2005 Budget Speech By President James A Michel, Minister for Finance
Honourable Members of the National Assembly,
People of Seychelles,
The 2005 Budget reflects my determination to take Seychelles and the Seychellois people one more step further towards a better life and create a more prosperous and dynamic economy.
This is a budget for every Seychellois. Our prospects for economic recovery and sustained growth will depend on its successful implementation. Every Seychellois should see himself or herself in this budget. Its success depends on us being able to work together.
In preparing this budget I have consulted extensively with representatives of business, industry, civil society and all major stakeholders in our country's development and wellbeing. Naturally I have also take into consideration the particular circumstances of our country, as well as the impact of international trends on our economy.
The Macro-Economic Reform has more or less fulfilled its mission, particularly with regards to the mopping up of liquidity.
The 2005 Budget represents a new platform for our medium to long term development. Its principal objective is to accelerate economic activity by bringing more confidence to investors, local as well as foreign, and creating more wealth and employment.
Whilst we are modernizing economy, we should naturally ensure that we preserve our social accomplishments, as well as strengthen the sense of responsibility and the level of productivity in our country.
The 2005 Budget reflects the prudent management of our economy and is expected to bring positive results for all the Seychellois people. It reflects my optimism for the future of the country, one which is well founded because despite our difficulties we are already seeing major signs of confidence and interest in Seychelles by investors, particularly in the tourism industry.
This budget follows a series of measures that I have already taken since I acceded to the Presidency in April. You will recall that I made several commitments to you.
I gave an undertaking to preserve the rights that our people have secured, that I will continue to consolidate our democracy, to promote unity and tolerance in our society, as well as moral and spiritual values. I promised to base my presidency on dialogue and consultations.
We have introduced a series of incentives for the tourism industry. We have assisted farmers and fishermen by reducing business tax on their activities and facilitating their access to vital equipment and resources.
Small businesses now have better access to foreign exchange and an "open permit" system has been put in place for them and we are working to make it easier for them to have access to foreign exchange.
People have the possibility of opening foreign exchange accounts.
We have removed the requirement for an import permit for most items, with the exception of a list of restricted items and items for resale.
Customs procedures at our ports have been facilitated and made more user-friendly.
Trades Tax has been reduced and will be further reduced in January 2005. The prices of a large number of commodities imported by the Seychelles Marketing Board have been reduced.
In line with my commitment to you to ensure a dynamic partnership with the private sector, to encourage investment, to develop further maritime transport and trade, to promote the cottage industry and to ensure transparency in my Government, we have set up a number of important bodies: the Joint Economic Council, the Economic Commission, Seychelles Investment Bureau, the Port Authority, SENPA, the National Tender Board and the Citizens' Advice Bureau.
Before the end of the year, legislation making the Central Bank an autonomous institution will be presented to the National Assembly.
An Investment Code is being finalized.
Last but not least, we are on course to implement our programme of privatization of a number of state assets as of early next year.
People of Seychelles,
These are only a few examples where, I have kept my undertaking.
Honourable Members of the National Assembly,
I shall now highlight the main elements of the 2005 Budget, starting with a brief overview of global developments and a review of the domestic economy.
A review of developments in the global economy indicates that over the past year it has grown by almost 5%, its fastest pace in two decades.
It is estimated that about half of this growth has been fuelled by America's exceptionally loose monetary policy which has encouraged consumers to keep spending and an investment boom in China.
Average short-term interest rates in the world's big economies were at their lowest in recorded history.
Inflation on the other hand is now rising, suggesting the need for a tightening of monetary policy
The euro zone area, which provides Seychelles with the largest share of its inbound tourism, recorded a growth of just under 2%. Within the non-euro zone, the UK economy recorded growth of 3.1% in 2004, the result of private and public sector led consumption.
Global trade, notably trade between China and other East Asian economies resulted in growth of world trade of around 8% in 2004.
Notwithstanding this global economic recovery one worrying development for policymakers around the globe, given its potential impact on inflation, growth and external competitiveness, is rising prices of crude oil.
From a low of US$28 per barrel at the beginning of 2004, the price of crude oil in New York reached a record high of nearly US$56 per barrel at the end of September, roughly 100% more than a year ago.
As a resource upon which the world is heavily dependent, increased costs in petroleum prices have major socio-economic and political consequences. According to an IMF survey, every $5 increase per barrel in oil prices shaves off 0.4% from global GDP growth. With prices of oil of over $50 per barrel, there is
much uneasiness as it reminds the world of the 1970's shocks which brought the world economy to a recession.
The impact of higher oil prices is more pronounced on developing countries as it not only reduces their ability to finance other much needed imports but it also affects negatively their balance of payments position. And Seychelles is no exception.
Seychelles, as a small island developing state, is highly susceptible to the vicissitudes of the global economy. In 2003, SARS and the war in Iraq were the major events that impacted on the global economy, and, to a large extent, on our own economy.
A review of the domestic economy in 2004 reveals that economic performance remained below its potential.
Nominal GDP in 2003 dropped by 0.7%; the outcome for 2004 is expected to be slightly better.
98,986 tourists visited Seychelles in the last 10 months against arrivals of 101,877 for the same period last year, representing a reduction of 2.8%.
However, despite the drop in the number of visitors to the country, tourism income, converted into rupees through the local banking system, for the first ten months of 2004 recorded a slight increase of SR8 million. This is due to an increase in average yield per visitor.
With regards to price movements, the Retail Price Index reveals that prices were more volatile in the first nine months of 2004 as compared to 2003. At the end of September 2004, the rate of inflation stood at 5.2%.
To a certain degree, the ease reflected the downward revision in Trades Tax which occurred during the year and also the reduction in prices of some of the essential commodities imported by the Seychelles Marketing Board (SMB).
