Tuesday, 9 December 2014

* An effective economic democratisation process: key to future prosperity of Mauritius

Abdel Ruhomutally, Managing Director, GFA Insurance Ltd

Both l’Alliance de l’Unité et de la Modernité et l’Alliance Lepep promise to lead the country to a high-income economy status. They are proposing plans to speed up growth and create more jobs. Yet, achieving a high income – high wage economy requires a paradigm shift in the way we create and distribute wealth. The business space must be significantly enlarged to develop more sources of growth and attract more investments.

Democratisation of business ownership is the foundation of an entrepreneurial economy. The economy will rely less on large conglomerates and corporations to create and distribute wealth. There is also a fairer and more equitable allocation of scarce resources across the wider business community as government policies are less vulnerable to the organised lobby of the historically-dominant groups.
More entrepreneurs mean more opportunities to generate growth and jobs which in turn help people spend and save more. Moreover, democratisation of the economy supports economic diversification, innovation, entrepreneurship, technological diffusion and competition.

The Labour party came into power in 2005 on the strength of its promise to democratize the economy. They pledged to change the course of history and empower people to take business initiatives and claim a larger share on entrepreneurial resources and opportunities. Yet, nine years down the line, the Labour party’s track-record in terms of democratizing the economy is at best disappointing.

During its first term in office, Labour did exactly the opposite of what it promised by devising policies that end up putting more wealth in the hands of the privileged few. The prospects of widening the circle of opportunities fell apart, squeezing the business space available for small biz and the non-traditional private sector players.

The second term saw a few attempts here and there to address the imbalances, but all these proved not to be effective and coherent enough to make a difference. The plain truth is that we still need a major re-engineering to get democratisation of the economy back on track.

Sound and healthy competition is a key pillar of the idea of democratising economic and business ownership. Despite the advent of the Competition Commission, many markets are still plagued with unfair trade practices. In our own general insurance industry, many deeply-entrenched distortions and anti-competition actions by the dominant players hamper the smooth interplay of market forces, which causes prejudice to consumers’ interests and the overall development of the industry.

Some companies are abusing their market power to maintain and nurture a monopolistic situation, restricting consumers’ choice and clearly infringing the Competition Law. In the automobile segment, there are collusive arrangements between banks, leasing companies, insurance brokers and some insurance providers to force consumers buy car insurance policies from specific insurers. Our company has been fighting this malpractice for a long time. Many small and medium-size insurance companies do not have the opportunity to even propose their products to the customers, something which limits consumer’s choice.  This is unfair competition at its nattiest.

GFA Insurance has lobbied extensively to include a specific clause i.e. Section 81, in the Insurance Act of 2005 which governs the freedom of choice. No creditor can force the choice of an insurance contract over a customer. Our fight has obtained mixed results, because some big companies have found ways to circumvent the law with the complicity of banks and leasing companies, insurance brokers and car dealers.

Our struggle is on-going, and we look up to the next government in office to bring bold measures to restore healthy competition in the insurance sector and in many other under-developed markets. We need strong market institutions to police competition and ensure fair trading practices. Competition fosters innovation and product differentiation that add value to the consumers. Competitive markets force firms to offer more for less.

There is a compelling requirement to have a fresh look at the economic democratisation issue. The economy must be able to fully exploit its productive capacity to deliver lasting prosperity to the people. People economic empowerment is the way forward for a more compassionate, inclusive and fairer society.

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