impact of the global economic crisis on the energy ... · 1 april 2009 ilo tripartite conference...
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Impact of the Global Economic Impact of the Global Economic Crisis on the Energy Industries Crisis on the Energy Industries
and Economyand Economy
Gregory McGuireGregory McGuireLecturer Lecturer
Energy Economics and StrategyEnergy Economics and StrategyUWI St. Augustine UWI St. Augustine
ILO Tripartite Caribbean Conference
“Promoting Human Prosperity beyond the Global Financial Crisis
Kingston Jamaica 1-2 April 2009
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Presentation OutlinePresentation Outline
Global OverviewGlobal OverviewEnergy and the EconomyEnergy and the EconomyCommodity Markets : Status and Commodity Markets : Status and Outlook Outlook Economic Impact ;ExportersEconomic Impact ;ExportersEconomic Impact : ImportersEconomic Impact : ImportersConclusionsConclusions
The Context The Context
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
MYOB Ltd
Stakeholders
•Financial Crisis
• Economic meltdown
•Shrinking Demand
•Crash in Commodity Markets and tourism
•State Intervention/ Stimulation
•Trade implications/ Protectionism
•Best bet : recovery in 24 m.
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
WEO Real GDP Growth ProjectionsWEO Real GDP Growth Projections((In percent change from a year earlier)In percent change from a year earlier)
U.S.U.S. Euro Japan China India WorldEuro Japan China India World
2002009 (Jan.09) 9 (Jan.09) --1.6 1.6 --2.0 2.0 --2.6 6.7 5.1 0.52.6 6.7 5.1 0.52002009 (Nov.08) 9 (Nov.08) --0.7 0.7 --0.5 0.5 --0.2 8.5 6.3 2.20.2 8.5 6.3 2.2Change Change --0.9 0.9 --1.5 1.5 --2.4 2.4 --1.8 1.8 --1.2 1.2 --1.71.7
202010 (Jan.09) 1.6 0.2 0.6 8.010 (Jan.09) 1.6 0.2 0.6 8.0 6.5 3.06.5 3.0
202010 (Nov.08)10 (Nov.08) 1.5 0.9 1.1 9.5 6.8 3.81.5 0.9 1.1 9.5 6.8 3.8Change 0.1 Change 0.1 --0.7 0.7 --0.5 0.5 --1.5 1.5 --0.3 0.3 --0.80.8Source: IMF, World Economic Outlook.Source: IMF, World Economic Outlook.
IMF: The Outlook is BleakIMF: The Outlook is Bleak
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
World Bank confirms(31World Bank confirms(31stst/3/09)/3/09)
THE OUTLOOK IS BLEAKTHE OUTLOOK IS BLEAK
Global economy to shrink by Global economy to shrink by --1.7%1.7%–– Largest contraction in 80 yrsLargest contraction in 80 yrs
High Income countries = High Income countries = --2.9%2.9%Developing countries inc. China and Developing countries inc. China and India= 2.1%India= 2.1%–– Without China and India Without China and India --1.7%1.7%
Latin America Caribbean Latin America Caribbean --0.6%0.6%
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Trinidad and Tobago Trinidad and Tobago Energy Dependence Energy Dependence
Notes: pNotes: p-- provisional , r provisional , r –– revisedrevisedSourceSource: Annual Economic Survey, 2007: : Annual Economic Survey, 2007: www.centralwww.central--bank.org.ttbank.org.tt
3.33.33.33.33.43.43.63.63.23.23.43.4EmploymentEmployment86.786.791.091.085.985.985.885.883.383.375.975.9MM’’dise Exportsdise Exports56.556.561.961.953.653.6rr42.442.4rr42.842.8rr27.827.8rrGovGov’’t Revenuest Revenues43.043.046.846.842.942.937.137.133.933.926.226.2GDPGDP
20072007pp20062006rr20052005200420042003200320022002ITEMITEM
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Key Energy Based Commodity ExportsKey Energy Based Commodity Exports
PetroleumPetroleum
Natural GasNatural Gas
MethanolMethanol
AmmoniaAmmonia
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Crude Oil Prices History Crude Oil Prices History 19821982--2007 2007
0
20
40
60
80
100
120
1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
Nom
inal
Dol
lars
per
Bar
rel
