In a series of articles to be published in the wake of the upcoming Budget, Dr Rama Sithanen, economist and former Minister of Finance, argues that the credibility of the 2017-2018 Budget will be inescapably eroded if the Prime Minister Pravind Jugnauth continues to announce a plethora of measures that he knows fully well will not or cannot be implemented as amply evidenced by the last two Budgets. The author posits that Pravind Jugnauth should focus on very few key objectives. The goals should be to reignite the engines of growth, diversify, modernise and transform the economy so as to create gainful, sustainable, decent and smart jobs. Especially as the track record of the Government on employment creation is dismal. Today is the first part of Sithanen’s take on what could and should be done with the forthcoming Budget. Dr Sithanen focuses on the burning issue of jobs.
The critical importance of job creation
The population has been shortchanged by the Government on employment creation. There has been promises but no actions. Jobs must be at the heart of the economic strategy because of its crucial importance for smart, sustainable and inclusive growth. The objective should be the generation of new employment while also improving the income of existing jobs. Not only is it a key pillar of development but it is a major channel to end absolute poverty, to support the middle class and build shared prosperity. Jobs are important to individuals and families as they are by far the primary source of income. Unemployed people earn no salaries and, as a result, suffer from a variety of associated problems.
We require a concerted, enhanced and sustained effort to create more jobs for the unemployed before things get out of shape. Especially for the large numbers of unemployed and underemployed youth. The key objective is to foster the creation of meaningful jobs that add net value to society and can be sustained in the long term. We must also invest in entrepreneurship development to unlock growth, create jobs and support SMEs. One is heartbroken when our fellow citizens who have invested in human capital find it difficult to integrate the labour market. An unemployed doctor has to accept a job as a nurse while someone with a LLM is compelled to sell vegetables to eke out a living. For every vacancy, there are often more than 50 applicants and many more in the public sector.
Around 20,000 net jobs promised on an annual basis and between 21,400 and 25,500 in 2016
Job creation is the area where more promises were made and where delivery is abysmal. The first Budget of the incoming team was unveiled in March 2015 by Vishnu Lutchmeenaraidoo, followed by the economic vision statement of SAJ in August 2015 and the 2016/2017 Budget of Pravind Jugnauth in July 2016.
The following projections and promises were made by the Government:
- In its 2015-2019 programme of January 2015, it stated that ‘‘some 15,000 jobs will be created annually’’
- In the 2015-2016 Budget, Lutchmeenaraidoo declared that “one of the four objectives of this Budget is to steer the economy towards a path of HIGH INVESTMENT AND HIGH EMPLOYMENT. We need to go out of the box to create THOUSANDS OF JOBS AT A RAPID PACE. And this is what this Budget does”.
- In his ‘second economic miracle’ speech of August 2015, SAJ asserted that “100,000 new direct and indirect jobs will be created within the coming five years (20,000 per annum). In financial year 2015-2016 only, some 16,000 new jobs are being created in these sectors. Over and above those private sector employment perspectives, in the public sector, I can state that more than 7,000 vacancies will be filled in the 2015-2016 period. Moreover, some 2 500 job placements will be effected under the Youth Employment Programme. This makes a tally of 25,500 jobs to be generated in 2016.”
- In the 2016-2017 Budget, Pravind Jugnauth, announced that “this new era of development will be centered on creating more job opportunities for all… Government will enlist 4,000 persons under the National Skills Development Programme for training in technical skills that are in high demand. We are providing for the training of 1,200 seafarers for cruise jobs and in shipping companies. We are providing for employment of 2,000 unemployed under the YEP. Government will fill 7,200 vacancies and new posts in the civil service. Moreover, we expect that the new policies to boost up economic growth and employment in this Budget would generate some 7,000 new jobs in the short term. With these measures, some 21,400 youths, men and women will be taken out of unemployment.”
Only 300 jobs were created in 2016
The official 2016 figures for the labour force, employment and unemployment were recently published. Against a projection to generate between 21,400 and 25,500 jobs, the actual number of employment created in 2016 is 300. It represents a staggeringly low 1.1% of the forecasts made by the Prime Minister and 1.4% of those of the Minister of Finance.
The data are shown in the table below
- From 2015 to 2016, the labour force came down by 3,600 from 584,600 in 2015 to 581,000 in 2016. People are being removed from the labour force to be categorised as ‘inactives’;
- Employment increased from 538,300 in 2015 to 538,600 in 2016, an insignificant rise of 300 net jobs only;
- Unemployment dropped by 3,900 from 46,300 in 2015 to 42,400 in 2016. The unemployment rate declined not because jobs were generated but because the labour force contracted;
- An exceptionally high 92% of the fall in the unemployment rate is attributable to the removal of people from the labour force and not to job creation.
The backcloth to the Budget
The Budget cycle is back. Some are pinning high expectations on the forthcoming Budget to usher in a wave of optimism by reigniting the engines of investment, exports, growth and employment. Others cynically believe it will be more of the same with a “catalogue of effets d’annonce, a futile exercise in spins and hypes and an eyewash” with insignificant impact on the direction, momentum and pace of economic activities except for the usual few measures that will grab the headlines the next day and then quickly fall into oblivion.
