… so, the sooner we forget about Merlin, Gandalf and the magic potion, the better it will be for all of us’
Interview: Kugan Parapen, Economist
“Mauritius is in a state of emergency when it comes to bad governance
and a takeover of affairs by quasi-mob groups”
Kugan Parapen, an economist with a background of Fund Manager was fielded as a candidate of Resistans ek Alternativ in the by-election in No 18 which was won by Arvind Boolell. In this interview, he reiterates the grip of the corporates on the incumbent government which has given in to all their demands which are mainly about real estate development for the benefit of wealthy foreigners. This has resulted in an asymmetric situation with locals being the losers, given that they are being sucked dry by a tax regime that collects 75% from them while being utterly generous to the corporate with the lowest tax band ever, besides all the other advantages they are drawing. Unless there is a radical change in our economic model, things can only get worse for the population, he says. Read on:
Mauritius Times: The sugar sector is almost being kept afloat thanks to inputs by Government and the SIFB; people are losing their jobs in the textile industry. Tourism is not doing any better, it would seem, and the future of the financial sector looks bleak in the wake of the amended Mauritius-India tax treaty, some of the effects of which are already visible. Are we therefore in for bad times irrespective of whether the growth rate of the economy is a matter of “shame” or not?
Kugan Parapen: The times are challenging and to make things worse, global economic conditions are expected to worsen as the current global economic cycle comes to an end. In all fairness, the current gloomy feeling across the country has a lot to do with the high economic expectations the incumbent government presented to the population ahead of the last general elections. Come to think about it, disappointments result from a misrepresentation of reality and this is exactly what this government has done. The harsh reality is that economic miracles do not exist and never will. So, the sooner we forget about Merlin,Gandalf and the magic potion, the better it will be for all of us.
The key to economic sustainability is being able to constantly reinvent oneself. Isn’t it well known that the only permanent thing is change? The inability to anticipate or even to accept change will undoubtedly result in complicated transitory periods. With the textile and manufacturing sectors having peaked as industries, I believe the country is currently undergoing such a transitory period. What next for the Mauritian economy? Beyond the answer lies the more important question of who should decide the future of the Mauritian economy? A strong and independent government would have been the obvious answer but in the absence of such a government, the question is worth debating.
Historically, it has been the private sector that has had the upper hand in determining the economic future of Mauritius. It is well known that the private sector has constantly corrupted democracy in Mauritius by donating millions of rupees to traditional political parties, especially ahead of elections and have thus rendered governments to being mere puppets. Interestingly, this privileged role of the private sector is being currently and increasingly challenged by political parties like Rezistans ek Alternativ and other sections of civil society. We believe that the future aim of this country should be to maximise the well-being of its population as opposed to the sole capitalist mantra of profit maximisation.
Faced with ever falling sugar prices, the oligarchy is obsessed with monetising the redundant plantations by converting them into real estate projects for wealthy foreigners and seem completely insensitive to the negative environmental and social implications of doing so. Should we allow them to have it their way, then we can expect bad times for most of the population. But we are not there yet…
* The view has been expressed in some quarters that what is required at this stage given the bleak economic outlook is the kind of reform that was initiated by then Finance minister in 2006, which it is said strengthened our economy’s resilience. What do you think?
I think Albert Einstein would have felt vindicated upon hearing that kind of view. Didn’t he say that insanity is doing the same thing over and over again and expecting different results?
Back in 2010, I had just returned to Mauritius from my studies abroad and I can vividly remember writing an opinion piece on the Mauritian economy in one of the Sunday papers. The title was “Mauritius, the flawed economic model”. I still, to date, stand by my analysis of the adverse implications of the neo-liberalisation of the Mauritian economy started in 2006.
The then Finance Minister is the grand architect of the economy we have inherited today, let’s not forget that. All successive Finance Ministers have followed in his footsteps and have progressively deregulated and weakened the economic structure of the country. None have had the courage of implementing a true “politique de rupture”.
