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SCCI’s reaction to Budget 2018 |13 November 2017

The following is the reaction of the Seychelles Chamber of Commerce and Industry (SCCI) to the 2018 Budget presented by the Minister for Finance, Trade and Economic Development Dr Peter Larose on October 31, 2017.

“After exceptional growth rates in the years 2005-2007 of more than 9%, our economy was affected during the 2008 financial crisis. Since 2013 we have picked up in growth and growth rate of 2017 is expected at 3%.

According to the International Monetary Fund (IMF), the prospects for 2018-2020 is expected at a rate of approximately, 3.2 – 3.4%. We take note of the theme of the budget and the formulation of the Vision 2032 alongside the five-year National Development Plan.

The following are our considerations and suggestions with regard to the 2018 Budget:

 

Sustaining economic growth

The tourism industry is doing very well and has contributed significantly to the domestic economy this year. As a result, this growth is encouraging many new airlines to commence services to Seychelles. However, we need to be mindful of Air Seychelles as the Seychelles carrier and its contribution as an insurance for the tourism industry. In addition we encourage the government to ensure sufficient budget has been allocated to programmes that ensure the development of an ecological sustainable tourism industry. This is critical to ensure we remain as an exclusive and pristine tourist destination.

Furthermore, we are increasingly seeing the ugly side of drug abuse and the destruction it is causing. SCCI welcomes the appointment of the board of Agency for Prevention of Drug Abuse & Rehabilitation, as many businesses are being affected by the social implications resulting from the current drug abuse issues. Having an authority to take the lead on managing the current environment is much needed, as immediate solutions need to be identified. This must be coupled with more budget allocation to our police force for reinforcement of security which is critical for our safety, businesses and our tourism industry which is extremely sensitive to crime rates.

The industrial and semi industrial fishing industry are also facing serious challenges. We have seen the departure of a contingent of purse seiners as they have reached their yellow fin catch limit under the new IOTC Quota. This could have an impact on Seychellois employees and small businesses which are providing goods and services to this industry.

The daily fight to obtain ice and bait for our artisanal and semi industrial fishermen continue to be a struggle.

We feel that the budget does not stipulate the policies and measures to enhance our position as the number one fishing port in the Indian Ocean.

We would like the government and members of National Assembly to consider during their deliberations:

Measures and investments that will contribute to the reduction of cost of energy and financing into capital investment of value addition projects. These could include:

1. Potential liberalisation of the energy market and the use of more renewable energy

2. Reduced financing cost for investments specifically into the industry. This could be through the government negotiating favourable financing terms with institutions such as African Development

Bank and Trade Development Bank. In view of economies of scale a separate fund may be required to be set up to facilitate the disbursement and repayment.

• Urgent update with regards to the development of Ile Du Port, Zone 14 -- the area intended for value addition processing.

• Development of our commercial port to ensure we position ourselves as we transform our industry especially with regards to logistics and space for containers. We must also consider the development of the commercial port in Praslin.

• Collaboratively working with the private sector for additional ice plant and supply of bait at strategical points around Mahé, Praslin and La Digue to sell to our artisanal fishermen.

• Development of our artisanal and semi-industrial fishing port in Providence. We stress the importance of the extension of the port with key facilities such as ice plant to ensure we capture the increasing activity of our artisanal and semi-industrial fishing industry.

Our financial services industry has well reported challenges that have not gone away. Our budget does not capture how the country will mitigate these challenges. The offshore industry is facing enormous challenges worldwide, with numerous leaks such as the Panama and Paradise scandal, affecting its credibility, leading to uncertainty and lack of popularity. Coupled with that, the implementation of the BEPS OECD Agreement, common reporting standards (CRS) to name but two of the new regulatory requirements, the challenges are not to be underestimated.

Reforms need to be implemented swiftly in this sector in order not only to meet the newly imposed regulations, but to revive the industry and provide a framework that will allow it to compete and thrive in this new environment.

Government cannot do this alone. It must continue to work in harmony with the industry {SCCI and SIFSA} and this renewal process can only happen through consensus and mutual agreement with the government providing the necessary legal and fiscal framework. It will no longer be business as usual.

 

Development of human capital

We need a framework which will enhance the quality of human capital in Seychelles. As mentioned by our President we need a plan to increase the skill of young people. Emphasis must be placed on productivity. We need new ideas to encourage our youth to work in the service industry especially tourism and financial services such as accounting, banking and insurance components. We are still seeing graduates that we invest in leave our country to work overseas. This challenge is a shared responsibility among the stakeholders of our economy ‒ the government, the employers, the unions and the employees themselves.

