Recently the World Bank Directors and International Finance Corporation (IFC), spent two (2)days on a mission to the Seychelles to see for themselves, what the situation in Seychelles was like, after the initial October 31, 2008 embarkation on an IMF programme by the Government of Seychelles.
The Seychelles have signed on to a second IMF programme and IMF is currently assisting Seychelles with a second $31. Million programme for two years. The World Bank has given advice to Seychelles, and it has given a $9Million unconditional grant to assist the Government through difficult times.
The World Bank spent its first day in meetings with the Ministry of Finance delegations, which included Minister Mr. Danny Faure and Principal Secretary of Finance Ahmed Afif. The delegation met with Mr. James Michel, current President of the Republic of Seychelles.
The World Bank second day was spent in discussions with the Seychelles Chamber of Commerce, business and Industry. In attendance was Mr. Dolor Ernesta, Vice Chairman of SCCI, representing insurance brokerage and estate agency sector, Mr. Palani, Treasurer SCCI representing printing and accountancy sector, Mrs. Nicole Tirant-Gherardi, Secretary General SCCI, Mr. Christopher Gill, representing SHTA Tourism Industry sector, Mr. Gonzaque Dóffay, SCCI Councillor, ship chandler Services Sector, Mrs. Germaine Michaud SCCI Councillor, representing the Poultry Farm, water bottling, agro-industrial sector, Mr. Paul Hodoul, SCCI Councillor, representing Car Hire Association, Mr. Albert Payet, SCCI Councillor, Seychelles Tourism Board, Telecommunications sector, Mr. Joe Tirant, MD Oceana Fisheries, Fisheries Sector, Mrs. Sona Oliaji SCCI Councillor and Retail sector.
Dr. Ramadoss, Chairman of the SCCI was absent.
Issues addressed focused on the issues that remain to be addressed that pose an obstacle to growth in Seychelles as the Seychelles implements second generation reforms to implant the free market system in a once centralized Fabian economy.
The World Bank delegation highlighted categorically, that future maintenance of the Seychelles economy and its success will have to be based on private sector growth. The process Seychelles has undergone from the early days of October 31, 2008 when she embarked on an IMF programme, has demonstrated remarkable success according to the World Bank, but the success has not been solidified and stabilization of the macro economic conditions in Seychelles are not assured.
The World Bank said that only private sector growth in the Seychelles economy will ensure that much sought for stability. This is only possible through cooperation between Government and the business community.
Impediments To Growth Were Highlighted By The Business and Industry Community.
Nicole Tirant-Gherardi, Secretary General of SCCI, said there was a lack of infrastructure in place in the Country to effect growth. There is a lack of policies in place to facilitate growth in the economy. Mistrust between the business community and the Government, lingers on and it is still very strong.
In this meeting no press, SBC, Nation, or any other, was present to highlight the valuable points made. The World Bank was surprised that the meeting was held at the Ministry of Finance conference room, and not at the Chamber of Commerce conference room or other venue.
Mr. Albert Payet of STB, advised the World Bank that many foreigner owned companies in the Tourism Industry were wedging the Tourism Industry revenues with heavy management contracts, that are paid overseas and the money never enters the banking system in Seychelles. This results in a drop in receivables as the Tourism industry registered -1% in arrivals, but -25% in receivables for 2009.
Mr. Payet said that it is important, that the Tourism Industry retains strong local participation, in order to encourage reinvestment in Seychelles. Seychellois will re invest in Seychelles. This is proven over and over again.
Mr. Payet mentioned that there are cases wherein small Seychellois run hotels are registering larger turnover then large multi-national investments in Seychelles. This he felt, was not right and the anomaly had to be addressed to restore Seychelles to long lasting growth posture.
Mr. Payet addressed the excessive taxing by Government of Seychelles of the telecommunications Industry, 22% tax on receivables. He said this tax is unacceptable and remains a direct impediment to growth in Seychelles economy, as telecommunications will have to be cost effective to world standards for Seychelles to succeed in an ever more competitive market.