As far as I can recall, the light fiscal regime is his doing. Some thirteen years down the line, the fiscal burden of the State has shifted perversely on the shoulders of the population with 75% of the fiscal revenues of the government now being recouped through indirect taxes, an aberration by even the most extreme standards. Mauritian consumers are heavily taxed while corporates benefit from one of the lowest tax regimes worldwide. A new version of serfdom. That was the main theme of Rezistans ek Alternativ’s campaign during the by-election in Constituency 18 in 2017 but regretfully, it was deemed too high-pitched. I was even vehemently attacked by a prominent candidate from the left who thought he knew better. Nevertheless, the truth remains the truth and we won’t stop in our endeavour to inform the population of the harsh ride they have been taken for.
The growth of the offshore sector also emanates from that period and while many might think of it as a sophisticated value adding industry, the reality of things is less straightforward. Mauritius, as an economy, has mostly relied on being cost competitive to grow industries. We have rarely ventured on the value adding side of things. The sugar industry was reliant on slavery and subsequently indentured labour. The textile industry similarly boomed due to the availability of cheap labour. So, one might wonder what the connection of these two industries with the offshore sector is. Well, our offshore sector is structurally based on offering the cheapest tax rates. Obviously, one cannot and should not undermine the quality of the human resource on offer but, in all objectivity, we are once more reliant on being a cheap outlet. Bon marse kout ser!
As we’ve seen with the Double Taxation Avoidance Agreement with India, such loopholes can only exist temporarily. It won’t be long before the world cracks down on fiscal paradises or worse, aligns with them. Jersey is a not so distant reminder of how things can turn sour very quickly.
A Danish scholar visited dozens of fiscal paradise islands around the world and coined the term ‘Finance Curse’ to describe them. It is very similar to the ‘Resource Curse’ syndrome which is used to refer to African countries which suffer from poverty and poor governance despite boasting tremendous reserves of natural resources. The scholar found out that the local population of tropical islands like Cayman Islands, Bahamas and Trinidad and Tobago which adopted the offshore paradise model suffered from increased levels of poverty, crime and social unrest than previously despite harbouring immense stocks of wealth in their financial sector. And some are bent on trying to prove Einstein wrong in Mauritius…
* Growth is not picking up, and public debt is rising beyond the acceptable level set by the IMF. On the other hand, there has been no significant governmental initiative in terms of new economic pillars; the private sector – the large landholders, are busy converting agricultural lands with, Government’s blessings, into Smart Cities and luxury residential and hotel complexes. Can there be an alternative vision for the economy, on how to create growth differently?
There are many avenues that can be explored when it comes to economic activity. One important concept that ought to be assimilated is mercantilism. Predominant in the 16th to 18th century, this dogma argued for nation states to maximise exports in order to become dominant players on the global scenes. It is this doctrine which supported the rise of colonialism and thus the successive occupation of Mauritius by prominent colonial powers of that time. It is the mercantilist school of thought that brought settlers to Mauritius and all subsequent immigration can be also be viewed through that prism.
While the popularity of the mercantilist philosophy has receded over the years, the idea of maximising wealth through exports is still paramount among the island’s economic shapers. China, after years of relying on the competitive advantage it had over the developed world in terms of cost of production, has embarked on a delicate but essential rebalancing economic act; that is, it aims to progressively rebalance its economy away from being an export-dependent one to one which is more reliant on its internal economy.
Any alternative vision for the economy will need to focus on developing the local economy while integrating environmental constraints. Jugnauth’s promise of making of Mauritius a high-income economy is conceptually flawed. His vision is to bring in thousands of affluent foreigners to mathematically increase the per capital income. Any shrewd statistician will recognise the outlier bias of this approach and the disturbing relative inequality that such an approach entails. Many countries have offered world-class athletes their citizenship to boost the performance of their country in the sports field, especially in the fields of athletics. Mauritius is trying to do the same thing in the field of economic performance. A highly synthetic approach.
