‘We need a cultural revolution’

Interview: Nikhil Treebhoohun, Economist

* ‘The lepep was hoping that issues like jobs, security, drugs would be the focus of attention. Instead we were offered the BAI saga and the institutionalisation of cronyism’

 

 

 

* ‘Mauritius needs a captain at the helm who understands the ocean, who can get the best out of the crew, who has assembled a crew that can keep the vessel steady and the engines working properly’

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In view of the Budget speech this evening, we have interviewed Nikhil Treeboohun, economist, for his views. He covers a wide range of issues with the focus on enhanced productivity and addressing the constraints in implementation. He advocates a total rethink and reengineering of Mauritius as no quick fix measures will suffice to lead the country forward. For him, nothing short of a ‘cultural revolution’ can do that.

Mauritius Times: Budget 2016 comes at a particularly intricate time both from the economic and political perspectives and it is one that is likely to make or mar the political fortunes of the current government. There are therefore high expectations from within the government’s ranks of the Finance Minister to turn the situation around. Are the necessary conditions present to make this happen? Or is it going to be a long-haul process?

 

Nikhil Treebhoohun: Unfortunately for the Minister of Finance he is taking on this job after the economy is perceived to have gone through more than a year of stagnation, a period which started with a feel good factor that was quickly dissipated by what looked to be a strategy of political manhunt (netwayaz while the previous regime was famous for its lev pake ale). There was no “rupture” – whereas the lepep was hoping that issues like jobs, security, drugs would be the focus of attention. Instead we were offered the BAI saga and the institutionalisation of cronyism. And as you rightly point out, these are difficult times. The Minister of Finance has so far tried to quell expectations and I hope he sticks to policies that will boost the national economy and not specific interest groups.

Unless the government implodes it has four more years to go. One budget speech will not solve all the problems of Mauritius nor will it spell the death of the government. As I have said before (in MT itself) there is too much hype around the budget. It is a great mediatised event for the Minister of Finance. But it is just a tool at the disposal of government to help it achieve its goals or vision, although the Budget Speech is important to send signals to operators about the government’s management of the economy.

If I am not mistaken this is the first budget after the PM’s Vision 2030. I assume that this budget will lay the foundations for achieving that vision. In fact a Senior Adviser to the minister said that this will be “un budget de rupture”. We will know on Friday 29 whether the “rupture” is with last year’s budget and its smart everything, or with the ‘no tax budget’ culture. So, it is clear that we are in for the long haul. The big challenge for the minister will be to try and reconcile economic efficiency with political expediency. If he goes for short term political gains, then the population will have to pray hard for an “economic miracle”!

* Nearly everybody is saying that the economy is not doing the best it could. What is your own assessment of our economic possibilities, given the present local and external economic conditions?

I can only agree with the assessment made by most economic analysts and international institutions. In a recent press conference, the Minister of Finance himself has given the key macroeconomic indicators for Mauritius and very candidly revealed the real constraints under which he has to operate – boosting investment without increasing the debt burden. Apart from inflation and the improvement in the balance of payments (due largely to the fall in oil prices), all the others are cause for concern: investment and savings are low, youth unemployment is high, and income inequality is growing. On the external front, nobody knows the impact of Brexit on global recession and on Mauritius. As an open economy, we are very vulnerable to external shocks. We do not have control over these. Therefore we have to use better the limited resources we have at our disposal.

* In other words, are you saying that we are better off or worse off than what it was in the early 1980s?

We are worse off politically. In 1982 there was a communion between the government and the people and this allowed for austerity measures to be imposed and accepted. The Minister of Finance in 1982 could sign the Second Structural Adjustment Programme without too much opposition as the first one had been signed in 1979 by the previous government. From the economic perspective we are today a more diversified middle income country aspiring to join the ranks of the high income countries. In most sectors the regulatory framework and the institutions are in place. They are not delivering as they should because most of their heads are subservient to the agenda of the political masters of the day rather than to that of the country.

* What then would you say would go into the making of an “innovative” budget in view of the present local and external economic conditions?

I dare not from where I stand make any recommendations or give any lessons. I believe the Financial Secretary and his technical team have the competence to produce a coherent Budget Speech – as they have done for years. The problem is not really in what should be done but rather on how to do it. The weakness in implementation has to be addressed. The tendency so far has been to concentrate power in the hands of a few so-called “doers” when in fact decision makers should have been empowered and given the latitude to implement policy decisions within the legal and regulatory framework.

