Clouds over the Economic Horizon

Two new threats have appeared on our economic horizon. One of these relates to the sugar industry. The other has to do with our offshore sector.

On Wednesday last week, the European Union institutions took the decision to abolish EU beet and isoglucose sugar quotas in 2017. The ACP states, which include Mauritius and are exporters of cane sugar to the EU under quota arrangements, had asked the EU to put off this decision to 2020 in view of the fragile state of their sugar-dependent economies and also to give time for economic readjustment programs under the Multi Annual Adaptation Strategy (MAAS) to be in place. The EU institutions decided however that quotas will stop altogether in 2017.

Questions are therefore being asked as to how we will fare under this eventuality as an important ACP sugar exporter under prevailing EU quota arrangements. It will be recalled that substantial funds were put at our disposal by the EU under the MAAS to help us adjust our economic structure in the wake of its decision then to whittle down the guaranteed sugar export price by 36% over three years.

We do not know how the support given by the MAAS has percolated to the different stakeholders of the sugar industry. However, unable to get timely and sufficient labour, many small planters abandoned sugar cane plantations. The fields they once occupied are lying fallow or have been given up to other casual utilisation in the absence of a coordinated and well-directed plan to improve their collective scope. Others are carrying on as best they can. One would have thought that, in the circumstances, it would not have been out of place to package them into a collective modern outfit suitable for competitive alternative production. In general, it has to be reckoned that costs of occupying fairly small plots of cane-cultivated lands became prohibitive to the point of abandonment of small planters’ centuries’ old engagement in sugarcane.

On the other hand, there has taken place a generalised program of real estate development by the corporate segment of the sugar industry. Luxury villas for sale chiefly to foreigners have sprung up in different parts of the country on lands once occupied by cane plantations. Shopping malls have come up in places one would not have dared to imagine for such activity only a decade back. Property prices have soared continuously and enormous gains made from engaging in this sort of activity.

As a result of these developments at differential speeds for the two groups of stakeholders in the sugar industry, the area under cane cultivation has continued to shrink for the island as a whole. In parallel, total sugar production has come down. From over 600,000 tons before the changes started taking place in the sugar industry, annual sugar production has now been stalling around 400,000 tons. This means that both sugar and its by-products have kept falling. We do not know whether the process of shrinking of a once all-important area of economic activity of the country will carry on as land finds alternative uses to which it can be put.

Whatever the level at which our sugar production will eventually stabilize to, with or without the recent EU decision, it should be clear that a historical perspective that has held on for a very long period of time in this country is now fading away. The production of refined white sugar has been stepped up in replacement of our past production of raw sugar exported largely to Europe. To the extent refined sugar fetches a higher price, it already shows the direction taken to cope with changes taking place in our customary export markets.

A day might come when, in the liberalised sugar market after 2017, the EU will itself become a net exporter of sugar. Global configurations about the sugar market will also change. The price of sugar will vary on the world sugar market according to the laws of supply and demand. If our local cost structure can cope with the prices that will be thrown up in this context, our sugar production will survive. If not so, we will have to look out for alternative ways of keeping the activity alive and the island green, by moving up the value-adding chain. That can be done in a corporate production structure both within and outside the country by partnering with other efficient global producers. Hopefully, policy makers would be having a comprehensive blueprint in this respect to take up all those who have had a shared interest in sugar at different scales of production for several generations.

What is happening in the EU and what will eventually shape up the global market is not in our hands. It is not wishful thinking however to believe that we could still play a winning hand as the landscape keeps changing if we are smart, adaptive and innovative enough – like we have done in the past. If not, we will throw up our hands in despair and blame globalisation for so-called having destroyed a lifeline activity that has animated our being at its very core for centuries.

* * *

Offshore: Pre-emptive steps necessary to avoid total breakdown

The columns of this paper have on various occasions brought to public attention the fact that several foreign governments have been thinking of clamping down on offshore centres. The latest among them were the G8 members (Canada, France, Germany, Italy, Japan, Russia, the UK and the US).

At its latest meeting in June in Northern Ireland, this issue figured prominently on the G8 agenda. Some G8 members, faced with mounting fiscal deficits at home, have been claiming that revenues earned in their economic space are cleverly whisked away untaxed through shadowy transaction structures to offshore centres by multinational companies. They want to recover huge amounts of tax evasion money lost to themselves in the process to put their budgets in better balance. It came as a strong signal that action will now be taken to cut down to size offshore centres, the more so as the UK was in the chair and that a dozen crown dependencies host offshore centres.

One of the decisions taken at this G8 summit was to bring about a multilateral framework for exchange of information about tax matters. The matter will now also figure on the agenda of the forthcoming meeting of the G20 which includes developing countries. The latter state that their tax collections have been impaired by offshore-induced tax evasion for even larger amounts of tax revenues than developed countries. They stand up offshore centres as facilitating evasion by their own citizens or by domestic operators claiming to have residency outside their countries. On its part, America has legislated heavy tax penalties on institutions which do not give it information on American residents’ earnings in their countries.

The element of confidentiality and secrecy on which offshores have thrived the world over is now being overtaken by these developments. Sharing earnings information with home countries of foreign nationals has therefore become a key factor in the survival of offshore business activity like the one being undertaken from Mauritius.

In this regard, jurisdictions taking pre-emptive steps to make the necessary disclosures before they are compelled to do so will ward off a total breakdown of their offshore activity. Singapore has just taken a decision to make it a money laundering offence if its operators knowingly allow residents of other countries to evade their domestic tax. Mauritius should have contemplated taking similar action in this direction which would have had the effect of maintaining the jurisdiction among those that are seen as responsible players on the global stage.

We do not know what type of action is contemplated in this respect by our policy makers. What the international developments have been calling for is not to make a virtue out of necessity when it is too late. They have been beckoning us since long to take proactive action to put ourselves above board. Failure to act might put us on the defensive stance and there is little guarantee we could then escape the axe falling on us unscathed in such a case.

The time has come perhaps for our decision makers to take some time off from road accidents, tender procedures, attempts to pervert the course of justice, corruption and electoral reforms. The country deserves attention to address some deeper concerns as well.

* Published in print edition on 5 July  2013

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