Roti Line – Doubles Money

21 August 2012

“You Can’t Get In The Roti Line With Doubles Money”

A gentleman I once worked for uttered that phrase, and I will never forget it. In the 3 years since I first heard it, I have found that it has many applications in life, business and investing — and Team T&T’s recent performance in the Olympics, along with general market conditions in T&T, have definitely resonated with this adage.

Olympic Gold Medallist, Keshorn Walcott

Olympic Gold Medallist, Keshorn Walcott

For a nation of just over 1 million people, our performance in the Olympics has been nothing short of exceptional. We reached the semi-finals and finals in several sports, and climbed the podium on four occasions. While the same can be said of many other countries, their populations and Olympic budgets far surpass our own. Therefore, we must definitely commend our athletes for putting their all on the line in London, and for keeping Trinidad and Tobago in a prominent position on the global sporting landscape.

Nevertheless, there remains a measure of disappointment from segments of the public in Trinidad and Tobago. This is due in part, because we have high expectations due to persistently solid performance and because we had not won a gold medal since Hasely Crawford’s spectacular run in 1976. Additionally, the stellar performance of the Jamaican track and field teams over the past two decades has also led us to increase our expectations for our own team.

However, if you were to ask those who expressed disappointment in our Olympic performance whether or not they have contributed financially to the Trinidad and Tobago Olympic Committee (TTOC), I am quite sure that the response would be overwhelmingly negative. The same would also apply to the corporate sector in T&T, which is not known for Corporate Social Responsibility participation generally—and while the TTOC certainly falls under the CSR category, sponsorship of Olympic athletes and Olympic programmes has other strategic benefits, especially in a large, cosmopolitan, and easily accessible venue such as London.

In a recent interview with the Business Express, Brian Lewis, current executive of the TTOC mentioned that it costs “in the high seven figures” to run TTOC’s programmes annually. While figures for other countries’ Olympic programmes are not available, I am confident that Jamaica probably spends multiples of this amount on its programmes.

In other words, we have repeatedly gotten in the roti line with doubles money.

And a few times, we end up with a nice little half roti (silver medal) or quarter roti (bronze) despite not having the full price. In ROI terms, we have probably gained some of the highest medal counts from the lowest expenditure on Olympic programmes. But how long is this sustainable? In a world that becomes more and more competitive, where increasing amounts of money are being invested in athletic programs, how can we expect to continue to eat a roti with doubles money, earning medals while investing very little in our athletes and programmes?

The answer is painfully obvious. Obviously, it is not just a question of money. There are facilities to consider, as well as numerous intangible factors. However, money can go a long way towards solving many of the issues that underpin our relative underperformance.

By this point, many of you may be asking, what does this have to do with investing, business or economics? A lot, actually.

At the risk of making an extremely broad generalization, Trinbagonian investor and corporate sectors have been getting in the roti line with doubles money for some time now.

Within the investor community, institutions and individuals alike merely had to park their money in Unit Trust funds, which would provide quite solid returns with guaranteed principal. Unit Trust in turn would basically buy government bonds, or bonds of companies owned or run by the government, with some equities exposure to the local markets and the U.S. for lagniappe. This worked well until the collapse in bond yields that we have witnessed in the last 2 – 3 years.

The other widely available investment option for investors with an appetite for higher yields and higher risk was CLICO, and we are all familiar with how that turned out. Nevertheless, for over a decade, CLICO products provided investors with double digit annual returns with very little effort or analytical input from the investor.

However, in order for investors to achieve similar types of returns in the medium term, they must step outside of their comfort zone and be willing to take on more risk. CLICO has certainly put fear into the hearts of many investors, but ultimately, if they want to continue to grow their capital and savings, they will be kicked out of the roti line unless they are increasingly willing to invest — and risk — roti money.

In the T&T corporate or business sector, many businesses did not have to nor did they feel the need to reinvest profits in machinery, equipment, employee training or other factors that would keep them competitive. This is observed through the low levels of gross capital formation in Trinidad and Tobago, as provided on the World Bank’s website. While the data is far from complete, looking at the general trend of capital formation as a percentage of GDP, T&T  consistently is in the low to mid teens, while many other developing countries have rates in the mid to high 20s. When you factor in a ballpark figure for how much the government in T&T spends versus the private sector, the local investment picture becomes even more stark.

Ultimately this underinvestment results in a lack of productivity growth and decreasing competitiveness compared to businesses in other countries that are investing in their expansion or efficiency, and other capital goods.

Within the local corporate sector, we seldom hear about investments on the scale of EIL’s recent TT$ 80 million expansion and upgrade to its factory. EIL is a leading regional manufacturer of electrical wiring, lighting solutions and other fixtures. Earlier this year, EIL signed a contract with General Electric to manufacture light fixtures for the Caribbean and Central American market—passing GE’s meticulous licensing and technical inspection standards in large part due to their continued investment in their factory. Even more impressively, this is during a time when we are supposedly in a recession.

There are a number of reasons why companies have not reinvested in their businesses: a lack of easily accessible capital is a persistent issue and plays a significant role in influencing how aggressive many business people can get in their thrust for expansion.

Another factor influencing the financing decision is the family-owned nature of many businesses in Trinidad and Tobago. Often, an investment or reinvestment in the business is a very personal decision due to the fact that many owners have a substantial part of their net worth tied to the business, and they rely on the profits or cash flows to sustain their lifestyles, pay for educational and health expenses, and other expenditures.

Lastly, based on Central Bank figures, in many cases there is a lot of excess capacity in local industries, which would also influence the decision to expand. However, this could be a chicken and egg situation: because there has been underinvestment, the companies become less competitive and are therefore unable to produce or sell as much as they would like because other companies or products are simply doing a better job. Additionally, many businesses have focused their international expansion efforts on CARICOM, where most of the other islands in the Caribbean have experienced slower economic growth due to a slump in their respective tourism industries.

Businesses in Trinidad and Tobago were able to thrive because of preferential access to local and regional markets, and low energy costs, with little need to reinvest. However, they now find themselves in a position where the doubles money or doubles strategy no longer suffices for them to eat a proverbial “food”. They will need to take more robust, hands-on, and open minded approaches to eat the roti they have become accustomed to.

The new third tier in the Trinidad and Tobago Stock Exchange, with special incentives for Small and Medium Enterprises, may play a role in helping businesses get access to the capital they need — even larger businesses may be able to benefit, with some strategic steps which we have identified here at Firstline.

Additionally, for some of the larger or more visible businesses, there could be the possibility of issuing debt through bonds or securitized credit. Investors tend to put money in things that they know; a company with a solid brand might be able to attract financing from the market at better rates than if they were to approach a bank.

Both equity and debt issuances for companies with solid fundamentals and or good brands could be successes due to a build up of assets over the last decade. Firstline can help your company or business navigate the current environment, and propose the best solution for your financing needs. As an investor, we can also help you figure out how to achieve solid returns without taking on too much extra risk. Please contact us at for more details.

Michael J Cooper
Trading & Investment Strategist
Firstline Securities Limited

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