Mr. Joe Tirant highlighted that in the fishing industry, the break even catch for long liners is currently 2.5 tons of fish. High operational cost is attributable to high cost of fuel, due to heavy taxes over 300% and the burden of ongoing piracy issue, which threatens the viability of Seychelles fishing industry and making it uncompetitive in the world market place today.
Secondly, as the fishing industry is seasonal, fishing companies must by and store fish for Southeast monsoon period. Cost of running freezers, causes price of fish to surge, as PUC has increased prices by 27% in this year alone. The reductions announced recently, will not benefit his sector as they consume much more than 600 kilowatts per month.
Mr. Tirant informed the World Bank that a number of projects were announced to create a larger fishing port, but has since been shelved. Port facilities badly need expansion in order for the fishing industry to expand. Without this much needed expansion, the Fishing Industry will stagnate.
Mr. Christopher Gill, representing the SHTA, Tourism Industry, advised the World Bank, the main obstacle to growth in this sector, remains the lack of infrastructure in the areas of electricity, water, roads, and an employable work force.
In electricity, Mahe has only 20 megawatts of capacity. Its generators have exceeded their life span. The two generators Sheik Khalifa will provide will not be sufficient to meet necessary growth targets needed to keep Seychelles afloat in future. They will be two (2) 7.5 megawatt plants. PUC lacks necessary network delivery capacity to get electricity throughout Mahe. Mahe needs 60 megawatts. Current system can collapse any day.
On Praslin we operate on 9 megawatts and require more output to meet demands for growth in future. Praslin and La Digue will need 15 megawatts in the coming year. The current system can fail anytime.
Sewage systems need upgrading in order to ensure growth capacity demand is met on Mahe, Praslin and La Digue. Current system in Greater Victoria is time bomb making La Misere look like a minor incident, potentially.
On all main tourist islands, water catchments are inadequate and hotels regularly on annual basis have water shortage issues which they must face. La Gogue Dam and Rochon are inadequate to meet demand the industry requires.
On Praslin water storage capacity is only 3 days. With the new Raffles project, this will drop to 1 ½ days’ storage.
Desalination plants have not solved the problems, which government promised it would.
In regards to Employment, the Industry is faced with a situation wherein it does not have an adequate pool of employable-trained Seychellois job seekers.
When the Tourism Industry must resort to employing expat labour from overseas, it is faced with a very tedious, dysfunctional GOP application process that can take as long as 5 or 6 months to fill a post.
This is unacceptable and poses a serious threat to future growth in Seychelles, Mr. Gill said. The labour issues in Seychelles have to be de politicized to enhance and insure the success of the Tourism Industry as well as other key industries in Seychelles.
An application for a project before the Seychelles Investment Bureau (SIB) can take over Six ( 6) months. This is unacceptable and poses a serious threat to the viability of doing new business in Seychelles. The delays act as a serious impediment to encouraging investment in Seychelles today.
Government talks the talk, but it does not do the part that is most important: walk the talk.
World Bank officials pointed out that Seychelles has survived through the reform process only through the good grace of the World in the form of donations, debt write offs, unconditional grants etc.. Totalling Scr.700 Million in 2009. To succeed, it will now need a micro economic overhaul.
Mr. Albert Payet interjected and said, Seychelles ranks number 115 under the “Easiest Places To Do Business in the World” rankings. Mauritius ranks 15 and Singapore is the easiest place to do business in the World. We need to see Seychelles surpass Mauritius and catch up with Singapore. We must set an agenda to accomplish this objective.
Mrs. Soona Oliaji representing the retail sector, denounced that cartels existed in the Seychelles retail sector, as has been alluded by the Government of the day. This is pure fabrication on part of the Government of Seychelles and it is dishonest to suggest that cartels exist in Seychelles. If they do exist, Mrs. Oliaji asked that they be made public.
