Now that the we are approaching the end of the lockdown, the spotlight will move to the one who will be on the frontline next Thursday. Whilst social distancing is still the norm, the population will be huddling up to see who turns up in parliament. Will it be the erstwhile Santa Claus laden with expensive projects and social measures? Or will it be Scrooge plundering our reserves ? And above all, what journey will he embark us on following our shipwreck? Will it be more of the same setting sail on a new journey?
Let us start with what we know: the shipwreck!
It is now undeniable that the Mauritius ship is taking in water from all sides.
Whilst some lay the blame squarely on the Corona storm that we have just weathered, many disagree. They point out that the wind had been taken out of our sails for quite some time now with the lockdown merely speeding up and aggravating this inevitable process, and making it even harder to sail in these rough seas. Then, others believe that the rot had set in much earlier as we rested on our laurels for far too long.
As cures are based on proper diagnoses, let us explore whether blaming the pandemic for all our woes holds water before moving on to how we may salvage the ship. Maybe the easiest way to obtain the right answer is by considering a few straightforward questions on the engines of our economy.
- Was agriculture, in particular the cane industry, on sound footing at the turn of the decade?
- Was our once flourishing textiles sector, the flagship of our manufacturing sector, recruiting or laying off workers ?
- How were the stakeholders in tourism foreseeing business at the end of the Christmas season?
- Did its last quarterly results show Air Mauritius in a healthy position?
- Had our financial services sector recovered from the Indian tax treaty revision? Was the EU blacklist due to the pandemic? What were the latest results of our banking sector showing prior to lockdown?
- Were our SME’s in fragile health and were they getting their fair share from the increased expenditure in the construction sector?
- How far had we diversified our economic base in terms of sectors, ownership and innovation over the last two decades?
The radar indicators
Let us now look at what the fiscal and debt indicators were displaying on the radar. Again, we may ask ourselves whether target misses, window dressing and moving of goalposts were regular or one-off events on revenue and expenditure. Was last years’ promised privatisation proceeds of Rs 10bn to fill the gaping budget deficit a mere fig leaf?
Had the debt burden borne to finance prestige projects such as Safe City, Metro Express and Côte D’Or stadium not already brought us nearer to the Bermuda Triangle? Thank goodness the pharaonic Heritage City remained just a nightmare! Incidentally, what about the yawning gap at the National Pension Fund?
Whilst we have already started feeling the headwind, what we are not aware of is its full strength or duration. Possible future Corona waves, the global outlook and our own management may well bring a cascade of successive waves on our economic and social fronts, delaying any bounce back.
As our sectors contract, more money out than in from overseas will tilt our balance of payments below the parapet adding pressure on our foreign exchange reserves. Threats to the foreign capital inflow from the global sector and the outflows at the Bank of Mauritius (BOM) will only complicate matters further.
I fear the more visible immediate impact will result from the folding of businesses already suffering from weak financials leading to a dramatic rise in unemployment. As other businesses get contaminated, households will be haunted by fear of job losses.
And to add to our misery, we are looking at a sharp rise in our living expenses as a result of further depreciation of our rupee. Compounded with the inflationary pressures arising from the magic money tree at BOM outstripping the drop in oil prices.
Let us therefore brace ourselves for job losses and price hikes as households recover from Corona. And the bad news is that this double whammy will exacerbate the growing inequality and underlying social pressures that are not always fully grasped.
The growing inability of households to keep their heads above water is not only a tragedy in itself. It is a powder keg that threatens social harmony, market recovery, law and order, and ultimately our wellbeing. We may like to think that we are on different journeys but we are right now caught in the same storm in the same boat.
Rudder and Bearings
And right at the time when rebuilding confidence is vital, our institutions are being further undermined. Whilst I grant that Government did not have a myriad of solutions, the way it has roped in the BOM to its rescue leaves the latter dangerously rudderless.
Suffice to say, the BOM episode is tantamount to a grandfather coercing his daughter to hand over her dollar savings for her children’s education, her cash deposits and asking for her overdraft limit to be removed and made permanent to enable him to pay for his gambling debts under the guise of his fishing boat being damaged. And all this, after having already forced her to remortgage her house last year based on its paper appreciation to repay his gambling debts and bar bills then! Jamais deux sans trois?
Whilst many believe that we can just fall back into our old habits once the cyclone abates, others much more clued-up than me believe that the pandemic has accelerated six trends. Namely, deglobalisation in a more divided world, consolidation of economic power into the hands of the few, diversified supply chains, increased surveillance, further digitalisation whether for work, health, commerce, finance or education, and buyers’ fragile sentiment dominated by emotion and trust.
Still sore, the market is finding its bearings, shying away from luxury and crowd to products and services focusing on health and homes. With tighter access to capital and lower margins in a fragile environment, cash-flow will be king. Those businesses that embrace change through agility, creativity and innovation will be the winners whilst those waiting will soon realise that the ship has already sailed.
