Interview by Gafoor Yakub with SBC TV (Cont’d) |01 June 2020
Gafoor Yakub
‘National policies alone are insufficient, we need global solutions’
The following is the second and final part of the recent Q&A session conducted by SBC on live TV with Gafoor Yakub, businessman and chairman of Nouvobanq on Monday May 25, 2020 in the ‘Bonzour Sesel’ programme.
The first part was printed on Friday May 29, 2020.
Q: As a businessman from Penlac and the Chaka family, do you feel you are being well represented by the SCCI?
A: Well, SCCI is trying and it’s not easy. Perhaps they don’t have the right calibre of manpower to handle the complex issues of trade and commerce or to consult the right SCCI members at short notice. The majority of private businesses will tell you SCCI is not representative enough of the broad cross-section of the private sector. That’s because the SCCI executive committee consists of largely accountants, lawyers, and persons who worked in some ministry before and a few micro and small businesses from the tourism, art and craft industry and from the retail sector.
I am of the view that there are currently too many other small business associations being created, all with different agendas and heads, some possibly seeking funding from the European Union (EU) or United Nations (UN), and all competing with each other and with SCCI for airtime and for recognition or self-promotion. Maybe they are established because they are frustrated with SCCI. It’s very confusing to the rest of us. It’s almost like “there are too many chiefs and very few Indians” as the saying goes.
And if I may add, the same goes with the CSR tax. Many people rushed to open non-governmental organisations (NGO) or associations which qualify for funding their social activities with a percentage of the CSR tax proceeds from the private sector. I was getting close to 100 requests for funding every week. It was exhausting. I think this is a badly conceived policy that has to be reviewed. Either the government stops the collection of this CSR tax or changes its tax base from gross turnover to net profits before tax which would make more sense.
Q: An economic recession is inevitable in the months and possibly years to come. Should we be seeking the advice of the International Monetary Fund (IMF), World Bank, Organisation for Economic Co-operation and Development (OECD) and/or World Trade Organisation (WTO)? Or can we address the situation ourselves, based on our local state of affairs?
A: Yes, we should seek the advice of the IMF, World Bank or OECD on matters that we don’t have local expertise on but in areas where we have the local knowledge and acumen, we should address it ourselves. Under its Articles of Agreement, the IMF does not usually impose any strict rules; it usually provides its member states with broad guidance and advice. As a sovereign island nation, I believe we should be able to decide on our own destiny and be prepared to take bold, decisive action to deal with our local state of affairs.
IMF, World Bank and even WTO will always want us to remain open for trade and maintain a free market because we are a net importer and we export very little at the moment. Just look at the membership of the IMF and the World Bank. The USA, EU states, Japan and UK hold the majority of shares and they are promoting ‘globalisation’ so that they can export to us and the rest of the world. You try and export to them and you’ll see what kind of tariff and non-tariff barriers you encounter.
People need to also understand that the WTO rules of trade are not legally binding on any member state; the Uruguay Round of trade negotiations took over 7½ years and covered almost all trades but there has been additions and revisions ever since. This has led to the Doha Round of Talks which are still not complete to this day. Yet we, as a sovereign country, are insisting that our customs rates have to be kept at the lowest (25%) for those imports that are competing with locally manufactured products, while USA acts unilaterally and recently it disregarded WTO rules and imposed higher levies on Chinese imports into USA.
Q: CBS Governor Caroline Abel has been preaching about wise spending but the ministry for finance seems to be going for big spending by extending the financial assistance to the end of December 2020. Are they contradicting each other?
A: At first glance or prima facie, it may seem that way. But no, they are not contradicting each other. The government’s action to extend the date is a psychological winner; it gives peace of mind to both employers and employees till the year end. But economically you can argue this is unproductive spending of tax payers’ money on salaries where no income or productivity is being generated. Minister Maurice Loustau-Lalanne was dealing with R1.2 billion which has been topped up slightly now to R1.9 billion until the year end. It’s not an easy task as there’s constant pressure for spending. My view is that the government has done well to start with deficit spending, but it must make sure it’s only for a short while.
For those of you who understand the basics of Keynesian economics, deficit financing to fund recurrent expenditure should not be prolonged for a long time especially when it’s for unproductive expenditure. Otherwise there’s a risk of increasing aggregate demand that can lead to inflation. I’d like to see more emphasis on productive capital investment expenditure that can generate jobs and economic growth. CBS Governor Abel is also on the same track trying to ask people, relying on their goodwill, to be prudent and to reduce consumption of unnecessary products. Not an easy task because consumer behaviour is beyond CBS’s control.
