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before the National Assembly - 01.12.05
'Our future successes will depend on preserving our gains'
Mr. Speaker,
Honourable Members of the National Assembly,
People of Seychelles,
On this day last year I presented to you the 2005 Budget which reflected my determination to take Seychelles and the Seychellois people further on the road of progress and prosperity.
The 2005 Budget was part of the new platform for our medium to long-term development. It introduced further measures to modernize our economy, accelerate its growth, inspire more confidence in both local and foreign investors and as a result create more wealth and employment.
Throughout 2005, we strove to achieve these objectives and we have delivered. This is what I said I would do and in 2005 my Government has:
- Carried out changes in Government Departments to improve efficiency and service delivery
- Created new bodies outside ministries such as the Seychelles Civil Aviation Authority, the Seychelles Tourism Board, the National Statistics Bureau and the Non-Banking Financial Services Authority
- Provided further incentives to the tourism industry
- Provided new incentives to the Agricultural and Fisheries sectors
- Concluded agreements for the construction of a 4th and 5th tanker
- Enacted measures to assist musicians
- Promoted cottage industries
- Increased support to small businesses
- Continued our programme of trades tax reduction
- Removed the requirement for import permits for most goods
- Adopted provisions for the declaration of assets by public servants
- Reduced the stock of domestic debt
- Established the Esmeralda Bond to encourage a culture of personal savings
- Reduced and in certain cases restructured external debts
- Adopted our divesture strategy
- Finalised the Investment Code
- Created the Seychelles Pension Fund
- Maintained a fiscal surplus despite adverse conditions
One measure that I spoke about in the 2005 budget address has not been fully implemented as yet. The privatisation programme, which was to start in the first quarter, has been delayed to the fourth quarter as we have needed overseas expertise and guidance. Government has been working with international partners to develop the most appropriate framework for the sale of assets earmarked for privatisation. We remain committed to the programme, but we do not want to repeat the mistakes made by some other countries. We want the privatisation we undertake to be for the real and long-term benefit of Seychelles and the Seychellois people. We also want, as far as possible, for every Seychellois to have the opportunity to buy a share in a privatised venture.
Today, our country is entering the modern economic environment. I see ourselves as a young but maturing and optimistic nation, ready to face the challenges of the new times.
The core of my 2005 budget was based on the conviction that together we can create our prosperity. The events that we have faced this year and the manner in which we have responded to them, have further reinforced this conviction. It has been a difficult year: we have faced unprecedented natural disasters and the highest fuel prices ever. But we have also together created the conditions to increase the wealth of the nation. There is more confidence in our country and investments are on the rise. More jobs are being created. We are earning more foreign currency and our net reserve position has improved.
In short, our efforts, perseverance and resilience as a nation over a difficult period are starting to bear fruit.
In addition to the improvements in our economic situation, we have continued to invest substantially in our social programmes.
In 2006, I am proposing an economic programme that benefits all Seychellois and builds on the 2005 measures. My vision for Seychelles is of a society that is both dynamic and caring � a vision which I believe epitomises our Seychellois character. It is a vision which should inspire us to develop our full economic potential while ensuring that the fruits of our hard work are shared by all of our people.
Mr. Speaker, before going into the details of the 2006 budget, I will highlight major elements of our performance in 2005.
Developments in 2005
The international economy remained strong in 2005 despite the rising oil prices and natural disasters in many parts of the world. The increasing oil price was caused to a large extent by the high demand of the newly industrialised countries, which continued to enjoy high growth. The hurricanes experienced by the USA exerted further upward pressures in the oil market in the second half of the year. Inflationary tendencies started to appear especially in countries which are heavily dependent on importing this commodity. A sector especially affected was the travel industry, while the basic costs of freight and importation of goods have also risen.
On the domestic front, the tsunami and the torrential rains of late December 2004 caused considerable damage to the country�s capital stock, resulting in an important negative shock for the start of 2005. We commend the Seychellois people for their solidarity and strength of character and we thank all local and overseas partners, foreign governments and international agencies.