* The government has been making efforts to get the private sector to break new ground and expand their scope. From the government’s first budget to its Vision 2030, the quest is to trigger additional economic activities in the country, but that is not happening. Why is that so? Is it risk aversion, lack of confidence or is it because the government hasn’t been doing all it requires to concretely facilitate the emergence of those new activities?

I think it is a mixture of all the points you mention. Most important is the lack of clear stewardship. Business does not like uncertainty. Vision statements are great; yet they are just words that need to be translated into concrete acts by competent technicians. I have the feeling that ministers often speak on behalf or in lieu of the technical people.

One point that you have not mentioned is fear; fear to speak one’s mind because the government may take action against you if you contradict them. The strength of the democratic system lies essentially in the space it provides to have fair, open discussions, debates to choose the best options. Creativity and innovation do not flourish where the mind is shackled. If we are too small to let a hundred flowers bloom, let us at least try to get a dozen!

* Do you buy into the argument that the handling of the Bramer-BAI case last year and the renegotiation of the India-Mauritius DTAA have dealt a severe blow to business confidence from which, according to a few economists, the country has not recovered yet?

The financial sector has been undermined and I hope it is given time to breathe. I see that SICOM is now being targeted. The problem is not only about confidence. The economic data will reveal the extent of the damage done in the mishandling of this saga. Collateral damage has already been inflicted on SBM shareholders who have seen their share value plummet from 100 cents to about 65 today!

With regards to the India DTAA, I believe there is no point in crying over spilt milk. We (or rather the decision makers) should look at the flaws in the negotiation process to ensure that we do not shoot ourselves in the leg in future negotiations whether at bilateral or multilateral level. Negotiators have to be trained. On the private sector side, they have to examine the reasons for their failure to convince government that there were better options.

* In an Oxford International Consultants (Mauritius) Ltd discussion paper*, the introductory comment reads as follows: ‘The Government of Mauritius is targeting a GDP growth rate of around 4.2% in the coming year (2016?). In a context where FDI is not forthcoming it implies that growth needs to be fuelled by local enterprises. Accordingly, enterprises in our various Industry Groups need to achieve an output growth of 4.2%, assuming other things constant. But who will be the drivers of this growth?’ What’s the answer to that question?

My short answer will be: look at the full paper on our website at www.oxfordmu.com !

In fact we decided to produce this discussion paper because we felt that most discussions are concentrating on the waves and not looking at the undercurrent. We have started by looking at the broad picture; we will need more data to fine tune the analysis. The next step will be to review the Total Productivity Measurement by industry group so as to be able to identify those with the potential for growth, those that have reached maturity stage with the existing technology, and those that may have reached the end of their cycle.

What is alarming is that only 8 out of the Top 100 companies are better than the average.

Basically what we find is that when resource mobilization is a problem we have to use better existing resources, i.e. be more productive, reduce and avoid waste. It is a shame that year after year the Director of Audit highlights in his annual report the waste in public services and apart from some shrieks of indignation at the time of the publication of the report no concrete action seems to be triggered by it.

From a simulation exercise carried by my colleague Ram Jutliah at Oxford International Consultants, the general conclusion is that, ‘if a performance of 4.2% GDP growth is to be achieved, economic productivity has to increase by at least 2.7%, from its current levels.’ The paper notes that, in fact, ‘economic productivity has been falling at the average rate of 0.35% over the 2008-2013 period.’ Hence, moving from a downward trend to an increase of 2.7% within a year seems improbable. Obviously this is achievable over a longer time horizon.

‘Who will be the drivers of this growth?’ is indeed THE question. Adding new pillars to the economy has not proved to work. The past performance of our local enterprises suggests that we cannot continue to operate in the same way as before and keep on ‘expecting’ change – that would indeed be miraculous!

An important driver of growth is innovation.

We need to look deeper into the construction of our existing industrial fabric in order to understand the underlying constraints, the opportunities for value added and innovation: Working better, working smarter by changing mindsets, enhancing productivity, R&D in areas with potential for high value added, getting technical support in areas that would boost industry performance, coming together (clustering) as an industry in order to generate both scale economies and critical mass, getting industry to collaborate — support smaller enterprises to grow and bigger ones to conquer more markets, adopting best practices and working with academia to leapfrog.

* What measures would foster private sector confidence and involvement?

