Ilrshaad Goolamally : “With the minimum wage, the cash flow of SMEs will be affected”

During the final quarter of this year, three measures have been implemented with the aim to reduce poverty. Recently, it has been announced that the minimum wage will be Rs 9,000 as from January 2018. The wage compensation has been fixed at Rs 360. Similarly, the subscription for Negative Income Tax has started. The President of 2 Train 2 Employ, Ilrshaad Goolamally, elaborates on the minimum wage, its effect on working capital as well its impact on the SMEs. He provides a clear picture of what awaits us as from January 2018.

The minimum wage will be introduced in January 2018. Do you think this could lead to layoffs in different sectors of the economy?
I don’t want this to happen but there might be some layoffs if the Government does not come up with incentives for employers, that is decreasing the tax rate or any employment refund programmes. The sectors which will be the most affected are manufacturing and construction.

However, other sectors, such as cleaning, will definitely suffer from this minimum wage. The most vulnerable ones will be those with low skilled workers, especially with salaries less than the minimum wage. For example, the constructions or manufacturing sectors should be looked at from a different angle.

Some of the employees were earning from Rs 5,000 to Rs 7,000 and now with the minimum wage, they will earn Rs 9,000. That is very good and it is indeed a courageous decision by the Government. But there will be some negative impacts on the running of businesses from large to SMEs.

For instance, we have the Remuneration Orders (ROs) for certain sectors. I think that the Government should analyse each sector differently in order to avoid layoffs.

The sectors which will be the most affected are manufacturing and construction. However, other sectors, such as cleaning, will definitely suffer from this minimum wage.

Some employees already fear an increase in their workload. Are there any risks of exploitation in certain sectors?
This might result in an increase in their workload. We must not forget that this minimum wage will also be applicable to foreign workers. So, the employers will be more demanding in terms of deliverable from employees in order to be competitive.

I reckon that foreign workers will be more exploited than Mauritians. The minimum wage for foreign workers is something that the employers will complain about. I think that the latter will remove some of the benefits being offered to foreign workers, like free lodging and food, in January 2018.

The number of foreign workers in Mauritius is constantly increasing. The latest figures from the Ministry of Labour, today, has risen to 39,032, including 27,408 men and 11, 624 women. 18,429 Bangladeshi citizens, 9,105 Indian expatriates, 4,656 Chinese and 3,596 Malagasy have been identified.

The Mauritian employers (employing these foreign workers) will have to pay, on an average, an additional of Rs 60 million monthly.

Several observers fear that the minimum wage will have a negative impact on companies’ working capital. Do you share their fear?
Definitely, this will impact the cash flow of SMEs. I doubt that the large companies will suffer from it at the beginning though in the long run, they will surely feel this impact. But for the SMEs, which employ more than 60% of the working population in Mauritius, it will have a huge negative impact.

We must not forget that the clients of these SMEs pay them after more than one month in most cases. So I think that some SMEs will close down in 2018 -2019, if the Government does not come with some incentives for these SMEs.

So, with this minimum wage and the already existing difficulties to get access to finance, these SMEs will face tremendous difficulties to be competitive. In Rodrigues, the situation will be worse as many workers are paid less than the minimum wage.

For instance, try to apply for some financial support for a company, and you will witness the difficulties lying ahead. Most of the budgetary measures are only in theory but the in practice, it is a totally different story. The public administrators are slow in implementing these measures. This is the fact!

Should we expect prices to rise for products and services?
This will surely happen. There is no way that the same selling prices will be retained. There will be a general increase in price and cost of living in Mauritius and Rodrigues. In fact with this minimum wage, we are simultaneously gaining and losing.

The Government should have at least taken into consideration the report of Mr Apanah in the first place and apply the minimum salary to Rs 8,000 inclusive of the Governmental increase of Rs 360. Then in 2019, the Government could have applied it to Rs 8,500 or Rs 9,000.

This would have been a much wiser decision in order to give the businesses some time to take their safety measures. The transition would have been much smoother.

What will be the immediate impact of wage compensation and the minimum wage on SMEs?
The SMEs will gain and also lose from this decision. How? The SMEs will have to pay more but in some cases, they can see that their clients (either new or existing ones) are coming to them at more regular intervals since the salary of these clients have increased. Moreover, we are still not clear how the MRA will allocate the Rs 500 for the minimum wage.

However, I hope that the Government can come with some incentives for the SMEs. Or else, business will be difficult in Mauritius for most of the SMEs.  We must not forget that the employers should also pay the pension through the NPF/NPS for their employees.

Overall, the SMEs will be the most affected than the large enterprises. My family have always own SMEs and we were always the most affected ones. Unlike Business Mauritius, which represents mainly the large companies, the SMEs are not represented on discussions boards. I have sat in many Governmental committees so far and I never seen anyone representing the SMEs.

How could the introduction of the Negative Tax be useful for SMEs?
There is no benefit for the SMEs. They have to register all their staff on the MRA system and the Government is the responsible organization who is going to contribute to Negative Income Tax to the employees. There is no gain for the employers, especially for the SMEs.

What will be the impact of these new measures on the unemployment rate in Mauritius?
Depending on how the Government will encourage the employers to recruit more, that is YEP or NSDP, I reckon that there will be an increase in the unemployment rate.

Do you honestly think that these financial measures can reduce the gap between the rich and the poor?
I will say that it will decrease the gap between the low and middle classes just a little bit. The rich will always remain rich!