Fact-Checking A Few Sithanen Statements

He said recently that his flat tax had increased government revenue by 20% in the first year of its implementation, that it had attracted a lot of investments from abroad, produced growth rates of more than 5% and had created 10,000 jobs per year. 

1. Government revenue may increase if growth is better or if you increase the tax rate or tax more things. Growth had increased in 2006 because the economy rebounded after the big textile contraction. He should tell us by how much revenue increased in every year since his flat tax was implemented. Besides the main reason to slash top tax rates to 15% was to get 8% growth rates. As chart shows we never got those growth rates even in the decade following the end of the Great Recession – just check how many consecutive years we didn’t even get half of that. And this will cause a government revenue shortfall approaching Rs360bn at the end of the year. 

2. We surely got a lot of FDI (Rs189bn between 2006 and 2018) but this pales in comparison to the Rs570bn savings missing after he killed the savings culture. And the FDI has mostly been speculative ensuring that thousands will not be able to become home-owners. 

3. Finally what kind of jobs are we talking here? Definitely not good jobs. Otherwise growth rates would have been higher, savings would have rebounded and there would never had been the need for the controversial stimulus package.

Missing Savings Casts New Light on Flat Tax Damage

How Navin Narrowly Avoided Defeat in 2010

After bagging a historic victory in July 2005 – the first time one of the three big parties beat the other two – on the promise of democratising the economy and Putting People First, Ramgoolam’s second mandate rapidly turns into a nightmare. Rupee slides, rich made to pay the same low tax rate of the poor, our basic welfare state is tampered with, the savings culture is destroyed, doors are wide open to allow foreign investments to quash the dreams of thousands of Mauritians to become homeowners and unfair labour laws are passed. The situation is so bad that the then PM has to give another Presidential mandate to SAJ as well as help get the current PM elected before negotiating an alliance with the MSM. 

But the damage done by Sithanen and Mansoor is so large that Ramgoolam has no choice but to also dump the toxic bean-counter. Luckily for him the opposition makes a series of mistakes and this enables him to stay in power by winning 49.7% of the votes against 42% or as the chart shows by a margin of about 150,000 votes. Had Ramgoolam given Sithanen a ticket in 2010 he would probably have lost as the bean-counter would have set back his side by 100,000 votes. It’s no coincidence either that Berenger didn’t invite Sithanen to join his alliance. 

Sithanen-like Budget Provides Plenty of Fuel for Fresh Voter Outrage

There's a couple of good things in the budget like the probationary driving licence and larger fines to roll back the sloppiness that had put us on a trajectory of record road fatalities – though it's better that the fines are a share of income to remove the regressiveness – but there's also plenty of stuff that's simply not acceptable. Seriously the Lepep government now plans to sell our citizenship to attract more non-productive FDI which has been defacing Mauritius for more than a decade? 

Government needs cash for sure. But that is easy to obtain. It can add a few brackets at the top of the tax structure and things will start improving as public finances will regain a firmer footing and government won't have to spend that much time getting creative about budgetary numbers. It is also ridiculous to increase the custom duty on sugar more than five times to try to shelter that dead industry and at the same time make it easier for our greatest asset, our people, to see their human capital under-utilised or worse totally go to waste by 'opening-up' our labour markets in the most irresponsible manner.

Nice try fooling the middle-class people with the small tax break. But they know very well that they have already paid for it with abusive petrol and electricity prices for so many years. They can also compute our GDP growth in USD to refine their estimate of the bean-counting that has been going on and pause to think which pressing problems have been solved during the past three and a half years. They will surely realise that Ramgoolam, a neoliberal just like XLD and Berenger, would not have done any better. And remember that they will be voting soon.

Tiger @50

Did that super fast today. So basically we defused the demographic bomb, diversified our economy and became a Republic. We did a terrific job planning and implementing things at least between 1968-82. We should be thankful to our excellent constitution and FPTP system which have provided the stability necessary to have a fair chance of being a lot more than a country without a future.