The recent campaign launched by the Mauritius Commercial Bank – “Lokal is beautiful” – is worth pondering upon but such an effort, if genuine, can only be successful if we address the income disparity within the economy. Economics can be a very complex discipline but, at the same time, it is underpinned by some very simple principles. Take economic growth for example. Assume an economy with only two agents, A and B. If over the course of a year, agents A and B engage in two economic transactions worth Rs 100 each, the economic outcome (GDP) will be worth Rs 200. If over the next year, these two agents engage in four transactions of Rs 100 each instead, the GDP will have risen to Rs 400 and you will have had economic growth of the 100%. Thus, if follows that velocity of money, the rate at which money changes hand, is a very important factor in determining economic activity. In an economy where most of the economic agents earn subsistence levels of income, the velocity of money can only be suboptimal.
In France, the culture sector contributes some 4% to the economy while employing thousands. The cultural proposition needs to be enhanced markedly in Mauritius especially given the abundance of talent in that domain. In many aspects, Mauritius is a melting pot of cultures and this provides the perfect platform for the emergence of some unique cultural propositions. That potential has unfortunately yet to be enhanced. More than one million tourists visit the island annually and while some will have us believe that these visitors are obsessed with the sun and sandy beaches only, I beg to disagree. Can an offsite cultural proposition be added to the all-inclusive offers proposed to tourists? Absolutely! Porlwi by Light showed that there is a huge demand from the local population for being entertained. And it was economically stimulating as well.
A country without access to culture and leisure is bound to be frustrated and vulnerable. We ought to change that. Similarly, the sports segment can and should be revamped. Can you imagine the economic implications of having packed football games on the week-end? I’m sure many of you can, given its prevalence until the 1990s. Can we attract Mauritians back into stadiums? Nothing is impossible as long as the right formula is devised. We need professional athletes in our country and there is no reason why an elite football player could not earn Rs. 100,000 or even higher. After all, don’t we sit at home on weekends to watch players who earn in a month more than most of us would earn in a lifetime?
The European Union pays us a paltry Rs 25 million annually to buy fishing rights so that nearly a hundred French and Spanish fishing super boats ransack our waters. That compensation is an insult to our intelligence and to us as a nation and does not represent more than 10% of the economic value of tuna (albacore) fishing. Many countries boasting oil reserves cannot make the most of their assets because they are unable to refine that oil and capture the value added from refinery. Similarly, by not being able to sustainably fish our waters, we have so far been unable to capture the value added from tuna fishing.
Iceland, with its 300,000 population, has become a pioneer in the fishing industry and has developed state-of-the-art technology to fish the oceans so that the fishing industry employs more than 10% of its population while also contributing significantly to its economy. Can we learn anything from them? There are numerous ways to reinvent the Mauritian economy and numerous challenges that ought to be tackled sooner rather than later including the transition to a more sustainable energy mix and food sovereignty in line with making Mauritius a country kotfer bon viv…
* On the other hand, when things got very bad at Palmar Ltd and hundreds of textile workers lost their jobs and were left without compensation, there was talk about Government undertaking to conduct an investigation into that company’s failings, if any, and the reasons that led to its closure. Shouldn’t the Government extend the same courtesy and attention towards its own State-owned enterprises like Air Mauritius, State Bank (Mauritius) Ltd, etc?
The answer to that question is a resounding yes. State-owned enterprises are in a state of crisis and Pravind Jugnauth and his government have got to shoulder the full responsibility of this sad state of affairs.
Pravind Jugnauth has voluntarily put himself in the limelight as a competent and modern Prime Minister. In fact, the communication strategy of this government is centred almost exclusively around the Prime Minister. Let us remind ourselves that Pravind Jugnauth is also the Minister of Home Affairs, the Minister of Finance and Economic Development, the Minister of Home Affairs, External Communications and National Development Unit. Something unheard of in the history of our country. In light of the above, the failure of State-owned enterprises is a major thorn in his side with respect to the image of competence being projected. A competent Prime Minister runs a country competently and certainly surrounds himself with a team of capable individuals. Can we say that all the political nominees on the boards and with executive roles at State-owned enterprises have been nominated on merits only?
Many Mauritians have turned their back on politics under the pretext that politics does not have any impact on their life. That is obviously a flawed argument – the situation at the State Bank of Mauritius and Air Mauritius provides a good case study to prove that flawed reasoning. The share price of SBM and Air Mauritius have fallen by 41% and 46% respectively since the Alliance Lepep took power in 2014. This represents massive shortfalls in the government’s accounts including the loss of dividends which could have been used to fund much needed infrastructural and social programmes.
