Budget 2015-16

For good or bad reasons the annual exercise of budget presentation in Mauritius has always been viewed as a sort of milestone in the economic affairs of the country.

Weeks before the D-day boards of directors of major companies as well as the small businessman are all busy trying to second guess what will come out of the exercise; sometimes they do not hesitate to take a gamble based on their analysis and prognostications.

Ministers of Finance, for their part, would have two major preoccupations. The first is to take cognisance of the ground reality and the real constraints which, independently of their preferred options, will shape the final product they deliver. In this age of instantaneous communication and image transmission where first impressions have a considerable impact on the turn of events, the second but no less important consideration remains the “spin” which the minister will choose to give to his presentation.

Although the concept has been made world-famous by former British Prime Minister Tony Blair and his team of “spin doctors”, who have been blamed for turning spin into the essence of their policy pronunciations, PR has not been absent from the exercise – long before Tony Blair’s shenanigans.

For a government which arguably has had more than its fair share of controversies over such a short time since its inception, one would have expected the “communication experts” to have been on the frontline to ensure that the budget presentation creates the kind of “buzz” which they wished for. Unfortunately it would seem that the general consensus is that they have failed to carry the day at least as far as the actual reading is concerned.

The shortened budget speech suffered from a defective structure lacking a “logical flow” in its delivery. After a rather long time the Leader of the Opposition has created consensus around his off-the-cuff remarks that the presentation was “décousue et mal foutue”. In the absence of this necessary coherence between form and substance, the Minister’s speech failed to articulate an inspiring vision of the future — grand speeches are not enough and anybody can come out with a wish list.

Coming now to the substance of the speech, there are definitely some very interesting measures and initiatives which have been announced. Amongst these are those proposed in favour of SMEs especially with regard to access to finance, although the more sceptical observers would claim that the “devil lies in the details” as they wait for the actual plans to be implemented.

Training spend will also be increased and some form of support for re-skilling unemployed graduates for the job market is being envisaged. In the ICT sector the announcement that companies with more than one hundred employees would be allowed to have recourse to foreign workers is a welcome solution for the problem of scaling up which, to a large measure, has hindered the development of ICT/BPO activities in the island.

Other measures border on the scandalous, such as the sheer “privatization” of the fight against poverty which is now devolved to private firms. Government is here abdicating one of its primary responsibilities in a context where arguably the greatest threat to the future of our country could originate from the unbearable and widening gap between the wealthy and the poor. To those – and there are increasing numbers who believe that inequality in access to resources and in income distribution is the bane of the country – this is the worst signal that the government could have given. History matters. And no one can feign to ignore that the last time that this practice was prevalent people were parked in “camps des propriétés”.

On its part, the private sector would indeed be wise to think twice before engaging on this road. They should argue that while modern-day business cannot shun away from its social responsibility, it should not be distracted from its primary role of wealth creation. Government on the other hand must stick to its role of ensuring that this wealth is fairly distributed.

Our final remark concerns what is meant to be one of the cornerstones of the budget proposals, the belief that resurgence in construction activities resulting from the setting up of what the Minister calls employment-rich “smart cities” is a sustainable solution for the creation of employment. Notwithstanding the fact that the “vaste chantier” which we are dreaming about, if ever this dream materializes into feasible and profitable business plans, would most likely be peopled by Chinese and Bangladeshi workers, we argue that this whole approach is based on conventional wisdom (quand le bâtiment va tout va) and therefore fails to capture an essential dimension of what would truly constitute the foundation of our sustainable future.

Joseph Schumpeter once criticized ‘the pedestrian view that it is capital per se that propels the capitalist engine.’ This is indeed the basic mechanism by which standard economic theory sees economic development happening: the addition of more capital to each worker.

“We would claim that this perception is fundamentally wrong. Rather economic development is caused by new ideas and new knowledge, which produce investment opportunities and therefore create a demand for capital to invest. In this view what the Third World lacks is not capital, but investment opportunities that lead to innovation, projects in which capital may be profitably invested.” Erik S Reinert (‘Rethinking Development Economics’ – Ed. Ha-Joon Chang)

The genius of great thinkers is determined by the extent to which their thoughts transcend time and space and prove to be relevant under diverse and changing circumstances. In the case of the above-quoted sentence written by the Austrian Harvard economist Joseph Schumpeter as far back as in 1954, it is even more remarkable that this concept which defined his work about what factors really drive economic development seems to be even truer today in the digital age. The web is breaking down barriers and Internet technology is constantly contributing in bringing down the costs for starting one’s own business in a variety of industry verticals.

In the popular mind, Schumpeter’s theory of economic development is closely associated with the simple, almost romantic notion that “small is beautiful.” Although this may not be totally untrue and obviously appealing for small island economies such as Mauritius, it must nevertheless be pointed out that the real and definitely more exciting contribution of the Schumpeterian model is its emphasis on the creation of knowledge-intensive sectors which may start small but then graduate to compete on global markets.

Governments would be well advised to create an environment conducive to such developments by providing fiscal or monetary incentives for resources (especially qualified personnel and technology) to be directed to such activities. The efforts of government would be fully compensated not least by the fact that, if successful, the development of such Schumpetarian activities has a natural tendency to contribute to the improvement of productivity to other sectors of the economy.

Compare the above to the announcements in the recent budget presented by the Minister of Finance of the new government — a central plank of which is the notion that the very serious problem of unemployment will be resolved by the setting of a number of employment-rich smart cities and “technopoles”.

* Published in print edition on 27 March  2015