By L.E. Pep
Why is the opposition not convinced about the Combined Cycle Gas Turbine (CCGT)? Why are they so adamantly against this project? They seem to be more bothered about the cost of the project which may amount to some Rs 7 billion. I did not see the same determination to bring down other projects which were equally costly – the Metro Express or the Safe City project?
Over the last 20 years, a new technology for power generation has emerged. The CCGT has been installed in increasing numbers throughout the world. Synthesised from traditional gas and steam turbine technology, the CCGT has reached a sufficiently mature stage of development to take advantage of the worldwide shift towards a more market-driven economic climate. Also of importance has been the availability of large quantities of natural gas, coupled with widespread concern at the environmental effects of traditional technologies. In the UK, France and Germany, among others, the CCGT has had a large impact.
Our friend, Ivan le Terrible, has kept reminding us that most of the countries in the region are dependent on charcoal, which he referred to as an economic tragedy. He said that countries of the region have around 600 000 billion m3 of natural gas, adding that these reserves are sufficient to eliminate our dependence on charcoal and heavy oil. He did specify that the government’s long-term strategy in the energy sector is to make use of liquefied natural gas (LNG) as an alternative to coal and heavy oil and to develop other renewable sources of energy.
Even our little neighbour Seychelles has realised the importance of LNG. We are thus puzzled. Are some of the main opposition parties here to defend the interests of the lobbies of an embattled private sector, intent on rescuing a besieged cane industry?
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Demonetisation: A flop?
It was not called a demonetisation exercise per se, but the withdrawal of Rs 2000 paper banknotes for the upgraded banknote on polymer substrate with improved security features. Indirectly, it was one, as holders of Rs 2000 paper banknote(s) were required to produce proof of identity when effecting an exchange of the paper banknote and proof of the source of funds was also requested irrespective of the amount in certain circumstances. This mini-demonetisation exercise has been played down by the authorities because they know very well that it will not achieve much. As at January 2019, Rs 1.8 billion of the Rs 2000 banknotes were removed from circulation. Only Rs 680 million were still in circulation.
This is what it turned out to be – a flop. We had noted at that time that there was no element of surprise, no surgical strike. The defaulters have been waiting for such a move for quite some time and they were not keeping their black money in high denominations anymore. Most of them had long converted their black money into either shares or real estate assets or placed them in safe havens abroad. Demonetisation has hit only small-time concealers of income who keep their money in cash; it has hit some of them real hard, not the big fish.
Thus bureaucratic and political corruption and money laundering will be back just as before but in the new currency denomination.
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Ease of Doing Business : Not according to Index!
The World Bank’s Doing Business 2019 Report ranked Mauritius in the Top 20 economies and recognized improvements made by Mauritius in 8 out of the 10 indicators, namely: Starting a Business, Dealing with Construction Permits, Getting Electricity, Registering Property, Protecting Minority Investors, Paying Taxes…
The World Bank rates countries in the Doing Business (DB) report by asking thousands of lawyers, accountants and others the time it takes for a small firm to get registered, obtain a building permit, pay taxes and so on. “Their answers, it is true, do not always fit well with what firms themselves say about their own experience.” (The Economist Nov 1, 2018) This is exactly what our SME entrepreneurs and exporters have been saying: the Doing Business report does not seem to match the actual experience of local entrepreneurs.
A case in point: the hassles to obtain a construction permit from the District Council of Rivière-du- Rempart. The matter has been reported to ICAC that obtaining a construction permit from that local authority is a long struggling process that sometimes involves some underhand negotiations that may extend to Rs 1 million of graft. Moreover, the Building and Land Use Permits Committee does not provide for accountability. This is a far cry from the improvement noted in DB index on dealing with Construction Permits.
The DB index works well for attracting foreign investors but it does not mean much for local operators. In the World Bank’s index that measures the ease of starting a business, Germany ranks below us at 24th. But Germany can boast of an innovative and super competitive export sector, now generating 48% of GDP, which has flooded the world with sophisticated products from industrial machinery to construction equipment and chemicals. We should not fool ourselves into believing in these indices that do not mean much for our local operators, especially the SMEs.
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CMT’s threat to relocate abroad!
One of our national flagships in the textiles and clothing industry, the Compagnie Mauricienne de Textile Ltée, has over the years gradually developed both upward and backward linkages and successively pushed forward in overseas markets, securing a strong foothold for the “Made in Mauritius” label of world-class vintage. By forging alliances with reputed international design houses and by installing cutting-edge production lines, it has been able to carve out a niche for itself and hold out on its own against the industry’s titans. Thus, it has through a combination of cost competitiveness and technological leadership transformed itself from a national into a global player.
