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HomeNewsBudget 2020/2021: A constructive critical appraisal

Budget 2020/2021: A constructive critical appraisal

 

By Mohammed Shaffick Hamuth

For his first budget, and given his non-political background, at first glance, we can say that Hon Renganaden Padayachy has hit a masterstroke. But as we delve deeper in the Budget, we realise that, with the record amount of funding at his disposal, he could have magically transformed what looks like a long list of good intentions into a unique jaw-dropping national strategic orientation in the current context. Padayachy has missed his unique chance to go down in history as the Finance Minister who dared rewrite our economy. Nevertheless, he should be commended for his first delivery. Clearly a promising Finance Minister to watch out over the next four budget exercises.

If we look at the historical budget preparations during the past decade, we notice that the style, content, mindset and philosophy remains almost unchanged. Is it because, irrespective of whoever is the Finance Minister of the day, the Budget Team is always the same?

The Budget Team seems to be obsessed with only the following paradigms: Duty exemption, concessionary loan rates, Schemes, etc. While these are essential features, they are not the only economic boosters. The Budget Team should have explored new avenues of innovative measures with greater impact and long-term sustainability.

Interestingly, Budget 2016-2017 says “The challenges of tomorrow cannot be met with our mindset, policies and actions locked in the paradigm of yesterday.” But we never see the ‘paradigm shift’ that is mentioned in almost every Budget.

Budget 2020/2021 appears to be a generous one, but it does not question the fundamentals of things. Yes, it aims to provide SMEs with loans at concessionary rates of 0.5% but it does not address the issue of security which many SMEs are unable to furnish to banks. Second, apart from access to finance, SMEs face other more serious constraints: unfair competition, barriers to entry or regulatory obstacles to growth in certain sectors, unlevel playing field, etc. Third, it does not really provide the necessary thrust for a massive economic reboot especially in sectors such as manufacturing, tourism, information technology and agrobusiness.

Providing Rs 12 billion for the construction of 12,000 social housing is an excellent initiative. But the implementation time frame has not been specified. Also, no budget is allocated for the casting of roof slabs. Will this be discontinued? If we analyse previous Budgets, we note that in 2015, it was announced that 1,000 units will be constructed. Budget 2016 made provision for 2,700 units. Budget 2017 earmarked Rs 5 billion for the next 3 years. Budget 2018 announced 6,800 units for the next 2 years. Budget 2019 added a further 6,000 units over the next 3 years. So, all this makes up a total of nearly 16,500 units. According to NHDC figures, a total of 2,023 units have been completed as at August 2019 and 2,788 units will be completed by December 2020. Projects in the pipeline concern another 6,950. This makes a total of 11,761.

 

 Public transport

The minister is earmarking around Rs 6 billion for our main bus terminals. But we hope the government will also streamline all bus routes and reorganise the transport sector and upgrade regional bus cooperatives.  We should increase bus usage to optimize investment in buses and transport infrastructure. The multi-modal urban terminals must not be simply parking areas for buses that sit idle for at least two hours after each 1 hour-trip! Furthermore, to cut down commuting costs, government should introduce bus passes valid across different routes, as many people often have to change 3 or 4 buses to go to reach their destination. Giving more flexibility will reduce waiting time at bus stops or stations and help spread passenger loads across different routes.

 

 Projects in the pipeline

The Finance Minister announced there are currently some 34 projects in the pipeline at the EDB worth some sixty-two billion rupees. But this is pre-Covid-19 data. Now, given the ‘new normal’, many projects would be reviewed, some would be deferred, others may simply be shelved. This Rs 62-billion figure which is the sum total of all projects submitted for approval must be taken with a pinch of salt! As a former Senior Investment Advisor at the BOI, I am aware that most investors often quote exaggerated investment figures in their business plan to impress the authorities just to secure an Occupation Permit and get other benefits.

