Getting out of the mess
Things have not been going well for some time now. The budget presentation for the next year is a couple of weeks away. The kind of mismanagement we’ve seen the past couple of years has added to the economic woes which existed already. There has hardly been any substantive new project for the future. Yet, there were signs already that our economic platform needed to be reconstructed, since activities we’ve engaged in so far are not contributing as well as they did in the past.
The trade account (Exports less Imports) of Mauritius has long been recording successive deficits. In other words, we have been successively generating less revenues from exports to pay for our increasing import volumes. This fact has been hidden from view because large amounts of regular Foreign Direct Investment, particularly in real estate, has kept bridging the gap. Had it not been for this, our external debt would have increased to unsustainable levels years back.
The fact is that such a model needed to be overhauled a number of years earlier. What needed to be done was to reinvent our export sector so that new activities undertaken might have compensated for activities that have either migrated away from Mauritius to other places or simply lost their charm on foreign markets. It was necessary to do so both for goods and services exported.
In the case of services, we can export them if we develop a collective strength higher than that of other places in the respective fields. For example, our tourism has maintained itself because we cut an edge both as a nice location and the relative security we provide to visitors compared with other places. Barring this, the rest of the services sector called for a re-orientation of our local training and education to match with the rest of the world newer services that would be exportable.
We have to bear in mind that since 2007-08, international competition is so rife and so much technology-laden that only a re-invention of the local stage would have allowed us to make important inroads on external markets for services. That we failed to do so is seen in the fact that, for several years now, even graduates we churn up locally find it difficult to get a rewarding and fulfilling job.
On the side of government finances, successive governments have kept increasing the public debt over several years. This means revenues collected have fallen behind expenditures incurred. A buoyant revenue stream arises from an extension of the range of economic activities undertaken, which reflects in a fast growing GDP.
Where this is not the case, mere internal reshuffling of the tax and expenditure package will cease yielding the required flexibility to government finances after some time. This is where there is public debt accumulation from year to year. We are in this kind of situation. Even if new compensating activities are initiated and implemented to ward off this kind of situations, it takes some time before positive fallouts are harvested.
The current situation therefore calls for a rapid structural transformation of the production sector of the country. It has to be a combination of resources, material and human, and external markets that will lift the stage to where we should be. The problem is our failure to identify and act upon national projects that have a chance of success and sustainability. How could we do that when there is hardly any think-tank like the former Ministry of Economic Planning and Development to even set out the required strategy and the resources needed well ahead of time?
We have therefore been stalling for quite some years and this is no surprise. We needed to break new grounds and this is normally done when spirits are up and positive. In such an atmosphere, it is easy to reconcile differences among economic and social partners and get going towards the set objectives. A collective effort thus emerges and constraints are set aside.
As events unfold, the present government is realising that it sapped confidence by taking on the BAI group so forcefully and un-thoughtfully. It is only now realising that there were more dragons beneath the glossy surface than what appeared at first.
Funds are insufficient to meet commitments taken by the group that was failed in early 2015. The Prime Minister has gone to India in search of the required funds to bridge the gap, under pressure from a large number of unpaid insurance policy holders.
The regulatory job was undertaken without realising how it should have been fixed ultimately. This explains why the Singaporean firm, N’Tan, was commissioned to look into the group’s state of affairs after, not before, the action to bring it down was taken. Instead of undertaking an overall recovery plan to maximise the value of assets and evaluating how much would have been siphoned off through above-normal pay-outs and unjustified transfers of money in favour of insiders, that is, identifying the financing gap, action was precipitated without considering how to make ends meet.
Not only is there now a huge financing gap. There is also a potential claim in damages for not having proceeded the way that it should have been.
Most of what besets Mauritius today is linked to the way politics is and has been done in the country. It is alleged that public institutions would have been incapacitated to take actions which they should have taken well in time, under pressure of political patronage.
That this kind of pressure would have come to bear on regulators is evident from the figures of “donations” given by the group to the top brass across the entire political establishment which mattered. If Mauritius is unable to raise itself from where it finds itself, this is where one might look into to get answers.
Only a significant change in culture about how public institutions should be run in the public interest will start giving the required confidence to investors. Short of this, we’ll keep straying on the wrong path, as has been the case so far.
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