A government cannot let its most precious asset be undermined – its credibility

Government & The Credibility Factor

By Anil Gujadhur

The air is rife with rumours of misappropriation of public funds. A vitiated atmosphere of wrongdoing in this regard emerged as from March 2011 and is remaining the preoccupation of the population with as much vigour now as when the first allegations broke out.

In the beginning, it concerned a sum of roughly Rs 70 million (Rs 144.5 million less Rs 75 million) that would have been overpaid by the government for its purchase of the Med Point clinic in the space of two evaluations of the property. This matter assumed such proportions that it led to a scission of the Labour-MSM-PMSD government. The matter did not rest there. Late last year, the Leader of the Opposition raised doubts about the propriety of another transaction involving a sum of about Rs 600 million in which SICOM, a public sector insurance company, bought up a property still under development from a promoter said to be close to the government. No sooner did this allegation catch the attention of the public than another story erupted whereby a Labour activist would have allegedly used her proximity with politicians and business partners to obtain franchises for conducting business, notably at the airport.

We will see shortly that the sums allegedly involved in wrongful public sector dealings are not of such large proportions as the benefits that have been flowing out to the private sector down the years. However, our public sector has the capacity to put itself in the eye of the storm from time to time, notwithstanding the fact that governments of all hues have seen those close to them abuse power for personal aggrandisement. All that was needed was to clear the air without delay to enable government to exercise its authority fully. It could have approached the problem head-on and cleaned up the mess by adopting bold corrective measures, if any. This would have given it the necessary serenity for it to effectively do its business and avoid cautioning anyone else in the service who might be tempted to rough ride rules and principles without having to pay the consequences thereof. Unfortunately, unnecessary dithering appears to have become part of a culture.

By contrast, the private sector has been thriving on a much larger scale than benefits alleged politically connected abusers could have drawn to themselves lawfully or unlawfully. By no means is it the intention to condone wrongdoing whether on the side of government or the private sector. But it is important to realize that the focus on smaller things can wreak havoc, such as by destabilizing governments. The usual litany in Mauritius is that private business is perpetually confronted with huge difficulties. This means that the government should “do something” (change policies) to enable private business to improve its earnings. More often than not, governments yield to the pressure, no matter if the public has to pay up the consequences.

Financial sector: Mirror image of “real” sectors of the economy

Let’s take a broader look. The two principal commercial banks of the country have consistently been earning several billions of rupees of net profits per annum over the last several years. On the face of it, this is a sign that they are in good health. Since banks get their income from the transactions that they carry out with the public and with the production side of the economy, it is said that the financial sector is a mirror image of what is going on in the “real” sectors of the economy. In other words, producers of goods and non-financial services (“real sector”) must be doing well enough in order to contribute solidly to the sustained profitability of banks. But the message we’ve been getting is the opposite: “business is not well poised for growth” due to the crisis, rising costs, etc.

This has led to government taking action over a long number of years to help the private sector into higher levels of “efficiency”. The energy sector is one of the sectors having received an overhaul in this respect. From 1998 to date, five private independent power producers (IPPs) have been authorized to produce and sell electricity to the Central Electricity Board (CEB). Today, more than half the electricity of the country is being produced by the IPPs. IPP major shareholders are the owners of former big sugar estates (Belle Vue, Constance, St Aubin, Fuel, Beau Champ). In three of them, a French company owns around 25% of the total shareholding. The Sugar Investment Trust owns between 10 and 15% in four of them and nearly 25% in one of them, notably in St Aubin. We note that within a short span of time, the IPPs have successfully taken the place occupied heretofore by the CEB as the country’s main supplier of electrical energy. Since all of them are producing the same item which the entire country is dependent on – electricity – they have gone in the direction of being able to twist public policy decisions the way they want them.

