Savings Likely to Hit At Least 60-year Low

It was there already in 2018 when it matched the 9% it reached after intense cyclone Danielle inflicted a 17.6% contraction to the Mauritian economy. As the table shows savings increased by a tiny bit last year but not enough to avoid the top three worst spots before COVID-19 arrived on the scene. We must also note that SSR is the only Prime Minister to have his two entries in the table linked to two intense cyclones. The other three PMs appear there because of two things. The first is the Sithanen flat tax which has broken the economy. The other is the removal of the tax exemptions which the people of Mauritius had been using to set up their long-term financial plans. 

The situation for Pravind Jugnauth is pretty worrying as all his three years as PM are very bad years for this fundamental statistic of economic resilience. Given that the figure for this year will likely go at the top of the table he should bring back some basic common sense by restoring a sustainable and progressive tax structure and personal deductions. This should start compensating for his extremely poor economic management of the past five years. 

Covid-19 Crisis Not Unprecedented

Nope. As the chart shows our GDP contracted by 10% in 1980 after cyclone Claudette visited us in the dying days of 1979. The contraction estimated by the Ministry of Finance for this year is between 7% and 11% so it’s going to be roughly the same. What’s going to be different is that since 2005 government has been working for the 1% while 41 years ago important components were being added to our welfare state helping tens of thousands of us have more meaningful lives. 

Why Savings Collapsed Despite Surviving Three Intense Cyclones

Essentially because a bean-counter started taxing bank interest as he needed to find other sources of government revenue after he reduced top tax rates before flattening the tax structure to 15%. The flat tax was supposed to generate growth rates of 8% every year since 2006 but as we’ve clipped rates far lower than this – 2019 will be the ninth year they are under 4% – savings, as expected, have never recovered. 

As the chart shows this is very different from the rebound we experienced after Danielle, Gervaise and Claudette visited us. Removing the battery of exemptions that a whole nation had used to patiently craft their long-term financial plans over several decades and the record inequality the unsustainable and crazy tax policies created didn’t help either. But there was more than injury. 

Berguitta To Spend Day in Mauritius

It's been almost eleven years since a significant rotating air mass made it to our Met's cyclone Hall of Fame. For a visit of an intense cyclone you have to go back eighteen years when Connie checked us out for three days at the end of January. Only about 10% of cyclones actually go over us -- Berguitta would be the sixth since 1945. The last chick to do this was Christelle, a moderate depression, twenty-three years ago. It gets even more interesting if you want to find out when was the last intense cyclone that crossed Mauritius. This singular honour goes to Claudette which ruined Xmas 1979 and threw Mauritius into an economic depression -- GDP contracted by 10% in 1980. This was a scary time to grow up. Especially if you had tasted another pretty little thing called Gervaise four years earlier.

Given that it's been thirty-eight years since a cyclone got to know us up close and personal there is a good chance that one in every six Mauritians will experience something new in the next twenty-four hours. Oh yeah one last thing. As the airport will be closed tomorrow, Berguitta has organised her own means of transportation.

Simple Tools To Evaluate Political Projects (2)

In this post we look at the size of the cake which is the one of the two parts of the political project as we defined it in the first post in this series. We can have an idea of the economic cake that a government will generate if we analyse what politicians say, have in their electoral manifesto and have said and done before. We can also look at 5-year periods as it is the frequency at which the very interesting household budget survey (HBS) is carried out. This is done in the following chart.

The 8.5% led to the first 60-0. It's an interesting period where one cyclone wiped out two years of progress. Don't think voters were able to separate this from the skill level of the government they had at the time. The years 1982 to 1992 were free of major natural calamities, benefited from the great work done in earlier periods and happened in a very favourable international environment. That gave us the two biggest cakes of the thirty-five-year period.