We propose that sufficient allocation be done to the following.

1. Development of a Human Capital strategy to tailor for each stage of our economic development.

2. Incentives for local or foreign investors to collaborate with the government in either establishing training centers or investing in professional centers. We need to explore strategic partnership with local, regional and global institutions.

3. A skill development fund that could be used for the setting up a Seychelles Productivity and Innovation Centre. The Centre should conduct applied research on productivity and innovation that the private sector can tap on. This Centre can advance applied research in new business models and innovations, encourage adoption of new types of technology, raise capabilities in productivity techniques, and conduct local, regional and international research and benchmarking.

 

Cost of doing business and cost of living

Cost of doing business in Seychelles is comparably higher than our regional counterparts. An example relates to electricity. Electricity fees are high in Seychelles, compared to our regional neighbours. This high tariff is passed on by business when they price their goods and services. A review of the current electricity tariff must be done as the high tariff in the commercial sector contributes significantly to cost of living.

We welcome the news following the visit of the President to Mauritius, that Seychelles through STC will explore having a bulk buying agreement of commodities from international market. This will ensure that goods are at a lower cost to consumers given that freight costs will be lower and the individuals will benefit from lower priced goods. However this must be in tangent with the development of the businesses within our local agriculture industry. The private sector must constantly evolve itself to ensure that an understanding of its value chain is critical. This will ensure that efficiency is high and wastage is low. We encourage all stakeholders, including established market players, to share their experiences with new entrants.

In summary we need to look at the components of cost of doing business, which is critical for the private sector.

We need to collaboratively look at mechanisms to put in place in an effort to reduce the cost of doing business that could positively impact our cost of living. SCCI is prepared to work with the government and National Assembly to ensure we undertake a review of the components of cost of doing business and formulate concrete action plans to review any potential areas that could be reduced. However we also take note that the private sector must take its responsibility to translate any benefits to its consumers.

There are the simpler things that will bring cost savings to government AND to businesses, and will not affect taxes. For example:

• Allowing businesses to carry out more processes online.

• Reviewing the list of “restricted goods” so that less containers need to be inspected – a process which costs both the government and the private sector a lot of time and money. Budget allocation should be made to new computerised risk management system for customs inspections.

• Simplifying the registration process, through online facilities, and streamlining formalities. This could include a link between the Tax and Registrar offices where the company number is also the tax identification number.

• Undertaking urgent reform at the Registrar. We are of the view that the budget allocation should reflect the additional cost relating to undertaking such task.

• Make construction permits easier by combining procedures and setting an official time limit for processing the dual permit application.

Additionally, we have not seen any budget allocation to tackle the issues surrounded around standards and norms. Some imported products do not meet the quality standards appropriate to similar products that are locally manufactured and provide unfair competition to local industrials such as tomato sauce and soap. It is essential that the legislations and regulations are reviewed by a joint public-private committee, and that imported products are subject to a strict control to ensure they meet the necessary standards similarly to those imposed on our local manufactured product. Moreover, from the review of the website, the only accreditation body in the country, Seychelles Bureau of Standards (SBS), is not a member of the International Laboratory Accreditation Corporation (ILAC). It is also not considered as an independent body as it is established as a department under the Ministry of Investment, Entrepreneurship Development & Business Innovation (MIEDBI). It is necessary that SBS be established as an independent body, and obtain full membership of ILAC. We stress the need for sufficient budget allocation for this important institution.

All in all a progressive tax system is a system which should be fair and more equitable. Therefore if that is the objective of the government today to have a fairer system then it is the right system for it to implement. It is a system that takes more from those earning more and less from those earning less. With the implementation of this new system, it creates a more level playing field. The current rates proposed shows that everyone earning less than R35,667 will benefit to a slight extent. However we raise the following observations:

• Further delay in implementing the progressive income tax to July 1, 2018 will affect business and employees negatively; any goodwill to employees by raising salary level of mid-level employees (R8555 or more per month) gives NIL benefit to employees -- SRC takes 100% of any increases up to R10,065 Employees have waited this measure since January 2017; it has been postponed TWICE; what guarantee is there that it will be implemented from July 1, 2018?

• Personal Income Tax rate increase on expatriates will have an impact on the cost of business for many of our members especially within the tourism industry.

