Opinion - The economic potential of Seychelles |07 July 2022
This paper expands upon some of the topics and ideas present in position paper number 3; ‘Desirable and realistic economic diversification”.
Firstly, let us consider matters relevant to Seychelles’ national economic potential. Much has been written and stated (within a Covid - reactive – context) about our need to diversify the economy, to not (to revert to a cliché) put all of our eggs in one (tourism) basket. But when we consider this highly important economic sector which, up until 2020 was replete with eggs, it is hard to imagine its economic pre-eminence being eroded any time soon. As previously stated, for the foreseeable future, tourism is IT.
The economic diversification commented upon in paper 3, and which is suddenly high on the nation’s agenda for change, was rarely mentioned pre-pandemic, perhaps because it is human nature to adopt an ‘if it ain’t broke, why fix it?’ approach. The economy chugged along and while the development of other economically significant strands was mentioned, it was usually done so without great urgency, unless there was recognition of a relevant, tangential and powerful issue such as environmental protection.
Indeed, diversification was most significantly proposed within and across the tourism sector itself, with both the government and the private sector recognising that the tried and tested ‘sun, sea and sand’ holiday formula was past its sell-by date. Even before Covid ripped through the industry working groups were addressing the question of how to offer richer experiential holidays, perhaps activity-based or with a strong cultural tourism flavour. Tourism diversification was recognised, alongside the delivery of excellent service standards, as essential to the nation’s survival within an increasingly competitive global market. Beautiful natural environments coupled with agreeable climates abound. One has only to turn on any Windows computer to see a desktop suddenly filled with images of wondrous destinations. None of them Seychelles by the way. It has been clear for some time that tourists, especially those from our traditional European markets, expect more for their money than agreeable accommodation, directions to the nearest beach and, perhaps, an invitation to patronise an invariably over-priced spa.
As Covid stabilises and the tourism sector begins to recover from enforced hibernation diversification across the industry is back on the table, with activity/experience packages, cultural workshops and tours and a host of gastronomic niche events being developed. Key players such as the Hilton group are expanding vacation packages crammed with physical, cultural and – dare we say it – spiritual/meditative options.
The key word regarding this first part of our topic line is ‘potential’ – a word which smacks of the new, the possible and the important. It expresses the imagination of our collective future.
But what is realistic and achievable, with the post (or ‘near end’) pandemic fiscal landscape tentative and frail? After taking a holiday on interest payments near the start of the lockdown commercial banks are now requesting repayments which reflect a compound accumulation of money owed through deferment. New borrowing is subject to enhanced security and viability filters, with banks apparently less eager to back fresh investment than they were in the past. Companies with international backing may well be able to overcome these difficulties and expand, diversify or integrate, but insular Seychelles companies will not normally have this advantage; any development will have to be funded within local market templates.
Could the government assist? Unlikely. FA4JR, the last administration’s attempt to support the private sector through a deep Covid-triggered recession cost close to one billion rupees. Lack of inflows linked to the collapse of tourism have left the Ministry of Finance looking for cuts rather than opportunities to fund development. And the government still has to meet the monthly salary bill for its bloated (in HR terms) ministries.
Therefore, it is the private sector which will need to make the running if the economy is going to not only recover post-pandemic but also grow. If successful increased inflows will alleviate the fiscal pressure upon the government which, possibly, could unlock central funding for specific initiatives which complement said growth. This circular velocity is, of course, easier to illustrate theoretically than practically.
The African Development Bank took up the theme of economic diversification in its end of 2020 report, as follows:
The fiscal and current account deficits are projected to narrow to 1.0% and 31.1% respectively in 2021 and to 1.3% and 27.9% in 2022. Insufficient economic diversification and vulnerability to external shocks (more than 25% of GDP comes from tourism) and climate change pose the main risk to the outlook.
Looking closely at the bank’s closing statement we can also note that inefficiency in public and private sectors will also threaten a healthy outlook.
Any successful capitalist economy is based upon an efficient framework, or rather a number of frameworks: the framework of governance, the framework of taxation, social and cultural frameworks and, of course, our old favourite, the education system which, as a framework designed to deliver the future prosperity, moral and ethical health of the nation, is perhaps the most explicit bridge between the two parts of our theme.
