Calling a Spade a Spade

Crisis management, BAI Saga and India

India cannot be the panacea for our blunders. By doing so the government is exposing its inability to manage the affairs of the country competently

Mrinal Roy

The distress and exasperation of the victims of the protracted BAI saga came back to haunt the government with a vengeance. No amount of statements to pass the buck to others, press conferences, blame games and prime time TV blitzkrieg can mask the fact that the BAI Group had feet of clay. This was flagged since March 2011 when the company’s auditors warned that the company faced the prospect of a massive loss of Rs 13.5 billion in the financial year ending 31 December 2013. Despite such crying evidence, the opposition insidiously nurtured conspiracy theories.

The damning findings of the 2016 report of the forensic accounting experts nTan Corporate Advisory Pte Ltd also exposed the unsustainability of the whole group undermined by financial window dressing to hide the haemorrhage of tens of billions of Rupees siphoned from investors’ funds over years until December 2014, to offshore companies, related entities or in unproductive assets. Lax supervision by regulators and political meddling by the previous Labour-PMSD government was a causative factor.

Under such circumstances, it was clear that the task of reimbursing the tens of thousands of hapless savers and investors caught by the lure of above market returns offered by regulated companies of the BAI Group was going to be a complex and protracted matter. At best, investors could only hope to get back their capital. It is therefore important to truthfully spell out the financial reality of the BAI situation to investors and ensure that priority is given to the needy.

The BAI crisis required urgent action to harness the funds of the BAI Group, operate its companies and optimise revenue from the judicious sale of its diverse assets. Although the management of the BAI crisis has not been exactly top-notch, a substantial number of investors have been reimbursed to date. Some, like those who invested in Bramer Asset Management, have only been reimbursed between 80-85% of their capital.

In his press conference last week, the spokesman of L’Alliance Lepep stated that only 122 persons out of a total of 16,670 investors into Super Cash Back Gold (SCBG) and 317 out of 3,671 investors into Bramer Asset Management remained to be reimbursed. However, government sources are reported to indicate that the remaining amount to be reimbursed represents a whopping Rs 10 billion.

To understand the scale of what we are talking about, Rs 10 billion represent more than 55% of the estimated cost of the Metro Express. If that is the case, it is clear that the sale of the remaining BAI assets will be unable to generate this amount. A fire sale of the assets will compound the problem. Isn’t it high time for government to come clean with a comprehensive financial update of the BAI situation detailing the present state of play in respect of all material elements in a transparent manner?

India to the rescue

Buckling under the pressure of the hunger strike organized by the victims of the alleged scam, the Prime Minister has now made the startling proposal of seeking India’s help to finance the reimbursement ‘at one go’ of the victims during his visit to India for bilateral discussions as from this week. It is obvious that India will never turn down a call for a helping hand from Mauritius.

While finding a solution to end the hardships and anguish of the victims of BAI remains a priority, this unprecedented initiative of seeking help from India to resolve domestic problems of our own making raises a series of questions of principles. Is it right for Mauritius to take undue advantage of our special ties and friendship with India to seek bridging finance to resolve an internal mess caused by poor governance?

India cannot be the panacea for our blunders. By doing so the government is exposing its inability to manage the affairs of the country competently.

Mauritius is a sovereign and respected country. Crying for help on such domestic issues also showcases a lack of maturity and experience in handling and understanding the thrust of high level country to country relationships. It is above all contrary to elementary norms of diplomatic savoir vivre. India has been a long standing and steadfast friend of Mauritius and its people. She has consistently supported our socio-economic development in a wide range of fields and sectors.

The latest example of this unstinted support is the generous grant of $ 343 million or Rs 12.7 billion provided by India in 2016 which will inter alia finally enable Mauritius to implement and finance the long delayed and stalled Mass Rapid Transit (MRT) commuting system, the Metro Express. Rs 9.9 billion from the Indian grant will be used to cover more than half the cost of the Metro project estimated by government to cost Rs 17.7 billion. This facilitates obtaining finance for the rest.

We must recall that Mauritius has been struggling to implement an MRT project on the basis of Public-Private Partnership (PPP) for decades owing to the lack of adequate finance, the right private sector partner and the shenanigans of vested lobbies. India is said to have also earmarked some $ 200 million (Rs 6.6 billion) to assist Mauritius develop a Port Petroleum bunkering hub.

India is a buoyant and robust BRICS economy. Such amounts are small given the size and dynamism of the Indian economy. According to the IMF, India’s growth is expected to be 7.2% in 2017-18 and 7.7% in 2018-19. As two sovereign nations, our bilateral relationship with India has always been of the highest level possible in terms of its scale, scope and content. The bilateral discussions between India and Mauritius (just as those with China or the EU) are very important to our socio-economic development. The purpose of these high level meetings is to table and discuss matters of the highest order to help sustain growth and development as well as cement our broader people to people ties.

Asking for financial assistance to sort out home-grown imbroglios puts the country in a poor light, weakens our hand and distracts attention from the core business of more important bilateral issues of cooperation and financial support to help boost the socio-economic development of the country. Our standing as a nation will be dented.

Abject governance

Countries help those who help themselves. Is it credible and proper to seek bridging finance from a friendly country against a backdrop of poor governance showcased by the dilapidation of scarce public funds by government flagged in the annual reports of the Director of Audit and the handsome six-digit salaries and perks granted to political appointees, cohorts of advisors and the coterie?

This is the more condemnable as according to the 2016 report on employment released by Statistics Mauritius last week nearly half (48.8%) i.e. more than 208,700 of the 427,700 persons employed in 2016 earned up to Rs 12,000 per month. The median salary for 2016 is Rs 12,200 whereas only 2% or some 8,554 persons earn more than Rs 75,001 per month.

What if?

What will happen if the sale proceeds of the remaining assets of the BAI Group are less than the amount obtained as bridging loan and distributed to the remaining investors in BAI products? Public funds cannot and should not be used to foot the bill? This is a red line which must be clearly explained to investors. They can only obtain reimbursement from what is available from the sale of assets. It should be remembered that government must also reimburse Rs 3.5 billion to the Bank of Mauritius, advanced by the latter at the start of the BAI crisis. This must be factored in.

The desperation of government to meet its commitments towards the investors in BAI products is epitomized by the decision to ask SICOM, a public company, to buy a Rs 4 billion stake in the heavily loss making National Insurance Company Ltd. Is SICOM not an independent entity? This is tantamount to throwing good money after bad. It is therefore with a big sigh of relief that the country learnt that government had shelved this bad idea owing to expected objections from the Competition Commission.

Crisis management requires sound judgement and managerial acumen. It is not for the dilettante. The BAI crisis has tested and exposed the crisis management acumen of government to manage such a complex matter requiring pluri-disciplinary skills. Governments without expert talent and proven professional acumen in its midst are more and more out of their depths when facing increasingly more complex issues. Poor governance makes matters worse.

The recent flagrant lapses in respect of licences granted to Alvaro Sobrinho shows that the regulatory bodies have not yet learnt the lessons of the BAI debacle. Politicians must also learn to stay clear of political meddling in the strict application of rules and regulations by regulatory bodies. Going forward, urgent steps must also be taken to inculcate a culture of supervisory rigour among regulators and strict compliance with rules and regulations among operators to prevent any risk of crisis in our financial services sector. It is only then that we will prevent hiccups in the future and truly establish the standing and repute of Mauritius as a clean and vibrant financial services centre.