In Latin America renewable energy, Trinidad offers investors real leverage

Posted by Investt

renewable fdiEvidence continues to mount that Latin America and the Caribbean are becoming global foreign direct investment (FDI) hotspots. As a skilled and stable gateway to the region, Trinidad and Tobago is ideally placed to host companies seeking to invest in the continent.

The Caribbean led the world in FDI growth in the first half of 2012, according to UNCTAD’s 10th Global Investment Trend Monitor released last month (as covered by this blog).

A second report, by fDi Intelligence (an FT company), supports the view. The number of FDI projects in Latin America increased by 22% in 2011 despite the challenging global economic conditions, the “fDi report 2012, Global greenfield investment trends” advises. The region accounted for 10% of global FDI projects, up from just 5% in 2006.

Companies searching for a base to serve the wider Latin American region should take a serious look at Trinidad’s strengths. The country acts as a gateway to both North and South America, has established trade links with both continents, and offers a stable government and economy with low risk of business disruption.

Trinidad can provide access to an extended market of more than 700 million people through bilateral trade agreements with Venezuela, Colombia, the Dominican Republic, Costa Rica, Cuba, the U.S. and Canada, and further afield to Europe.

The country’s export activities have resulted in various agreements and linkages with different nations to strengthen economic and commercial ties. These relations serve as a foundation to develop market pipelines and capacity-building initiatives to boost trade with Latin America. The government actively promotes trade and investment, and acts as a facilitator to foster joint ventures.

A further key comparative advantage Trinidad offers over many of its Latin American neighbours is the high standard of secondary and tertiary education system, which provides investors with a large pool of specialised skilled labour.

invesTT has identified a range of sectors suited to FDI, including information and communications technology (ICT), as well as clean and renewable technologies.

The fDi Intelligence report reveals that software, IT services and communications topped the FDI ranking in Latin America and the Caribbean in 2011, both in value of investment and number of projects.

However, FDI in renewable energy increased the most rapidly worldwide in 2011 with the number of projects growing by 20% and investment values rising by more than 40%. The report explains that this is surprising considering the pressures felt by the sector due to falling oil prices make alternatives less competitive and a reduction in subsidies globally as governments face austerity.

But it is clear that both governments and business are taking a long-term approach to renewable energy. The volume of FDI projects in this field has increased nearly six-fold from 2003 to 2011, says fDi Intelligence. The sector now accounts for almost 11% of global FDI and is the fourth-largest for FDI in Latin America.

Trinidad’s ready and abundant source of clean energy from natural gas presents an advantage in lowering the carbon footprint of clean technology manufacturing processes such as solar panels and plastics recycling, as well as providing low costs of production. Specific investment opportunities in clean technology include solar energy, recycling and waste management.

Smart Energy is one example of a successful renewable energy company based in Trinidad. It specialises in solar power for homes and commercial buildings, solar street lighting and park lighting, and is the distributor for German made products from One Word Engineering.

The government has taken specific measures to nurture the sector, including support to develop new clean technology investments via specific incentives and cluster development initiatives. It has also fostered collaboration with the U.S. for a proposed Renewable Energy Research Centre in Trinidad.

In January 2011, the Ministry of Energy and Energy Affairs published its framework for development of a renewable energy policy for Trinidad and Tobago. The government has been working with multilateral agencies to promote the sector. Solar heating systems, for example, have been installed in bed and breakfast homes in Trinidad and in Tobago through the United Nations Development Programme’s Global Environment Facility/Small Grants Programme (GEF/SGP).

Last November, the Inter-American Development Bank (IDB) approved a US$60 million loan to help Trinidad to transition towards a more efficient, sustainable and clean energy matrix.  “The programme will promote a sustainable energy framework that will guide exploration, exploitation, utilisation and monetisation of energy resources where energy efficiency, renewable energy sources such as solar water heaters, alternative energy fuels, carbon reduction and innovation play a strategic role,” explained IDB project team leader Natacha Marzolf.

The programme includes a series of tax and fiscal incentives for the importation and installation of wind turbines, solar water heaters, and for kits used to convert vehicles so they can run on compressed natural gas. There will also be incentives for companies to carry out energy audits and implement other energy-efficiency measures.

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