The natural disasters were of concern to the Government as it threatened to derail the reforms that we are undertaking, particularly our fiscal policy. But despite these difficulties, and the increase in fuel prices, we were determined to maintain the strong fiscal stance started in 2003. For 2005 our budget performance is better than forecast. Given the strong fiscal position, we have been able to reduce domestic debt and consequently relied very little on Central Bank funding.
The improvements in the fiscal accounts translated into a general decline in liquidity and for the year up to October, the fall was 0.6 per cent. Since the reforms started in 2003, liquidity movement has been well contained and has remained in single digits.
The increase in the price of oil in the latter part of the year, exerted pressure on the economy. As a net oil importer, our small economy was not spared the effects of the price hikes. The average value of fuel increased from US a barrel in 2004 to US a barrel in 2005. In 2002 our domestic imports were US million, in 2003 US million, in 2004 US million, and in 2005 an all time high of US million. Government continued to absorb the increases in price and maintained the prices at the petrol station, electricity tariffs and public transport charges. Consequently there has been a decline in its tax revenue
Despite the above constraints, the Government implemented its announced strategies. I gave my undertaking for a strong fiscal position; and we will achieve a surplus for a third consecutive year. Mr. Speaker, this surplus, at 8% of GDP, will be the highest ever. I consider this to be no small achievement when we take into account the context in which we have done this.
We have also made progress concerning FDI flows into the country with over US million registered in 2005. The operations of the Seychelles Investment Bureau have reinforced the investment climate and investor confidence has never been stronger. This will be further strengthened by such other measures as our ratification of the UN Convention against corruption and the adoption of the Investment Code. There have also been encouraging developments in the offshore sector with SIBA expecting 50% more revenue in 2005. My Government has also extended its network of double taxation avoidance treaties, the latest of which is being negotiated with Belgium. Such agreements are a further mark of confidence in our economy.
We have restructured our bilateral debts with the governments of the People�s Republic of China and the Republic of India and our multilateral debts with Kuwait Fund and Abu Dhabi Fund. We have engaged in discussions with the ADB and hope to reach agreement regarding payment of arrears early next year. We have also resumed payment of our commitments to the World Bank and OPEC Fund. Positive discussions are ongoing with other bilateral and multilateral creditors. On the domestic side, we have restructured our debts. We have also launched the Esmeralda bonds to promote savings and as part of the domestic debt restructuring. The sale of the first SR25 million worth of individual bonds is almost complete.
The restructuring agreements provide for longer maturity, giving us a cushion while the economy re-adjusts.
As we all know, our country is facing certain foreign exchange constraints. This is an issue which cannot be resolved overnight. We must maintain measures to facilitate investment, increase productivity and enhance our foreign exchange earnings. This approach Mr. Speaker, ensures that we continue to develop while maintaining our socio-economic gains. The flow of foreign exchange into the country is improving. Foreign exchange earnings this year up to October totalled SR1.1 billion compared to SR973 million in the same period of 2004.
New incentives to the tourism industry have given another boost to this sector. Several establishments are using the incentives to upgrade and offer much improved products and service to our guests. A number of our hotels and resorts are acclaimed as being among the best in the world. Seychelles enjoys its well-deserved reputation to be not only a destination of unparalleled beauty but, more and more importantly these days, one of safety and security.
Up to the end of October, arrivals totalled 109, 599, an increase of 6 per cent compared to the same period in 2004. The rise in numbers has been helped by the marketing exposure of the country through the new airlines in late 2004 and the repositioning of Air Seychelles which have helped to broaden the clientele base. The hotels themselves have also played a part in marketing. Foreign Exchange flows for the tourism sector between January and October are estimated to be SR947 million, compared to SR880 million for the same period in 2004. The improved performance is expected to continue in 2006 as new hotels open.
The Agriculture and Fisheries (Incentives) Act introduced in April, is providing the fisheries and agricultural sectors with a series of incentives designed to improve productivity and competitiveness and ensure that the two sectors increase their contribution to national wealth creation.
In the fisheries sector, industrial fishing has maintained high catch levels resulting in increased transhipment activities. The total revenue from industrial fishing including licenses, transhipment fees and services is estimated to be in the region of SR400 million. Artisanal fisheries were adversely affected by the December 2004 tsunami, but are staging a remarkable recovery this year as marked by their catch of 4200 tonnes.
