 were acquisitions of non-Caribbean institutions by Caribbean companies.
In Central America, by contrast, there have been only 30 M&A deals since 2000.
"This volume of activity suggests that there exists a rich vein of capital market activity residing in the region that passes directly through Trinidad and Tobago and that provides striking evidence to support the view that such activity can effectively be handled through Trinidad and Tobago as a centre," said de Silva.
Competitive Environment
Businessman Ian Collier, president of the chamber of commerce, says success in the IFC space will be dependent on the country's ability to attract foreign investment, its information communications technology, the quality of its overall infrastructure, the skill of its people and its ability to differentiate itself as a niche player in the highly competitive environment.
Since the business of financial services is global in scale and highly competitive in nature, Collier said Trinidad would be competing for business with New York, London, Dublin, Hong Kong, Dubai and Singapore.
"Even within the Caribbean region, there would be strong competition from well known offshore centres such as Bermuda, and the Cayman Islands and experienced and mature, albeit less well known locations such as Curaçao and Barbados," he said.
"Not to mention Panama's emergence as a booming international banking centre within its stated positioning as the hub of the Americas."
Trinidad is introducing depository receipts (DR), a mechanism for public companies to offer their shares in jurisdictions other than their country of listing, as new trading options for local investors.
The RBC/RBTT merger is expected to create the first DR, allowing Trinidadians to own piece of an international company.
business@gleanerjm.com