Efficiency is – to coin a provocative phrase – intelligent laziness. Perhaps this will come home to roost as non-human (but human-created) intelligence expands. And exactly what does the term ‘efficiency’ mean to us, as technology runs rampant through formerly and exclusively human pursuits? If AI and robotics in general, with their tireless effectiveness and cost-saving character, develop as we are told they will, then how willthis impact upon an economy which, when all is said and done, both determines and reflects our individual lives? Mahé Council has touched upon this issue in position paper number 6, which addresses the threats and potential benefits of new technology.
But before we dust off the crystal ball let us remind ourselves of some essential economic facts about the Seychelles Economy:
In December 2020 the African Development Bank responded to the Covid crisis relevant to Seychelles as follows:
Pandemic-induced supply disruptions pushed inflation to 4.1% in 2020 from 1.8% in 2019. Tax collections were estimated to decline in 2020 at the same time that social expenditures increased to mitigate the impact of the pandemic. As a result, the tax-to-GDP ratio declined to 27%, below the average of 32% over the previous five years. That made for a fiscal deficit of 5.0% of GDP, compared with a surplus of 4.5% in 2019. Lower export and tourism earnings contributed to a widening of the current account deficit to 32.3% in 2020 from 15.9% in 2019. The reduction in tourism revenues was also expected to lead to a decrease in foreign exchange reserves to $563 million in December 2020 from $580 million in 2019. The pandemic also caused downward pressure on the exchange rate…
In October 2021 the World Bank reported as follows:
Seychelles has the highest gross domestic product (GDP) per capita in Africa, at $12.3 billion (2020). It is highly dependent on tourism and fisheries, and climate change poses long-term sustainability risks.
Among Seychelles’ development challenges is a focus on greater productivity, participation and performance of the economy as means to increasing shared prosperity. Some of the main institutional challenges in this regard are notably barriers to open and operate businesses; inefficiencies in public sector management, such as limited statistical capacity; scope for a more strategic and sustainable approach to social protection; and the need to broaden access to quality education and skills development. Climate change adaptation, including through strengthened disaster preparedness systems and enhanced coastal management, is also key.
We are now past the periods referred to in the above comments, however there remains important synergy between further notes from the ADB regarding economic prospects post-pandemic:
The country received support from cooperating partners, including the International Monetary Fund ($31.2 million), the World Bank ($15 million), and the African Development Bank ($10 million). A renewed and strengthened focus on debt management is key to ensuring continued growth and avoiding a repeat of debt-related macroeconomic risks. Policy actions should include first, further expenditure rationalisation by focusing on critically needed areas and revenue mobilisation by widening the tax base (30 companies account for 80% of total tax collection), and second, economic and market diversification and improvements in the business environment to attract investment, accompanied by a renewed focus on debt management and restructuring.
So, the external view promotes diversification and systemic restructuring.
In order to address these issues perhaps we need to revisit the traditional economic building blocks of an economy, the four factors of production, which are the same in Seychelles as everywhere else:
LAND - LABOUR - CAPITAL – ENTREPRENEURSHIP
If we evaluate these components within (and indeed outside) a Seychelles context we might argue that TECHNOLOGY needs to be added. The first two also need to be contextualised; we have limited land and development will often require re-definition of land usage rather than expansion into new land areas (which we don’t have). As for labour, we have low population growth, estimated at 0.8% annually by the WHO. This is quite apart from the quality of our local labour force. The Ramkalawan administration has made it clear that the local employee cohort must do better. But how are decades of bad practice rooted in a poor education system and unhelpful nationalistic political rhetoric to be unravelled? It will be painful – like taking a much-loved dummy away from a toddler who has spent 2 years sucking on it. There will be resistance…
As for capital where will this come from at a time when government is borrowing heavily from the central bank which is in turn issuing bonds to raise cash (and presumably withdraw some liquidity from an inflationary marketplace). We can look outside – as we so often do – but the pandemic has impacted on everyone’s ability to invest.
We close with a consideration of future impact of technology in Seychelles, a topic which will impact on the other factors of production. It is inevitable that the characteristics of these FOPs twenty years from now will be radically different from what they are today. Technology will revolutionise the education system as well as the work place.
Many of today’s professions will be obsolete in two decades.