But of late, it seems to have lost some competitive edge and been leaning too much on government’s support to the export sector.
In addition to the concessions obtained thanks to the low tax rate, the Exchange Rate Support Scheme (ERSS), which aims to provide a temporary subsidy to exporters (excluding sugar exporters) in the light of the depreciation of the US dollar, CMT is also the company that has benefited the most from the Speed to Market plan. These are subsidies of 40% on air cargo for export. 45% of the aid disbursed to date by the State under this plan went to the CMT, which represents some Rs 40 million. Its profits have, however, come down to Rs 196 million in 2017 from Rs 713 million in 2016.
And the threats of delocalisation seem to have become a habit; CMT is now threatening to halve its workforce and relocate abroad; this has worked in the past on the issue of expatriates-local combination for employment. Will it again this time?
All the support to the benefit of the multi-million blue chip exporting companies comes at the cost to the taxpayer like the accommodating monetary policy that ensures the maintenance of a low nominal rate of interest. Why should government continue to support such firms which have benefited from government support and which end up holding a knife to the government’s throat whenever the going gets tough?
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EU queries on new tax regime: Amateurism!
The European Union (EU) is not satisfied with the changes brought to our (harmful) offshore tax regime. In the last budget, the deemed foreign tax credit, effectively meaning a tax rate of 3% for Global Business Companies, was replaced by a partial tax exemption method, which raised the effective tax rate, but presumably not enough to satisfy the EU. The retroactive nature of the change is also not acceptable to the EU.
Now like whipped curs, Government is cowering down before the EU’s Code of Conduct Group begging not to be included in the list of non-cooperative jurisdictions and promising to address the deficiencies and correct them by 31 December 2019 at latest.
Following the legal amendments to the Finance Act 2018 we had raised some of the issues that were worrying many of the financial sector operators, including the Association of Trust and Management Companies Mauritius, we had warned the authorities that we were not yet out of the woods concerning the excluded treaties (to which we have been reluctant to apply the principal purpose test) to bring them up to the G20’s minimum agreed standards and the discriminative tax rate where certain companies pay a maximum effective tax rate of 3% while other companies are paying 15%. We had emphasised that “this is the kind of preferential tax treatment that the OECD and the EU consider as a’harmful tax practice’ and brand the countries as tax havens.”
Such amateurism from the Ministry of Financial Services and the Ministry of Finance is unacceptable; they are putting the reputation of the country at risk with such negligence and casualness in dealing with international institutions.
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Social media over-focus on laureates misplaced!
Some of our netizens did question the whole media fuss about the laureates: “Why such extensive, exclusive and special coverage by our local media towards such events and subjects? The best students are admitted to Grade 7 of some of the state schools and they come out with the best performance. There are also students from regional colleges becoming laureates at the cost of enormous sacrifice and with the particular care and the help of college and private tuition teachers and parents. That’s to be expected and appreciated, but why so much of fuss about it?
What are we celebrating? The few additional marks that demarcate the laureates from the others mainly due to private tuitions hopping or is it the insane competition that vitiates learning rather than uplifts it? Or, more pertinently, is it the inefficiency of the system that filters out more than 80% of a student cohort by the time they reach tertiary education?
We have made a virtue of such competition which means others are seen as a threat not a support. This insane competition is superfluous; we should be celebrating those schools that have succeeded in transforming their students despite the odds, giving them a radically different educational experience, stressing breadth of study and real world applications of knowledge.
Or better, let us postpone celebrating until we have done away with our stultifying rote education system and implemented such education policies that succeed in accomplishing a high quality of learning and widespread equity in learning opportunities and outcomes at the same time. Instead of being bothered about competition among schools (Is QEC on the decline? (sic) or do we need 4 or five credits for HSC?) and focusing mainly on the scores of the few at the very top and one student outperforming his neighbour, we should all work towards a more holistic, cooperative education approach that raises the average from the bottom rungs such that it brings about a profound effect on the overall result.
Yes, we will reserve our celebration for the day when our average students do much better than the OECD average for the middle-level groups in the PISA results. When we start focusing our education on pulling the average also to the highest level, there will be cause for celebration. Until then, please…
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Innovation: The Mauritius Research Council’s track record questioned
The Research and Development Working Group, co-chaired by the Mauritius Research Council (MRC) and Business Mauritius (WB), has just launched a call for research proposals, Research and Innovation Bridges. However, among professionals in the sector, there are queries about the present relevance of the MRC and its contribution to research and, in particular, about the financing and completion of MRC projects.