Refiner Acquisition Cost of Imported Crude Oil (IRAC) Source: EIA
Iraq Invades Kuwait
Saudi Arabia Abandons Swing
9/11 AttacksAsian Economic
PdVSA Worker's Strikein Venezuela and Iraq War W i
OPEC Cuts Quotas; Rising Demand
Hurricane Ivan in Gulf of
Hurricanes Dennis, Katrina
Nigerian Cut-Offs
Rising Demand; Low Spare Capacity ; Weak Dollear;
Inventory
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Major Events and Real World Oil Prices, 1970-2008Q1(Prices adjusted by CPI for all Urban Consumers, 2008)
$-
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Con
stan
t $20
08 p
er b
arre
l
1973 Arab Oil Embargo
Iranian Revolution; Shah Deposed
Iran-Iraq War Begins; oil prices peak
Saudis abandon "swing producer" role; oil prices collapse
Iraq Invades Kuwait
Gulf War Ends
Asian economic crisis; oil oversupply; prices fall sharply
Prices rise on OPEC cutbacks, increased demand
Prices fall sharply on 9/11 attacks; economic weakness
Prices spike on supply disruptions, rapid demand increases, constrained OPEC capacity, low inventories
Saudi Light
Imported Refiner Acquisition Cost
Source: EIA
PdVSA workers strike in Venezuela
Real Oil Prices 1976Real Oil Prices 1976--20082008
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Oil Prices and World Economic GrowthOil Prices and World Economic Growth(1998(1998--2008)2008)
0
2
4
6
8
10
12
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
years
Mon
ths
0
20
40
60
80
100
120
US EU China India Oil Prices
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Crude Oil Prices (WTI) Crude Oil Prices (WTI) (1998(1998--Mar’09)Mar’09)
0
20
40
60
80
100
120
140
160
Jan-
98
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Months
US$
/bbl.
Source: US EIA
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Natural Gas Prices 2003Natural Gas Prices 2003--’08’08( Henry Hub)( Henry Hub)
0
2
4
6
8
10
12
14
Jan-03Apr-0
3Jul-0
3Oct-0
3Jan-04Apr-0
4Jul-0
4Oct-0
4Jan-05Apr-0
5Jul-0
5Oct-0
5Jan-06Apr-0
6Jul-0
6Oct-0
6Jan-07Apr-0
7Jul-0
7Oct-0
7Jan-08Apr-0
8Jul-0
8Oct-0
8
US
$/m
mbt
u
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Market Insights Market Insights
Prices have remained depressed in Prices have remained depressed in spite of:spite of:–– Extreme cold weather in Europe and Extreme cold weather in Europe and
North America.North America.–– OPEC Production cuts amounting to 3.5 OPEC Production cuts amounting to 3.5
million bbls/dmillion bbls/d–– 2 week cut off in Russian gas supplies to 2 week cut off in Russian gas supplies to
Europe.Europe.–– Heightened tensions in the Middle East. Heightened tensions in the Middle East.
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Prices for natural gas have trended Prices for natural gas have trended downward over last eight months.downward over last eight months.
In 2008 prices averaged $9.13 per Mcf .In 2008 prices averaged $9.13 per Mcf .
For fiscal yr. to date natural gas spot For fiscal yr. to date natural gas spot prices have averaged US 5.70/per prices have averaged US 5.70/per mmbtu. mmbtu.
Market InsightsMarket Insights
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Today’s Prices Today’s Prices
3.593.59Natural Gas Natural Gas Henry Hub SpotHenry Hub Spot
49.6649.66WTI Cushing WTI Cushing SpotSpot
48.5848.58NymexNymex Crude Crude FutureFuture
PRICE*PRICE*($/bbl)($/bbl)
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OutlookOutlook
Oil prices are likely to weaken in the Oil prices are likely to weaken in the summer months.summer months.Gas prices will also weaken in most Gas prices will also weaken in most markets markets Recovery now hinges mainly on Recovery now hinges mainly on resumption of economic growth in resumption of economic growth in major economies.major economies.