What I would like to see is for the government to urge the banks in which it has majority share to invest in productive, bankable projects that will create economic activity especially now that interest rates are lower than before. Mind you, I am of the view that interest rates could be reduced further. The problem is the commercial banks are all risk averse. That’s their nature. Banks are operating at minimum risks. They invest depositors’ money in risk-free treasury bills earning over 5% interest and they lend you and I at a prime rate plus a 3% risk margin to cover for any potential losses. There’s an old saying that we used to say when I was working at the Ministry of Finance (1985-1994): they are having it so easy that “the banks are laughing all the way to the Central Bank”.
Back in 2008, the governments of the West bailed out the banks on their bad sub-prime lending. Now the banks should make an effort to help. I would like to ask all our commercial banks to change their focus, to be less obsessed with generating profits and dividends for the shareholders (including the government) and focus more on funding bankable, sustainable projects that will create economic activity and serve the greater good of our country.
Q: People have been commenting and writing in as we speak. Some have said to ask you to explain what is fiscal policy and how is it different from monetary policy?
A: Fiscal policy is all to do with the national budget or the domestic accounts of the macro-economy. Basically, you have your tax and non-tax income minus your recurrent and capital expenditures which results in a surplus or deficit. A deficit has to be financed by certain domestic or external instruments like treasury bills, bonds etc. A budget surplus has to be disposed of, saved or invested in a financial asset. Governments use fiscal policy to adjust their taxes or spending levels or to provide fiscal stimulus to industry.
Monetary policy has to do with the Central Bank’s actions to manage the money supply, as well as interest rates and liquidity within the banking system. Monetary policy can increase liquidity to create economic growth. The CBS can also take out or reduce liquidity from the banking system if it feels that inflation or consumer prices need to be curtailed or kept in check. Monetary policy is usually supportive of fiscal policy. A combination of these two policies is used to direct a country's economic goals.
Q: How can the government help? What do you think they should do?
A: Government has done quite a bit to make things better and to prevent a panic. We are quite lucky compared to what’s happening elsewhere. Look at Spain, Italy, Greece and Thailand. They are desperate to open up despite the high cases of COVID-19 because they face mass unemployment and a serious lack of government support or bail-out. At least our government came up with a bail-out plan for salaries. However, not everyone may qualify for it and policy decisions were being taken in piecemeal form which led to much frustration.
The general public felt that discussions and consultations were poor at the initial stages. Maybe the individuals that were being consulted in both the public and private sector lacked the necessary baggage that comes with experience.
Instead of looking at the short-term and dealing with the immediate demands or pressure on recurrent expenditure which involves ‘handing out’ tax payers’ money, I’d like the government to plan for the medium to long term and promote a ‘hands-up’ approach. Don’t throw money at people; show them how to fish, how to grow vegetables, and how to become self-sufficient.
I’d also like to see some fiscal stimulus to kick-start the broader economy – I mean the real sector (agriculture, fisheries, manufacturing, financial services, tourism, etc). The government should also look for serious budget expenditure cuts within the public sector to reduce wastage where it’s necessary and justified. We must plan ahead and prepare for a scenario of significant decline in tax revenue in the national budget, if the COVID pandemic stretches beyond 2020-21.
Q: How can we get out of this economic problem as a nation?
A: That’s a hard question. Maybe we should start drawing up short-term, medium-term and long-term measures between all parties concerned from both the public and the private sectors.
- Let us be more proactive than reactive. Let us try to be innovative. We need to brainstorm on this with the experienced leaders of industry and other practical-minded people for various sectors of the economy.
- Diversify the economy as I have said earlier
- Educate our people about the importance of the ‘savings habit’
- Use the digital channels and advancement to provide ‘Distance Learning’ as a product of the immediate future for our youth while we’re still under COVID.
- Develop our ‘human capital’. For instance, learn from Ethiopia. Under Haile Selassie, that country managed to invest heavily in tertiary education and train its own people who today hold key posts both locally and internationally, example the head of the World Health Organisation (WHO)Tedros Adhanom Ghebreyesus, chief executive of Ethiopian Airlines Tewolde GebreMariam, well-known economists, writers, etc. unlike us in Seychelles where we still have to depend on the skills of an expatriate to run our national airline.
- Let us build up on the spirit of volunteerism. Let us ‘nurture’ back the habit of helping our neighbour.
IN conclusion: Some may feel we are still in limbo. Others may be more optimistic because air travel will resume sooner or later. We must realise we cannot buy imported fuel with rupees; even our fishing industry requires access to forex to buy its imported fishing accessories. So, tourism will continue to be our primary bread and butter. Furthermore, banks must know they cannot afford to foreclose on low-performing agricultural or tourism-related projects because they are funded largely by borrowed money.
At the moment, grants and loans are simply the fastest and most effective way to help the families in need. I’m afraid that national policy measures alone are unlikely to prove sufficient in combating the effects of the coronavirus. We need a global solution.