Things have deteriorated significantly as from 2005 when a flat tax was introduced using three lies. This has caused everything to slow down and attracted the wrong FDI and people. Poverty and inequality have increased tremendously. The other big risk we're facing now is that there are attempts to turn our Republic into an autocracy with undemocratic devices such as a second republic, party lists and double candidacies.

Let's take our beautiful country back!

P.S. Click on the pic to see it better. Consider it as work in progress. And please note that the 30% for sugar in 1968 is an estimate.

Lalit Explains Non-Productive Invesments

Once you build a villa on agricultural land it will not generate employment like an agricultural village will. And we're not even talking how it will put real estate out of reach to large swathes of our population. They also mentioned that the major political parties are all the same. I'd go further: the LP and MSM have let Mauritius down by pursuing regressive policies as from 2006 after the MMM did so a long time ago.

They also called for the President to step down. They are not the only ones.

Private Sector Behind by 740 Billion Rupees

Over the last eleven years compared to the average robust growth rate of 8% that was promised when the highest tax brackets were eliminated starting in 2006. The almost three-quarter trillion rupee GDP gap -- the 80% estimate of Business Mauritius times the Sithanen toohrooh -- clearly tells us that our private sector did not create value anywhere near the levels needed to justify the 15% flat tax. That was kind of expected when we consider the stupid ways it was financed and the kind of massively unproductive FDI we've been chasing. Or if we were familiar with the damage done by Reaganomics. We shouldn't also forget that the Sithanen flat tax was implemented on the basis of three alternative facts: the infamous triple external shocks.

You may not fully grasp how big a number 740 billions is. Well that's more than the combined GDP of Mauritius for 2006, 2007 and 2008. More than half of that gap happened on Ramgoolam's watch. That took nine years. It will take Lepep less than three to match that if the finance minister doesn't bring back some sanity to our tax regime. A la Bill Clinton. That's because -- as the above chart shows -- the annual shortfalls have been increasing constantly. Thanks to an impressive string of low growth rates. By our historical standards or what we would have been able to achieve. Had the incompetent Mr. Sithanen not badly messed up our economy. For example had we continued growing at an average of 5.5% with our progressive taxation, healthy savings rate and a slightly improved management the private sector would have generated an extra two hundred billion rupees of GDP over the last decade. Which is roughly the GDP of Mauritius for 2006. Just imagine if that was combined with a stable or slightly appreciating currency. We'd all be very looking forward to Mauritius @50. More on this soon.

What Lutchmeenaraidoo Must Do, Fast

Increase top tax rates for individuals and for corporates in the next budget. So energy prices can come down to levels that reflect international conditions. And government can start help the economy humming nicely again. In a sustainable fashion. Smart Cities which are more like glorified IRS will not take us anywhere good. They are like the wrong type of FDI we've been getting since 2005: they don't help our young knowledge workers contribute their skills to push Mauritius forward but only make sure that another whole generation is buried. Alive.

Or Lepep and Vishnu -- who can't seem to tell the difference between a Black Swan and a White one -- stand to lose a lot more than bragging rights about delivering a second 'miracle'. They will inevitably be thrown out of office and voters will finally experience an aha moment when revisiting the 'first' one.

Mansoor Wants Mauritius To Pay For Bean-Counting Mess, Again

That's what I conclude from skimming through his latest PBB circular No 7. In it, he is saying that the economy is not growing as fast as expected so that he now wants to introduce and/or raise user fees. Because, he adds, there is limited scope for raising taxes if we don't want to scare off private domestic investment and FDI. Well, we know for a fact that the Rs 40 billion of FDI we received after taxes were slashed by 50% didn't make a difference in the lives of a supermajority of Mauritians. For five straight years. So that's a spurious argument at best.

