Kevin Teeroovengadum: “Subsidising sugarcane production is like taking paracetamol to treat cancer when in fact we need chemotherapy!”

Weekly speaks to Kevin Teeroovengadum, financial consultant in Africa, about his views on the budget. He comments on a range of issues covered in the budget and shares ideas on opening the country to the rest of Africa.

As an economic operator, what are your impressions of the budget? First, what do you think about the format?
Fifty one years after independence, every year we eagerly await the budget of the finance minister and it seems the same format remains. Nothing has changed for almost five decades. A two-hour speech full of intentions and giveaways. 

What changes should be brought to the format of the budget in your opinion?
We should have a summary of the major announcements of previous years and measurements of progress made to date. The budget speech can be a very simplified speech if we go straight to the point: “This is what we said we will do, this is what we have achieved, this is where we have failed and succeeded, this is where we failed and this is how we shall remedy that. And finally these are the real new measures.”

Isn’t this how the budget was presented?
No! How many announcements made in this budget had already been announced a couple of years ago? For example, in 2017, the expansion of the airport to cater for eight million travellers was announced and it was announced again on Monday.

Moving on to the content, the minister of finance spoke initially about higher GDP growth for Mauritius compared to other big countries, the high growth in the construction industry and low inflation and unemployment rates. Aren’t these positive things for the country?
For the last three budgets, the minister of finance has been announcing that the target for the GDP for the forthcoming year will be 4.1% and we have been falling short of that each and every year. On the other hand, a number of African countries are achieving growth rates of 5 to 10%. 

But there is growth and growth, isn’t there? What is the quality of our growth here?
Let me answer that with another question: do you prefer growth in the construction industry on the back of the construction of a stadium rather than growth that comes from the implementation of a nationwide solar/renewable project that could reduce our imports of oil and coal every year? 

Renewable energy did figure in this year’s budget, didn’t it?
Yes, but it was announced as a long-term project when in fact we should have been much bolder and made a global statement by saying we would make Mauritius a green island within the next 10 years. For example, why couldn’t the government come up with an immediate plan to say that all government-owned and/or controlled buildings (offices, schools, police stations, community centres) will use their roofs for the implementation of solar panels within the next three years? Why couldn’t government come up with a policy to say any new real estate project needs to have solar panels on the roof and get this enforced by regulation? This is very much achievable and could create an immediate impact in terms of quality growth in the construction industry, create jobs and, more importantly, get us to clean energy in the short to medium term rather than the long term. Imagine if we made Mauritius the first island to be totally renewable! 

If we missed out on renewable energy, aren’t you relieved that inflation has remained low?
Yes of course, but we also need to look at the global context. Our main markets such as Europe are nearing a period of low inflation and even deflation. So it’s normal that Mauritius is also part of that cycle of low inflation. 

How do you reconcile the low inflation figure with the prices in the shops and markets?
It’s high time we relooked at the basket that constitutes the inflation index. Our consumption patterns have changed significantly over the years, and the basket of goods and services being used to give us an indication of our inflation rate might no longer be appropriate. Also we need to bear in mind that we are a nation that has been continuously importing. We import pretty much everything and most of our import bills are in hard currencies such as US dollars or the Euro. Hence a slippage of the rupee vis-à-vis these currencies will add to inflation.

A word on the reduction of the price of gas, petrol and diesel?  
Since the end of last year, the Brent oil price went down by more than 20% and gas by 40% on the international market. Bearing in mind that in 2015 when global prices collapsed, consumers didn’t benefit as there was no major reduction. We need to have a more transparent system that reflects the genuine price of both oil and gas for the consumers. 

Among the good news announced in the budget is the lower unemployment figure. Some economists say that that is due to a reduction in the workforce as more and more people are retiring. Where do you stand in this debate?
Indeed, the overall unemployment rate has been reduced to 6.9%, but we should not focus on that figure alone as it doesn’t give a comprehensive picture of what’s happening. The alarming thing is that youth unemployment (below 25 years old) is on the rise. In 2009, 19% were unemployed and in 2018, the 25% level was exceeded. This is a real problem! 

