Interview S.Khushiram

Interview: Sushil Khushiram

 

 

“Our first generation of political leaders, post independence, have done a fair job overall”

 

* “The severity of the current global economic downturn should not be underestimated
and the adverse effects may stay with us for an extended period to time”

* “To stay the course ahead, Mauritius must intensify the implementation of long-term structural reforms ”

« Even if the coming years offer an improved international environment, one cannot rule out that it will still be a rough ride for small highly open economies like ours,” cautions Sushil Khushiram, former Minister of Economic Development, Financial Services and Corporate Affairs, later responsible for Industry, in the preceding MMM-MSM government in this week’s interview. If Mauritius has been able to weather the global slowdown “by taking appropriate short-term stimulus measures, for which the authorities have been lauded internationally” he says that the country will need “to intensify the implementation of long-term structural reforms” in order to stay the course ahead. “The most compelling of priorities”, according to him, relates to education reform. “The country has to review its education system to produce a new generation who can think more creatively and innovatively about strategies and policies, and are capable of making more informed choices and decisions, to take us collectively forward…” 

 

* Mauritius Times: You are currently employed at the African Development Bank, and are in Mauritius for a short vacation during this election year. So let me ask you whether you intend to return to the political arena?

Thank you for giving me the opportunity to clarify this. I am currently responsible for the African Development Bank’s office in Egypt. I feel privileged to have such exceptional opportunities to serve the African continent, and am committed to stay with the Bank.

 * As you look back on your participation in the MSM-MMM government, would you do it again?

I am genuinely proud of the achievements of the government I participated in. It undertook bold and fundamental policy reforms which strengthened the foundations for the country’s economic growth. Its accomplishments are even more clearly visible today: the expanding ICT sector and the Ebene Cyber city, the liberalisation of land, and tourism-related real estate developments, known as IRS or ERS, the inevitable restructuring of the sugar sector through a fair VRS, the incredible construction of dozens of secondary schools to sustain education reform, the accelerated construction of hotels, a healthy and growing financial services sector supported by a strong legal and institutional framework, the consolidation of public finances by setting up a Revenue Authority. And a symbolic but priceless realization was to put a final stop to sand extraction activities. I do not know how we managed to achieve all this, except that we were driven by passion to do good for our country.

Like today, these achievements were realized against a background of multiple external shocks, from the 9/11 terrorist attack, and the resulting global economic slowdown, the invasion of Iraq and Afghanistan, SARS, the skyrocketing of freight charges, and of steel and cement prices, and the wholesale exit of Taiwanese and other foreign investors from the Mauritian textile industry in anticipation of the end of the Multifibre agreement, with thousands of jobs retrenched.

The ensuing Labour-led government has built on these achievements, and also taken them further, especially by focusing on the supply side of the economy, through fiscal and business-environment reforms, as well as some labour market reform. It is not surprising that Mauritius is highly regarded as model of success by development practitioners on the African continent and internationally, for its continuous pursuit of sound economic policies over several decades. Many small African states take inspiration from Mauritian policies and institutions.

* Did you as Minister of Economic Development, Financial Services and Corporate Affairs,have a free hand in driving policies in the best interests of the country?

Absolutely. As part of a team, I led the implementation of a wide-ranging program of financial reforms – legal and institutional frameworks for integrated non-bank financial regulation, financial reporting and corporate governance, and anti-money laundering, with the creation of the Financial Services Commission, the Financial Reporting Council, and the Financial Intelligence Unit. New legislation on insurance and securities too. As Minister of Industry, the setting up of Enterprise Mauritius, an industrial support organisation, as a public private partnership. I was particularly pleased to launch the National Economic and Social Council jointly with trade unions, and business.

But a more relevant contribution was my effort to project the image of an elected representative dedicated exclusively to advancing the national interest and cutting across ethnic, religious, and partisan concerns. The time is fast coming for a new generation of politicians that are appreciated as global citizens, imbued with a liberal outlook, working for the public good rather than for narrow interests. I was fortunate to have the opportunity to contribute in a direct and tangible way to the development of my country. All Mauritians do so in one way or another, and public service is a noble and even higher calling.

* The “liberalisation of land”, as you call it, with respect to IRS or ERS projects had attracted a lot of adverse criticisms from many quarters. Was that unfair?

