We can no longer continue to bury our heads in the sand. Persisting with the same economic model which has failed the country for more than a decade is not a viable option
By Mrinal Roy
The country is facing daunting challenges. The local economic fundamentals are deteriorating. The international outlook marked by the uncertainties resulting from the Brexit deadlock, trade wars provoked by Donald Trump against China and other countries as well as tightening financial conditions in the US and other countries is grim. Global growth prospects have therefore been downgraded. Thus, the World Bank has cut its estimate for global growth in 2019 to 2.9 percent and forecast an average growth of 2.8 percent in 2020-21, underlining that downside risks have become more acute. The lower world growth forecasts will adversely affect our exports which have been the cornerstone of our prosperity over the years as well as further worsen the balance of trade situation.
World trade liberalization, new rules governing international trade accords and the financial services sector which brought changes to the double taxation avoidance agreement (DTAA) between India and Mauritius with capital gains tax charged at full domestic tax rates as from 1 April 2019 as well as stricter OECD, EU and regional norms of compliance have ushered a much more competitive ball game and forced economic actors to operate outside their comfort zone.
Since some time now, sugar and textile exports have been facing tougher competition and dire market conditions. Sugar producers have been incurring recurrent losses and are on a tenuous lifeline of revenue support since the 2014 crop. The use of tens of thousands of foreign workers in the textile sector has also provided it with a lifeline for a certain period. However, a number of textile mills have closed down or delocalized in low-cost countries such as Madagascar, India and Bangladesh so as to remain competitive and profitable.
In order to restructure and reposition the economy, a broad range of principally services-based new sectors such as financial services, Information and Communications technology (ICT), Business Process Outsourcing, healthcare, tertiary education as well as ocean economy and aqua-culture, film, media and creative industries, etc., have been opened to diversify and provide a new impetus to the development of the economy against the backdrop of faltering traditional sectors.
However, despite the broad diversification of the economy, growth has been stunted, fluctuating under successive governments between 3.5% and 3.8% during the 2012-2018 period. Disappointingly, the contribution of major new sectors such as the ICT and the financial services sectors to Gross Value Added have both declined during the 2015-2018 period. Is the private sector out of its depths in this more innovative and competitive ball game? In order to generate high value addition all these new sectors require pointed expertise and well-honed technical skills in these specialized fields as well as the transfer of technology through strategic partnerships, foreign investment and the induction of foreign experts.
In contrast, owing to extremely generous incentives and handsome exemptions from the payment of a wide range of taxes including land conversion tax, income tax and duties granted by government representing billions of Rupees of forfeited state revenue, the economy is instead inordinately skewed towards property development and smart cities projects by promoters endowed with substantial land assets in prime locations. From advertisements put up by estate agents on the internet luxury villas are selling ‘as from Euros 700, 000 to above Euros 2.56 million’ (Rs 27 million to Rs 100 million). Apart from being very lucrative for the handful of promoters and hiking real estate values in the country out of reach of mainstream Mauritius, can government spell out the real benefits of such schemes for the country at large?
We can no longer continue to bury our heads in the sand. It is evident that persisting with the same economic model which has failed the country for more than a decade is not a viable option. The country will not be able to escape the middle income trap to become a high income economy if certain fundamental and necessary conditions are not met forthwith. These essential conditions include, above all, a new political class and a rejigged government establishment top brass having the talent, intellect, competence and strategic thinking acumen to help chart an innovative growth path towards a high income economy for the benefit of all. They also include an innovative private sector but more importantly the induction of foreign investors having the expertise, skills and required professional cadres capable of urgently moving up the value chain of the various new services sectors of the economy so as to offer more remunerative higher value added products to the market.
The necessary conditions also include a high standard of good governance, strict adherence to the cardinal principles of meritocracy, transparency and accountability at all levels and an end to nepotism, cronyism and political interference in the management of the government administrative machinery, state institutions and state companies.
The country is at a crossroads. Our idea of Mauritius and our loftiest ambitions as a nation cannot be realized by the current crop of politicians and their appalling standard of governance. The country has already lost nearly a decade stuck in the doldrums of a subpar growth performance. This cannot go on. We need to jettison a toxic system and culture of governance which have profoundly impaired the country. Tremendous damage has already been done to the quality and managerial acumen of the government establishment, state institutions and companies through decried government interference and cronyism. We need to reverse the trend forthwith and rebuild.
How can the Prime Minister repeatedly tom tom about government performance when under the watch of a cohort of political appointees, prime companies such as the State Commercial Bank (SBM) and Air Mauritius where the State is a major shareholder have ineptly landed themselves in dire financial difficulties? The SBM has had to make impairment provisions of some Rs 3.6 billion to cover risky exposure on loans granted which have halved its profit and adversely affected shareholders. It is not only necessary for those responsible for such a lack of banking prudence and ineptitude to be made accountable but to also forthwith stop the decried practice of appointing political nominees of every ilk all over and to rigorously ensure that state companies and institutions are solely manned and managed by seasoned professionals of the highest caliber.
Beyond the blame game opposing politicians, the country cannot afford costly blunders by successive governments such as the billions of public funds which have had to be used to repair a leaking Midlands dam or cases of reckless litigation with diverse parties exposing the country to billions of Rupees in damages such as in the case of the fuel transportation contract with Betamax. Similarly, piling and ground improvements works required in the light of the results of geological tests obtained in May 2018 have hiked the cost of Rs 3.9 billion earmarked to build a multisport complex at Côte-d’Or which was to be used for the Indian Ocean Island Games scheduled from 19- 28 July 2019. Owing to the risk that the Côte-d’Or complex will not be completed in time for the Games, government had decided as a fall back to upgrade and renovate 17 sporting facilities at a cost of an additional Rs 500 million which means a double whammy on already strapped public funds.
Allegations of various wrongdoings have also caused the resignation of some 10 ministers of the present government. The people and the country can no longer put up with such a poor record of governance by successive governments and politicians. There is also no place for politicians who doggedly pander to and thrive on identity politics through the Trojan Horse of proportional representation.
Despite the rhetoric about government performance, the core problems such as increasing inequality, inclusiveness and equal opportunities, undeterred drug trafficking which puts at risk the youth of the country, poor governance and lack of accountability, the crime level and the deterioration of moral values, nepotism and cronyism, etc., afflicting the country remain unresolved.
This deplorable state of affairs in the country is untenable. The status quo is not an option. The onus is therefore collectively on all of us to put our house in order. As a nation we have the potential to do far better than presently provided we urgently get our act together. This necessarily means dumping ineptitude and re-establishing meritocracy within the government Establishment and state institutions and companies. This also means re-engineering the economy through the induction of innovative new economic operators and foreign investors capable of maximizing value addition in the services sectors and through high end industries to transform the country into a high income economy.
It above all means choosing and combining the synergies and intellect of a new breed of talented new politicians with the strategic thinking and management acumen of the government top brass and heads of state institutions with the business savviness of enterprising new economic operators and foreign investors to generate significantly higher levels of prosperity in the country for the benefit of all.
We have no option but to choose and unswervingly field our top team for country and people. There are no shortcuts to success. Time is running out. We need to act decisively now.
* Published in print edition on 12 April 2019