It is important to note that Mauritius has regressed to the 75th position (from the earlier 49th in 2015) in the Global Innovation Index (GII) 2018 among 126 countries. We are 105th, 93rd and 99th in Knowledge Creation, Knowledge Diffusion and Research and Development respectively. The Global Competitive Index for 2017-2018 also points to the lack of capacity for the country to innovate.
The former Minister of Higher Education, Rajesh Jeetah, does not seem convinced by the research work as well as by the MRC’s funding exercise. “Under this government, the MRC did not collaborate with the Indian Institute of Technology, New Delhi, which, in my opinion, would have allowed more advanced and successful research.” For his part, former Education Minister Dharam Gokhool argues that “the MRC should have been the most prominent research entity. We realize unfortunately that it reappears just now and then, to remind us that it still exists. We need to take stock of what the MRC has accomplished under the current government.”
The MRC is outdated in every sense of the word. and before it becomes totally ineffective, if it’s not already, it would be necessary to clean up the whole system and review (a) the innovation ecosystem in the country, (b) reassess the role and contribution of the institutions and agencies in education and training, research and knowledge diffusion, and (c) re-examine the strength of the overall enabling environment they offer and the development of links between various actors within the innovation systems.
We need to map out the long-term investment needed to build the necessary innovation building blocks and to expand the country’s research and innovation footprint.
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The four-star hotel project at Les Salines: An ecological disaster
DPM Ivan Collendavelloo has castigated the ecosocialist group Resistans ek Alternativ (ReA) as “saboteurs des projets de développement”. Still more aggravating is that he showed his appreciation for the actions of some bouncers who resorted to quite bullying and aggressive tactics to prevent the ReA partisans and other members of the public from protesting against the NMH hotel project at Les Salines. But when it suits him, our dear Chihuahua will be seen railing against the Great Dane – the lPPs – accusing them of polluting our island and referring to it as an economic tragedy.
In same sense, dear Ivan Le Not-so-Terrible, the ReA’s fight is a legitimate one for the protection and sustainability of our environment. The four-star hotel at Les Salines is being built on “land which is located in an Environmentally Sensitive Area (ESA), known as wetland Number 76 which contains a very important and unique ecological value. According to the Technical Report of Freshwater Wetlands in Mauritius, the ESA Wetland no. 76 is i) one of the most isolated marsh/swamp wetlands based on the nearest neighbour distance, ii) one of the 15 most ﬂoristically diverse coastal marshlands in Mauritius, and iii) one of the 13 most faunally diverse coastal marshlands in Mauritius with three migratory birds observed and one endemic.” (Quotes from ‘An Ecological Disaster’ by Alexandre Laridon).
Dear DPM, what kind of country and legacy do you intend to leave to our kids and future generations? Please say so!
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MCB Focus – February 2019
Like the IMF recent article IV report, the MCB focus report plays it safe and is couched in very diplomatic language. It appears that the hammering it got from government for its last report has toned down its usually clear-cut and sharp presentation of the more likely scenario. This time readers have been given a more arduous task of reading between the lines, à la IMF artcle IV report, and deciphering the more likely scenario out of the quite jumbled narrative.
In its cautious baseline scenario, the economic growth for 2019 in GDP at market prices is posted at 3.9%. This growth rate is in the range of what is acceptable to the authorities and will not lead to any brouhaha or pulling of hairs or any other sort of tension that may not be good for the business climate for both government and the private sector. So everybody is happy and the report goes through conveniently without creating any unnecessary disturbing storms or waves.
But our dear MCB guys know very well that you cannot make statistics lie and it oozes out so vividly from their most likely scenario. The growth rate in terms of GDP at market prices for 2019 is more likely to be 3.7%. This is based on the high probability of a) a lower-than-envisaged growth in the global business sector, b) by tougher-than-anticipated market dynamics and an a deteriorating external environment, notably in respect of our key export markets, and c) the uncertainties linked to Brexit negotiations leading to lower demand from UK, and contributing to a restrained evolution in net exports of goods and services. And to be in line with the IMF, the report could not ignore the upside risks to our inflation outlook, stemming notably from the expansionary fiscal policy stance and/or potential adverse shocks on the international front. But it could have gone a step further by recommending a tightening of monetary policy to tackle the emerging inflationary pressures which would have raised the level of interest rates relative to expected inflation, thus boosting savings, decreasing the external deficit and preserving macroeconomic stability. You may guess from where the hammering will be coming this time…
* Published in print edition on 15 February 2019