The Minister must above all resist the easy temptation of announcing a deluge of measures and a litany of promises, often uncoordinated, lacking coherence, poorly structured and ill-informed and that he knows he will not be able to implement or cannot keep. Even a pedestrian and a cursory review of the objectives of the last two Budgets shows with incredible crudeness the great chasm between what was announced and what has been accomplished. It is a matter of ensuring the credibility, the significance and the relevance of his economic strategy. At this critical crossroad, he simply cannot be all things to all people. He must focus on few key priorities if he wants to rise to the daunting challenges facing our country. And concentrate his time, effort, resources and energy on their realisation.
On a macro front, besides economic growth being lower than forecast, we have not yet seen even the green shoots of the four key strategies announced in the 2015-2016 and 2016-2017 Budgets, which were
- a wave of modern entrepreneurs. In fact existing ones face significant challenges;
- more job opportunities for all. In reality, jobs are stagnating;
- boosting exports. In truth exports are declining;
- raising investments. Official figures show that investment is low and still falling as a percentage of GDP.
At the sectoral level, we are still far from
- diversifying the manufacturing base. The share of manufacturing in national output continues to head south ;
- expanding activities in the freeport. Reexports have dipped sharply;
- reversing the decline in the construction industry after many years of contraction.
On a project basis,
- there is hardly any news of the production of bicycles and motorcycles ;
- there is no sign of the refinery of gold and the production of gold bars;
- the setting up of a pharmaceutical village is still awaited.
On the social front
- there is no shared prosperity as income inequality is rising;
- there is no inclusive growth as wealth disparity is widening;
- the Marshall plan to fight poverty has not even been published, let alone implemented;
- the CSR is in complete chaos and confusion with the poor being deprived of financial resources destined for them.
Can Pravind Jugnauth restore hope and repair confidence by turning the economic corner?
The government is in a very tight corner
Mid term in its mandate, the predicament is very tough for the Government. People are openly speaking about it while those in office are politically too astute and experienced to be cut off from ground realities. There is no prize for guessing why there is no by election in constituency 7 even if someone who has been PM for 18 years must stay on as a simple Minister in a portfolio without much clout and significance. No award for guessing the reason for the unprecedented closure of Parliament for weeks before the Budget. For many independent observers, the writings are clearly on the wall and unless there is a radical shift in policies, strategies and attitudes and a marked improvement in economic and social performance and outcome, the Government is headed for trouble, if it is not already engulfed in it. The disunity, lack of cohesion and absence of transformational reforms in the main opposition parties, the potential fragmentation of vote in a multi party contest and the putative unattractiveness of some of the alternative political choices may not be enough to save the day. Likely coalition partners will also shy away as public discontent escalates and scandals accumulate. As is well known, more often than not and as aptly demonstrated in December 2014, elections are usually lost by incumbents rather than won by outsiders.
Reality versus perception on the mood of the population
In politics, public perception is reality, even if it may be skewed. And perceptions are critical. Judged on what is seen, heard, exchanged and published on the various channels of communication and by conversations at dinner tables and social events, it is plain there is widespread disillusion and ubiquitous disenchantment among the population. The reasons are a mix of reality and perceptions of reality. Expectations have not been met, aspirations not fulfilled and promises not respected. The reality is that the Government is short on its key deliverables, is doing too many things that are completely contrary to what it undertook in Dec 2014 and has an unbelievable and uncanny capacity for self inflicting wounds and damage. The perceived reality is that it is allowing too many monsters to raise their ugly heads. A climate of deep mistrust and doubt is taking root against those in office. The country seems to be going nowhere and is desperately in need of strong leadership, policy coherence, clear direction and structural reforms to meet the daunting domestic and international challenges and escape the middle income trap where we are mired. The overriding question is whether Pravind Jugnauth can turn the corner after a waste of two and a half years by the Government. The Budget will be his litmus test to ascertain ‘‘the mettle he is really made of’’.
The government forced on the defensive
He faces an immense and a daunting task. The setting to the Budget could not have been more challenging for the Prime Minister from a political, economic and social perspective. Politically, the PMSD has left the Government and is now firmly entrenched in the Opposition and firing with a machine gun on all that moves. Bhadain remains a huge thorn in the feet of the ruling team with highly privileged information, his ferocious attack on his former friends, his capacity to distill suspicions and elevated doubts on issues such as the ‘‘kitchen-controlled cabinet and the mafia system operated by some’’ and his threat to resign and impose a by-election. The LP and the MMM are leaving no stone unturned to robustly criticise the Government and contest the political legitimacy of the PM . Whether these accusations are true or not, many are extremely worried about rising corruption, heightened nepotism, overt amateurism and lack of acumen and growing financial scandals which are undermining the credibility and popularity of the Government even if the PM seems to be earning some kudos for his relentless fight against drugs. There are significant headwinds on the economic front with a low level of investment, disappointing exports, declining manufacturing, falling productivity, lackluster growth and job stagnation or destruction. Socially, some people have had to use the ultimate resort of hunger strike to change the attitude of the Government. Also social cohesion could be threatened by rising income inequality, widening wealth disparity and significant asset and power concentration. Many of our compatriots believe that the ‘‘wealthy, the corporate elite and vested interests’’ are taking a rising and disproportionate share of the cake, leaving only crumbs to the majority. And that a weak and directionless Government is too vulnerable to significant policy capture by these vested interests.