Imports for the first nine months of the year were SR1.752 billion, an increase of 7% over last year. On the other hand, exports and re-exports amounted to SR1.219 billion, resulting in a narrowing of the current account.
As a net oil importer, our small economy was not spared the effects of the recent oil price hikes. The CIF value of mineral fuel raised from US$ 71 million in 2003, to US$132million in 2004, an increase of US$61. The total value of imports to supply the domestic market is estimated at US$ 38 million. With prices remaining constant at the pumping stations and with no increase in electricity charges and
public transportation, this has meant that Government has had to absorb the increasing oil prices, leading to a substantial decrease in its revenue.
Our national carrier, however, has had to adjust the price of airfares.
Whilst the vicissitudes of the global economy continue to expose the vulnerability of our economy, we can ill afford to isolate ourselves from the rest of the world. To minimize the negative impacts on our economy, Government must remain continually vigilant and take corrective measures to mitigate against destabilizing factors.
2004 Fiscal Outcome
Te positive fiscal outcome which started in 2003 continued in 2004. On the basis of current budgetary trends, I am forecasting a surplus of SR179 million or 5% of GDP for the year 2004.
This is a very encouraging outcome in the light of the acute costs arising from the increase in oil prices and the loss of revenue accruing there from.
Government receipts are forecasted at SR1.968 billion against a budget of SR 2.111 billion.
The various concessions granted to the tourism industry and Trades Tax reduction on agricultural goods during the middle of the year, have resulted in a reduction of SR20 million in Trades Tax and Social Security contributions. However, I regard this as an investment in our country's economy and I am confident that we will soon reap the benefits of this policy.
On the expenditure side, Government expects total expenditure including current outlays, capital outlays and net lending to be SR 1.7 billion.
Current outlays are estimated to reach SR1.6 billion, an increase of close to SR188 million representing additional funding to cover unforeseen expenditure in certain ministries and increased activities in others, as well as debt servicing.
Capital expenditure is expected to be SR100 million, compared to the budgeted SR50 million, due to 2003 projects being completed in 2004.
However, commitments to refrain from drawing on CBS advances in 2004 were not met. This is due to the fact that new arrangements had to be made earlier this year to restructure our loan repayments.
The positive fiscal outcome, in spite of the additional expenditure, is the result of Government's determined efforts to tighten fiscal policy, improve revenue collection and impose more stringent control over spending by ministries and departments. The budget surplus will enable Government to reduce domestic debt.
The 2005 Budget and the new Medium Term Economic Framework
The fiscal adjustments alone which formed the cornerstone of the MERP were not sufficient to address other persistent macro-economic imbalances.
Whilst we have managed to reduce liquidity and strengthen fiscal discipline, we now need to reinforce the conditions and the environment for more growth and prosperity.
A more comprehensive and far-reaching strategy coupled with a more dynamic and aggressive approach are urgently needed if Seychelles is to achieve high rates of economic growth and improvements in our standard of living.
The new strategy will aim to further correct the fundamental economic imbalances in the economy.
For the new programme to be successful, it needs to advance on several fronts simultaneously.
This strategy seeks to create a better climate for investments by Seychellois and foreigners alike, a more pro-active and friendly environment for business, a more wholesome life for everyone, while ensuring that we do not lose the great social achievements we have made together.
In the process, I will ensure that Government performs its role of governing more efficiently and with greater accountability whilst maintaining the necessary operating environment in which the full potential of the private sector can be developed for the benefit of all Seychellois.
The cornerstone of this medium-term strategy will be:
- to establish a new platform that will ensure the preservation and sustainability of the socio-economic gains that the Seychellois have achieved so far;
- to gain the confidence of the global community and to engage them as partners in the process of further economic development of our country;
- to steer our country on the road to renewed economic growth and wealth creation as well as equitable wealth-redistribution;
- to develop a solid economic platform which will ensure the creation of new employment opportunities for our population, in particular our youth; and
- to put in place the necessary enabling environment for a strong private/public sector partnership which I consider primordial for the further economic development of our country.
This strategy will set out to achieve real GDP growth.
It will also aim to strengthen the balance of payments position through a further narrowing of the current account deficit.
The improvement in the external account will provide for an increase in gross international reserves, whilst limiting foreign borrowing to sustainable levels and allowing for the orderly settlement of arrears.
The above objectives will be achieved through an economic recovery and growth programme that contains the following core features:
- the achievement of a fiscal surplus for the next 5 years;
- a further tightening of monetary conditions to reduce the current liquidity overhang;
- the continuation of our trade liberalisation program including a privatisation schedule;
- reforms of Government to provide better service delivery;
- a review of labour market policies;
- a review of our welfare system to curtail abuse and to ensure greater coverage for those who are genuinely in need;
- a prudent strategy for foreign borrowing, domestic and external debt restructuring, and public debt management to support the implementation of the programme and the economic growth process;
- the normalisation of our relationship with our external creditors…
2005 Fiscal objectives
The budget which I am presenting to this Assembly reflects an overall reduction in government expenditure. Our objective is to reduce government expenditure without compromising on delivery of government services. This will be obtained through a budget reform process which was initiated in October 2004.
I am aiming for a budget surplus in 2005 of R279 million or 7% of GDP.
Total revenue for the year is forecasted at SR2 billion, an increase of SR36 million on the revised estimates for the current year.
Total outlays for 2005 are forecasted to be SR1.725 billion, a reduction of SR64 million or 3.5% over the revised estimate of SR1.789 billion for 2004.
To achieve this, there is a need for Government to introduce more discipline in the manner in which Government runs its affairs.