 

SMEs

 We will impose a minimum shelf space of 10 percent for locally manufactured goods in supermarkets.” Locally manufactured products are already occupying more than 10% of shelf-space in supermarkets, if we take into account all ‘Made in Mauritius’ consumption goods such as cooking oil, bottled water, canned foods, soft drinks, snacks, etc. What is needed is more visibility. To promote the ‘Buy Mauritian’ programme, government can for example ask the MRA to waive tax on billboard advertising of locally manufactured goods. Encourage advertisers, through incentives, to produce and disseminate videos extolling the virtues of local products; Impose a 20-percent space allocation to SMEs and MSMEs in shopping malls at reduced rental rates; Bring imported products at par with local ones in terms of acceptable norms and standards (currently, local products are subject to stringent standards which are costly, while cheap sub-standard imports easily allowed in provide unfair competition). On another note, is the measure to allow Duty Free shops to sell their goods on the local market not in conflict with the Buy Mauritian Scheme, given that Duty Free shops sell mostly imported products?

Institutions like the EDB and SME Mauritius should be able to identify new segments and new activities to propose to entrepreneurs, so as not to have everyone doing the same thing. There is a total dearth of ideas among entrepreneurs and we should invest in research and think tanks.

 

 Branding

The MTPA and EDB will develop a new tourism branding strategy.

Furthermore, we will enter a commercial partnership with the Liverpool Football Club (LFC) for the promotion of the Mauritius destination, starting this September 2020.”

 Branding is not solely about a name or a slogan. It is about investing in service quality and creating awareness among all stakeholders to get everyone aligned. Mauritius should be football-neutral.  It is a wrong move to use a football club to promote the island as this has its pros and cons.   It is also high time to move from a hotel sector to a real and more dynamic tourism sector.

 

 Aparthotels Scheme

This scheme would provide unfair competition to PDS projects who have never benefited from the types of incentives generally allocated to the hotel sector. Last year the government introduced a sub-scheme within the PDS to allow the sale of serviced residential units foreign retirees. There is already an InvestHotel Scheme for hotels.

 

Arts and Culture

An amount of Rs 35 Million is being earmarked for the preservation and rehabilitation of historical and cultural sites”

We do hope that government will take necessary measures to preserve our historic sugar mill chimneys, many of which are in derelict state and are prone to stone plunder. Government should acquire that part of the land on which they stand and convert them into places of interest.

 

 Blue economy

“We will also further unlock the potential of the blue economy.”  The journey has been very long from the ‘Land-Based Oceanic Industry’ in 2007 to the Blue Economy. The past five years have not seen much progress in this field. We still remember how former Finance Minister Vishnu Lutchmeenaraidoo promised us a port all the way from GRNW to Baie du Tombeau.   We can only hope that this time things materialize fast. Mauritius is blessed with seawater 1,000 times more than its land surface area and we are importing table salt from Saudi Arabia! The aquaculture is not a sector to be encouraged. Mauritius should instead concentrate on fishing. Rather than giving out fishing licences to foreign companies, Mauritius should instead attract investment in this sector. We need seiners, longliners and trawlers to comb our waters for our own benefits. The ocean economy has other interesting value-addition components yet to be fully harnessed.

 

 Campus challenge

To promote a culture of entrepreneurship among our university students, DBM Ltd will scale up its Campus Entrepreneur Challenge competition. The first 10 best projects will be financed at a concessional rate of 0.5 percent per annum for an amount of up to Rs 500,000.

 Rs 500,000 is too low for any project to kick start. The amount should be up to Rs 3 million. We should also encourage linkage between industry leaders and the campus and foster business angel relationships.

 

 LAVIMS

In the past decade, Mauritius has invested more than Rs 500 million in a LAVIMS project, but which is not being optimized. Despite this system being in place, people using public services have to keep giving multiple copies of their title deeds and site plan to all departments. This time the project is said to be based on Blockchain technology. How? Time will tell.