Land liberalisation has helped in enhancing investments in tourism-related real estate projects, as in Tunisia, Morocco, or the Caribbean islands, but should not be equated with unbridled property development and excessive speculation, leading to the adverse consequences that Spain has recently witnessed. Proper land and environmental planning, the availability of residential land at affordable prices to lower and middle income groups, and the crowding-out of more productive, competing, investments are important concerns for a small, densely-populated, island.

* To come back to the achievements of succeeding governments, what are the factors underlying those achievements and the success of the Mauritian economic model?

They can be summed up as deriving from 5 key factors – one, promotion of the private sector, two, provision of essential public services, such as education and health, three, a national consensus on broad strategic policy choices between growth, inflation and equity, including across the political spectrum, four, the development of infrastructure, and finally, good governance. It may be that the first three factors have been generally subject to stronger emphasis, rather than the last two, which have been more variable.

* Can this economic model stand good for the future?

It is a simple model but still quite valid, with some adjustments. For instance, if it is to serve our country’s vision for 2020 and beyond, it will have to give special consideration to the development of science and technology, for Mauritius to win a gainful place in a technologically-advanced world.

Tourism and the clothing and textile industries have diversified our production and provided jobs, while financial services brought high value addition. With BPO and ICT activities, we have made a start to develop higher value added activities that can also generate employment. To expand further we shall have to train our labour force with the desired skills, and take advantage of the inevitable relocalisation around the globe of the high value-added industrial and service activities of developed countries. We just need to obtain a small and selective share of this potential.

As an illustration, the front segments of Airbus planes will be produced in Tunisia as from this year, to benefit from the quality of Tunisian engineers as well as the proximity to Europe. Tunisia is one of the African countries with the highest share of education spending in GDP.

Obviously, this all depends on the kind of vision we have of the future. Some may feel that this is too ambitious and would rather focus on tourism and related services, as a central pole of growth. Putting it simply, do we want to go the way of some of the more successful Caribbean islands, centred on tourism and tourism related real estate development and services, or instead travel the road taken by Singapore, with more high technology activities?

* Do we have the wherewithal to travel that same road, much like the Singaporeans?

Singapore may have certain more prominent advantages – a hinterland all over the Far East offering major business and other opportunities, a strategic location on the region’s trade routes, and a strong inherited Confucian ethic. But, more importantly, it had a vision to be a nation of excellence. To achieve this vision, Singapore has pursued policies of wide openness, fervent encouragement for business activities, sound and balanced budgets, exchange rate stability, and rigorous economic management aimed at delivering high efficiency and productivity gains.

The State has played a pre-eminent role in supporting insfrastructural investments and services. The country has exceptional leadership, and its institutions are run by its most competent people. Its educational system is world class. Its work culture is fiercely service-oriented. It values and attracts foreign skills and expertise. Strategic goals are reviewed flexibly and rapidly to adapt to changing circumstances. Corruption is practically non-existent. There is plenty we can borrow from the Singaporean model to chart our way towards greater excellence.

* What are the prospects for a recovery from the adverse impact of the global financial crisis? According to Jacques Attali and Alain Minc, as reported by Slate magazine, the world economy has yet to get discharged from the intensive care unit. This is what they state : « Le surendettement des Etats, la création monétaire, l’impunité des banquiers, les risques sur le dollar et l’euro menacent toujours le système capitaliste ». Your opinion? 

The severity of the current global economic downturn should not be underestimated, and the adverse effects may stay with us for an extended period to time. There are still different possible scenarios prevailing about whether the crisis is really over and the prospects for a lasting economic recovery in the US. The opportunities for global trade and investments may not improve so rapidly.

We must watch out for the ominous signs of global instability lurking in the prevailing large external imbalances, and the growing currency strains, like the weakness of the US dollar, which most currencies would like to follow, threatening to lead the world into either a cycle of currency volatility and competitive depreciation, or to a resurgence of protectionism. Anxieties about the huge indebtedness levels of the US and debt sustainability in other developed countries, as well uncertainties about future inflation are also present. In these circumstances, it is advisable to be cautious and follow prudent economic policies.

* What are your views on public indebtedness and the weak v/s strong rupee debate here in Mauritius?