In 2005, the Department of Finance will take a more radical approach by implementing changes in the way Government manages its fiscal affairs.
There are five basic principles by which Government must conduct its operations:
A focus on clear accountability - funding of public agencies is to be based on outputs. Each entity will have to clearly state its rationale for operating, its costs and revenues, reporting methods and monitoring mechanisms.
Customer Focus - this entails a commitment to quality consumer service, i.e. the public who use the service, and to foster customer choice.
The Minimising of Government Bureaucracy - This will involve the reduction of unnecessary procedures or red tape.
Professional Management of Public Entities - this includes giving management the responsibility and authority so that they are accountable for results achieved.
A Preference for the Best Value Provision of Public Service - This involves exposing government funded activities to the best value, for instance by outsourcing.
I do realise that the process required to develop a change in how government operates cannot be performed overnight, the most difficult part being changing the mindset of people.
For 2005, I propose to trigger process in the following ways:
- applying a reduction in budget outlays;
- matching usage of resources to outputs;
- identifying services that are duplicated or unnecessary, and
- introducing regular monitoring and reporting of performance to Government.
Transfers from the Social Security Fund are expected to increase by SR15 million as a result of planned cost-savings.
An increase of SR59 million is projected from rent and royalties as we are envisaging revenue of some R55 million from the rent of state land as a result of increased foreign direct investments in the tourism sector.
Dividends on investment are projected to increase by SR103 million on account of dividend payments from SEPEC, IOT and from the new Port Authority.
A reduction of SR25 million is forecasted on revenue from Trades Tax, due to the reduction in Trades Tax rates on a range of household goods, commodities and raw materials planned for next year.
Revenue from administrative fees and charges will be reduced by SR26 million due to the fact that revenue from various port charges will now be collected by the newly created Port Authorities and paid to Government in the form of dividends.
A reduction of SR90 million in Miscellaneous Receipts is due to the fact that receipt from sale of assets will, in 2004, be used to retire debts and will therefore not be treated as revenue.
Of the total expenditure of SR1.725 billion, current outlays are estimated at SR1.507 billion against expected outlays for 2004 of SR1.643 billion, representing a decrease of SR136 million.
The planned expenditure of SR794 million for ministries and departments, is a reduction of SR79 million or 9% over the revised expenditure for the year 2004. The reduction will be on account of expected savings from the public sector reform programme which I intend to initiate early in 2005. It is expected that the streamlining of Government and more stringent control over spending by ministries and department will not only improve operational efficiency and service delivery but will equally reduce the recurrent costs of Government.
I am proposing a 21% reduction or SR36.3 million in Centralised Payments, on account of lower provisions being required for arrears due to better control on expenditure by ministries and a lower number of public service employees qualifying for gratuity payment in 2005 as compared to 2004. The costs of operating Government assets will be reduced by SR2 million in 2005.
A reduction of R5 million in the allocation for training is as a result of lower costs of training outsourced from some countries.
A reduction of SR27 million in the allocation for development grant is due to a reduction in grants provided to PUC and SPTC.
Payment of interests on public debt is expected to absorb SR300 million in 2005, a reduction of SR8 million compared to 2004.
I am proposing an allocation of SR200 million to finance ongoing and new capital projects of ministries and departments in 2005, an increase of SR100 million over the expected capital expenditure for 2004.
The increased allocation will be used to finance a number of new capital projects planned for next year which will include amongst others, the new Beau Vallon Health Centre, the Baie Ste Anne School, the Baie Lazare Primary school, the renovation of the international airport, the Ile Perseverance housing project and a number of small projects which will directly benefit residents in the various districts.
Debt Reduction Strategy
It is the view of my Government that we need to take decisive action on our debt.
Government has, in consultation with the World Bank, developed a strategy to address the debt overhang.
In 2005, I propose to reduce our debts further by:
- ensuring strong and sustained fiscal adjustment, with the aim of obtaining a medium term budgetary surplus;
- the stimulation of export-led growth: Government has developed and will put in place a strategy to restore competitiveness and promote growth in such strategic sectors as tourism, fishing and shipping (including ship repair);
- the sale of state owned assets: proceeds will be used to buy back debt;
- negotiating the restructuring of claims on government, both domestic and external, commensurate with Seychelles' long term debt servicing capacity. In this regard, it is worth noting that the Kuwait Fund and the Exim Bank of China have agreed to new repayment terms.
Trades Tax Reduction
In line with my promise to reduce the cost of living and the cost of doing business in Seychelles, the 2005 budget is proposing to bring forward the proposed reductions in Trades Tax on a large number of commodities and goods.
Trades Tax will be reduced to zero on over fifty food items.
In addition, with a view to further reducing the cost of living, Trades Tax will be reduced substantially on a wide variety of household goods, e.g. detergents, soap, shampoo, hair products, furniture polish etc. The reduction will range from between 25 to 5%.
Trades Tax on refrigerators and washing machines will be reduced from 50 to 25%.
In order to encourage the local sewing industry and the production of clothes, I am reducing to zero Trades Tax on all imported raw materials (textiles, fabrics, thread, buttons etc.) and reducing it to 5% on sewing machines.
I will be announcing further Trades Tax reductions later on in my address when I deal with the productive and social sectors.
I hope that the reductions in the various taxes will be passed on to the consumer.
Programme of Privatisation
Government will start a process which will see the gradual disposal of parastatals and other assets. This will be conducted under the direct supervision of the National Tender Board.
The privatisation exercise is an integral part of our economic liberalisation strategy and it is designed to stimulate growth, productivity and trade, promote competition and create additional employment opportunities. Consequently, I would like to reassure all Seychellois workers that no one need lose one's job in the process. Indeed, they will be better off in the sense that they will become part owners of the new companies that will be created as a result of the privatisation of parastatals. All workers will have a fair chance to obtain shares in the new companies. A special scheme will be put in place for Seychellois workers to facilitate this initiative.