The cake contracted by about 10 percentage points over the following ten years -- during which the second 60-0 happened -- and another 5 percentage points between 2002-07. The consolidation of our textile industry occurred in the latter period. Finally the last period is the first 5 years of the Sithanen flat tax. Pretty small numbers given the 8% growth that was promised to trickle down. 8% growth over five years is a cake that increases by 46.9%. This has contributed to a GDP gap of Rs269bn by the end of 2012. A cake smaller than expected of course translates into governments that get less done and increases the odds of getting booted out of power.

Cyclones Pose New Risks to Mauritius

Gone are the days when an intense cyclone like Claudette would shrink our GDP by about 8%. That's because four decades later sugar weighs about nineteen times less in our economy. The risk now is being visited by a series of cyclones in a much shorter period of time. We will have a lot more flooding so we need to prepare for this with drains that are not built to accommodate the rainwater of one large cyclone in a month but like three of different sizes in three weeks or less. Contingency plans will therefore have to be carefully updated. So should our relationship with fellow creatures.

2014: The Year in Review (Q4)

October: Parliament dissolved in trivial manner. Don't bet on Sithanen to eliminate poverty. June happy Pistorius gonna pay something. Mauritian democracy competitive again. Tackling unemployment: how do the zinkus stack up?

November: Indira's assassination: 30 years already. Suddenly, Labour/MMM to create 60k jobs. Something for you to sniff.

December: What voters want. 63% of poll says Ramgoolam not winning majority. Reform wasn't good for poor. Mauritius says no to wicked plan. Claudette's visit turns 35. Manou's dismissal is inelegant and silly.

Read the review for Q1, Q2 and Q3.

Journalist Belittles 10-Billion-Rupee Economy

So our Rs10 billion 1982-economy would be about the size of some companies in the latest Top 100 list? And that would be proof that the economy was not going well at all? Or? One problem with this argument is that we're talking about 1982 rupees here. If we assume that average inflation has been about 5% since then Rs10 billion in 1982 would now be worth about Rs50 billion. Assume that inflation has been 7% instead and you get a Rs93 billion economy in aaj ki paisa. Which is three times more than the turnover of the current leader of the Top 100 companies.

16% unemployment is also not so bad given the devastating effects of cyclones in the 1970s -- Claudette for instance sent Mauritius into a depression -- and that we were a left-for-dead country.

Catastrophic Week-end Turns 35

Between 21 and 23 December of the International Year of the child a pretty little thing called Claudette visited us. Probably because she got jealous that Pele had kicked a few footballs at our George V Stadium a couple of years before. If I remember correctly we celebrated Xmas without electricity as Mauritian power lines didn't offer any major chewing problem for an intense tropical cyclone.

The upshot is that the 3-day visit helped put our economy into a depression: a 10% contraction. 1979 was also the year of the Three Mile Island nuclear accident which was essentially due to a flawed interface design. And of a major switch of how the US Fed carried out monetary policy.

If you plan of drinking in the next few days, don't drive, take a cab or pick one of your friends as a designated driver. Staying alive can be a lot of fun.

External Factors are Unfavourable Only When Berenger and Sithanen Are in Government, Right?

Wrong. Take sugar for example. It's one of Sithanen's Triple External Shocks and one of the reasons he's put the middle-class and the poor on a strict diet for almost four years now. But sugar was already a small sector back in 2005 -- 4.2% as the above table indicates and close to 2% this year -- so that the initial 5% reduction in the price we sell our sugar at would have reduced growth by about a fifth of a percent. Not a lot you will concur.

Compare that to 30 years ago when sugar represented close to 19% of our economy and was hit by a pretty little thing called Claudette. That led to a sharp contraction in our national production in 1980 with the sugar sector responsible for over three quarters of the 10% decline in output. That year also witnessed the second oil shock with the real price hitting a level that was to be surpassed only last year. And as if that was not enough a new chairman of the Federal Reserve by the name of Paul Volcker took office and stopped targeting interest rates. The latter of course were to go through the roof and plunge the world economy into a nasty recession.