Blog: Confidence restored - Any missing Link?

More than 75 percent of analysts have expressed their satisfaction at the bold measures taken in the 2012 Budget to restore confidence among the entrepreneurs and investors. These measures will boost economic growth, improve the social fabric and strengthen the economic situation.

The main criticisms from the political opponents are that the Vice Prime Minister and Minister of Finance has given too much to the rich, the budget lacks vision and ambition and it fails to inspire the people.

Xavier-Luc Duval has rightly pointed out that although it is his first budget, it is the seventh consecutive budget of the government led by Dr. Navin Ramgoolam. Seventh budget means that the people were satisfied at the measures taken in the five budgets taken during 2005-2010. In 2010 it has given a fresh mandate to Navin Ramgoolam to continue.

Without going too far, there is definitely a shift in favour in the private sector. Instead of filling the coffers of government, money is left in the hands and pockets of entrepreneurs. Government believes that they are better equipped to create jobs and wealth.

The taxes which were discouraging investment have been removed. Capital gains tax, solidarity tax on dividends and interest on savings have been abolished. The municipal tenant tax has been abolished. An excellent measure. Government will compensate the municipalities for ant short fall. Land transfer tax on immovable property is also abolished. Tax holiday of Freeport operators will be carried forward indefinitely. These taxes were irritants and obstacles to investments. The private sector has no longer any excuse not to participate in the development process of the country.

The main economic indicators for 2011 show:

• A real GDP growth rate of around 4.2%
• An unemployment rate of 7.8%
• An inflation rate of 6.5%
• A budget deficit estimated at 3.8%
• A public sector debt of 54.2%
• The balance of payments shows a surplus of Rs. 3 billion

The forecast of growth rate in 2012 is 4%. The objective is to bring the debt ratio to GDP to 50% by 2018. It seems that we have learnt a good lesson from the experience of Greece, Italy, Spain and Ireland. If the Euro Zone crisis is not resolved soon, our economy is definitely going to be adversely affected.

Government has also decided to disinvest in quite some property which are loss making or which it are not being able to manage profitably.

Besides giving incentives to the private sector, government has arranged with the banks to provide Rs. 3 billion at 8.5% interest rate to SME's over a period of three years. It is a measure which deals with both access to and cost of finance.

The main features of the schemes are as follows:

• New overdrafts and bank loans as well as renewal of existing facilities will be made at the rate of 8.5%.
• All processing costs and relating charges will be waved.
• The equity fund will provide a guarantee instrument to offer risk cover amounting to 35% of every loan and overdraft.
• Banks will be allowed to claim the deduction from tax, in respect of SME bad debts without the need to have a recourse to the courts.
• Inscription fee leviable on registered loan and registration duty on loans not exceeding Rs. 1 million are removed.

SME's have created some 50% of jobs in Mauritius, produces 37% of our GDP that is some Rs. 120 billion worth of output, provide a living to 250,000 men and women.

Against this backdrop Xavier Duval is perfectly right to take bold measures to harness the experience, energy of the private sector and the SME's to create jobs and wealth. In return he relies on our investment, export and tourist promoting agencies to improve the existing markets and explore new avenues in emerging economies in India and China. The budget also aims at taking us out from a middle income country trap to a high income one with a high wage economy. It is highly ambitious and a mark of a great vision. A suitable answer to those who says that the Minister lacks vision and ambition.

I still believe that there are some missing links which should be addressed. We should stop believing our own tourist propaganda that God created Mauritius first and copied heaven on it. That we are the best place for business, that we are a bridge and a platform for doing business and foreign investment between Asia and Africa.

Our system and institutions are too weak and lack the capacity to handle the investment required from emerging economies like India and China. The big players are nonexistent physically in Mauritius. They are doing business directly and successfully in Africa. We should stop making speeches saying that we have an edge over other African destinations. Many countries in Africa are having higher growth rates than Mauritius.

India and China have billions of dollars surplus available for investment abroad. They are being sought to rescue Europe. The Indian wealth has been created by its entrepreneurs and business community.

Investment and manpower to develop our education and medical hub will come mainly from India. And from the Indian private sector. Unfortunately our dealing with Indian investors and entrepreneurs is not satisfactory. We do not have the right attitude and capacity to handle new India.

Many shops in Switzerland have signboards in Gujarati. Indian Gujarati have the money in the pockets to buy genuine branded goods. We must create the infrastructure to attract such tourists to our country.

For the SME sector I am afraid that the money will be swallowed by the big fish. Money was never a problem. Previous governments have also made provisions to boost the sector knowing its importance. It was bureaucracy which kills such projects. It was government money plus 3.5% which were given to banks and leasing companies to help SME's. Thousand ways were found not to help the small players. Thousands ways were found to help the big ones. We should see to it that the new scheme does not suffer the same fate.

The best way to deal with projects implementation is to adopt the Bagatelle model. The Prime Minister revealed that after meeting the South African investor, he had personally coordinated government part in the implementation of the project. I do not expect the Prime Minister to monitor all projects. I suggest that a unit at his office be created to which all investors whose projects are being delayed or who are suffering from bureaucracy can go to for remedy. The unit will report directly to the PM. I am sure that all those dealing with investment in Mauritius will be on their toes knowing the no nonsense character of the PM.

A word of caution about Singapore, I admire the success and model. Only we should not forget that it is a competitor to us in many areas particularly the financial and tourism sectors.

Xavier Duval has set up a calendar of six months to monitor the implementation of the measures he has announced by different bodies and ministries. A key word is missing, Leadership. At political level leadership is fine. I am referring to leadership from floor level to the top. To those who will in practice will be in charge of the implementation of all the measures announced in the budget.

I am reminded of the leadership shown by a lady who had saved the lives of hundreds of people during the terrorist attack of Taj Hotel in Mumbai. She has taken charge and directed operations and brought to safety hundreds of people. Many CEO's were in ties and trained at best business schools. They were trying to just save their skin. It is such leadership which I am looking for. The doers. And not the talkers dressed in three piece suit sitting in air conditioned office working nine to four.

Everybody agrees that the social measures taken to care for the poor are excellent. They are definitely going to improve their life. Provisions for low cost housing for creches for children whose parents go to work, fees for 3-year old for pre primary schools are going to help the quality of life for the poor people.

It reminds me of Mother Teresa whom I had the privilege and honour to meet with Sir Gaetan at Human Service Trust during her Mauritian tour. The vision of that frail saint has changed the vision of the world. She saw Jesus in the face of all poor and downtrodden.

A friend told me that Prophet Mohammed had said that the one who fills his belly when his neighbour is hungry is not a believer. The Hindu says that the world is one family. The objective of the budget is to ensure the welfare of the people and the development of the country. Xavier Duval has done an excellent job in the present circumstances to ensure the welfare of the people, develop the country by making a nation of entrepreneurs under the leadership of Navin Ramgoolam.