Initially, in order to maintain stability and protect employment, Government will retain up to 50% of the newly restructured companies. 20% of the shares will be offered to the existing employees. The remainder of the shares will be offered to the Seychellois public and institutional investors, especially where a strategic alliance is called for.
Once the initial privatisation process has been completed and as the economy picks up, Government will then further dilute its ownership in these companies.
Government will put in place the appropriate mechanism to protect the consumer against unfair trading and pricing policies which may arise.
To ensure the economic viability of the newly-restructured companies and also to safeguard employment, Government will maintain the present tariff regime to dissuade the importation of goods and products that are manufactured locally.
The first phase of the privatisation programme will be targeting initially the State Assurance Corporation of Seychelles and most of the units of the Seychelles Marketing Board.
SACOS will be privatised in the first quarter of 2005.
The privatisation process of the following units of the SMB will start in April 2005:
- SMB Supermarket
- Foodpro (meat processing)
- Agro Industries (juice and milk production)
- Animal Feed Factory
- Mineral Water Factory
- Snack Factory
- Pasta Factory
- Toilet Paper Factory
- Soap Factory
- Indian Ocean Nursery
The privatization of the Coetivy Prawn Farm and the Tea and Coffee Factory will be considered subsequently.
For the time being, Government will retain SEPEC, Air Seychelles and PUC - parastatal organisations which I consider to be of national strategic importance. Likewise, Government will also Nouvobanq and SPTC.
We are retaining control of those entities because they are considered to be of national interest, that is to say, they are in the interest of all Seychellois.
I would like to reiterate that we are committed to a privatisation policy which is controlled, transparent and fair, safeguards employment and one that allows as many Seychellois to become shareholders in the new companies. I will not tolerate a situation which will lead to social upheaval and hardships to employees and consumers alike.
Monetary Policy and Financial Sector Reform
Government will, in the coming days, be submitting to the National Assembly a bill which will put in place the legislative framework, paving the way for the Central Bank of Seychelles to become an independent institution.
The Central Bank will introduce the measures it deems necessary to restrain the growth of money and credit.
This proposed policy thrust will mark a significant departure from previous years when monetary policy was geared towards facilitating the financing of government deficit.
A new Financial Institutions Bill will also be presented to the Assembly for approval. It will provide the framework for Government to introduce financial system reforms in order to improve the soundness of the banking system by strengthening the capacity to cope with macroeconomic volatility.
Liberalisation of Trade
The liberalization of the present trade regime is a priority for my Government.
Our policy is to gradually move away from price control to regulation of trade, production and pricing to prevent abuse.
It was with this objective in mind that in July this year I abolished the requirement for permits for the import of goods for personal use and the import of intermediate goods.
As from 1st January 2005, an import permit will no longer be required for importing goods for resale, except for goods classified as "restricted", a list of which will be published next week.
The exclusive right of SMB to import certain categories of goods will be rescinded on 1st January 2005. Government will, however, continue to guarantee the availability at all times of those essential commodities. We will maintain strategic reserves of rice, sugar, flour, cooking oil, vegetables, fruits and meat, for which open tenders will be invited and contracts awarded to the most competitive bidder. This will come into effect as soon as the existing contracts of SMB with its supplies end next year.
At the same time as introducing these new measures, we need to ensure that we do not have a situation where we are short of goods or they arrive late in the country. Organisations or individuals concerned should ensure reliable sources of goods on a regular basis and at a good price.
Our farmers need not worry that their livelihood will be jeopardised as a result of trade liberalisation. Import permits will be required for the importation of poultry, pork, and certain categories of vegetables and fruits. Our aim is to safeguard, at all costs, local production and employment, and safeguard public health.
The present discretionary exemptions from Trade Taxes will be gradually eliminated. Government intends to restrict the use of discretionary policies in cases where it needs to strengthen the policy environment, for example, tourism. Our future policy thrust is to keep the tariff rates low, reduce substantially the number of exemptions given, and make them explicit in the tariff structure instead of applying exemptions in a discretionary manner.
To promote competition and good governance, the government will establish a small independent and competent Competition Commission with power to gather information and investigate anti-competitive practices.
Nobody would like consumers to suffer as a result of trade liberalization, either by not getting a fair deal or by having to pay exorbitant prices. Until the situation stabilizes, price control will be necessary.
The Foreign Exchange Situation
My Government shares the wish of everyone to see an immediate end to the problem of foreign currency shortages. The reality, however, is that there is no immediate quick-fix solution to the problem, unless we are prepared to adopt drastic measures that will inflict pain and hardship on our population. I am not in favour of this approach.
I am of the view that the only viable and sustainable solution to our foreign currency problem is for the country to earn more, and to increase the inflows of foreign currency into the economy. The best way to achieve this is to stimulate export-led growth, especially by enhancing the competitiveness and growth of the tourism and fishing sectors. This, for me and my Government, is the way forward. Together we can do it.
With the recent strong interest by Seychellois and foreign investors to develop our tourism and fishing industry and the strategies that the government is putting in place, I have the firm conviction and confidence that we will, in the next two to three years, overcome the problems linked to foreign exchange.
Seychelles can succeed, provided there is total commitment by all economic stakeholders to go that extra mile to earn and give Seychelles that extra dollar and that extra euro. I have every confidence that foreign exchange earners will take this challenge seriously during the course of our fiscal year 2005 and beyond. Let us do it together for Seychelles!