Also, the average growth rates of 4% he's expecting for the next three years is not that bad by itself but too low to get us out of the toxic debt dynamics his flat tax has thrown us into. And recall we were told back in 2005 that two years of belt-tightening combined with the potent new medicine of Dr Kontu would send us orbiting into economic nirvana. That did not happen either. In fact Mauritius missed one of the strongest world recovery last year and could miss more. A lot more.

The dismantling of our welfare state which incidentally established the reputation of our country worldwide by providing exceptional social mobility to countless thousands will also have severe repercussions on the political chessboard. Ramgoolam has already seen his majority dwindle from 38 at the the time of result proclamation in 2005 to a current 36 after best losers and turncoat. The stage could now be set to seriously frustrate his attempts to stay in power after 2015.

2010: The Year in Review

January: The civil society started the decade unsure about who they would be voting as PM later during the year but clear that Paglanomics had to be stopped. Ramgoolam's pathetic second mandate was analysed along the dimensions he said mattered most to us while Elvis is suspected to have commented on the budget. Tens of billions of rupees of FDI were unable to reduce unemployment to single-digits. The audit report will be late just when we needed it the most.

February: 65% of a poll says Sithanen will not stay on as Finance Minister. Union bosses ask PM not to renew Mansoor's contract. The latter cuts the FS to size while Sithanen's university buddy is said to second-guess Parliament. The real reason behind the HR guidelines is analysed. The share of coal in electricity production is now 49 times larger than when Navin first became PM. He also makes a U-turn to announce that the death penalty will be reintroduced.

March: Titmuss never won any Nobel. Lousy economic polices forces a twice shy Ramgoolam to consider the MSM as a potential ally. The job creation record of the two zinku compared. The PM dissolves Parliament and invites voters to a 35-day campaign.

Read the review for Q2, Q3, Q4.

The Bumper Crop That Wasn't

You already know what Shaitanomics did to our savings rate. Here's something else to confirm that you've been taken for a bean-counting ride for too long.

On December 13th 2005 given that the economy was looking good in Brazil the Lula government announced that it would be paying back its USD15.5 billion IMF loan in advance. Argentina followed suit a couple of days later with a similar announcement. That's also what Lutchmeenaraidoo did in the 80s after he bewitched cyclones into avoiding Dodoland.

Compare this to Mauritius contracting billions of rupees of Bretton-Woods debt during the so-called bumper crop. That too after receiving tens of billions of FDI.

FDI, Job Creation and Our Last 4 Governments

About Rs1.3 billion of FDI poured into Mauritius the first time Sithanen was Minister of Finance. During that period some 33,000 jobs were created by our economy. Then Navin became PM and we received Rs3.4 billion. That, along with whatever local investment was undertaken, helped to create 21,500 jobs. 

Interestingly Federation 2 created roughly the same number of jobs although FDI more than doubled to Rs8.9 billion. But we have to remember that in 2000 France Telecom paid Rs7.2 billion for a 40% equity stake in Mauritius Telecom. Given that this equity sale didn't create any jobs overnight then it's only a maximum of Rs1.7 billion that was put to work for job creation.

And when we brought Navin back to power in July 2005 some Rs39.1 billion of FDI got into Mauritius till the end of 2009. The snag is only 40,000 jobs have been created with so much FDI. And the ratio FDI/Jobs stays surprisingly high even after considering the effect of inflation.

So it appears that a lot of it has not created enough good jobs and is probably of a speculative nature. And we know that the unemployment rate has stayed in double digits since July 2005 while the savings rate has hit a 30-year low.

Bumper crop, quand tu nous tiens...

Does it Take Rs39 Billion to Create 7,000 Jobs?

What am I talking about?

Did you know that our economy created some 33,000 jobs the first time Sithanen was around as Finance Minister -- i.e. between September 1991 and December 1995? And that happened with Mauritius receiving about Rs1 billion of FDI over that 4.25-year period.

Now, given that we apparently received Rs40 billion over the last 4.5 years and that the economy created 40,000 jobs this means that the extra 7,000 jobs seemed to have been created with the additional Rs39 billion. That's a lot of billions for only 7,000 jobs if you ask me.