 

Government public expenditure service delivery

The continuous growth of the size of public sector seen through the figures of the ballooning budget can pose a threat to the macroeconomic health of the country. Going forward, there is a need to stabilise the budget while improving the quality of governance, which in our view, are both achievable objectives.

Starting from 2018, SCCI is of the view that the government needs to study the real contribution of government provided services and determine whether it would not be more effective, both in quality and cost, to allow the private sector to complement and/or substitute these services. For example, should PUC continue to operate as a state-owned monopoly? Is there scope for Independent Power Producers that can own facilities to generate electricity for sale to PUC maybe using different technologies, at a price lower than what it costs PUC to generate the same capacity?

There are positive considerations made in respect of provision of houses and development of community infrastructure. Unfortunately there is no clear strategy on how to remove the traffic congestion which is paralysing the economy from the south. Motorists continue to face delays and frustration in traffic jams at a great cost to the Seychelles economy and its associated pollution. The increase of traffic cannot be handled by the existing infrastructure and the implications include;

• Productivity loss

• Waste of Fuel

• Pollution

• Health issues

SCCI present some ideas that could be considered within the current budget allocation for reducing congestion and pollution in town:

• We recommend that the government allocates appropriate resources to ensure enforcement of traffic laws as a positive effort to help responsible road users, and not as a ‘war on motorists’.

• Consistent, clear maps and signage, real-time passenger information displays, and online apps, can make bus travel much more accessible.

• Developing the park-and-ride as traffic management tool. This could be developed at Ile Du Port and

Perseverance. Factors that must be considered:

1. Served by rapid free shuttle service with strategical drop points

2. Free parking for the use of park and ride.

It is critical for public investment projects to kick-start in 2018 and in the shortest delay possible. Improving the public infrastructure in the long-run has a critical role in the economy as without higher levels of public infrastructure, the economy cannot further develop. Recent studies worldwide show that by doubling the infrastructure capital, GDP can be raised by 15 percent.

We need to look at how to introduce new models of partnerships in order to enlist private sector funding in public infrastructure projects and how to contract out certain activities presently conducted by the government in order to create a robust private sector eco-system. Government should eliminate any programme that has the effect of crowding-out the private sector and create unfair competition for scarce resources resulting in a reduced private investment. Additionally it should resist any temptation to rescind on its commitment to continue with the transition from being service provider to a service facilitator.

The cradle-to-grave social support system needs to be relooked at and a bold, unemotional examination of whether such policies are still relevant in today’s environment. The objective should be to release resources needed to fight real poverty.

Our Constitution states that our democratic system should ensure “a social order guaranteeing food, clothing, shelter, education health and a steadily rising standard of living for all Seychellois.” The social policies that have been implemented since becoming an independent nation and in keeping with these commitments have brought great changes in our society.

The SCCI is by no means questioning this vision but on the contrary wishes to see a readjustment of these policies such that the other objectives of equality of opportunity and prosperity also spelled out in the Preamble of the Constitution are also met. We believe that focus of some of these more social objectives may have led to slippages on others. That is why we are advocating a thorough review of the existing social order and with the experience of 41 years of independent existence lay out a road map for the next 40 years. It is important that current programme allocations within the Ministry’s budget are aligned to our views.

 

Measures for the private sector

The Budget talks about a number of measures for the private sector.

• On the country’s move towards renewable energy, the building of the first two solar farms is a welcomed step, as well as the VAT-free import of energy efficient electrical appliances.

• The Budget also makes provision for the setting up of an incubation Centre for MSMEs. Close collaboration with our regional partners and leveraging from their expertise will be advantageous.

• Loan financing for MSMEs with lower rates as from January 2018 and extension of the MSME

Financing Scheme to 10 years is seen as a positive measure.

• The reduction of interest rate charged by the Small Business Finance Agency (SBFA) is positive, but we also encourage MSMEs to take their responsibility to ensure the loan facility is repaid consistent to its terms and conditions.

• The provision of R1m grant for young entrepreneurs through the Youth Entrepreneurship Board is positive.

• The digitization agenda with the coming of the Electronic Transaction Act by end of 2017 should facilitate processing of services and transactions. This must be translated into efficiency especially with mechanism such as online payment.

• The bulk buying of imported commodities is not just a measure to improve the cost of living but also has a potential for the private sector in importing goods in bulk at lower freight costs. Trade facilitation mechanisms such as an online portals for application of permits for either importation or export must also be introduced.