In the same context, I would like to appeal to our sense of patriotism. I call upon all Seychellois who have bank accounts overseas to invest their money in Seychelles. I do realize though that, for many Seychellois, this will not be an easy decision. Some of us may not have sufficient confidence in the economy.
Some of us may feel that local banking procedures with regards to a foreign exchange account may be too complicated. We will simplify procedures for the opening of a foreign exchange account in Seychelles. The reforms that we are undertaking will put our economy back on track. Above all, I want to give you the assurance that your investment in Seychelles will be safe. I give you the guarantee that you will be allowed to deposit and remove your foreign currency at will.
Launch of a New Corporate Bond
In order to take advantage of the rapid changes taking place in our economic environment, raise medium to long term development finance and, at the same time, mop up the existing excess liquidity in the economy, Government, in collaboration with the Central Bank of Seychelles, will be launching a new long-term corporate bond - also to be known as the "Esmeralda Bond" - during fiscal year 2005.
The new bond has been structured with the objective of providing investors with an attractive yield, while allowing them the scope of financial investment diversification. The launch of the new bond is in line with our economic strategy, and I have no doubt that potential investors will consider this investment opportunity with enthusiasm and make it a success by subscribing to it to the maximum, bearing in mind the unprecedented success of the last issue of the "Esmeralda Bond".
SEYCHELLES SAVINGS BANK (SSB)
The bank's raison d'être was predominantly the provision of basic financial services to small individual savers.
In an attempt to take advantage of new opportunities for expansion and growth of its portfolio, the Savings Bank was, in 1997, transformed into a fully-fledged commercial bank.
Given the developments that have taken place in Seychelles since its creation, its achievements to date, and the size of its various portfolios, the time has come for it to be restructured.
The restructuring which will take place early in 2005 will enable the Savings Bank to reposition itself as "the ordinary people's bank", going back to its original mandate of providing basic financial services to individual savers and to small businesses.
KEY ECONOMIC SECTORS
The Tourism Sector
The tourism industry has been and is expected to remain the lynchpin of our economy, contributing 16% of GDP and providing direct employment to over 20% of the labour force. The government anticipates that the tourism industry will play an even greater and more catalytic role in the future development of our economy.
Vision 21, which is Seychelles "roadmap" for tourism development for 2001-2010, envisages reaching a reasonable and achievable level of 180,000 visitors by 2010 - an increase of 30% over the current level. Given the current downturn in visitor arrivals, there are a number of actions that need to be undertaken by the government, in partnership with the trade, to achieve this goal.
Government has been meeting with the trade partners with the view to assessing the situation and working on the best way forward. The main issues identified are: the issue of value for money as compared to our competitors, the high costs of operation, the low quality of certain product and services, and the lack of product range.
Government has already begun the process aimed at strengthening the viability of our tourism industry by offering incentives through the Tourism Incentives Act. This Act was further revised in July this year, granting additional benefits and further concessions to businesses in the tourism sector. All tourism related activities, i.e. hotels, tour operators, restaurants, dive centers and operators, hire craft, yachts, tourist guides, car hire operators, and taxi operators benefit from these concessions.
It is foreseen that these incentives must be given time to take effect, but the sector is encouraged to take full advantage of existing and new incentives incorporated in the revised TIA which will become effective from 1st January 2005 to enhance their products and services and provide value for money.
Representations have been made by the industry for further reductions in taxes on inputs. In addition to the incentives provided under the T.I.A., as of January 2005, Trades Tax will be reduced on a wide variety of food items, wine and imported bottle water.
To further reduce the industry's payroll costs and to encourage reward of staff through productivity bonuses and incentive payouts, the Tourism sector will, as from 1st of January 2005, be exempted from payment of Social Security contributions on all productivity bonuses, incentive payouts and all non-monetary
benefits, e.g., the provision of staff accommodation, transport, airline tickets etc. This exemption will be included in the revised TIA.
Promoters and providers of ferry services will, with effect, from 1st January qualify for Trades Tax and GST exemptions on boats and engines and a number of other incentives similar to those available to the tourism sector.
With a view to maximizing the revenue potential, as of 1stJanuary 2005, hotels wishing to operate duty free shops will be allowed to do so in line with certain procedures and guidelines.
Given the concessions and incentives afforded, we believe that product enhancement and development must now become our priority. Vision 21 maintains that Seychelles remain that destination that will thrive on quality, rather than quantity, when it comes to headcount. Our size and environment will not permit us to do otherwise. As such we must place emphasis on improvement of quality of products and the service we offer. We expect the tourism business to take full advantage of the TIA to bring their establishment up to standard.
We also expect the benefits from the reduction Trades Tax to be passed on to clients.
An enhancement programme developed by MTT and STMA with the involvement of the trade will be put in place in the first quarter of 2005. This will be tied to the new small hotel marketing plan. I am pleased to note that this programme has been well received in Mahe, Praslin and La Digue.
Government has also proposed that more funds are injected into marketing the destination. In addition, the trade operators will be encouraged to undertake promotion and marketing activities by way of a 200% tax rebate on promotion and advertising expenses. Similar tax rebate schemes will be given for training expenses.
Enhancements are planned for other tourism facilities including our International Airport. The airport will be upgraded to provide better services and an improved ambiance. In this regard, major renovations costing in the region of SR 18 million are due to start early in 2005.
To improve service delivery, an ongoing training programme has been put in place for our security personnel, Immigration and Customs officers.
I am confident that our tourism industry is moving out of the doldrums and this is evident from the high interest being shown by foreign and local investors. Since the beginning of this year, Government has approved several projects, such as on Silhouette, Desroches, Alphonse and Platte, and at Port Launay, Petite Anse, Grand Police, Anse Louis etc.