 

“A new online system will be developed for services delivered by the National Land Transport Authority”. The NLTA put up an online system for the renewal of Road Tax (Motor vehicle Licence) at a cost of Rs 5 million, but most users who are used to paying their Road Tax at a post office cannot pay online because the system has not yet retrieved data from post offices. Also, the online system only caters for a few insurance companies. We hope the new system will be more effective and functional. We also hope all procedures will be streamlined, refined, with unnecessary steps and requirements eliminated before going online.

 

 Opening of the economy

  • The minimum investment amount for an investor to obtain the status of Permanent Resident or a holder of an immovable property under an existing scheme to obtain the status of Resident will be reduced from USD 500,000 to USD 375,000.

With the rupee depreciation, it makes sense to reduce the threshold to qualify for residence under IRS/RES/PDS. This can also encourage land promoters to develop middle segment projects to attract professionally active property buyers (instead of rich upmarket ones who simply buy to retire here) who would be contributing to the economy in various ways, thus creating jobs and opportunities for others. In addition, the fact that residence permit holders in the property sector would no longer require a separate occupation permit to invest and work makes it even easier to attract professionally active buyers. However, while there is a restriction on certain activities for investors applying for Occupation Permit (e.g pure trading), a mechanism will have to be found to enforce similar restriction to residence permit holders. The onus should be on productive investment.

 

  • To attract and retain foreign talents and businesses, non-citizens holders of Residence Permit, Occupation Permit or Permanent Residence Permit will be allowed to acquire one plot of serviced land not exceeding 2,100 m2 for residential purposes within smart cities.

This measure would provide unfair competition to PDS developers as acquisition under Smart City Scheme is exempted from Registration Duty, and Smart City developers benefit from a host of other fiscal incentives not available to PDS developers. Government should encourage buying apartments and not land.

  • The minimum monthly salary of Rs 30,000 for ICT professionals to obtain an occupation permit will be extended to other specified sectors.

While this measure will help attract foreign talent in scarcity sector, care should be taken to avoid influx of foreign professionals in saturated sectors, to the detriment of local manpower. It has been observed that many foreign investors tend to employ foreign professionals and the lowering of the threshold will only exacerbate this trend.

 

OP for 10 years

Lengthening the validity of an Occupation Permit (OP) and a Residence Permit for retirees to 10 years renewable is a good move as it provides better stability to foreign citizens living in Mauritius in terms of life and investment planning. A 20-year permanent residence permit is also conducive to attracting quality investment as we can lure genuine investors instead of fly-by-night ones who only want to make quick money within three years and disappear. However, we have not addressed the issue of dependent children, who, after attaining the age of 18, are no longer eligible for dependent residence permit. Children who have grown up in Mauritius (we also have many cases of children born in Mauritius of foreign parents) suddenly find themselves without a home country once they turn 18. The authorities should ponder over this issue before it becomes a bone of contention.

 

“OP holders will also be allowed to bring their parents to live in Mauritius.”

This measure should be extended to include child minders, nannies and personal carers, in specific and justified cases.

 

Disability

The Budget has only one measure regarding disability, namely medical domiciliary visits. People living with disabilities expected more measures especially regarding their economic emancipation, such as work from home. Disabled persons want more freedom, flexibility and facilities both for work and leisure. We are yet to have disability-friendly amenities at the beach for example.

 

Lowering duty on cars

I don’t understand why the government needs to reduce duties on new cars at this moment. Car dealers claim they have a stock to clear because of the recent lockdown, but they simply doesn’t need to import more during the short-term. It’s not only the car market that is affected by the lockdown. if we follow the same reasoning, then all other sectors who have paid duties on their imported goods and have been unable to sell should ask for a duty refund! New car dealers have high mark-up compared to other countries, they spend a lot on advertising, showroom design and the likes.  They charge a fortune for spare parts, repairs and maintenance. The traditional concept of brand exclusivity is not in the interest of consumers and instead the government should think about how to liberalise the car market.

 

 

(photo credit: inside news)

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