Why is this number growing every year? 
Because the economy is not creating a sufficient number of jobs. There is a mismatch between the demand and the supply of labour. The unemployment situation is likely to get even worse with the impact of artificial intelligence (AI) and robotisation on job prospects for the younger generation. This, for me, is a very big problem as it might create a generation of unemployed. The big objective for the youth is to give them real tangible hope. 

Is the African strategy announced likely to bear fruit?
Every year, the government is trying to bolster its Africa strategy by announcing new measures. However, I believe, we need to take stock of the measures announced in the previous budgets two to three years ago. For example, what’s the status of the Mauritius Africa Fund, the special economic zone in Diamniadio Senegal, and the land secured in Côte d’Ivoire for the Zone Franche de la biotechnologie et L’ICT.  How much has been invested to date and what progress has been made? The investment of the Mauritian government in the Senegalese special economic zone was first announced in 2015 when Vishnu Lutchmeenaraidoo was the finance minister. The city of Diamniadio has started construction, albeit slowly, and land has been allocated to the Mauritian government. It’s important for government to genuinely assess what progress has been made and see whether its strategy of enticing Mauritian private sector corporates to Senegal is working or not.

What is your answer to that? 
Coming with different measures without a cohesive approach is like shooting in the dark for the sake of shooting. I believe, we need a sniper approach for a number of reasons. We are a very small country and have very limited financial resources and hence need to make the most of each rupee we invest in Africa. We have to make sure that we do the right things and that the right thought process has been adopted with experts who understand the potential of the continent and where it is going to be in the next 10 to 20 years. This will help us work out the strategies Mauritius can benefit from. 

The real-estate sector was not left out of the budget. Do we need more Integrated Resort Scheme (IRS)/smart cities…?
In 2015, announcements were made for smart cities and we saw a number of land owners apply for projects that have been approved by the Economic Development Board. The reality is that there’s meagre demand for this type of luxury housing and a number of projects have not gone beyond the paper stage. This sector has been in crisis mode for the last couple of years and nothing has been announced this year to remedy to it. Let me state a fact. Around four years ago, Mauritius as whole sold around 500 residential units (IRS, Property Development Scheme (PDS), Real Estate Scheme (RES), Invest Hotel Scheme (IHS)) per year and every year the number has been going down. Last year, we struggled to sell 200. Is this not a crisis? The total number of residential units sold between 2005 and 2019 is just around 3,000 when the target was meant to be 7,500 by 2015. I didn’t see the government provide any measures that would tackle the root cause of the problem.

What kind of measures? Aren’t the inordinate tax breaks given to the promoters enough?  
It’s not just about tax breaks. We need to look at the whole value chain and ask what can be done to entice the Mauritian diaspora, and foreigners to choose Mauritius to relocate either for retirement or for pre-retirement. Look at Dubai, for example. When their real estate sector went into a down cycle this year, they started throwing incentives to boost the sector and these incentives include the likes of free business/trade licence and residence permit when you buy a property off-plan even if delivering the property takes another year or two.

The three-year post study work visas came as a surprise. Was it a good or bad surprise to you?
A good initiative on the surface. Also, allowing foreign students to be based and work in Mauritius for a maximum of three years might help universities based in Mauritius to sell their courses more easily. However, this alone is not sufficient. If we want to become a major player in AI and robotics, we have to set up the environment to encourage African tech companies to move to Mauritius. This will create jobs which will cater for both foreign students post study and the Mauritian youngsters who are struggling to find jobs. This is why we need to look at solutions from a full value chain and implement them rather than announce piecemeal solutions every year.

How do we attract African tech companies to our tiny island?
By providing a package of tax incentives, relocation of people and welcoming them as opposed to stigmatising foreigners, and even subsidising rentals for these African tech companies. There are a number of government-owned buildings that are sitting empty. Give these African tech companies these offices free of charge for one or two years or subsidise the rent and let them work. We could position Mauritius as the Silicon Valley in two years by creating the right environment. 