Tens of Billions of FDI Later, Jobless Rate Still in Double Digits

Unemployment is expected to have ended 2009 at 10.8% up by 0.4% from its level of a year before. That's kind of strange given that Mauritius received more than Rs6 billion in the first three quarters of last year. And that followed two years of Rs11 billion each.

In fact the jobless rate has stayed above 10% over the past 4.5 years. That's very surprising because the Rs40 billion FDI that has poured into Mauritius over that period is a massive amount which even under a mediocre type of economic management should have pulled down the unemployment rate much closer to the ground and made everyone richer.

Nothing of the sort happened: the poor got hit with record inflation and the savings rate is at a 30-year low.

Making Sense of Sithanese

How serious is the Minister about eradicating poverty?

Simply check the cumulative rate of inflation -- the worst enemy of the poor -- as well as for the presence of explicit inflation targets. Federation 2 took 4.75 years to clobber the population with the high rate of cumulative inflation of 23.90%. Sithanen was in a hurry. He took only 2.89 years. And he has systematically violated article 5.2a of the Bank of Mauritius Act by not providing any inflation targets.

Minister's central objective was to set the stage for robust growth.

That didn't happen. His average will be around 4.3% by the time we go to vote next year. That will be the worst performance in decades. The numbers don't change that much if we exclude the last 12 months.

He's gonna brag that his reforms have brought in Rs34 billions of FDI.

Whilst it's true that we've received a lot more FDI, these big inflows have not benefited a majority of the population because they've been mismanaged. Just ask or look around. Better still, check the national savings rate. It's currently hovering at a 30-year low of 12%. Besides, did you know that the average growth rate of Sithanen his first time around (September 1991 to December 1995) was 1.0% higher at 5.3% although he got only Rs1 billion of FDI over 4.25 years?

Thanks to the Sithanen reforms, Mauritius is now the 17th best place to do business.

The Doing Business rankings measures red tape and nothing else. Even the World Bank doesn't trust it, so why should we? Furthermore, did you know that Mauritius clocked a 23rd spot in the 2005 rankings -- before the reforms had actually begun -- but 9 spots lower at 32nd in the year of the early harvest and six spots lower at 29th in the year of the bumper crop? And if we gained a few spots this year it's mostly because we've made firing workers easier and gamed the index by passing a rank-raising law. Expect wild swings in our rankings in the years ahead.

Dutch Disease Turns 50

Here's what happened in 1959. When Holland exported the gas it had discovered in its waters, that increased the value of its currency and made other industries less competitive. In the process thousands of jobs were lost. The term was coined by The Economist in 1977 to remind us that what was supposed to be a blessing turned out to be a curse.

Now, getting record amounts of Foreign Direct Investment (FDI) like we did starting 2006 should have had a similar effect. Our currency should have appreciated and made us all feel richer. And we could have allowed it to appreciate painlessly so that the non-greedy section of our manufacturing sector had had time to adjust.

But as you will recall, that's not exactly what happened. We had Sithanen on TV informing us that a fatwa had to be issued on our rupee in the second half of 2006 on the basis that it had not depreciated for a few years! And that was done in a year of agriflation and after the finance minister had removed subsidies on rice and flour and introduced an inequality-creating flat-tax.

And just to dissipate any remaining doubts that we might have had that this was coming straight from Kafka, a 'Person of the year' award was even attributed to Dr. Sithanen in the same year.

Sithanen vs. Sithanen

How does the current Sithanen compare with the Sithanen of the momem meyer vintage? Not too well am afraid. First of all growth has been lower by half a percent every year. Which makes you wonder what has been the effect on our economy of Rs30 billion of FDI we received in the last three years given that only about Rs1 billion FDI poured into Mauritius during the first stint of the Doctor.

Rama has also created a lot of poverty each time he has been around. He has even accelerated the rate at which poverty is created by close to 150 basis points on average every year since July 2005. The memories of savat leponz and gato pima seem to have faded beneath the sands of time.

