International report gives high ranking to Trinidad’s economic freedom

Posted by Investt

In economic freedom for foreign investors Trinidad and Tobago ranks among the best in Latin America, according to the 2012 Economic Freedom of the World Report released last month. The index, compiled by Canadian think-tank the Fraser Institute, places Trinidad above the global average, ranking it 76th out of 144 countries (scoring 6.88 against a worldwide average of 6.83). Countries are ranked according to the degree to which their policies and institutions support economic freedom. 

One of the most telling aspects of the results is Trinidad’s high ranking relative to its Latin American and Caribbean neighbours. As globalisation continues to advance and multinationals seek to invest within economic blocs, investment decisions are often driven by the desire to find a base within a politically and economically secure dynamic country to serve wider markets. 

Chile and Peru were the only major South American markets to rank ahead of Trinidad in the index. Brazil, the largest market by far in Latin America, came in 105th, while Mexico ranked 91st. These two countries account for around 60% of the region’s GDP but do not offer the economic stability Trinidad affords multinationals. 

Argentina, another substantial South American market, ranked a lowly 127th. The expropriation earlier this year by the Argentinean government of YPF, the subsidiary of Spanish oil company Repsol, brings home the importance of choosing a politically and economically secure base for foreign direct investment. Venezuela, a past master at expropriating foreign investments, ranks, perhaps unsurprisingly, last in the index. 

The report’s authors have left in no doubt about the importance of economic freedom to sustaining profitable businesses: “Countries with institutions and policies more consistent with economic freedom have higher investment rates, more rapid economic growth, higher income levels, and more rapid reduction in poverty rates.”

Nations that are economically free generate strong GDP growth. In 2010, Trinidad’s income per capita was $25,738, the highest in Latin America. Its growth rate was equally impressive: From 2000 to 2010, real GDP per capita increased at an annual rate of 5.76%, the highest in the region.

The overall index is constructed using 42 variables that measure the degree of economic freedom divided into five broad areas: (i) size of government; (ii) legal system and property rights; (iii) sound money; (iv) freedom to trade internationally; and (v) regulation. Table 1 below shows how Trinidad compares to major Latin American and Caribbean markets in these five areas. 

The 2012 report contains a separate Latin American and Caribbean ranking based on the economic, political and civil institutions of 22 countries in the region. Trinidad again performed well, ranking 4th for political institutions and civil liberties, and 6th for the quality of its economic institutions.

The ranking identifies Trinidad as being among the best in Latin America based on the combination of its economic and political institutions. The report also characterises Trinidad as having “modest restrictions on economic freedom, a legal system that generally protects property rights and enforces contracts, and a political system based primarily on democratic principles, constraints on the executive, and rule of law.”

The Latin American ranking praises Trinidad in particular for its regulations. For example, the regulatory costs of hiring in Trinidad are the lowest in Latin America. The monetary cost of starting a business is also low, at 0.9% of income per capita.

By Latin American standards, Trinidad’s ratings for judicial independence, integrity of the court system, and absence of military interference in rule of law are strengths of the judicial system.

 “Taken as a whole, the economic, legal, and political institutions of Trinidad and Tobago are among the strongest in Latin America, “ the report indicates. “Its growth rate during the past decade has been impressive. With some modest improvements in legal structure and economic policy, this country could become a major success story in the decade immediately ahead.”

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