V.Bardwaj

A Question of Alliance!!!

— V. Bardwaj

 

These days, it is not only our political class, but also the private sector, that seems to be less focused on issues that matter and more on the means needed to regain power or absolute power.

 Much before the 2005 elections the private sector had already made its mind and it had made no secrets about its preference for a Labour government, of course, guided exclusively by its economic interests. They had realized by then that it would have been really tough, if not near impossible, for an MMM-MSM government with PR Bérenger as Prime Minister, to get the Multi-Annual Adaptation Strategy (MAAS) for the sugar sector accepted by the population, especially by the majority community. If it had succeeded in crossing this main hurdle, the MAAS would have come through battered and in a totally revised version but this time not so inclined towards the private sector. Readers will recall that this report supported by Landell Mills Consultants which aimed at promoting a fast track modernization and diversification of the sugar sector and converting the sugar industry into an efficient cane industry geared towards the production of sugar, high value-added sugar, by-products, ethanol and energy was submitted to the EU for accompanying measures.

 

 

For a while it was good going for the private sector; they were happy that their investments were already bringing in some rich dividends and that they had invested wisely for everything was starting to fit nicely into the neat pigeonholes they had planned. They were having more than what they had bargained for… — till the Anti-TINAwallahs (There Is No Alternative) and part of the opposition, later to be known as the “loyal opposition”, started probing some of the astronomical benefits that were being reaped under the MAAS.

This led to a divided stance on the sugar sector reform and claims of an early harvest of Rs 18 billion for the barons of the sugar sector:Rs 5 milliards pour financer le VRS II et le package du ‘Blue Print’ lors de fermeture d’usines sucrières ; Rs 4 milliards au moins sur l’augmentation du prix du sucre sur 10 ans ; Rs 6 milliards de concessions fiscales sur les terres que les établissements sucriers vont continuer à morceler ; Rs 1 milliard au moins sur les acquisitions d’actions dans les compagnies sucrières (20% à 35%) ; et Rs 2 milliards sur la dépréciation accélérée de la roupie en 2006. Ce qui fait un total de Rs 18 milliards.

The Big Boss had to intervene to somewhat pacify the Antis, limiting the damage by obtaining some important concessions from the sugar barons and by questioning the whole energy-ethanol project as it was concocted in the MAAS. Already threatened by the democratisation agenda that was hanging over them like the sword of Damocles, this was another huge blow to their prospects. On this issue they could not do much, as even the budget was being handled by Big boss himself and he held his cards, mostly aces, close to his chest. It was too good an opportunity that had the additional benefits of prejudices and perceptions trumping reality and where some were likely to see in him the saviour from a voracious private sector.

For quite some time now, it has become really noisy. The private sector are at it again using all their leverage, using all the means at their disposal — at the political and social level and especially through their representatives in the media. Their aim is to drive forward the idea of a Labour-MMM alliance for they believe that only under such an alliance will the Antis be tamed and that the private sector will be having a freer hand to push forward their economic agenda without having to concede much in terms of entrenched interests. The Antis are making life so difficult for the TINAwallahs that it will be quite difficult for the latter to presently win over their electorate and get elected. But fighting the oncoming elections on a platform of “national unity” — the perennial dreamy rhetoric and the necessary double-speak of an election campaign that will help to mask the other contentious issues — and facing a weak and sparse opposition, is a sure way of getting elected and coming back to power.

But the Antis are not just happy watching these moves from the sidelines, allowing the TINAs and their backers, already confident of taking the reins of government, to play their little games, to force a status quo on the population and impose another term of the same liberal economic policy that accentuated the inequality gap in the country. The Antis point to the recent international study by two British academics – ‘The Spirit Level’ — that demonstrates a link between inequality and a range of social woes. Their message is quite clear: it is the pauperisation of the lower and middle classes that is spawning much of all the present social ills.

The status quo is unacceptable to the Antis. They believe that they also hold some trump cards and that anytime they may turn the tables on their rivals and dismissively send them packing, making sure that those who have stuck out their head and defied them get smitten. One of those trump cards is to rally the left wing of all parties around a New Economic Agenda that will herald more equitable economic and social policies, that drives forward the democratisation of the economy, that provides for the setting up a new Planning Commission to achieve a proper cohesion in our vision, strategies and implementation capacities (to realize a much better performance than the dismal annual average capital expenditure of only 3% of GDP realised over the past four fiscal years) that is shephered by a new Minister of Finance thus promising to end the ongoing fanatic resistance of liberal ideology to reality. This new alliance will be another form of National Unity of the Antis that carries, however, the special flavour of a big NO to the dictates of the private sector and the status quo. The game is not over yet.