On top of that, the National Pension Fund holds significant holdings in both companies and this also represents a shock to the value of assets under the aegis of the NPF. The State Bank of Mauritius just wrote off more than Rs 3 billion as bad debts (Non-performing loans). One can be sure that among the bad payers, there must have been multiple cronies of past and present governments who walked away without paying their dues and leaving it the taxpayer to foot the bill. Mauritius is in a state of emergency when it comes to bad governance and a takeover of affairs by quasi-mob groups.
* How do you see politics shaping up in terms of strategies and alliances in the wake of Lutchmeenaraidoo’s resignation and ahead of the next by-election/general elections?
The mood has changed in the country and the population is gearing up for general elections. The earlier the country is called to the polls, the better it will be. The next elections will be crucial in determining the economic and social path upon which the Republic embarks itself. The silent majority holds the key to the next elections and that majority has shown in 2014 that it is ready to defy the traditional voting patterns.
Traditional parties will most likely see their electoral base erode further in line with trends we have observed in other parts of the world as the electoral proposition becomes more diverse. The adherence to unnatural pre-electoral arrangements is uncertain and traditional parties are certainly wary of the backlash from the electorate. The unpopularity of the incumbent government was largely underestimated in 2014 – will it be the same in 2019?
* In his reply to a PQ at last Tuesday’s sitting of the National Assembly, the Prime Minister said that the electoral reform project is not dead, there is still time for that. Do you expect any profound change forthcoming?
The electoral reform proposal from the MSM-ML government is a farce and we will oppose it as long as it permits political leaders to appoint MPs without the popular support of the electorate. The issue with the reform proposal is that traditional parties cannot do away with the ideology of communal representation and have, to date, vainly attempted to perpetuate that logic in a disguised way.
Let us be reminded that the relevance of an electoral reform is Rezistans ek Alternativ’s doing. Had it not been for the party’s case in front of the United Nations Human Rights Committee, the need for an electoral reform would not have been forthcoming. The State has committed to provide an effective remedy to the need to declare one’s ethnic belonging when standing as a candidate for general elections and has so far failed to do so. The ball is still in its court.
* What about Rezistans ek Alternativ’s ‘positionnement’ in view of the coming electoral battle/s?
As far as Rezistans ek Alternativ’s positioning ahead of coming electoral battles is concerned, we are actively weighing our options. It is fair to say that Rezistans ek Alternativ has been one of the most active and relevant political forces in Mauritius since 2014. Despite being out of Parliament for the time being, we have shown that a lot can be done by being an extra parliamentary power.
We have actively campaigned for the protection of the environment with the fight to save Wetlands #76 at Les Salines Riviere Noire being the latest ecological struggle. From day one, we have denounced the gentrification process Mauritius is undergoing with commons grabbing being a prominent feature of that particular issue. On the 1st May 2018, together with our allies, we brought down the fences on Pomponette beach to save that jewel of a beach from being privatised. We successfully opposed the privatisation of the port as well as the absurd plan to sell the citizenship of our country to the highest bidders.
We were the only political party taking to task the private sector in the NMH Saga which eventually led to the publication of a damning report against certain corporates. We have also made of political financing by corporate entities a major issue pinpointing the crony capitalist philosophy underneath it all. From an economic perspective, we highlighted the flawed structure of the economy where the population is shouldering an unfair burden with respect to taxation practices by paying 75% of tax revenues going in the coffers of the State. And the list goes on.
At the last elections, we presented 20 candidates, one per constituency. At the next elections, we shall aim to at least double the number of candidates while refining our electoral manifesto to present a progressive and sustainable vision of Mauritius to the electorate. However, we have not closed the door to teaming up with other political parties or civil society members sharing a similar vision of society.
There is a strong demand from the population to have a unified leftist proposition at the next elections. We hope this can come to fruition, but it must be said that we are absolutely not prepared to compromise on our core values in this endeavour. Time will tell…
* Published in print edition on 5 April 2019