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Ammonia and Methanol Ammonia and Methanol Prices Prices
Petrochemical prices 2006-2008
0100200300400500600700800900
1000
Jan-
06Fe
b-06
Mar
-06
Apr
-06
May
-06
Jun-
06Ju
l-06
Aug
-06
Sep-
06O
ct-0
6N
ov-0
6D
ec-0
6Ja
n-07
Feb-
07M
ar-0
7A
pr-0
7M
ay-0
7Ju
n-07
Jul-0
7A
ug-0
7Se
p-07
Oct
-07
Nov
-07
Dec
-07
Jan-
08Fe
b-08
Mar
-08
Apr
-08
May
-08
Jun-
08Ju
l-08
Aug
-08
Sep-
08O
ct-0
8N
ov-0
8D
ec-0
8
Us$
/MT
Ammonia (fob Caribbean, US $/MT)Methanol (US $/MT)
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Ammonia as of March 2009Ammonia as of March 2009
The average ammonia price The average ammonia price for January 2009 (fob for January 2009 (fob Caribbean) averaged Caribbean) averaged $102/tonne. Prices have $102/tonne. Prices have recovered to US$185/Tonne recovered to US$185/Tonne in Marchin March
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Supply continues to appear Supply continues to appear sufficientsufficienthigherhigher--cost players choosing to cost players choosing to curtail productioncurtail productionMarket continues to be depressedMarket continues to be depressedPrices lingering around US$140Prices lingering around US$140--150/tonne150/tonne
Methanol as of March 2009Methanol as of March 2009
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Outlook for 2009Outlook for 2009The storyline from the past few months will
continue
High stocks for commoditiesLower demand. Impact of global recession.
Markets likely to remain weak over the next 12 -18months.
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Trinidad and Tobago Trinidad and Tobago Energy Dependence Energy Dependence
Notes: pNotes: p-- provisional , r provisional , r –– revisedrevisedSourceSource: Annual Economic Survey, 2007: : Annual Economic Survey, 2007: www.centralwww.central--bank.org.ttbank.org.tt
3.33.33.33.33.43.43.63.63.23.23.43.4EmploymentEmployment86.786.791.091.085.985.985.885.883.383.375.975.9MM’’dise Exportsdise Exports56.556.561.961.953.653.6rr42.442.4rr42.842.8rr27.827.8rrGovGov’’t Revenuest Revenues43.043.046.846.842.942.937.137.133.933.926.226.2GDPGDP
20072007pp20062006rr20052005200420042003200320022002ITEMITEM
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Measuring Economic Measuring Economic ImpactImpact
Government Revenue and Government Revenue and ExpenditureExpenditureGDPGDPBalance of Payments and Balance of Payments and Exchange RateExchange Rate
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Gov’t Rev. and Expenditure Gov’t Rev. and Expenditure
Government Revenue vs. Government Expenditure
0.0
10.0
20.0
30.0
40.0
50.0
1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
TT$B
n
Total Gov't Revenue Total Gov't Expenditure
2004-08 :
Revenue increase 126%; Expenditure increase+134%
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Recent Production Trends Recent Production Trends Natural Gas Utilization 2000-08
0.0
500.0
1000.0
1500.0
2000.0
2500.0
3000.0
3500.0
4000.0
4500.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
Years
MM
CFD
0
50
100
150
200
250
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Years
"000
bbl
s/da
y
Source Table A8
Gas Growth Rate has Plateau: Oil is in long Term Decline
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Petrochemical OutputPetrochemical Output
Will remain flat in 2008Will remain flat in 2008--99No new plants coming onNo new plants coming on--stream.stream.Planned plants delayed.Planned plants delayed.Gas supply overhang will impact NGC Gas supply overhang will impact NGC cash flow and revenue base. cash flow and revenue base. --
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
ImplicationsImplications
Government estimates an oil Government estimates an oil revenue shortfall relative to revenue shortfall relative to Budget of $ 8 billion dollars , Budget of $ 8 billion dollars , Non Non ––energy revenue is energy revenue is estimated to fall by another 8estimated to fall by another 8--9 billion9 billion
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
ImplicationsImplications
Total Revenue Loss ( Total Revenue Loss ( Energy and Non Energy )Energy and Non Energy )estimated at $15 to estimated at $15 to $18 billion$18 billion , about1/3 of , about1/3 of national Budget .national Budget .
