Another WB report: Investing Across Borders 2010

Bits and Pieces

By Mohun Kanhaya

‘Investing Across Borders 2010’, another report by the World Bank Group that warns us on overly restrictive and obsolete laws which can be an impediment to foreign direct investment by creating additional costs to investment. Again our scores are excellent. Of the 33 sectors covered by the ‘Investing Across Sectors’ indicators, 32 are fully open to foreign capital participation in Mauritius. “The only exception is the TV broadcasting industry.

According to the Independent Broadcasting Authority Act, foreign capital participation in TV broadcasting companies must be less than 20%. Moreover, the share of foreign members of the board of directors must not exceed 20%. In addition to these overt legal restrictions, sectors such as electricity transmission and distribution, waste management and recycling, and port and airport operation are characterized by monopolistic market structures, with one dominating publicly owned enterprise, making it difficult for foreign companies to invest.”

How dependable, trustworthy and verifiable are these reports, bearing in mind the earlier ‘Doing Business Report’? In 2008, the Independent Evaluation Group of the WB issued a report on the ‘Doing Business’ indicators that highlighted several key limitations that should be taken into consideration when interpreting the data. Another report – ‘Uses and Abuses of Doing Business Indicators’ — highlights the strengths and limitations of the ‘Doing Business’ indicators and suggests more appropriate ways of interpreting and using the data to maximize impact. In 2008, the World Bank named Croatia “Europe’s Top Reformer for the Year”. Spurred by this controversial decision, and with knowledge of the high levels of corruption in the Croatian government, the Adriatic Institute conducted a study which accuses the World Bank’s ‘Doing Business Report’ as flawed in methodology and information gathering. After an intensive and thorough investigation, they came to the conclusion that the annual study promoted by the World Bank was deeply flawed and prone to manipulation. The Adriatic Institute’s leadership verified these concerns and received both assistance and important feedback from respected editors and journalists representing international media communications groups.

Other critics have also been having their differences with the World Bank and its top-down interventions. The WB “sees capital and technology transfer as the key to growth, and fails to appreciate the economic potential of ordinary Third World citizens operating in free markets.” By focusing on the minutiae of business regulation, the Bank uses its hortatory powers to praise reformers while criticizing holdouts and backsliders. The Bank is employing a clever strategy, because each individual reform grants the entire business class of a country greater economic freedom without directly threatening the elites. These Reports appear more interested in ensuring a certain type of business linked to a globalised foreign trade than in the performance of national enterprises related to domestic markets or to the demands of national development. Doing good business does not necessarily imply doing correct business and this is the difference that fails to be understood by the institution but it is doing an excellent job of converting souls to free market capitalism.

These reports come in quite glossy paper well packaged to show that the poster boy Mauritius has carried out meaningful reforms which the pro-TINA (There Is No Alternative) local press repeats parrot-like. The improvement of Mauritius in ranking from 24 to 17 (out of 183 countries) in 2009 is supposed “to bring in foreign direct investment, critical for country’s development, especially in times of economic crisis. It brings new and more committed capital, introduces new technologies and management styles, helps create jobs, and stimulates competition to bring down local prices and improve people’s access to goods and services.”

This is not necessarily true in our case; the capital inflows were mainly in the real estate and banking sectors and at the mere sight of some economic shocks capital inflows are found wanting. In such cases, these reports do add a footnote that “their indicators only provide a starting point for governments wanting to improve their global investment competitiveness. They do not measure all aspects of the business environment that matter to investors. For example, they do not measure security, macroeconomic stability, market size and potential, corruption, skill level, or the quality of infrastructure.”

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Which reforms?

The TINA economic reform programme aimed at facing the global challenges ahead, we were told, would make the economy more resilient and put Mauritius back on a high growth path. The main planks of the reform programme were the restoration of fiscal discipline and fiscal consolidation, improving the investment climate to move to the top ten investment-friendly locations, mobilising Foreign Direct Investment (FDI), and re-structuring of the economy. Despite all these high talks about reforms that are still being given so much publicity in foreign and local reports, our enterprises are still struggling to deliver and even after a doubtful and ill-targeted Stimulus Package they are still relying on government to bail them out.

The TINA reforms did bring some few touches to the tax rates and improvement in the investment climate framework. But we did not see any of (1) the multi-pronged strategies for industrial restructuring, quality upgrading, quick response, market diversification and development, effective networking and partnerships, greater access to finance for the development of SMEs, and technology and skills upgrading ; (2) the promotion of emerging sectors such as the medical hub, the multi-disciplinary centre of excellence, light engineering and the long awaited oceanic land-based activities; (3) a massive retraining programme for workers throughout the public and private sectors; (4) the promotion of enterprise restructuring with the support of international private enterprises; and (5) a restructuring programme of private companies with strong growth prospects.

We are today paying the price of the carefully orchestrated publicity, with the connivance of a partisan and pro-TINA press, about the so-called ambitious reform programme. But some were not fooled by such promotional ballyhoo. The latter had persistently maintained that our economic issues in Mauritius are more sectoral than macroeconomic, and unless sector reforms are undertaken to generate productivity improvements in agriculture, industry, public utilities, health, education, etc., the long run growth potential will be insufficient to absorb the unemployed. Moreover, the absence of substantive broad-based reforms and investment in the economic infrastructure during these past four and a half years has affected the growth rates of the productive sectors. And it is not surprising that today some are recommending that there may be little choice than to achieve external competitiveness of our export sector by competitive depreciation.