In addition, we have managed to attract several leading brands, such as Starwood, Taj, Four Seasons, Southern Sun, and Constance, Beachcomber and Hilton to our shores. I have been given the assurance that work on all, if not most, of the projects will start next year.
These projects will increase our capacity by 1356 beds and create an estimated 2400 new jobs for our youth.
In addition, a several other renowned companies have expressed interest in other tourism projects in Seychelles.
All of these developments will transform our tourism industry as well as our economy.
The Fishing Sector
Government's long term policy for the fishing industry calls for the promotion and development of sustainable and responsible fisheries and optimizing the benefits from this sector for the present and future generation.
Port Victoria has become the most important transhipment centre for tuna in the South West Indian Ocean. Transhipment activities within Port Victoria have over the last 5 years averaged 293,000 metric tones, with a record total of 357,000 metric tones of tuna transhipped in 2003.
Revenue from the fishing sector in 2003 is estimated at SR350 million. The fishing sector today provides direct and indirect employment to some 5000 Seychellois.
In spite of our impressive achievements, we cannot claim to have exhausted the marine-based potential of our country.
We have to develop and exploit further the full potential of Victoria as a major service centre, offering transhipment and servicing facilities for the Indian Ocean region and establishing Seychelles as a major trading, ship repair and redistribution hub. The Seychelles Port Authority, the Seychelles Fishing Authority, other Government agencies and the private sector have a key role to play in this.
To attain our objectives, there is a need for Government to address a number of fundamental issues that are critical to the further development of the fishing sector.
Although canned tuna exports have contributed significantly to growth in exports, the domestic value added component from the entire fisheries is small.
Seychellois-owned artisanal and semi-industrial fishery operations are not sufficiently developed.
Most of the fish are caught by foreign vessels and are imported by Seychelles, thereby lowering the net gain to the economy.
Moreover, only a small fraction of the fish caught by foreign vessels and imported here, is processed in Seychelles. A large part of the fish imported is transhipped to other destinations.
Net gains from transhipment are also low because most of the goods and professional services are currently imported.
In order to successfully address these issues, I intend, in addition to fiscal provisions already made in this budget, to put in place, early in 2005, strategies which will:
- Provide for a Fishing Incentives Act: this new piece of legislation will provide a range of new incentives considered necessary for the further development of artisanal and semi-industrial fisheries, e.g. Trades Tax and GST exemptions on capital equipment, a flat 5% Trades Tax on imported raw materials, and the reduction of Trades Tax on commercial vehicles.
- Make available, through the Development Bank, concessionary financing to encourage and support private Seychellois ownership of fishing fleets in order to maximize the domestic value added component;
- Encourage more Seychellois to work in the fish processing industry;
- Ensure that Port Victoria remains competitive and attractive as a destination for transshipment activities;
- Minimize the burden of taxes on input and output, and exempt fisherman from payment of tax and filing of tax returns on annual profits of less than R240,000;
- Ensure that fisherman have guaranteed supplies of raw material and other inputs at affordable prices;
- Look into the possibility of assisting fishermen who want to venture into exports, and the viability of setting up, by the private sector, with the assistance of Government, an export fish processing facility which will enable interested fishermen to process their fish to meet export standards.
Over the years Government has invested substantially to facilitate the development of the agricultural sector. Investments have been made in the provision of agricultural infrastructure, road, water, drainage, agricultural inputs, supply and finance.
We have in the last ten years, with the assistance of the FAO, promoted modern methods of production under a controlled environment. I am glad to note that the younger generation of farmers have embraced such methods of production and are today producing certain types of vegetables all year round.
The returns on our investment are amply demonstrated by the fact that today we are almost self-sufficient in eggs and poultry products and in pork. In addition, we are producing around 50% of the fruits and vegetables consumed locally.
We should however not be complacent. The development of the agricultural sector to ensure sustainability of agricultural produce and food security for our population will remain key policy objectives of my Government.
We will continue to put in place strategies, mechanism and structures which will ensure that gains achieved so far are preserved and that the potential of the sector is fully maximized.
We aim to achieve this through the following:
- The introduction as from early next year of a Farmers' Incentives Act which will make available to registered farmers a number of incentives, e.g. Trades Tax and GST exemptions on capital equipment, a flat 5% Trades Tax on imported raw materials, and the reduction of Trades Tax on commercial required by farmers.
- A review of the Trades Tax regime will ensure that farmers have all year round access to affordable agricultural raw materials, specialized equipment like mechanized rotovators, grass cutters and agricultural inputs to further the development of this important sector.
- The reform of the Business Tax regime will, as from January 1st 2005, exempt farmers from payment of business taxes on profits below the threshold of R240,000. There will be no requirement for farmers whose profits are below this threshold to file annual tax returns.
- Employers' contribution to Social Security for persons employed by registered farmers will be capped at 20% of the monthly salary.
- Farmers, in particular livestock farmers, will in future be able to process and retail their products to the local communities, provided that health and environment standards and practices are met.
- Review the cost of stock feed and find ways and means of reducing the cost of this important input.
- The extension service of the Ministry of Environment and Natural Resources will be strengthened to ensure that farmers are provided with quality and timely information, guidance and advice.
- The Farmers' Training Centre will be further strengthened and the range of courses offered reviewed to ensure that the training offered is in line with the needs and demand of this important sector.
The Shipping Business
As a new entrant in the tanker leasing business, Seychelles has proven that it has the capability to efficiently manage ocean-going oil tankers.
The successful commissioning of Seychelles' first tanker - the "Seychelles Pride" - and the fact that after servicing its loan it has generated inflows of about US$10.0 million on its operation demonstrate that the tanker business offers an important potential to Seychelles as a special growth economic activity in terms of foreign exchange and employment creation.