In all sectors, Government has sought to improve the employment situation and has put in place a series of special training programmes including the Apprenticeship Scheme, the Skills Acquisition Programme, and the Small Project and Business Development scheme.
2005 Budget outcome
This year, we will achieve a surplus of around SR318 million or 8% of GDP, 1% more than budgeted.
Government expects to collect SR2.109 billion in revenue. This is higher than what was budgeted despite lower trades tax receipts and less dividend collection because of higher Social Security contributions.
Government expects expenditure to be SR1.792 billion which is SR81 million more than budgeted. This is mainly due to higher spending in certain Government services.
2006 Fiscal Objectives
The budget that I am presenting today will complement the steps that we have already taken, not only to improve the fiscal position but also to streamline procedures and make government more efficient and responsive.
It is also a budget which will see some of the fruits of the hard work of the past few years being distributed and shared among our people.
For 2006, I am aiming for a budget surplus of SR177.946 million or 5% of GDP.
Total revenue is forecasted to be SR1.929 billion and total outlays SR1.751 billion.
- Revenue
The SR1.929 billion revenue for 2006 is a decrease over the 2005 budget of around SR60 million due mainly to further reductions in trades taxes. The reductions are in line with Government�s endeavour to modernise the economy, facilitate business, create the enabling environment for the private sector and reduce the cost of living.
SR40 million more is expected as dividends from parastatals, and miscellaneous revenue.
- Expenditure
The proposed expenditure for 2006 is SR1.751 billion which is SR40 million more than the 2005 Budget. Total appropriation is SR1.320 billion, a 10% increase over 2005. This is because of planned expenditure for ministries, which is proposed at SR835 million. Current outlays will be SR1.514 billion.
In line with our commitments to education and health services, it is proposed that the ministries concerned again receive the largest allocations. The Ministry of Health and Social Services will receive SR184 million, and the Ministry of Education and Youth SR181 million. This represents 5% of GDP for each sector.
The Police will receive an increase of SR10 million with a total allocation of SR70 million. Peace and security are central to all our other efforts to improve the economy and our social welfare. We will continue to strengthen the Police Force through professional training and allocation of necessary resources.
The preservation of the environment and natural resources remains a priority. An allocation of SR61.299 million is made for 2006.
The Judiciary will receive SR8.5 million, representing an increase of SR1.5 million. A frequent complaint is that the process of administering justice takes too long. Too many people on remand are waiting trial. I have asked the Judiciary to spare no effort in ensuring that court cases are dealt with in an efficient and timely manner in fairness to all concerned. The increase in their allocation should contribute to that process.
Seychelles is increasingly active in international relations and the Ministry of Foreign Affairs has a key role to play in defending and promoting Seychelles� interests in an increasingly globalised world. In this context I am pleased to announce that Seychelles will be rejoining SADC in 2006. We propose a budgetary allocation of SR10.4 million for the Ministry of Foreign Affairs.
We are also proposing for SR170 million under centralised payments to cater for a number of activities and in support of national organisations. We are increasingly conscious of the importance of disaster preparedness. An allocation of SR1 million has been made to the National Disaster Secretariat. A new allocation of SR2 million is proposed for the Football Federation and SR3.5 million for the Concessionary Credit Unit. SR2 million is provided as a contribution to religious organisations. This is to assist in the construction and renovation of certain churches.
I should like to express the Government�s appreciation for the most important role that religious organisations play in the promotion of spiritual and moral values in our society. Our society faces major challenges in the form of drug and alcohol abuse and the spread of HIV/Aids. These are challenges that require the common and concerted efforts of Government, the Churches and the whole of society.
An additional SR7 million has been proposed under subventions to regulatory bodies and SR24 million more to parastatals and other bodies, mainly SPTC and SBC.
- Capital Outlays
Capital outlays will be maintained at R200 million in 2006. The main area of expenditure will be the new housing projects and the completion of ongoing projects of 2005.
The 2006 Budget Strategy
Budget 2006 builds on the foundations laid in the budget of 2005 for our medium to long term development. It aims to promote economic growth and the creation of wealth while furthering the well-being of the population and addressing their concerns. It is a budget for every Seychellois.