Shouldn't FDI Numbers be Adjusted?

The Finance Minister mentioned in a press conference yesterday that FDI for 2008 was Rs11.4 billion. I just wanted to know whether that figure includes money that left the country in relation to the twin hedging mess at Air Mauritius and the State Trading Corporation. If not what is the adjusted number and who signed the cheque and when.

The other thing I don't understand is how come the cumulative inflation rate from July 2005 to December 2008 is 29.85% although he claims we received some Rs30 billion over the same period. Is there some special economic rule that no one but him is aware of that for every Rs1 billion FDI that we receive we should also get 1% inflation?

A 3.9% Inflation Rate is Not Low Enough

That comment was issued by an economist in connection with the 2004-05 budget. He further remarked that our major trading partners were clocking rates of inflation of 1-2% with some of them even experiencing deflation.

3.9% is not bad if you ask me but what is more important is that citizens trust that you are serious about combating the worst enemy of the poor. A good way of achieving this is to keep inflation within a target (ideally between 1-3% but 4-6% is not a bad place to start either) and to have the people in charge of fiscal and monetary policies never take their eyes off that target.

Fastforward 5 years and that economist has been Minister of Finance for almost 4 years. So here's a good time to see how he's been doing on the inflation front. Not too well, I'm afraid. As at December 2008, his average annual rate of inflation was 8.53% which is more than twice a level he thought was too high only a few years back. In fact that's 3.5% more than the average annual inflation rate of 5.03% for the previous government (or 70% more if your brain can only think in percentage terms).

And if inflation is so high it's because he's been making blunder after blunder after blunder or if you prefer because he doesn't seem to have even the smallest clue as to how our economy should work. Because if he did he wouldn't have brutally depreciated our rupee in the second half of 2006 at a time when record FDI was coming in the country (FDI is usually associated with an appreciating currency) and he would not have kept gas prices at a level that's killing our competitiveness.

Top 10 Reasons Why Solutions to 95% of Our Problems Are Not Domestic

No. 10. More reasonable electricity prices have been promised by Navin Ramgoolam for more than a year now. You should blame Mick Jagger if you've been waiting for Godot.

No. 9. Oil prices at the pumps remain high and are killing our economy to finance the reverse Robinhoodness of the flat-tax duet. Not really. It's Deepika Padukone's fault.

No. 8. More than a third of the students who fail the CPE do so because the exam is way too difficult. That of course is U2's Bono's fault who's been dishing out one great song after the other and disturbing our kids.

No. 7. Record FDI pouring into the country since 2006 should have made everybody richer through an appreciating currency had our national bean-counter along with the then Governor not been in a hurry to create double-digit inflation. Just kidding. If our currency crashed in the second half of 2006 it's because Scorpion Queen Khun Kanchana didn't hold the little darlings in her mouth long enough.

No. 6. The controversial reintroduction of the daylight saving time was imposed on us by Bernard Madoff.

No. 5. We have to blame Aung San Suu Kyi for staying too long at home if Sithanen did not anchor our inflation expectations by not providing the Bank of Mauritius and hence the country with a target range for inflation as required by the law between 2005 and 2010.

No. 4. Navin Ramgoolam has been PM for close to 9 years and our traffic problems haven't improved. Far from that. Nah, it's because Paris Hilton hasn't been partying hard enough!

No. 3. If Air Mauritius is technically bankrupt it's not because we have an incompetent bunch managing it. No way. It's because Hillary didn't win the Democratic Party's ticket in the last US President election.

No. 2. It is very easy to establish a link between the fact that we don't have a sufficiently comfortable public transportation system and the number of Asian lions that were born in 1859.

And the No. 1 reason why solutions to 95% of our problems are not domestic is

No. 1. People lost their lives in flash floods in the same week that water stoppages were in force in 2008. That of course is because the snow atop Mt. Kilimanjaro melted earlier than usual.