The addition of two more tankers, the "Seychelles Pioneer" which was launched on the 13th of November 2004 and due to enter into service in April 2005, and the "Seychelles Progress" to be launched in April 2005 will, in the years, ahead contribute substantially to the Seychelles economy. It is estimated that, once they are fully operational, the three tankers will contribute some US$ 15 million to our economy every year.
On the basis of our ability to negotiate the required financing it is the intention of my Government to sign a contract for a further two tankers thus increasing our fleet of tanker to five in the next few years.
Our tankers will equally be an important source of employment for young Seychellois aspiring to take up a career as seamen. Already 22 Seychellois are undergoing training on the "Seychelles Pride" and other vessels. In the months and years ahead, we want to provide more training to our young Seychellois in the maritime field.
Arts and Craft
Culture is the soul of a nation, and arts and crafts some of its most visible expressions.
Government recognizes the importance of, and the role that arts and craft play in the daily life of the Seychellois.
The sector is an important provider of direct and indirect employment and an important source of income in a large number of Seychellois homes.
As a result of the various incentives which Government has put into place to promote the development of this very important sector, there is today an explosion of choice and variety of local music, artwork and craft.
Our music, our arts, craft and culture have the potential to attain new heights and I intend in this budget to provide additional incentives for their further development.
With effect from next year:
The requirement for artists, artisans and musicians to obtain a licence to practice and sell their product or services will be abolished. They will simply have to register with the Licensing Authority. However, vendors who are solely engaged in retailing craft products but do not manufacture them will continue to require a retail licence.
The proposed reduction in the Trades Tax regime will further assist artisans, artists and musicians with raw materials, consumables, tools, spare parts, equipment, packing materials and semi-finished products at affordable prices and on a year-round basis.
In addition, Trades Tax on musical instruments will be reduced to zero, whereas Trades Tax on hi-fi equipment required by professional musicians will be reduced to 5%, provided that the applicants obtain a certificate of entitlement from the Ministry of Local Government, Sports and Culture.
We will also reform the Business Tax regime to exempt musicians, artists and artisans from payment of taxes on profits below R48, 000.
To ensure that our artistes benefit from international exposure, Government will continue to encourage the participation of artisans in international trade fairs through the Export Development Fund.
New funds to be provided in the 2005 Budget will enable the ministry responsible for Culture to assist the participation of artists and musicians in international musical events and exhibitions.
Last but not least, construction of an exhibition hall next to the National Library is due to start early in 2005 and, when completed, it will provide artists with a venue to display and sell their works.
The Offshore Sector
Since it debut into the realm of the financial services industry, Seychelles has recorded significant progress. Even though we are considered as a small jurisdiction, Seychelles has been given due recognition, not by the practitioners, but also by various international institutions such as the FATF, the OECD and the IMF.
At the end of September 2004, we had some 17,000 International Business Companies, 11 trusts, 20 Management companies and one offshore insurance company on our register. We have issued 21 licenses to companies operating in the Seychelles International Trade Zone. The first offshore bank will be launched by Barclays Bank in 2005.
Given our achievements to date and an estimated revenue of some SR57 million in 2004, I believe that we are well poised to capture a larger share of the global offshore market, provided of course, that we market the "Seychelles product" to the right target audience, intelligently and attract individuals and companies with a good reputation.
The promulgation of four new pieces of legislation in December last year places Seychelles in a position where it is able to embark on the second phase of the development of its offshore industry.
We will, in 2005, be intensifying our efforts for the further promotion of Seychelles as an efficient and respectable jurisdiction. Marketing efforts will be market specific, and we will start the year with road shows in China and the Far East.
We will equally intensify efforts to expand our portfolio of double taxation avoidance agreement (DTAs) with a number of countries.
We will continue to monitor developments in offshore jurisdictions across the world, modernise and update our legislative and administrative framework to reflect new developments and ensure that the needs and requirements of the offshore industry are met at all times. In so doing, we will ensure at all times that Seychelles is in strict compliance with all international laws, norms and regulations.
Small and Medium Enterprises
Government recognizes the importance of the role that small and medium enterprises play in our country's economy. Consequently, in support of their further development and growth, Government will continue to ensure the availability of affordable development finance, by way of loans under the YES for young entrepreneurs or through the Development Bank.
The Development Bank will be requested to support private sector development proposals to build and lease working premises. Government will make land available for that purpose at concessionary rates.
Now that SENPA has been established and operational, it will have to gear itself to become the one-stop-shop for the promotion and facilitation of small businesses. SENPA will in future be expected to provide assistance in training, outsourcing services, accounting, secretarial, and aftercare services to small businesses.
The potential of the cottage industry for employment, income supplementation and economic wealth creation is limitless. There will be a need, however, for more flexibility by Government agencies, with regards to the imposition of minimum standards of health, safety and environment so as to facilitate the activities of this sector. The YES Scheme will as from January 2005 be providing seed capital in the form of a loan of up to R10, 000 per applicant in support of the development of cottage industries.
Whilst there is agreement to save and conserve energy, there is equally agreement on the need to develop and put in place a tariffs structure that encourages economic activity and output.
I will, during the course of 2005, commission a review of a new tariff structure for electricity and water, centered on the necessity to conserve energy and water, and at the same time encourage economic activity.
Any changes will be subject to positive movements in the price of fuel.
Outer Islands Development
Whilst economic development has for many years now centred on Mahe and the inner islands, the performance of tourist establishments on islands like North, Alphonse, Denis, Bird, Fregate and Desroches, has shown that our outer islands offer tremendous potential for tourism and other developments.
To assess the economic potential of our outer islands and to ensure that they are exploited in a planned, organised and sustainable manner, I recently commissioned a study to that effect. A master plan will be presented to Government in 2005. It will be accompanied by a package of incentives in support of the development of our outer islands.