The 2006 budget proposes measures which will:
- Address the cost of living and improve the family budget
- Create employment opportunities for our population, in particular the youth;
- Improve the conditions of service of the working population and promote personal responsibility and productivity;
- Further improve the management and performance of the economy.
- Increase the confidence of investors, in particular Seychellois, in the potential
of our country
- Promote the entrepreneurial spirit and business development;
- Improve public service delivery and promote better coordination and implementation of policies;
- Reduce the costs of employment through a reduction in employers� contribution to social security;
- Control Government borrowing, and manage public debt in support of the economic growth process.
During the year, I visited a number of work places in ministries. With the Vice- President, I also held public consultations throughout the country. We learnt a lot through those meetings and we are determined to address the issues that came up. I have asked the ministries and services concerned to follow-up on specific points and I expect them to do so diligently and to ensure that where justified, the necessary improvements are made.
Apart from services, the public across the country raised a number of other issues, notably the cost of goods in the shops and the cost of living, the employment situation and housing. We have been considering how best we can address these issues and the 2006 Budget gives them due attention.
For very many Seychellois families, the cost of goods, transport and housing account for a substantial part of their spending. The budget introduces a number of measures that should reduce the cost of living over time.
Measures to reduce the cost of living
The government will start with the following:
1) Public Transport
Taking into account that several commuters have to change buses to reach their destination and that each change requires a new ticket, SPTC will in January 2006 introduce a one day ticket of SR6. The one day ticket will enable, for example, a Bel Ombre parent who has to drop a small child at a Day Care centre at Beau Vallon before taking another bus to go to work and do the reverse journey in the afternoon, to do so for SR6 instead of SR12. The single fare of SR3 will remain.
Free bus services currently available for pensioners will also be extended to persons registered as disabled and to all post-secondary students.
2) Tax Reductions
Since 2003, Government has been reducing trades taxes on imports gradually. As part of the efforts to reduce the cost of doing business and the cost of living, further reductions in trades tax will be made on raw materials and equipment for manufacturing and on certain food items.
The budget makes provision for a trades tax regime where most trade tax would be collected on four main items, namely fuel, motor vehicles, cigarettes and alcohol. There will be further reductions in the rates already published for 2006 for a number of items, especially food. In many cases the trades taxes will be reduced to 0%. All other trade taxes will be reduced so that the average rate of tax will be around 10%.
Trades taxes on all raw materials, selected capital equipment and machinery for the manufacturing sector will be reduced to 0%. This will benefit the manufacturing sector and cottage industries and bring us in line with regional requirements such as with COMESA.
Trades taxes on domestic household appliances such as fridges, washing machines and combined gas/electricity cookers will be removed completely. Trades taxes on beauty products and cosmetics, hair products, etc which currently are at an average of 50% will also be removed completely.
To protect our local production we have established a seasonal and a sensitive agricultural list. For the seasonal items, in times of plenty, the importation of these items for retail will be regulated through import permits. For sensitive items, such as bananas, sweet potatoes, cassava and roses, Government will protect the farming community through a high protective tax.
For local industries, a similar tax will apply on certain imports, such as tea, UHT Milk, canned tuna, prawns, savoury crisps. This will help to protect and encourage local production and employment.
In the case of imported non-alcoholic beverages such as fruit juice and bottled water we will move away from an ad-valorem tax to a specific tax of SR15 per litre.
For imported beer, a SR35 per litre tax will be maintained. The present levy on beer and all other items will be removed except for cigarettes and dish antennae.
Government has decided not to implement the published trades tax reduction on imported beer which was scheduled for 2006, as a further measure to protect local industry and the employment it generates.
The Government is currently assessing the tax structure on locally produced goods. The tax on all locally produced soft drinks will be reduced so that a 33cl bottle will retail at SR2 excluding the bottle deposit. Similarly tax on local beer is being reduced, from R24.85 to R19.45 per litre. This means that a 28cl bottle of Seybrew beer, currently costing SR10.50 will retail at SR9 excluding the bottle deposit.
All the new rates will take effect on 1st December 2005 except for the reductions on locally produced drinks which will be effective from 9th December.