Secondly, while foreign exchange is now available at the banks, goods are imported, and sit on the shelves. People lack spending power to purchase goods.
Another problem the retail sector faces is the cumbersome labour laws. New salary requirements force business to pay high wages, but this results in business hiring less clerks and limiting staff as turnover has been reduced.
Thirdly, to allow foreign retail companies into Seychelles, with special privileges is an unfair business practice, that will hurt businesses that have suffered for 32 years, through thick and thin, to provide
Seychelles with goods. Seychelles has only 20,000 wage earners. 10,000 of them are in Victoria, Mrs. Oliaji pointed out, she does not see how such a large retail outlet as Casino will survive with these numbers.
Dr. Phogat, from Bank of Baroda, representing the Seychelles Banker’s Association confirmed that the Government of Seychelles, had been placing pressure on the commercial banks to reduce interest rates by -2 %. This according to Dr. Phogat was very difficult for the banks to do on a long term. Reason being, when government announced reform in 2008, it also announced a financial game plan which was for Three(3) years, to offer high interest on Treasury Bills, in order to mop up excess Seychelles Rupees in the system.
At one point it was 32% and went down to 18% and 15% then 4% and 3.5% currently. Commercial banks have offered 12% interest or more on fixed term, relying on the Government Three(3) year proposed plan. Now Banks are losing money on deposits. 12% Paid out to depositors– 3.5 % commercial banks receive from the Central Bank is the net loss on deposits. Scr 3.5 Billion owned by commercial banks are held by the Central Bank. Lending out that money, in real terms, can take many years, according to Dr. Phogat; if banks seek out good risks. It is not a 12 month effort as the Government wants us to believe.
By not following the plan the Government presented itself, the commercial banks of Seychelles have been placed in a highly compromised position, which will have negative impact on their balance sheets. Finally, given this situation, it is not reasonable to ask banks to take a hair cut of 45% on Government of Seychelles domestic debts. This will compound the loss of the banking sector.
Mrs. Germaine Michaud representing the Agro industries said farmers are struggling to survive. High cost of money on overdraft, high electricity costs, and regular cuts, overburdening Employment Act, which make labour expensive, high absenteeism tradition drives costs upward, and is making Seychelles products non competitive with imported products. Chicken crisis is a case in point.
Government of Seychelles set no clear policy for Agro industries since October 2008. It has been managed from crisis to crisis. There has been no advance warning of imminent changes. Many farmers are facing the reality of closure today as the result of consecutive loss take effect on their balance sheets.
Mr. Paul Hodoul, representing the Car hire Association said the cost of doing business in Seychelles since 1997 has skyrocket. Labour policy is strangling the business sector. High interest rates with banks are making business non profitable. Scenario: in 1997 a car was rent at SCR 450.00 per day. At the conversion rate of the time, it was $90.00. Today, the cars are rented out at SCR 450.00, same price. At the bank conversion rate, it is $30.00. Interest rate in 1997 was 8% and today, it is 16%.
Mr. Hodoul proposed to build a dry dock business in 1997, today if implemented, could service 40 purse seiners of the European fleet. Currently the fleet goes to Mauritius for dry dock service.
Mr. Hodoul said he supported the need for fishing port expansion. Both infrastructure improvements would have resulted in millions of dollars of additional growth revenue for Seychelles. Nothing has been done. All plans have been shelved.
World Bank reasserted that Seychelles had embarked on macro stability and it has done a lot in a short time, as most small economies tend to do. However, stability has not solidified and Seychelles will have to continue to work towards solidifying macro stability.
The World Bank will continue its engagement with Seychelles to increase clarity and interaction with the private sector. Government and Business will have to increase interaction and cooperation to remove Seychelles from the vulnerable position, she is still in, to secure the early gains made thus far.
This is an opportunity to be seized by Government and the private sector and should not be missed.
Filed By: Christopher Gill
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