Creating the Enabling Environment for Economic Development and Growth
The medium term economic framework that I am putting in place lays the foundation for renewed economic growth. It calls for a strategic partnership between Government and the private sector, including both local and foreign investors.
To ensure that the private sector plays an effective role in economic development, including wealth creation and employment creation, in addition to the concessions provided for by the 2005 budget, there is a need to review existing business practices, systems and procedures to bring them in line with modern day practices that reflect the realities on the ground.
There is an urgent need, for instance, to amend certain pieces of legislation to make the country pro-active and business-friendly. In that regard, Government has already started a review of the present Licensing Act and subsidiary regulations to simplify and speed up the process of obtaining a license and, where feasible, reduce its costs. It is expected that the changes to the present licensing system will be implemented during the first quarter of 2005.
Similarly, Government, in collaboration with its social partners, has initiated a process to review labour legislation so that the laws reflect new realities and economic development exigencies. The main objectives of the review include reinforcement of discipline and good attitude to work and promotion of productivity. The review will also address the human resources management provisions with a view to providing for more flexible approaches. In the same spirit, I am happy to note that a charter for social dialogue is being finalized between Government and our social partners in labour and employment.
Another important piece of legislation which we will be presenting to the National Assembly early next year will be one dealing with the promotion and facilitation of investment. The Investment Code - as it is commonly known - is being drawn up in consultation with the private sector and international institutions. Its main objectives are to promote and facilitate investments, both local and foreign, inform investors of potential investment opportunities and to protect the rights of investors.
An impediment to doing business in Seychelles is the lack of foreign exchange. I recognize that there is a need to have in place a fair, equitable and transparent system for the allocation of foreign exchange. We have recently undertaken a review of the existing system and, early next year, with the assistance and support of the banks, we will be putting in place a revised system which will ensure that all economic operators have an equal chance of accessing the available foreign exchange.
Last but not least, in order to ensure that all potential investment opportunities are optimised and investment projects processed in a timely, efficient, transparent and fair manner, I recently established within the President's Office a modern and efficient "one-stop" Investment Bureau.
It has the mandate for all activities relating to the promotion and facilitation of investments in Seychelles. Since its establishment, the Investment Bureau has successfully processed some 58 new projects, in tourism, industry, trade, infrastructure development etc. estimated at SR1.421 billion. Of the total investment approved to date, an amount of SR88 million will consist of investments made by Seychellois, whilst SR1.33 billion will be in the form of foreign direct investments.
In order to boost investor confidence in the Bureau and ensure its operational autonomy and in line with emerging trends, the Seychelles Investment Bureau will be institutionalised and governed under its own legislative framework. A bill providing for this is being finalised and will be presented to the Assembly when it reconvenes early next year.
THE SOCIAL SECTORS
One of the fundamental policies of this Government is to assist Seychellois families to obtain their house. In spite of our present economic difficulties and in spite of the fact that the construction of new housing units will put a strain on the economy, Government wants to honor its pledge. A provision of R70 million has been made for this in the 2005 budget.
Over the last 10 years, the Government has invested some SR1.3billion in the construction of housing.
This has benefited some 9000 families with the result that, today home ownership by Seychellois has increased to over 70%.
Notwithstanding this notable success, there are 3700 housing applications at present.
During the next two years we will be constructing some 1900 housing units and opening up some 475 land bank plots. In partnership with the private sector, we intend to build apartments on a number of sites already earmarked for that purpose. The apartments will be subsequently sold.
Individual participation in the financing of housing has been quite successful in many countries. It is the intention of Government to establish a scheme that will permit individuals to build up savings towards the construction or purchase of their house.
Government will offer further discounts to persons opting to purchase the house they currently rent from the state.
Over the years we have built a health system that has been of great benefit to our people. But in the face of growing demands and taking into consideration present circumstances, it is necessary to improve the operational efficiency, effectiveness and quality of services offered, whilst rationalizing expenditure.
Of late, there has been much criticism of the lack of certain medicines. I wish to reassure the Seychellois people that the government is putting in place a mechanism to address this problem and ensure an adequate stock of medicines.
It is most important that the public have trust in the health system. It is also important that we use the services well and that we appreciate the good work that the majority of the staff of the Ministry of Health is doing.
We are considering a reorganization of the health system to improve its effectiveness so it delivers a better service while controlling costs.
I intend to effect certain changes early in the new year.
The capability of the Ministry to plan, monitor and control expenditure will be strengthened. The information system will likewise be reinforced to better monitor the utilization of resources.
Where necessary, the knowledge and skills of staff will be upgraded.
The salary structure for doctors and other staff will be reviewed and an incentives system introduced to ensure career development and retain qualified Seychellois in our health system.
In line with the policy of involving the private sector in the provision of services that it can offer more effectively and at less cost, the Ministry of Health will, as far as possible, contract out certain services. In a first phase, the Ministry of Health intends to award contracts for laundry services, the supply and maintenance of equipment, optometry services, and ambulance services.
Diagnostic services will be strengthened to make a wider range of advanced tests available locally instead of patients having to go abroad. Our aim is to improve the efficiency and rapidity by which health conditions can be detected and appropriate curative action taken.
The prevention of HIV/AIDS has been and will remain a priority of Government. HIV/AIDS prevention will continue to receive the highest attention. There will be emphasis on educating our population to bring about behavioural change.
To realize our objectives, the Ministry of Health will be allocated a budget of SR 155 million which amounts to 4% of GDP.
We will maintain our commitment to quality education.
Over the next five years, the Ministry of Education and Youth will increase the number of ancillary staff at Creche to P2 level.
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