Strong sense of ethics, duty, responsibility and good governance are preconditions for trust.

The powers of the day could seek to earn the trust of citizens, enterprises and industrialists so as to develop trust-based collaborations. Government could initiate measures that demonstrate the spirit of fairness and transparency in:

• Recruitment and promotion

• Evaluation of alternative developmental projects and allocation of resources to projects

• Tender procedures and allocations

• Access to information

• Promoting accountability of both decision takers and administrators

• Proper handling of complaints

• Doing away with muda in the public service and upgrading the powers of the Government Audit

Private sector groups need to focus on the key policy, infrastructural or strategic constraints for enhancing sectoral or national competitiveness. Sector associations could come up with annual action plans to promote sectoral growth rates through the emergence of new activities supported by new measures or instruments.

It’s really about both government and the private sector, including SMEs as well as micro enterprises working hand in hand to make the nation move in the desired direction.

* International developments such as ‘Brexit’ are keeping financial markets and whole economies on their toes due to uncertainties they are introducing in the orderly working of the international economy. What should be the strategy/ies for dealing with the possible consequences of the unstable international economic conditions such as the Brexit and others?

We should start by asking the right questions: If we agree that a growth rate of 7-8% is required at national level, then how do we achieve this? For instance:

• What future for the agricultural sector in Mauritius?

• How to make local industries more competitive?

• What are the hurdles to the development of a world class services industry in Mauritius?

• How do we make an optimum use of the unemployed, especially the unemployed graduates?

The seeds of innovation would need to be in the form of pro-growth measures that would:

• Strengthen linkages between local industry and University/Training/Research

• Enable the setting up of venture capitalists to support start-ups in new areas

• Harnessing FDI to address structural linkages in Industries that are slowing down

• Reducing constraints and delays in accessing finance

• Promoting transparency and accountability in the allocation of contracts both in the public and private sector

• Addressing poverty alleviation in innovative means e.g. facilitating guaranteed market access for products coming from ‘bottom of the pyramid’ enterprises

* Finally, what do you think will enable the Mauritius economy to make sustained headway despite the uncertain and increasingly unpredictable international economic conditions, given that major players like China and Japan are down, Britain may have just courted recession and Europe might be groping for solidarity among its members while Africa which was riding on the crest of the commodity boom suddenly sees its growth rate falter?

I believe that we are gone beyond the stage of quick fixes. We have to re-think Mauritius, to re-engineer the country to face the challenges that are looming. Economic reforms were initiated 10 years ago and these helped Mauritius weather the first financial crisis. Transformation of an economy demands structural adjustment. The art of policymaking is to get the timing right. Unfortunately, we seem to have lost our focus. We should not, like Mv Benita because of in-fighting, switch the engine off to be swept by the waves on to the rocks!

Brexit, the financial crisis, the African Eldorado are the waves that will splash us from time to time. For Mauritius to remain on course, it needs a captain at the helm who understands the ocean, who can get the best out of the crew, who has assembled a crew that can keep the vessel steady and the engines working properly. In a storm the crew does not go chasing rats or stowaways!

It is pertinent to remind ourselves of Jose Poncini’s motto for NPCC: ‘Personne n’est coupable, tout le monde est responsible’. We are a small country with a small workforce and an ageing population. While the size of the country has expanded when we take into consideration our maritime zone, the labour force can increase only through either attracting more women to the labour market or immigration – or both. It is important that we elaborate a migration policy to pre-empt issues that may arise.

We should not waste our human capital asset for petty political/communal/casteist reasons. Improving access to education is fine; but the quality of the outputs from the system should be enhanced. In fact, we need a cultural revolution. Indeed, the Ministry of Culture should be under a senior minister – and we should be clear that sociocultural organisations are not the repository of culture!

There is a need for an independent “national think and do tank”, financed both by public and private sector to produce technically sound policy papers, submitted for national debates, to ensure that we become proactive.

The undercurrent of the economic ocean is productivity. It is essential to improve productivity and attract investment – the two sides of the same coin. We also need to focus on a few actionable projects that have multiplier effects instead of dispersing our limited resources across a wide range of project ideas with undefined value addition.

* Published in print edition on 29 July 2016

Tags:BAI Saga, Brexit, Budget, Jose Poncini, Nikhil Treebhoohun, Ram Jutliah, SICOM, SMEs, Total Productivity Measurement