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Corporate Social Responsibility (CSR): More of a mess

In these very columns we had said it before that to give a semblance of correcting the private sector bias, a 2% tax was levied on the book profit of the corporate sector to be credited to a fund. We had said at that time that this policy, announced as a watershed in creating a CSR approach that is both voluntary and statutory with the prescribing requirements, is a mere “tick the box” approach. It defeats the spirit and intent of the concept of CSR, without necessarily leading to any better outcomes. Now, it is proving not only to be impractical and cumbersome, it is also acquiring a peculiar nasty ethnic overtone, for the potential beneficiary has to carry around his begging bowl all around the corporate world looking for potential sponsors and seeking their consent for financing his project. And who is not aware of the prejudices and the ethnic demarcations/compartments of our private sector?

Yes, it is true that by tinkering with the intricate nexus weaved by the corporate world with other stakeholders through the voluntary CSR and forcing the corporate sector to fit within a given template, the subtle bonds between the private sector and the non-State agents, sometimes built along ethnic and even religious lines, are more of a mess now. Anyway they were not serious about the CSR, for their friends were already mowing it down claiming that “this imposition would have a dastardly effect on business everywhere,” and asking: Is the CSR a friend or foe of business”? We are also asking: Is it a friend or foe of NGOs, associations for the young, middle-aged and elderly, and communities?

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The World Bank’s Doing Business Report

The 2010 World Bank’s Doing Business report rates Mauritius among the top African countries. Mauritius has moved up from 24th to 17th place, making it one of the top 20 countries for doing business globally. Last week we hosted a Doing Business Africa Conference. 14 African countries, and Singapore, came together to share their experiences in enacting business-friendly reforms, gleaning lessons from successes and failures, and jointly exploring strategies for successfully implementing reforms and tracking their impact.

The World Bank’s Doing Business publication is a benchmarking report that ranks countries according to their performance in relation to select business environment indicators in the course of a normal business life cycle. In 2010, Doing Business reported on 183 countries using 10 indicators: Starting a business, Dealing with licenses, Employing workers, Registering property, Getting credit, Protecting investors, Paying taxes, Trading across borders, Enforcing contracts and Closing a business. The Doing Business data are collected through surveys and consultations with local professionals, including lawyers, business consultants, accountants, freight forwarders and government officials, who routinely administer or advise on legal and regulatory requirements. Respondents provide answers in the context of a standardized case scenario which specifies the legal form of a business, its size, its location and the nature of its operations

Is the World Bank’s Doing Business Report dependable, trustworthy and verifiable? 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.

(1) The data often focus on a specific business form — generally a limited liability company (or its legal equivalent) of a specified size. This may produce results that are not representative of the regulation on other businesses, for example, sole proprietorships.
(2) Transactions described in a standardized case scenario refer to a specific set of issues and may not represent the full set of issues a business encounters.
(3) The measures of time involve an element of judgment by the expert respondents.
(4)The time delays reported in Doing Business 2009 could differ from the perceptions of entrepreneurs reported in the World Bank Enterprise Surveys or
other perception surveys.
The report also highlighted several technical issues it said undermined the integrity and credibility of Doing Business.
“The number and diversity of sources of information used in rating and ranking countries must be increased and their data validated more systematically,” it said. “The data are provided by few informants, with some data points for a country generated by just one or two firms,” it found. “Of particular concern is the ‘paying taxes’ indicator – DB relies exclusively on a single firm to provide both the underlying methodology and the dat
a for so many countries.”

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 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.

The Adriatic Institute clearly presents the argument that without making the appropriate changes in the current methodology and data gathering processes and in the absence of an in-depth study to highlight the rule of law and protection of property rights, the World Bank’s modern flagship study – Doing Business Report – “will remain deeply flawed and tarnished by substantive and legitimate concerns”.

Another example is the case of labour regulations which is believed by the World Bank to be nothing more than a hindrance to investment. The WB has been pressuring developing countries to do away with workers’ protection rules, contending that deregulation was necessary to stimulate employment growth, even though the Bank’s own internal evaluators were unable to corroborate the claimed link between the Doing Business Labour Indicator and positive economic outcomes. The Bank finally instructed its staff in 2009 to stop using the Indicator and removed it as a conditionality criterion.

The IMF management had also directed its staff not to use the Employing Workers” Indicator (EWI) labour index as a basis for labour market analysis in staff reports or country documents without independent corroborating research. The IMF Note on Labour referred to the various methodological problems with the labour indicator.