There are internationally established norms of public indebtedness, which are set by international financial institutions, and rating agencies. In the current state of the global economy, the priority is to stimulate growth worldwide, and countries are being encouraged, even by the IMF, to borrow to support fiscal stimulus packages, especially for capital expenditures. Consequently, there is a more flexible view on rising indebtedness indicators, and countries are likely to be assessed against their peers, rather than on absolute values. The Dubai crisis, however, does indicate that there is a limit to excessive indebtedness, especially based on real estate investments, which do not contribute to building future repayment capacity as more productive capital investments do.

As to the debate on exchange rate management, the issues are well known. The policy of the central bank is to maintain stability in the real exchange rate, i.e., the nominal exchange rate after allowing for inflation, at a level that reflects the country’s economic fundamentals. Although there can be differing views on the fundamental real long-term value of the rupee, the debate is effectively about inflation and real wages. An increase in inflation brought about by a generous wage compensation leads to a rupee depreciation to preserve the conditions for continued growth and employment in the export sectors, but also raises import prices, which on the strength of a second round of wage compensation feeds into inflation again, and back to rupee depreciation once more.

This is the vicious circle of the weakening rupee which Mauritius has experienced over much of its economic history. Whether the nominal value of the rupee is too strong or too weak depends on the rate of inflation, and of wage increase that the country is willing to bear. The ultimate nominal value of the rupee is a trade off reached between inflation on the one hand and growth and employment on the other. To break this vicious circle, labour market reform and fair and rational wage determination mechanisms are critical, accompanied by an economy-wide structuring that yields significant annual productivity gains. Let’s get more productive, and the nominal value of the rupee will not be such a vexing issue.

* You were saying earlier how proud you are of the achievements of the MSM-MMM government despite the “background of multiple external shocks”. Minister Sithanen is saying much of the same thing today: the economy under his stewardship has performed, he says, despite the “triple shocks” of lower sugar prices, soaring energy costs and erosion of our textile markets. Do those external shocks indicate a limited room for manoeuvre in the country’s choice of economic policies and are an inevitable consequence of globalisation?

As the world becomes more intricately linked in a web of trade and capital flows, the vulnerability to external shocks increases, while the margin for pursuing independent policies is reduced. We must learn to be permanently agile, responsive, and flexible. At the same time, in view of the repeated occurrence of crises, we must never totally discard a certain degree of self reliance. 

* What should and can be done to take Mauritius forward as we embark on the second decade of the 21^st century?

Even if the coming years offer an improved international environment, one cannot rule out that it will still be a rough ride for small highly open economies like ours. Mauritius has been able to weather the global slowdown by taking appropriate short-term stimulus measures, for which the authorities have been lauded internationally. But to stay the course ahead, Mauritius must intensify the implementation of long-term structural reforms.

Much attention has been paid to fiscal and business reforms by successive governments to enhance the supply side of the economy, through tax and other incentives for a more business-enabling environment. Monetary policy, through a competitive exchange rate, has also been long relied upon to support our production for external markets. To extract more growth in the future however, we can no longer disregard the deep and pressing sectoral policy reforms that are needed, whether in education, health, or the civil service.

* What kind of sectoral reforms do you have in mind?

A significant scaling up of our human resources, in quality and high skills, is essential to sustain the ICT, financial services and other high value added sectors. The high costs of modern health care will have to be met by a universal health insurance scheme. The efficiency of the public sector must be raised sizeably if the country is to be more productive and compete viably in global markets. The standards of competence and governance in the public sector require considerable improvement for generating efficiency gains and supporting higher growth. The limited State capacity to implement public investments cost-effectively, especially in infrastructure, is one of the areas requiring critical attention.

* Government is now promoting huge investments in infrastructure. Shouldn’t we feel more optimistic about the future?

There is a welcome recent surge in government spending on capital projects, which should be maintained in the coming years. But there is a major financing issue. Investment needs in basic infrastructure, in power, transport, water, and waste disposal are huge, and cannot be met only by the public sector. A big push in infrastructure investments, from both the public and private sectors, especially through public private partnerships, would certainly pave the way towards raising the long term growth potential, besides also boosting the economy in the short term.

Moreover, for more private financing of infrastructure to happen, these investments should be viable and provide a fair return. Without tariff and other policy reforms in energy, water and waste disposal, and transport sectors, public private partnerships in infrastructure will not be so readily forthcoming.

