Blog: Re-engineering Growth with social Justice

The primary objective of a Finance Minister in formulating budget proposals is to take measures to improve the lot of the poor, the weak, downtrodden and those at the lowest rung of the ladder. And also to empower entrepreneurs to create jobs and wealth.

At the present time, when the IMF (International Monetary Fund) has just released a report that the US and the Euro zone countries may face recession and the road to recovery will be hard, the job of the vice Prime Minister and Minister of Finance, Xavier-Luc Duval is not enviable but difficult and challenging.

Xavier Duval is the first member of the PMSD to assume such high and heavy responsibilities. Since 1969 when Sir Gaetan Duval, leader of the PMSD joined the post-Independence coalition government, he had occupied the post of DPM, Ministry of Tourism and Foreign Affairs among others. Together with SSR he helped create the free industrial zones and develop tourism.

Under Sir Anerood Jugnauth we remember his contribution in the creation of jobs, with the famous quotation, “Solange, amene mo diari” when he had predicted that skilled workers will have plenty of jobs. But circumstances are much different and difficult today.

Prime Minister Navin Ramgoolam has thust the responsibility of making provisions in the budget estimates 2012 for the overall development of the country on the shoulders of Xavier-Luc Duval. It will be his first budget. Hopes are very high. He will not be compared to Pravind Jugnauth or Paul Berenger. Pravind Jugnauth is remembered for his proposal of a duty-free island and targeted subsidy. For Paul Berenger “poelon la chaud” (the frying pan is hot). He will be automatically compared to Vishnu Lutchmeenaraidoo and Rama Sithanen.

Little is known that over the years since Sir Veerasamy Ringadoo, Finance Ministry has constituted a team of highly qualified and dedicated professionals. They have served different governments loyally. Little credit is given to them and their contribution. We should be grateful to them for maintaining continuity, carrying out reforms and ensuring growth.

Xavier Duval has started his tenure on a right footing, with a right attitude and with a right approach. He presided the tripartite meeting and settled the salary compensation issue in a masterly manner. First, he had established a dialogue with the trade unionists, given them respect and dignity. The trade unionists were suspicious of his intentions and strategy, but they were all praise for his efforts and his decisions to give compensations nearly double the rate of inflation to those at the lowest rung of the ladder, and full compensation to those earning up to Rs. 30,000 per month.

He was ably supported by Labour Minister Shakeel Mohamed and his team of advisers. At the Technical Committee Meeting to fix the rate of compensation the trade unionists had walked out. The ministry of Labour team insisted that the meeting should continue without them and make proposal to the tripartite meeting presided by the Vice Prime Minister and Finance Minister. The employers grudgingly accepted government proposals for salary compensations.

Xavier Duval has come to office with a perception and image of being a private sector man. PMSD had always promoted a liberal economy. Perhaps it is too early to gauge the impact his passage at the ministry of Social Integration has had on him. He had seen at first hand the problems of vulnerable groups. He has successfully dealt with them. He had used 50% of CSR money to give them decent houses and supported NGO’s in all voluntary initiatives. They had undertaken to improve the lot of the less fortunate.

The policy has been to give salary compensation yearly based on inflation and loss of purchasing power for the previous year. Trade unionists had always asked for “ratrapage”, catch up for maintaining the purchasing power of the weak. It is for the first time such a policy has been implemented, giving twice the rate of inflation to the poorest and full compensation to a large section of workers earning less than Rs. 30,000 per month.

There is no miracle in calculating the amount of money to be earmarked and which the economy can afford and absorb. It is more or less a technical and mathematical exercise. We have the full expertise to do so.

Distribution of that amount lies with the politicians, particularly the Minister of Finance with the approval of the Prime Minister and his other colleagues. By settling the salary compensation issue to the satisfaction of one and all and in the face of the activities of a strong opposition who are engaged in diverting the attention of people on corruption issues and electoral reforms, Xavier Duval has given himself a new image and the government the image of a caring government. This is no mean achievement.

Ordinary people are busy dealing with their daily bread and butter issue. They are fed up with those who have amassed disproportionate wealth and those who are fighting just to give more privileges to more MPs. Xavier Duval has already indicated that in his budget he will take care of old people, pensioners, those receiving social aid and the small and medium entrepreneurs.

For more than 25 years, successive finance ministers have been giving incentives for the development of small and medium enterprises. Institutions like the DBM, SMEDA, and Mauritius Enterprise have been setup to service this sector. On paper and in their reports it can be proved that they had achieved a lot. In practice the objectives have remained unimplemented.

Many have fallen victims of the propaganda following budget speeches. In the process they have lost what they already possessed or inherited. Many were forced to sign on the fine lines giving fixed and floating charges on their property and those of their guarantors. Many were given loans for projects which were not studied properly, and to those who had no experience and training to manage them.

The small sector abounds in many sad stories. Lending institutions have turned out to be worst than “casseurs”. They used to give umbrella when the sun was shining and pulling it off when it was raining and pouring. Xavier  Duval and the Governor of the Bank of Mauritius had publicly stated that bank interest and charges are too high and should be reviewed and reduced. They say that they have already talked to the Banker’s Association. I have not seen any change. Is it not time to study the sector and provide for corrective measures? The budget is an excellent occasion. The small and medium sectors are vulnerable and victims of the abusive treatment of the financial institutions. Less propaganda and real action to help this sector is called for.

The decision of government to retain DBM as a bank for micro, small and medium enterprises is praiseworthy. The Finance Minister has announced that he is looking for a strategic partner to invest and participate in the management of the new DBM. This sector really needs specialised expertise. I believe that the bank has it within its own ranks. The difficulties of the DBM came mainly from political interferences and the imposition on it to do social banking at subsidised rates without proper financial backup. I will suggest that government gives an outright grant of 20 % of the capital of any approved project as a real incentive to small entrepreneurs. The promoter will have to bring in at least 25% of his own capital. The rest can come from the financial institutions. Our small entrepreneurs should be trained to produce export quality products to meet the requirements of at least the 500 million people of COMESA.

This sector should also be freed from bureaucratic approach. It should adopt a totally business approach. There should be no fear of failures. The risks are great but that is the root for jobs and wealth creation. When the banks and financial institutions had failed in the US and Europe, billions of dollars of tax payers’ money was used to bail them out. At home we also had our stimulus packages with objective to save jobs. I suggest a contingency fund should be setup to help micro, small and medium enterprises in difficulty.

If government needs some additional revenue, it should tax the rich. As Warren Buffet, the second richest man in the world while supporting President Obama’s proposal to tax the rich said that the waiter serving him in the restaurant should not pay the same rate of tax as he does. Times are hard. 65% of our export go to the US, 65% of our tourists come from Europe. The PIGS countries, Portugal, Italy, Greece and Spain may endanger the Euro zone. I am sure that Xavier Duval is fully aware that we should diversify our markets and look towards the emerging economies of BRICS, Brazil, Russia, India, China and South Africa. The soundest way to start will be to implement good governance at all levels. Corruption which is still manageable in our country should be tackled without any discrimination as we are doing now. This will create the confidence of investors and encouragement to our entrepreneurs. Re-engineering growth with social justice is the challenge for the first budget of Xavier Duval.