• Agriculture industry welcomes government plans to make available a development fund to continuously finance projects from this sector totaling up to R50 million. Certain projects announced are key strategic projects that for so long has been needed and consistent to the Seychelles National Agriculture Investment Plan (SNAIP). However we encourage the government to formulate polices and regulations to assist the private sector to assist farmers with raw materials and equipment. This should reinforce the objectives of food security, less importation and better access for farmers to the market.

• The new business taxes regime is indeed consistent to the President’s message. We view the new regime as a simplified regime, where government has stepped back and looked at the statistics and formulated a new regime that will increase compliance and increase in tax collection. Other comments contributed by the Association of Seychelles Accountants on the new business tax regime and other taxes is outlined below:

• Welcome the move to monthly threshold instead of yearly should be a lot simpler to understand and manage by MSME's

• We welcome the option given to MSMEs whether to opt for "Presumptive Tax" or "Profit Based”

• The 200% concession on salaries payable to Seychellois graduates is a positive step to ensure we retain our graduates.

• What we NEED is a decrease/ or NO increase in taxation to kick start the economy, Reading behind the lines business tax will be increasing for Sole proprietors/ Partnership--- Tax Rate likely to increase from 15% to 20% to match the progressive income tax rates. We urge the government to reconsider its position.

• The establishment of a Single Intellectual Property Office in 2018 as a ‘one stop shop’ is highly encouraged.

• In the Ease of Doing Business Indicators, we are at the 95th position out of 190 countries. The government and members of the National Assembly have to understand that there is an urgent need to undertake a series of reforms. In our recent breakfast meeting with the government we recommended the following:

• A joint high level public-private sector committee, led by SCCI, should be set-up to review all the impediments and benchmark against the best practices throughout the world in each indicator. This committee will:

a. Select the key indicators that could be tacked from a short, medium and long-term perspective.

b. Perform GAP Analysis and formulate a series of recommendation alongside action plans.

c. Undertake reform through changes of policies, regulations or laws. A Business Facilitation Bill could be introduced to regroup all those reforms.

 

Measures that SCCI will take to work with the government of Seychelles and other key stakeholders

Overall we at SCCI will welcome the opportunity to carry on the foundation of good consultations with the government and we are committed to working proactively together for the benefit of our country and to be the voice of the private sector. SCCI will:

• Actively be involved in the discussion of potential trade agreements from a bilateral perspective with regional partners to reduce cost of living. However, we will also ensure that we are in constant discussion with the Ministry of Agriculture and Fisheries in how we can assist local farmers to infuse more efficiency and reduce wastage within their value chain so more emphasis is placed on local production.

• We will work with our regional Chambers especially our Mauritian counterpart (MCCI) to engage in their experience with regards to;

1. Price observatory of key goods and services

2. Ease of doing business

3. Assisting us to develop a business confidence index

• SCCI will proactively look for opportunities in the region and globally to partner with our Seychelles

Business School Academy and Guy Morel Institute.

• SCCI will seek in the establishment of regulatory impact assessment especially when policies are prepared by government. The objective of the regulatory impact assessment forces you to:

1. Think through the full impact of your proposals;

2. Identify alternative options for achieving the desired policy change;

3. Assess options (regulatory and non-regulatory);

4. Ensure your consultation exercise is meaningful and reaches the widest possible range of stakeholders; and

5. Determine whether the benefits justify the costs;

• We believe that SCCI should be part of any trade negotiation team, in all negotiating forums and form part of key delegations that represent our country on overseas mission. This will allow it to work in close collaboration with SCCI members and the government to improve the business regulatory environment and trade legislative framework.

• Through the funding of EU we shall create the SCCI’s Arbitration center which will join the Regional platform of Arbitration Centres to comfort international players as we push for an increase in foreign direct investments.

Other activities that SCCI will work collaboratively with the Government and other key stakeholders:

• Working with SENPA such as assistance the current development of their digital platform which aims at promoting local art and crafts.

• Presentation and Forums to our members on better business facilitation

• Creation of B2B exchanges locally and regionally and networking platform

• The SCCI which is a founder member of the Union des Chambres de Commerce et d’Industrie de l’Océan Indien (UCCIOI) has started to participate very actively in the various activities of the Regional Association.

• Collaboratively with our regional partners to seek funding and aim to hold the Forum Economies des Iles de l'Océan Indien 2018 in Seychelles early next year.

To conclude SCCI would like to thank its members, private sector and other key stakeholders for its contribution to its overall remarks on the Budget 2018.

 

 

 

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