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Real GDP Growth 2002Real GDP Growth 2002--0808
0
5
10
15
20
25
30
35
2002 2003 2004 2005 2006 2007 2008
Petroleum Sector - Total
LNG 4
LNG3
LNG2
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Downstream Expansion Downstream Expansion 20092009--1111
Three gas based projects currently Three gas based projects currently under construction.under construction.Six planned projects have been either Six planned projects have been either postponed or delayed as a result of postponed or delayed as a result of financing difficulties or reduced risks financing difficulties or reduced risks appetite. appetite.
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
ImplicationsImplications
Energy Sector which accounts for 45% Energy Sector which accounts for 45% of GDP will remain flat or decline in of GDP will remain flat or decline in 2009.2009.–– Oil decline.Oil decline.–– Petrochemicals output reduction Petrochemicals output reduction –– Steel closure Steel closure
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
ImplicationsImplications
Non energy sector which depends on Non energy sector which depends on energy will also decline sharply.energy will also decline sharply.–– Service companiesService companies–– Hotels and GuesthousesHotels and Guesthouses
Rest of economy will also decline sharply. Rest of economy will also decline sharply. –– Financial servicesFinancial services--ClicoClico–– Government expenditure cutsGovernment expenditure cuts
Economy likely to experience first Economy likely to experience first contraction in 20 years.contraction in 20 years.
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Summary Balance of Summary Balance of PaymentsPayments(US$ million)(US$ million)
9.99.9
6530.86530.8
1118.81118.8
(6843)(6843)
10851085
1210012100
48084808
20062006
9.49.48.98.96.96.95.45.4Import Cover ( Import Cover ( months)months)
6673.56673.54885.74885.72993.02993.02257.82257.8Gross Official Gross Official ReservesReserves
1541.11541.11475.91475.9531531334.2334.2Overall SurplusOverall Surplus
(7670)(7670)(5725)(5725)(4,894)(4,894)(3912)(3912)ImportsImports
100910091076.01076.012601260827.8827.8of which: Non of which: Non Energy ExportsEnergy Exports
131391131391967296726,363.206,363.205,958.005,958.00ExportsExports
5380.95380.9359435941,64701,64701,081.601,081.60Current AccountCurrent Account
20072007200520052004200420032003
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Foreign ExchangeForeign Exchange
Net Official Foreign Reserves
‐2.0
0.0
2.0
4.0
6.0
8.0
197419
77
1980
198319
86
1989
1992
199519
98
2001
200420
07
US$
Bn
Net Official Foreign Reserves
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
ImplicationsImplications
Imports growth likely to continue for a Imports growth likely to continue for a while although foreign exchange while although foreign exchange earnings have fallen sharply earnings have fallen sharply –– Hedging by importersHedging by importers–– Speculation and Asset switching Speculation and Asset switching
Pressure on exchange rate as supply Pressure on exchange rate as supply of FX dwindles.of FX dwindles.
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
ShortShort--Medium Term Medium Term Outlook Outlook
The global recession is having a pervasive The global recession is having a pervasive impact on the international economy.impact on the international economy.Oil gas and commodity prices have all Oil gas and commodity prices have all fallen sharply and likely to remain at lower fallen sharply and likely to remain at lower levelslevelsT&T Gov’t IS likely to be in fiscal deficit T&T Gov’t IS likely to be in fiscal deficit for 2008for 2008--9 and beyond .9 and beyond .Global slowdown may have a mitigating Global slowdown may have a mitigating impact on domestic inflationimpact on domestic inflation
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Medium Term Outlook Medium Term Outlook
At best energy sector growth will be flat At best energy sector growth will be flat less than 1% . less than 1% . Non energy sector growth will wind down Non energy sector growth will wind down because of reduction in Gov’t injections andbecause of reduction in Gov’t injections andSignificant fall in private sector investment Significant fall in private sector investment as confidence wanesas confidence wanesForeign exchange availability will tighten Foreign exchange availability will tighten with possible depreciation of Exchangewith possible depreciation of Exchangerate.rate.
