Another Misstep For The Country

It is barely a fortnight ago the new government’s budget was delivered.

It contained two main axes for driving economic growth – creating a number of ‘smart cities’ across the island and making the SME sector a policy focus as generator of employment and growth. For whatever these proposals are worth in the present local and international economic conditions, it was necessary to debate and thrash out the details which would operationalize these axes of future development.

We expressed the view in our opinion columns after the budget that it would be necessary to examine the framework in which the idea of ‘smart cities’ would be implemented. It was necessary to ensure not only the generation of jobs at their construction stage. It would have been useful to flesh out proposals that would make them self-sustaining and well-integrated centres of economic activities bound to the country’s next stage of economic development.

Statements were also made in the columns of this paper that, given that we have worked for long on the provision of services to the international market, it might be worthwhile to build up on our existing strengths. For example, as in the case of any dynamically adjusting line of production, we could have examined deeply how to improve our hospitality services in a bid to catch a quality higher share of the international tourism market.

More specifically, we’ve been a supplier of international financial services according to a given past model of work for more than two decades. Our service providers have adapted to changing demands over this fairly long period of time. This goes to their credit because exigencies of international financing are such that if you don’t adapt, the market will find ready substitutes for you.

Had we done more homework however to scale ourselves into newer lines of supply of financial services, we would have had less to worry about forthcoming coercive international tax initiatives. But we could also employ our good image as a financial centre to reach out to other markets, e.g., Africa, in the provision of financial services at a larger and more sustainable scale. We have good relations with a number of African countries in theory. We could translate all of that into facts and thereby go full swing for increasing the scope of our international financial services sector.

Unfortunately, our policy makers appear to be preoccupied for the moment chasing other, mainly political, objectives. As a result of sustained massive withdrawal of deposits by public sector bodies from Bramer Bank, a local commercial bank, over the past three months, the bank was made illiquid enough to have to depend on borrowing cash from the local interbank market and from the central bank to meet its day-to-day cash requirements. There is no explanation why the massive withdrawal of deposits were effected by them. Eventually the central bank itself cut off this lifeline and moved on to revoke the bank’s licence on the grounds that it did not have the liquidity.

In view of the rapid expansion of the British American Investment (BAI) group, which includes the Bramer Bank, in past years, there has been general apprehension in the public whether this rate of expansion could be sustained without creating important casualties on the way. Are the funds being given to new entities of the BAI group based on sound principles? Will interdependencies among members of the group not trigger a domino effect, including the financial institutions to which members of the public were entrusting their savings?

In the past, the Mauritian regulators have seriously questioned, for example, how the money entrusted by insurance policy holders of the British American Insurance Co were being invested or employed to grant facilities within the group. It appears even the IMF/World Bank questioned in 2007 the central bank’s decision in December 2006 to accord an in-principle approval for a banking licence to the BAI group, something that eventually translated itself in the licensing of the Bramer Bank in August 2007 despite the international institutions’ objections. There were fears that interlocking directorships in the group’s companies might result in adoption of imprudent lending to entities within the group.

Events showed however that the rapid onward march of the BAI group could not be arrested. Some attributed this rapid progression to the business flair of the group’s main promoter, Dawood Rawat. The majority of observers considered however that it was due to the close proximity of Dawood Rawat with the Labour Party’s leader and the-then Prime Minister. All this has led the opposition politicians in particular to smell an incestuous business relationship between Navin Ramgoolam and Dawood Rawat.

Many interprete therefore the revocation last Friday of the banking licence of the Bramer Bank as forming part of such political considerations. But the Bank of Mauritius (BoM), which has revoked the bank’s licence, claims that it has acted because the bank did not have sufficient liquidity to carry on business nor did it have sufficient eligible assets it could employ to tide over its liquidity crisis which was precipitated by massive withdrawals of deposits by public sector bodies from the bank in the recent period.

In the wake of the revocation of the banking licence by the BoM, the Financial Services Commission which is the regulator of non-bank financial services had no option than to appoint conservators to look after the British American Insurance which is the long-standing insurance arm of the BAI group. At one time, it appeared that these actions could lead to the crumbling of the entire BAI group, including its numerous non-financial companies. The country has been vastly unsettled by these recent developments concerning the BAI group, especially after political allegations were made about the group’s involvement in Ponzi schemes.

There was a need to put order in the BAI group no doubt from a sound financial management perspective. That could have been done discreetly. Unfortunately, the whole thing was blown up as a major happening, so-called Ponzi and all!

Such a development is gradually but surely driving away attention from major tasks to be attended to by the economy. It is starting to look as if, instead of economic development, underdevelopment is becoming our real overall goal by distracting attention to political gimmicks and exaggerations. We are quickly losing the very rudders of elementary good governance.

To illustrate the point, one foreign journalist, going by the name of Pranay Gupte, leaning on the government’s recent actions taken against the British American group and Dawood Rawat himself, including the revocation of Bramer Bank’s licence, wrote an article qualifying Mauritius as no less than a huge international money laundering centre. The article was titled: ‘Mauritius cracks whip on Muslims, not a ‘role model of democracy’ as PM Modi said after all’. Totally unfounded and the man does not even disclose his personal and private business relations with Dawood Rawat. But with things like this, enormous damage has already been inflicted upon Mauritius’ overall governance superstructure.

There was no need to give an opportunity to fan communal tensions. The new government appeared to be entrusted with a mission to reconstruct and it enjoyed the support of nearly all, against the backdrop of the big danger Navin Ramgoolam’s and Paul Berenger’s project of ‘Electoral Reform’ and ‘Second Republic’ had represented in the eyes of voters. The recent Bramer Bank case is one notorious example of de-construction of the country, if at all it was needed. We hoped to travel further. Unfortunately, it appears we’ll be dropped out before we reach destination or even a semblance of it.

 

* Published in print edition on 11 April  2015

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