Data show that the IPPs have a much higher cost efficiency of producing electricity than the CEB; their cost of production per unit of electricity generated comes to nearly half that of the CEB. Thus, apart from displacing the CEB as a producer of electricity, they have adopted a structure of production which reflects a much better level of efficiency than that of the CEB which appears to have taken the road to obsolescence. According to Labour Party president, who was a former chairman of the CEB, IPPs have nevertheless reaped profits amounting to Rs 7 billion during the past four years, nothing comparable in scale to what is being reproached to those currently close to the levers of government. Given that their contracts bind the CEB to them for 20 years, the IPPs can look forward to even better days.

Where substantial shareholders in IPPs are also important shareholders of banks, clearly they’ve been making money even better than if they were producing electricity alone. Their investments are paying off handsomely and helping them consolidate their economic pre-eminence in the country at large, quietly but robustly. From a capitalist’s perspective, there is nothing wrong to that: it is a fundamental rule of pure capitalism that firms exist on the marketplace with a view to maximizing profits for their shareholders. The capitalist system also gives investors the necessary latitude to invest as they like in all the high yielding sectors of activity of the country.

Voluminous money-churning activities

Another example. Like a few others, the big construction sector is dominated by a few important players. This sector has been recording continuous sustained growth in Mauritius over no less than one decade now. Activity may have slowed down this year but construction has been booming over a long stretch of time now. Both the public sector – construction of roads, public buildings – and the private sector – commercial centres, IRS, hotels, and household real estate – have been keeping its order books full over the years. Construction has therefore been growing by leaps and bounds. In a matter of a few years, the area of Ebene has become so heavily constructed that one has only a faint memory today that this part of Mauritius was prime agricultural land less than a decade earlier. This is but one example of the scale of on-going construction activity. The construction sector has been working day and night to satisfy a continuous flow of demand. To have an idea of the scale of money changing hands in this sector, one only needs to bear in mind that Government contracts for road construction alone are expressed in nothing less than several billions of rupees.

We see much more in terms of voluminous money-churning activities going on outside the government sector. Commercial centres have been springing up everywhere. Some of these involve the traditional big business conglomerates of the country. Another example of private business consolidation was seen recently when two of the country’s largest sugar interests, Deep River-Beau Champ and Fuel, were amalgamated into one bigger unit. A new conglomerate by the name of Alteo emerged as a result. Private business has been redefining itself by such means. As a result, the country’s economic landscape has been dotted increasingly with large dominant players seated in holding companies in almost every domain where there is sustained consumer demand, both internal and external. This process has been accompanied by a consolidation of interests that should pose singularly difficult problems to future decision-makers the more it continues.

When one looks at the magnitudes involved with what private business has been realizing under the rules of capitalism and, where necessary, by changing the rules of the game, the current scale of involvement of political agents rumoured to be getting into riches by engaging in private deals, is sheer peanuts. Yet the latter has the potential to cripple governments and even make them ineffective and unfocussed.

Fair and non-discriminating authority

It stands to reason that governments must be careful not to allow a handful of supporters to grab away unlawfully gained private benefits. This factor hits directly the most important basis on which government stands – its credibility with the public as a fair and non-discriminating authority towards all citizens. If a few chaps are implicitly allowed to employ subterfuges of all sorts to undermine the governance structure that holds the country together, this becomes an open invitation for social and political instability. Clearly, it is not in the interest of anybody to help destroy a hard-earned stability-for-governing acquired over generations. It takes a lot of time to build up a governing majority. It is therefore dangerous to play with the perception of fairness towards all.

However, governments also have an enormous responsibility to create conditions whereby no single force of the country eventually becomes so strong as to be able to hold the entire population hostage in any essential compartment of life, be it employment, security of supplies of goods and services to the community as well as our readiness to meet our obligations to other nations which deal with us. Rather than leaving it to the Monopolies Commission to deal with the matter when it is already a reality, Governments are also expected to deliberately act pre-emptively to remove any element of prospective duress (e.g., monopoly) which undue concentration of economic power can lead to. It is the role of government to act as an effective and credible arbiter to prevent things going into uncontrollable situations. Our decision-makers can focus on such major issues provided their friends do not distract them away for having taken too many liberties.

* Published in print edition on 15 February 2013

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