It is important that the benefits of the reductions in the various taxes are passed on to the consumers. Price control staff have been visiting shops to verify stocks and prices of goods to deter the practice of selling newly imported items which benefit from the reductions, at the older prices. I call on all traders to participate in our common effort to provide goods to the Seychellois people at fair prices.
3) Reduction in the price of LPG
As of 1st December, the price of LPG will also be reduced from SR9.33/kg to SR7/kg. This means, for example, that a 4.5kg cylinder which currently costs SR39.50 will cost SR31.50, one of 9kg costing SR84 will cost SR63, and a 12kg costing SR112 will now cost SR84.
4) Domestic air travel
From 1st January 2005 the rate of Goods and Services Tax (GST) on Domestic Air Travel will be adjusted to 7% to be in line with other tourism related services. Thus a Mahé-Praslin return ticket currently costing SR280 for a resident will now cost SR260.
5) Telecommunication charges
In recent years there have been welcome reductions in rates for both local and international calls. Following initial negotiations with Cable and Wireless and Airtel, it is expected that there will be further reductions in the coming year.
6) Strengthening consumer protection
From 1st December 2005, a Consumer Affairs Unit in the Department of Finance will act as a clearing house for consumer complaints. It will reinforce the provisions of the 1997 Consumer Protection Act and other complementary laws and regulations. This unit will promote good trading practices in the interests of consumers and traders. It will have the power to investigate cases of alleged infringements and prosecute where necessary.
Mr. Speaker, our efforts to reduce the cost of living for all Seychellois are reflected not only in the points I have just announced but also in other measures in this budget.
Housing
The Government is committed to its policy of facilitating each Seychellois family to have their own home. A total number of 46 projects with contract values totalling R750 million and representing 3,257 housing units are in various stages of construction.
In addition to major advances in our housing programme, the Housing Finance Company (HFC) has been disbursing loans for house construction and for land purchase. 736 loans totalling R86.4 million have been granted to families in the period January 2004 to date. 906 home improvement loans worth SR18.3 million have also been disbursed over this period. A total of 2,092 families have benefited from our housing and loans programmes since January 2004. In 2006, it is planned that 1,075 houses will be completed under the ongoing programmes.
The Home Ownership Scheme launched by Government in 2002 has achieved remarkable results. Some 1,900 persons have benefited directly. The revenue of SR83 million it has brought in is helping Government to sustain its housing programme.
In the 2005 Budget address, I said that further measures would be taken to encourage families to buy and own their own homes.
The Government is introducing a new Home Ownership Scheme to benefit families who have legally occupied PMC (Property Management Company) houses as well as those who have taken loans from SHDC, prior to 31st December 2003.
The scheme which will start on 1st December 2005, will make it possible for families who have been living legally in a PMC house for 15 years or more and who are up to date with their rent to acquire their house and corresponding land without any further payment. Families who have been repaying a loan with SHDC for 15 years or more and who are up to date with their repayment will not pay any further amount. Their loan will be considered as having been paid in full.
Families who have occupied their house or repaid their loan for a period less than 15 years will be able to buy their house or pay off the total balance of their loan at substantially discounted prices based on the period of occupancy and repayments made.
People joining the scheme will also benefit from a minimum 20% reduction in their existing rent or loan repayment.
Some 3,800 families stand to benefit from this scheme. The offer made in the scheme will be for a limited period and it is in the interest of the families concerned to seek information on the scheme. I encourage all families concerned to do their best to become the proud owners of their own house which they can later pass on to their children or grandchildren. How many persons in other countries, have such an opportunity. What is only a dream for many people elsewhere can become a reality for the ordinary Seychellois family.
Families occupying PMC flats and bed-sitters as well as houses ear-marked for redevelopment prior to 31st December 2003 will benefit from a 10% reduction in their rental payments with effect from 1st December 2005.
All these measures are also part of my Government�s drive to bring about a reduction in the cost of living.
Employment
During this year Government has looked closely at the employment situation. In the district consultations, the issue of unemployment, especially among the youth came up. It was also pointed out that in many cases unemployed persons are reluctant to take jobs immediately av | 