In making fiscal choices in Mauritius and elsewhere, the balance has swung mostly to support recurrent spending, such as on wages and salaries and the PRB, subsidies and transfers, and other social outlays, rather than capital expenditures. All too often, essential but heavy public investments have been delayed, postponed, or altogether abandoned for short-term tradeoffs by different governments. Take wastewater investments that are so fundamental for the environment and have dragging on since the mid 1990s. Even with the ongoing investments, only about half of the island will be covered. The LRT/busway is a more striking example, because of the visible traffic congestion. A clear political will is indispensable to maintain a high level of productive and cost-efficient capital spending.

* Isn’t there more to it than absence of political will?

Possibly. State capacity for project implementation must be continuously upgraded. The process of public procurement should be continually reviewed to ensure full adherence to strict standards of openness and transparency, and fair competition. This will avoid important projects from getting stuck in public controversy.

* How should we go about boosting the financing of infrastructure?

Infrastructure development is closely related to the sectoral policy reforms I mentioned earlier. The sectoral reforms to attract more investments for the provision of basic infrastructural services will inevitably imply a serious review of public subsidies, especially on water, transport and electricity use. This is a most sensitive issue, and some countries have understandably preferred to allow public services to be run down and starved of needed public investments, while promoting private investments to cater to the higher income classes among the population.

While still bringing some benefits, this dual track approach can be drawn-out, costly and inefficient. Instead, a bold and continuous review of subsidies and social expenditures, as well as other current government spending, will provide the fiscal space to hike up public infrastructure investments, and also attract private investments for expanding and improving basic public services. Targeted cash transfers have, for instance, become less controversial and better recognized as a more effective means of helping those most in need.

To finance infrastructure, increasing recourse is being made worldwide to well-structured concessions and public private partnerships that provide an equitable sharing of risks as well as a fair market return to investors, through competitive bids or an independent expert assessment of unsolicited bids.

Long-term foreign currency financing for infrastructure is available from multilateral development institutions, like the World Bank and the African Development Bank. Such financing is accompanied by a strict observance of rules on sound project implementation, including procurement and environmental standards. Non-sovereign wealth funds, notably in the Middle East, are increasingly looking for opportunities in Africa, and already active in North and Eastern Africa.

An idea that has been put forward recently is to review the role and structure of national development banks, despite their abysmal record, as a channel for long term finance for infrastructure. Brazil’s development bank is cited as a counterfactual to the now widely accepted view that national development banks have failed due to mismanagement and bad governance.

* What is going to be the greatest priority for the next government?

The first generation of political and business leaders, post independence, is now beginning to fade out, and judging from the excellent reputation the country enjoys abroad and in international economic fora, there is a near unanimous view that they have done a fair job overall. We must now ensure that the ensuing generation is equipped with the knowledge and skills to rise to the challenges of a fast-changing and technology-driven world.

The most compelling of priorities is therefore education reform. The quality of our human resources is the most important determinant of our future. The country has to review its education system to produce a new generation who can think more creatively and innovatively about strategies and policies, and are capable of making more informed choices and decisions, to take us collectively forward. Especially if as I said earlier, we have a vision of Mauritius going up the ladder of advanced technology, to grasp the opportunities in a growing scientific and technological world.

One of my regrets is the unsuccessful effort we made to set up a branch of the world-renowned Indian Institute of Technology in Mauritius in 2002-03, although negotiations on the operational details reached quite an advanced stage. The establishment of such world-leading institutions of excellence would be a quantum leap in supplying our best minds with knowledge at the cutting edge, in addition to the excellent performance of our universities and a number of existing specialized educational institutions, like the DCDM Business School.

* Should education reform not encompass a broader societal perspective?

Yes, it is increasingly recognized, that in addition to human capital, the formation of social capital is a major ingredient of economic progress. For our society and institutions to function more efficiently and harmoniously, some important organisational features should be reaffirmed, such as the right behavioural attitudes and relationships which foster trust, cooperation, shared beliefs, values and dispositions, a civic culture, as well as a sense of personal motivation and entrepreneurship.

