Analysis : unprecedented uncertainty

As from now, whether or not he will keep his word to hold a by-election, the Prime Minister will do whatever it takes to maintain a semblance of feel good factor in the country. The current situation, however, appears to defeat this purpose. Problems are cropping up at every level of the society, be it individual (hunger strike), family (houses affected by floods), enterprise (closure of Palmar Ltée), industry (textile, tourism and offshore sectors in disarray), institutional (damning report of the Audit Office) or national (slack economic growth). All these put together make people feel bad in spite of the national minimum wage, the negative income tax and the increased old-age pension.

As always, our analysts get it right. One remarks that “the government had four opportunities since 2014 to rethink our economic strategy taking into account global events. It did not come with anything new, and it is obvious that, apart from electoral hand-outs, the next budget will be lacking courageous decisions.”

Such orientations would be most unwarranted as the private sector is running out of steam and running out of cash. Statistics Mauritius expects private investment to decline by 0.8% in 2019 with its share in total investment falling to 66.4%. If the construction sector is excluded, the private investment trends move further downwards. Corporate savings are low, and there exist few opportunities outside real estate activities where return on capital is above cost of capital.

It is now that the Mauritius Chamber of Commerce and Industry deplores the country’s heavy reliance on domestic consumption to sustain economic growth. Over the past four years, it has been praising the government for encouraging consumption spending in the hope that this would induce local firms to invest. In fact, the Mauritian economy has become ever less resilient for lack of capital investment. A dearth of business opportunities and a crisis of confidence in our political governance have killed off initiatives.

Consequently, according to Statistics Mauritius, our main industries would experience lower real growth rates in 2019 compared to last year: sea food from 6.3% to 3.0%, domestic-oriented manufacturing from 4.7% to 2.0%, freeport from 2.4% to 1.1%, wholesale and retail trade from 3.5% to 3.4%, tourism from 4.5% to 3.8%, information and communication technology from 5.3% to 4.8%, financial and insurance activities from 5.4% to 5.2%, and global business from 4.0% to 3.8%. Nonetheless, the overall growth rate (GDP at market prices) would be slightly higher at 3.9%.

An economist among those surveyed observes that “although marking an improvement from last year (if materialised), it is quite disappointing to note that the country is finding it ever more difficult for economic growth to exceed the threshold of 4% in spite of being supported by high public investment this year. This underscores the challenges confronting the economy with a key concern remaining the downtrend in the export sectors amid competitiveness issues.”

Another challenging issue, he goes on to say, is that “year in, year out, the Audit report raises the alarm bell on the way public funds are being managed in some areas. Yet, instead of tackling the issues, the authorities tend to adopt a defensive stance or at best be reactive whilst the situation requires that we have a thorough rethinking on the framework backed by adequate governance, appropriate monitoring mechanisms and modernisation of the relevant systems and platforms. And our leaders should have the guts to make repeaters pay!”

Timorous, inert and inefficient with regard to the public sector, the government is not ashamed to take the liberty of interfering in companies where it has a majority shareholding. A perfect example is the State Bank of Mauritius, which has politically nominated people on the board and in the management team. As a survey respondent points out, “SBM is politically colonized from middle management up to the top, and incompetence thrives. In other countries, a good portion of total compensations of top management and senior staff is derived from stock options. This at least would have aligned the interest. Right now, even if you mess up like the previous CEO, you still get all your money.” But, adds another analyst, “at the end of the day, the buck stops with the board of directors. They are ultimately responsible for the total management of the bank.”

Our economist agrees: “The latest results of SBM reveal pitfalls at various levels with the ultimate responsibility lying with the board of directors. There is a need for the board to be beefed up with competencies that are aligned with the organisation’s strategy with the right profile heading the relevant sub-committees. Proximity with the government in place should not be a criterion, the more so that this can give rise to undue influence.”

Until then, he opines that the share price of SBM Holdings will remain stuck in a rut: “Provided they execute their remedial measures, bolster their risk and governance framework with reduced external influence, the situation could improve and hence reflect on the price. It will, however, take quite some time for investors to regain trust therein, with the result that the price is likely to hover near the Rs 6 mark.” It plunged from Rs 10.20 on 31 December 2014 to Rs 5.90 last Friday, a 42% decrease representing a loss of Rs 11 billion in terms of market capitalisation for the 18,000 shareholders.

All these negatives can be summed up in the recent statement of the president of the MCCI: “We are at an unprecedented moment of uncertainty in the development of the economy.”