Clearing the deck
The other game changer is … the public finances. Whilst we lament its poor financial health, Government has by a mere wave of its Covid-19 Act wand plucked Rs 60bn from BOM’s magic money tree. And by legislating for the removal of its debt ceiling, Government has given itself room to borrow further which it will most probably do with renewed appetite. So, sailing closer to the wind is suddenly within Government’s realms as:
- Government is suddenly flush with cash and has ample artificial headspace;
- As fiscal responsibility has never been this Government’s forte, the small matter of debt servicing can well be left to future generations;
- Criticism of the actions of Government, the knight in shining armour, is likely to be muted;
- The IMF may probably take a more lenient view of public finance management in these troubled times; and
- Public expectation is fairly low based on the perceived lack of room for manoeuvre.
Whilst Mauritians bear the brunt of Corona, the pandemic seems to have been a boon for Government as it has swept our existing woes under the Corona carpet to cover its tracks. At the same time, Government has slipped through additional debt through unorthodox legislation and will rake in additional VAT revenue as consumers pay more for their goods.
Let us therefore not be surprised if we were to see both Santa Claus and Scrooge next week, taking with one hand but dishing out goodies with the other one. Way more tantalising than the additional duty-free booze or the deserved bonus to the front liners in the public and private sectors. Let us therefore keep an eye on the recurrent expenditure figures to see whether it has gone overboard.
Setting sail on a new journey
On the other hand Government may well set sail on a new journey based on the much vaunted new normal and the opportunity to remove the brake stoppers on our progress.
Why will it be different this time, I hear you say. Whilst its crowding out role is often bemoaned, in this sea change, Government is the white knight. With almost everyone in desperate need for cash, the only stakeholder with any meaningful firepower is Government as the banks have their own challenges.
As the uncontested captain at this juncture, Government is in the driving seat and can move away from the fixation of conservatism which rejects any thinking deemed to be too adventurous. Not only should it ensure a fairer burden sharing during the crisis but Government should seize this opportunity to break the glass ceilings, widen the circle of opportunities focusing on the collective well-being of all its citizens.
This hardly means rejecting higher reward for hard work or risk-taking. New Zealand, by no mean a goulag, achieves this by putting the wellbeing of its citizens ahead of its GDP. Less obsessed by quantitative growth, it is more focused on ensuring that its citizens live lives of quality, purpose, balance and meaning by focusing on its five priorities. Whilst being unashamedly idealistic and progressive, this is hardly a leap in the dark.
Captain’s table menu
We may differ on our own priorities but the menu would most certainly include employment and skills in tune with the market, poverty alleviation, reduction of inequality, sustainability and longer meaningful life expectancy. Given this unique opportunity that Government as the Captain has to mould the future, here is my modest thirteen cents worth of proposals:
- Rescuing distressed businesses through Government quasi-equity stakes but based solely on their viability and economic relevance negotiated by experienced professionals to bring win/win outcomes.
- Bringing DBM, SME Mauritius and business mentoring under one umbrella so as to turn SME’s into a hotbed of meaningful livelihoods, innovation and agility as well as reducing their reliance on main contractors.
- Investing boldly in our blue economy beyond just fisheries to tap the huge opportunity for skills building, employment, technology transfer and diversification.
- Expanding our population base through immigration to acquire specific skills and entrepreneurship, develop new sectors and broaden the domestic market.
- Putting creativity, innovation, digitalisation and civic values at the centre through constant recognition and training.
- Doubling our current food production with strict measures regarding use of pesticides and fertilisers. Land could be made available to SME’s as part of rescue programme.
- Promoting the cultivation of marijuana under strict protocols through a public-private partnership.
- Cementing the Work from Home practice to reduce office overheads and pressure on infrastructure, and to improve productivity, women employment and work-life balance.
- Implementing, where feasible, a four-day working week with adjustment in pay scales to alleviate the unemployment issues and improve productivity, women employment and work-life balance.
- Implementing a progressive tax system with graduated rates and taxes on inheritance, and dividends as well as strong anti-avoidance provisions.
- Providing unemployment benefits and existing social benefits targeted to those in need so as to efficiently alleviate poverty across the board.
- Focusing on the green economy and sustainability in all walks of business and of our lives. Renewable energy at fair prices would be a good start.
- Empowering independent and responsible institutions to implement their mandates, particularly in the field of governance and corruption.
Lack of space precludes a thorough analysis of the proposals which are open to debate. What should take precedence is the relentless quest for our collective wellbeing. And this, not through platitudes but through clear objectives, strategies and practices that do not alienate our two most precious resources: our people and Mother Nature.
Economists often refer to ceteris paribus: all else being equal. If ever this was unrealistic, this is now when so many things have changed: Omnia Mutantur. As we navigate between the devil and the deep blue sea, instead of just enduring them, let us embrace these changes on a journey, albeit treacherous but ultimately inevitable for our collective well being. So, do bring your life vest next Thursday.