Is the sugar sector likely to feel better with the increase in the price of sugarcane?
For a number of years, we have been stuck with the same problem and we don’t have time for government to go and appoint World Bank experts to work on a study. The solutions, we have them already: get the stakeholders in one room and they will put the solutions on the table. We need to execute rather than commission yet another study from the World Bank to see how to rescue the sugarcane industry. 

What is the solution the stakeholders have?
We need to move on from sugar. Extend the cane industry to energy production, and agriculture to become self-sufficient. There are a number of South African investors and farmers who are willing to come to Mauritius to invest. This is the right time for the Economic Development Board to put a focussed strategy to bring these investors here, given what has been happening in South Africa. They have the financial muscle, the experience and expertise in agriculture. There is, however, a recurrent pattern in Mauritius with each pillar. We almost wait for a last-minute crisis to come up with half-baked solutions when in fact we can be proactive to come up with win-win solutions.

So subsidising sugarcane planters to the tune of Rs16,000 per tonne is not a solution in your opinion?
I think the government should do a survey. But my gut feeling tells me that the small planters are the last of their generation. The new generation is not interested in growing cane. So why rescue something that doesn’t make sense for the medium to long term. That’s where a government need to make practical decisions. One solution would be for government to provide funding to these cane growers to diversify into other things, such as non-sugar cane. Subsidising sugarcane production is like taking paracetamol to treat cancer when in fact we need chemotherapy!

The tourism sector is going tough times. Do you think the increase in the Mauritius Tourism and Promotion Authority (MTPA) budget announced is likely to alleviate its suffering?
The main question that the minister of finance needs to ask is this: has the MTPA adapted to today’s world? Do we have the right people at the board and management of the MTPA? Is the MTPA using the right channels to advertise Mauritius? For example, is it worth it today to spend millions of rupees on traditional billboards overseas which we have been doing for decades, when today, the best marketing is via social media and key influencers? It’s not just a question of allocating money. It is more about whether we are spending it efficiently. 

Overall, would you say the budget is an electoralist or responsible budget? 
It seems to be electoralist and let’s be fair, it’s election year this year. I think the minister of finance has been consistent in his strategy for the last three years whereby every year he adopts measures to appease different strata of the population. My concern is that while all this is fine in the short term, what bold measures have been announced to re-calibrate the economy and shape it for the future? How do we deal with the ageing population and what will become a declining population as from 2025 onwards? How do we deal with the ecological crisis not in the medium to long term, but in the short term? More importantly, how do we tackle our debt?

Talking about debt, can you explain to us the magic used to bring it down to 60% overnight?
Debt is not a bad thing, as long as you are borrowing to invest in the right thing and you know how to manage the debt level. Given that Mauritius is an island in the middle of the Indian Ocean with no natural resources, I prefer that we borrow to invest in productive assets that will create wealth and thereafter we can distribute the wealth and invest in what might not be productive assets. We are at a crossroads economically, and this is not time to invest in non-productive assets. Also it’s important that the debt issue is being played transparently. Look at Mozambique, whereby big international institutions such as the IMF/World Bank were positive about Mozambique until four years ago when they discovered off balance sheet debt transactions that were not disclosed and which eventually created a debt crisis. I am not saying that Mauritius is the same, but it’s important that we know on a transparent basis what our total consolidated debt is. And thereafter make a call of when and how to reduce it to 60%.

What do you think about taking the money from the Bank of Mauritius reserves?
It’s extremely important that an island like Mauritius which is a non-resource based country keeps building reserves to secure itself against potential tough times. Globally, the situation is not rosy. I think using money from the Bank of Mauritius should be the last resort. Rather, the minister of finance should focus on creating an environment that would stimulate quality GDP growth beyond 5% which in turn will reduce our debt ratio and create wealth. But when you don’t create wealth, all you are doing is taking what’s from the right pocket to fill the left pocket, and the fundamental structural problems remain.

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