External Shocks Middle East Crisis, Currency wars, Food & Energy Crisis, Global Recession Its impact

ct on the sustainable development of SIDS with special reference to Mauritius

Keats College (Boys) April 21, 2011

Sanjay Jagatsingh, CFA Mascarenhas Analytica and kozelidir.blogspot.com

There will always be shocks: external and internal

How we fare depend on how we respond to these events i.e. how quickly we solve problems that matter

Our responses between 2005 and 2010 have been dismal

The worst economic management our country has experienced and shocks have been used to disorient us or as scapegoats + voodoo accounting

Few Shocks and Our Responses

Oil prices go through the roof between 2005 and 2008 Oil prices go through the roof Food crisis America launches a stimulus package to rescue its collapsing banking system so as to avoid a depression We make the purchase of bigger cars more attractive We keep 15% VAT on petroleum prices We sit on our hands after brutally depreciating the rupee Stimulus package (SP) is launched here at a time when our banks were churning record profits (MCB & SBM doubled their profits between 2005 and 2008). Funds advanced to companies in booming sector (BPO).

Still, were told that

SP saved 4,700 jobs (incl. jobs at Infinity)
And at the same time that reforms have worked because the economy has been creating 10,000 jobs per year since reforms started

Lol!
If your economy is creating jobs this fast you definitely dont need a SP.

Moral of the story

Extremely dumb policies produce extremely dumb results

Meet the dumbest policy of all

The 15% flat tax which was supposed to generate (and depended on) Robust Growth

Theory behind flat tax is if we cut the taxes for the rich were going to get very high growth rates
Not exactly what you would call Robin Hood, eh?

We never got the robust growth

10 9.7

4.33% 4.41%
5.2 5 4.4 4.8 5 5.4 5.2 4.1 3.1 2.6 2.3

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Data source: CSO

And that created a big revenue shortfall for govt

150 140 130 120 110 100 2005-jul 2005 2006 2007 2008 2009 2010-apr

7%

Gap

Actual

Which is why Ministers between 2005-2010 complained that they were told that there was no money.
We kept wasting Rs5 billion per year (audit report) so although weve been clobbered with abusive electricity and petrol prices there was still no money to solve real problems (like water, mass transit system, education)

And recall that VAT was raised from 10% to 15% between 2000 and 2005 to build schools
Did we see any additions to infrastructure of this scale between 2005 and 2010?

+ Foreign debt doubles in 3 short years to finance growing inequality

20

22.10b 2010
17.67

18

Billion rupees

16

14

13.45 12.45
Ali takes over

External shock?

12

10

8.54
8 2006 2007 2008 2009

Source: Bank of Mauritius

+ Pump Prices Stayed at Unreal Levels

120

100

80 Index Value

Laflam, laflam
60

External shock?
40

20 IPE MUR APM 0 Jul-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10

Source: Data from STC, BOM

So Mauritius was made more vulnerable (reduced competitiveness so that the rich can enjoy their lower taxes)

New model blah blah blah is actually old crap

Reagan cut the taxes for the rich by 10% in the 1980s
He never got robust growth but US Federal debt increased from $1 trillion to $4 trillion in 12 years and created more inequality

Ya, but we got a lot of FDI

Blah, blah, blah

Kiutikwar, tu FDI parey?

40 35

Jobs created (000)

30 25 20 15 10 5 0 0 5 10 15 20 25 30 35 40
Navin 1 (1996-2000) FDI Rs3.4b, Jobs 21,500 Federation II (2000-05) FDI Rs8.9b, Jobs 21,600 Sithanen 1 (1991-95) FDI Rs1.3b, Jobs 33,300 Navin 2 (2005-09) FDI Rs39.1b, Jobs 40,000

Source: CSO, authors calculation

FDI received (Rs billions)

12.0%

Massive FDI Has Barely Mattered

11.70% 39.3

45

40

11.5%

35

Unemployment rate

30 11.0% 10.80% 10.60% 10.5% 10.30% 10.40% 15 25

20

10.0%

10

9.5% 2005 2006 2007 2008 2009

Source: CSO, BOM and authors calculation

Cumulative FDI (Rs billions)

SIDS dont rebound with same vigour

16 mru 14 sgp

12

10 GDP growth % 8 6 4

0 2005 -2
Data source: CSO and Statistics Singapore

2006

2007

2008

2009

2010

SIDS and inflation

12 mru 10 sgp

8 Inflation %

Poor did not have to wait for financial meltdown to be thrown in a recession in 2006

0 2005 2006 2007 2008 2009 2010

Data source: CSO and Statistics Singapore

Few thoughts on growth

All growth rates are equal but some growth rates are more equal than others
Equally-distributed growth
10
50 40 30

Bean-counting growth

20 10 0

0 Poorest Richest

-10 Poorest Richest

CSO and authors impression of the impact of bean-counting

5.3% growth of 2008 doesnt look too good

% Growth in local currency
10 10

% Growth in USD

5.3 5 1.1 0 0 1.24

MRU

SGP
-5

MRU

SGP

-5.15

-10

-10

CSO, Statistics Singapore and authors calculations

Share in Total Income

Households 10% Poorest 2nd decile 3rd decile 4th decile 5th decile 6th decile 7th decile 8th decile 9th decile 10% Richest
Source: CSO

1991/92 HBS 1996/97 HBS

change

2.3% 4.1% 5.3% 6.3% 7.3% 8.6% 10.2% 12.4% 15.7% 27.8%

2.0% 3.9% 5.0% 6.0% 7.1% 8.4% 9.6% 11.8% 15.4% 30.8%

-13.0% -4.9% -5.7% -4.8% -2.7% -2.3% -5.9% -4.8% -1.9% 10.8%

Sugar: then and now

Year 1979 2005 Weight in economy 18.8% 4.2% Growth Drag on rate growth -41.5% -5.0% -7.8% -0.2%

Source: CSO Data and authors calculation

Vrrrooooooooooommmm!
45 40 35 30 25 20.4 20 15 10 5 0.9 0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

44.1

% electricity produced with coal

34

40.3

24.4

25.9 23.9 21.7

26.8

11.9 6.1 2.1

Source: CSO

As a conclusion

The measure of success is not whether you have a tough problem to deal with, but whether it is the same problem you had last year.

John Foster Dulles, Former US Secretary of State

Water, Traffic, CPE, Road accidents, Poverty, Inequality

Frustration levels

Thank You!
See you online kozelidir.blogspot.com