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 minutia 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.

The Report appears 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.

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Worrying Trends

 

 

Our external trade balance which has been deteriorating since 2005 — from -13% of GDP to reach a high of -21% in 2008 — is expected to improve slightly to -17% of GDP in 2009. This improvement in the trade balance, however, may not be reflecting the healthy signs of an economic recovery as much as the weakening of exports sector and particularly the imports of capital goods. Imports of Capital goods for the Export Oriented Enterprises which fell by an astonishing 58% in 2008 continued to decline by 21% during the first nine months of 2009 compared to the corresponding period of 2008.

The 2009 Jan-Sept figures also saw a 6% in the imports of raw materials from Rs 14,769 to Rs 12,441. Investment in the EOE sector had decreased by 50% in 2008. . These developments may be undermining the prospects of near-term recovery in manufacturing activity. With the exception of RS Denim, we did not find any traces of reforms or of the Stimulus Package or any restructuring deal that would have explained the resilience of the sector to the Great Recession.

To a question of J.P Arouff in the Business Mag of 26 January 10 about « La compétitivité mauricienne se résume souvent à la fluctuation de taux de change » , Mr Kee Chong Li Kwong Wing skillfully argues that « il y a une grande connivence, une unholy alliance, entre le pouvoir économique et le pouvoir de l’Etat. Aucune surprise donc si le secteur privé ne fait aucun effort d’innovation au niveau de la réflexion stratégique ou de la proposition de mesures pour améliorer cette compétitivité. Il a tellement bénéficié des concessions fiscales et de la dévaluation… Comment voulez-vous que ce même secteur privé apportera une quelconque solution durable afin d’accroître la productivité. »

And the exporters’ lobby are at it again prodding the authorities for a weaker rupee. The Bank of Mauritius’ intervention in the forward swap transactions in USD, EUR and GBP in the domestic foreign exchange market has had the effect of artificially boosting the demand for these currencies in the spot market and thus leading to a gradual depreciation of the rupee. We already have a thin foreign exchange market and this may lead to more volatility and uncertainties in the market and it will not be reflecting true value of the exchange rate. We believe that more efforts should have been done instead to reinforce and broaden the FX market instead of narrowing it down. It’s best to leave it to the players with BOM’s intervention limited to smoothening out the volatility.

 

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Inflationary Pressures

 

The IMF in the context of its Article IV Consultation has in its Public Information Notice of January 26, 2010 encouraged “the authorities to take advantage of the currently low inflationary pressures to help anchor inflationary expectations at a lower rate than previously. In this vein, Directors supported the authorities’ intention to compile additional high-frequency indicators as well as to further develop analytical tools to better understand inflation dynamics and monetary policy transmission.They have also advised the authorities to “adopt a pragmatic combination of using external financing to the extent it corresponds to capital imports for public investment, limiting the substitution of domestic borrowing to what the market can absorb, and treating part of the external funds as precautionary.”

However, with the gradual depreciation of the rupee and the greater reliance on domestic rather external financing, contrary to the advice of the IMF, we believe that inflationary pressures are starting to build up. Our level of inflation continues to be influenced mostly by external factors. The high inflation rate of 10.7%, in 2006/07, we were told, was all because of imported inflation — a result of the surge in commodity prices. Now that inflation has come down to 2.5%, a similar exercise reveals that many other economies are registering low, if not negative levels of inflation.  

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 A Question of Principles

Abdurrahman Wahid, fondly known as Gus Dur, the first democratically elected President of Indonesia died on Dec 30. He was committed to pluralism, liberalism, democracy and tolerance. He encouraged a tolerant, open and fair Islam. Gus Dur fought against the fanatics who he said “pervert Islam into a dogma of intolerance, hatred and bloodshed”. He defended the right of all people to follow their conscience in matters of religion and he constantly spoke up for persecuted minorities, even at the risk of his own popularity. He said he wanted his tomb to read: “HERE LIES A HUMANIST”.

This is the kind mettle of which Presidents are made. Here, some amongst our new generation of leaders tend to see communalism lurking everywhere, behind every statement and find it difficult to let go all the paraphernalia of office, especially in present circumstances when the population is facing a deterioration in the Law and Order situation and need their leaders by their side. They are finding it increasingly difficult to abide by certain values and stick to principles — these very values and principles that we want to see them uphold nationwide and which bring them closer to the people. And we can then proudly say, « Sa nou ban sa »

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