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Medium Term OutlookMedium Term Outlook
Economy likely to experience Economy likely to experience its first contraction in GDP in its first contraction in GDP in 20 years.20 years.Unemployment likely to Unemployment likely to increase 8increase 8--10%10%Rise in Industrial tensionsRise in Industrial tensions
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Policy Imperatives.Policy Imperatives.
Align expenditure with revenue Align expenditure with revenue based on long term prices.based on long term prices.Develop a people based vision.Develop a people based vision.Give priority to basic needs Give priority to basic needs before grand projects.before grand projects.
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Policy ImperativesPolicy Imperatives
Economic TransformationEconomic Transformation
Build the onshore economy, with Build the onshore economy, with emphasis on cultural industries.emphasis on cultural industries.
Maximize value added from Maximize value added from energy upstream and energy upstream and downstream.downstream.
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Policy ImperativesPolicy Imperatives
DISCARDDISCARD
EMBRACEEMBRACE
A Look at the Oil A Look at the Oil ImportersImporters
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Context Context
Caricom countries consume 900 trillion Caricom countries consume 900 trillion BTU of energy per annumBTU of energy per annumPetroleum products constitute over Petroleum products constitute over 90% of energy consumption90% of energy consumptionT&T only net exporter of oil in the T&T only net exporter of oil in the regionregion
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Market CharacteristicsMarket Characteristics
Power generation Power generation dominates total dominates total energy demand.energy demand.
13%13%HaitiHaiti41%41%J’caJ’ca31%31%BdosBdos40%40%StLuciaStLucia25%25%DominicaDominica37%37%GuyanaGuyana20%20%SurinameSuriname
% share % share of Powerof Power
CountryCountry
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Market CharacteristicsMarket Characteristics
Energy imports absorbs a Energy imports absorbs a significant % of foreign exchange significant % of foreign exchange earnings.earnings.–– OECS <10%OECS <10%–– Larger economies>20%Larger economies>20%
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Market CharacteristicsMarket Characteristics
Petroleum products are heavily taxedPetroleum products are heavily taxed11 members of Caricom participate in 11 members of Caricom participate in PetroCaribe accord.PetroCaribe accord.Varying levels of debt accumulated Varying levels of debt accumulated across the regional economies.across the regional economies.Deterioration in the quality of life.Deterioration in the quality of life.
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OECS Retail Gasoline Prices (EC$)OECS Retail Gasoline Prices (EC$)
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Impact of Economic Impact of Economic MeltdownMeltdown
Typically economies run counter Typically economies run counter cyclical to the T&T economy when the cyclical to the T&T economy when the external shock is only about energy. external shock is only about energy. However global recession has also hit However global recession has also hit the tourism product hard, therefore the tourism product hard, therefore affecting entire regionaffecting entire region. .
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Impact of Economic Impact of Economic MeltdownMeltdown
Lower energy prices will bring Lower energy prices will bring welcomed reliefwelcomed reliefBut, the decline in Tourism and Travel But, the decline in Tourism and Travel likely to nullify that benefit .likely to nullify that benefit .Recovery is possible in the Travel and Recovery is possible in the Travel and Tourism industry within two years. Tourism industry within two years.
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Policy Imperatives Policy Imperatives
•• Must avoid the complacency usually Must avoid the complacency usually associated with lower oil prices.associated with lower oil prices.
•• Implement Regional Energy Policy :Implement Regional Energy Policy :•• Promote Renewable energy technologies Promote Renewable energy technologies •• Seize opportunities for use of Carbon trading Seize opportunities for use of Carbon trading
and the CDM.and the CDM.•• Energy conservation initiativesEnergy conservation initiatives
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Policy ImperativesPolicy Imperatives
Economic Transformation Economic Transformation –– Develop People based visionDevelop People based vision–– Greening of Tourism Greening of Tourism –– Promote agriPromote agri--tourism and tourism and
cultural/heritage tourism in general cultural/heritage tourism in general Regional CooperationRegional Cooperation
1 April 20091 April 2009 ILO Tripartite Conference ILO Tripartite Conference
Policy ImperativesPolicy Imperatives
DISCARDDISCARD
EMBRACEEMBRACE