A new generation of ‘futurists’ are constantly reviewing technological developments in order to predict what the future societies and economies of the world will look like. Their work is shared with organisations such as Nasa, Google, Microsoft and the United Nations, to name but a few.
One key issue is the replacement of human beings by machines – essentially robots with AI. Current thinking suggests that machines will be better than humans at translating languages by 2024, driving trucks by 2027; working in retail by 2031; writing a bestselling book by 2049; and performing surgery by 2053. All human jobs will be partly or fully automated within the next 120 years.
An increasing number of product deliveries are already done by drones, and some jobs may not exist at all in the future: taxi drivers are likely to be replaced by self-driving cars; cashiers and retail staff will largely be replaced by machines that will let you pay for items yourself (such shops already exist). Much telemarketing and customer service will be done by artificial intelligence.
And while accountancy, construction, law, teaching and medicine will still exist, they will look very different. For example AI has proved to be more effective than human doctors in terms of diagnosing certain conditions. Similar advances are being made in dentistry, where robots are already doing routine jobs better than humans can do them.
In accountancy, work that used to be done by humans is now being performed by computers; while in law, AI will be able to read through vast swathes of research that previously a recent graduate would have had to plough through. A recent study by the multinational professional services network Deloitte concluded that 100,000 legal roles will be automated by 2036.
We can extrapolate some potential benefits as well as problems for Seychelles if the above – or anything like it – truly comes to pass. Basically, fewer people will be required to deliver professional outcomes and they will work much less than is currently the norm. How society responds to this increased ‘leisure’ time will be extremely important, as will the response of educationalists and curriculum designers. We have more to say about these issues in papers 1 and 11.
But amid all the disappearing jobs there is some good news, with experts suggesting that a world with the human and the machine working together in symbiosis can evolve, with humans freed from repetitive work to create a new ‘wisdom economy’. As technology takes over substantial production activities the parts [of us] that make us human (and which will be hard for machines to match) – our empathy, creativity and problem-solving ability – are going to be more important than ever.
So how can Seychelles identify and develop economic diversification which takes advantage of technological advances as they happen, in real time?
Some of the above has obvious connectivity with tourism – automatic hotel check-ins or guest translation facilities for example, or the end of taxi drivers ripping off their newly arrived clients through the introduction of automatic self-driving vehicles with fixed charges.
But outside our tradition breadwinner we can recognise opportunities within the medical services sector, with Seychelles promoting medical tourism, inclusive of high-end dentistry, with costs reflecting the utilisation of machines alongside a unique holiday experience. Seychelles could see a new cohort of healthcare professionals and biohackers. Biohacking is the practice of using implantable technologies, personalised diet, supplements, medical procedures and stem-cell injections to extend human life decades beyond the current normal range. An ageing population also means there will be a big demand for carers, medical technicians and nurses, and where better to enjoy some twilight years than Seychelles?
Can our education system respond to these challenges and opportunities? It has to. Apart from the overhaul of an unfit for purpose school curriculum (reference paper 1), UniSey, the national university will need to address the rise of apprenticeship degrees, where students undertake paid work alongside their studies, with their education paid for by their employers – local or international. Students may earn ‘micro-credentials’ on shorter courses that contribute to their degree and many courses will mix online and face-to-face learning – a process widely adopted during the pandemic.
The jobs market of the future will continue to evolve, meaning that people will need to be reskilling and continuing to learn throughout their life. In fact, many experts believe that the notion of a job will change radically, and that there will be no straightforward jobs for life – instead, people will work on different projects simultaneously, creating a society of generalists and people with multiple projects on the go, to the extent that ‘jobs’ might be redefined as constellations of projects, to use a term coined by Nikolas Badminton.
In the midst of an uncertain future young people globally are being advised to look at the list of 17 world development goals published by the United Nations. These defined world urgencies will drive much professional activity in the future – focussing upon problems relating to hunger, clean water, pollution, climate, over-population and education.
Despite the fact that we are a small nation we have a responsibility to each other and to those yet to be born here to analyse the best thinking and research on speculative futures, and anticipate and plan for a very different economic future.
Contributed by the Mahé Council Think Tank
Disclaimer:
The views expressed in this piece are those of the author(s) and do not necessarily reflect the views of the Seychelles NATION newspaper