The education system can help our young citizens to transcend their inherited social identities and networks, which can be at times dominated by narrow ethnic, religious, or class concerns. It must better inculcate progressive norms of social behaviour and attitudes towards nepotism, bribery and corruption, tax compliance, respect for the law and ethical values, concern for the common good and the environment, and a sense of equity and fairness as well as of personal initiative and responsibility. This is a sufficiently important development issue to mobilise the energies and competence of every Mauritian in a nationwide consensus for deep and far-reaching reforms in education.

* Reviewing our education system much like civil service reform looks like easier said than done in Mauritius, isn’t it?

Obviously. But it is precisely on the implementation of such difficult reforms that the quality of leadership and governance is ultimately judged to be of relevance to a country’s history.

 

 

 

 

 

« The most compelling of priorities is therefore education reform. The quality of our human resources is the most important determinant of our future. The country has to review its education system to produce a new generation who can think more creatively and innovatively about strategies and policies, and are capable of making more informed choices and decisions, to take us collectively forward. Especially if as I said earlier, we have a vision of Mauritius going up the ladder of advanced technology, to grasp the opportunities in a growing scientific and technological world… »

 

« The first generation of political and business leaders, post independence, is now beginning to fade out, and judging from the excellent reputation the country enjoys abroad and in international economic fora, there is a near unanimous view that they have done a fair job overall. We must now ensure that the ensuing generation is equipped with the knowledge and skills to rise to the challenges of a fast-changing and technology-driven world… »

« A significant scaling up of our human resources, in quality and high skills, is essential to sustain the ICT, financial services and other high value added sectors. The high costs of modern health care will have to be met by a universal health insurance scheme. The efficiency of the public sector must be raised sizeably if the country is to be more productive and compete viably in global markets. The standards of competence and governance in the public sector require considerable improvement for generating efficiency gains and supporting higher growth… »

 

« Even if the coming years offer an improved international environment, one cannot rule out that it will still be a rough ride for small highly open economies like ours. Mauritius has been able to weather the global slowdown by taking appropriate short-term stimulus measures, for which the authorities have been lauded internationally. But to stay the course ahead, Mauritius must intensify the implementation of long-term structural reforms… »

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« All too often, essential but heavy public investments have been delayed, postponed, or altogether abandoned for short-term tradeoffs by different governments. Take wastewater investments that are so fundamental for the environment and have dragging on since the mid 1990s. Even with the ongoing investments, only about half of the island will be covered. The LRT/busway is a more striking example, because of the visible traffic congestion. A clear political will is indispensable to maintain a high level of productive and cost-efficient capital spending… »

 

« In the current state of the global economy, the priority is to stimulate growth worldwide, and countries are being encouraged, even by the IMF, to borrow to support fiscal stimulus packages, especially for capital expenditures. Consequently, there is a more flexible view on rising indebtedness indicators, and countries are likely to be assessed against their peers, rather than on absolute values. The Dubai crisis, however, does indicate that there is a limit to excessive indebtedness, especially based on real estate investments, which do not contribute to building future repayment capacity as more productive capital investments do… »

---

« The severity of the current global economic downturn should not be underestimated, and the adverse effects may stay with us for an extended period to time. There are still different possible scenarios prevailing about whether the crisis is really over and the prospects for a lasting economic recovery in the US. The opportunities for global trade and investments may not improve so rapidly. We must watch out for the ominous signs of global instability lurking in the prevailing large external imbalances, and the growing currency strains, like the weakness of the US dollar… »

 

« The (Singaporean) State has played a pre-eminent role in supporting insfrastructural investments and services. The country has exceptional leadership, and its institutions are run by its most competent people. Its educational system is world class. Its work culture is fiercely service-oriented. It values and attracts foreign skills and expertise. Strategic goals are reviewed flexibly and rapidly to adapt to changing circumstances. Corruption is practically non-existent. There is plenty we can borrow from the Singaporean model to chart our way towards greater excellence… »

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« I am genuinely proud of the achievements of the government I participated in. It undertook bold and fundamental policy reforms which strengthened the foundations for the country’s economic growth. Its accomplishments are even more clearly visible today: the expanding ICT sector and the Ebene Cyber city, the liberalisation of land, and tourism-related real estate developments, known as IRS or ERS, the inevitable restructuring of the sugar sector through a fair VRS… I do not know how we managed to achieve all this, except that we were driven by passion to do good for our country… »

 

 

 

 

 

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