Even the MCB Focus which had been heaping praises for the TINA policies for the past years has finally come round to the hard realities that we have continuously highlighted in these very columns. The MCB Focus June issue, finally acknowledges that “the reform agenda should be supported by a pragmatic approach upholding long-term strategies for the future by inter alia bridging the gap between rhetoric and concrete policy implementation.” It is now in favour of “a significant strengthening of the microeconomic foundations of Mauritius… critical for generating improved productivity and fostering output growth, with key strategies including… an acceleration of the execution of public infrastructure ventures, backed by bolstered implementation mechanisms.”

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Damning Audit Report

The Audit Report is in two volumes. Volume 1 contains detailed comments qualifying the Certificate on the Annual Statements of the accounts of the Republic of Mauritius for the two fiscal periods and also brief comments on the other public accounts. Volume II summarizes findings in respect of the implementation of the Programme-Based Budgeting (PBB) framework. In those World Bank reports, when we look for more serious things, for more practical measures that have succeeded in securing delivery of government’s major domestic policy priorities and made a difference in the welfare of the common citizen, they are found lacking. Equally missing in those nicely packaged reports are proper analysis of the depth and quality of the reforms or of the rot that that has set in and which needs more than rhetoric to wipe it out. We do finally come face to face with the stark fact — what most reports rapidly gloss over or do not even bother to refer to — that not much has changed; it is the same old way of doing business, the only difference that, along the way, we have also learned how to pack the same old wine in new more attractive, catchy bottles. We make it look grandiose.

To tackle the perennially disturbing Audit Reports on the flagrant disregard for all the principles that should guide public expenditure at various levels and in various ministries, the TINAs launched Audit Committees in Ministries/Departments, which, they led us to believe, was an important management tool and that would optimise resources and obtain value for money. The Audit Committees were to follow up actions on comments, observations and recommendations of the Audit Report. And besides monitoring the corporate governance and control systems in ministries, Audit Committees would report to the Audit Monitoring Committee on a quarterly basis.

An inter-ministerial Expenditure Review Committee was also set up with a view to reallocating expenditure from lower to higher priorities and improving efficiency of expenditure by reducing costs and wastage. They also abolished the Contingencies Fund and replaced it by a new provision for contingencies which were to be quantified and disclosed. (Meanwhile Supplementary Expenditures (ESEs) continue unabated with the same regularity). For the better control of special funds, they brought in amendments such that the creation of a Special Fund could only be made in exceptional circumstances and with the prior approval of the Minister of Finance. To crown it all, they also announced a historical packaging, a new Public Debt Management Legislation that put a statutory limit on public sector debt, which shall not exceed 60 percent of GDP at current market prices, except in exceptional circumstances. They reminded us that it was an issue of intergenerational fairness and equity. “No government should be given a blank cheque on the back of the children of this country. No generation should consume and spend and make their children and grand-children pay for it.”

Like their widely criticised theoretical or textbook PBB (Volume II of the Audit reports) all these were mainly lofty announcements but with little achievement on the ground. They flouted what they preached or prescribed. A typical TINA style slippage and wastage is the case of “the 7000 Microsoft Vista/Windows 7 licences procured at huge costs, but only 19 licences have been utilized and the remaining upgrade licences may not be deployed at all.” They created not one but seven special funds outside the Budget. Public debt to GDP stays above 60% even in unexceptional circumstances.  They had even dismantled the Project Monitoring Unit (PMU) which was doing a good job at limiting costs of new project proposals, restraining cost overruns (ranging up to 90 per cent) and reducing wastages and delays, which in turn was severely affecting the budgeting process and its outcome.

To the comments of the Leader of the Opposition that “le gouvernement doit revoir la façon on dépense l’argent public… n’y a-t-il pas des gens pour planifier ces dépenses ? », the VPM and Minister of Finance gave a fitting reply, that as between 2003 and 2005, at the helm of the Ministry, when he had reined in cost overruns and reduced wastages and construction delays, he will take similar corrective measures and unlike the TINAwallahs he will certainly not pay mere lip-service. The Project Monitoring Unit will be set up again at MOFEE and it will spearhead all efforts at bettering project management and setting up institutional arrangements to improve recurrent and capital expenditures and reduce wastages. It will provide guidelines as a tool for a better management of all stages of a project, including a proper evaluation of costs, funding options and risks and tendering procedures.

The VPM is convinced that building the overall capacity of government to implement reform requires a pragmatic, evidence-informed approach to policy-making and implementation. He will thus be taking appropriate measures to strengthen the planning and implementation of programme/projects. These practical measures will reduce capital project costs at inception and check time and cost overruns thereby generating substantial savings and will be one more step in meeting government’s commitment in its Programme 2010- 2015 to attain efficiency in the management of public funds.

* Published in print edition on 23 July 2010