Brewery’s finances highlights the flaws in Seychelles financial system

Brewery’s finances highlights the flaws in Seychelles financial system

Seychelles Breweries Ltd, one of the largest businesses in Seychelles, once again held its annual general meeting. What is new this year is the awkward presence of Mrs Laika Nair among the list of respected individuals who are the directors of the largest of our “public” companies. But of equal significance is the paradox. The company’s finances exhibits the dismal failure of the economic policies of the government Mrs Nair represents.

It is awkward because Mrs Nair is a civil servant occupying one of the most important administrative posts in the government. She is the Principal Secretary of the Ministry of Finance probably the most coveted post for career government servants. It is equally awkward because the government is claiming that it is pursuing privatisation and liberalisation. But in the case of Seychelles Breweries the reverse seems to be happening.

Ever since its creation in 1972, Seychelles Breweries has been the epitome and bastion of free enterprise capitalism, surviving virtually unscathed the 15 years of Marxist one-party state when the means of production were meant to be in the hands of the “people”. Until only recently, all the shares in the company were owned by private individuals or corporations. So what is the highest placed civil servant doing on its board today and how did she get there?

Mrs Nair represents a chunk (20% or so) of shares in the company which now belongs to the state. Given today’s current presidential slogan – a share ownership society – this is an anomaly. But these shares were acquired by the State in very controversial circumstances, smacking of corruption and official influence peddling.

First, the shares changed hands from the original promoter of the company, Mr Joachim Haase, to an entity registered in Switzerland but represented by a foreign businessman closely associated to Mr Mukesh Valabhji, erstwhile managing director of the Seychelles Marketing Board (SMB). SMB was once the state import monopoly created during the one-party Marxist state to take over commerce and distribution into the hands of the people, according to the official philosophy. At that time the shares changed hands, Valabhji was also economic advisor to President Albert Rene and is known as the architect of the Macro Economic Reform Programme (MERP). It is generally believed that the new owners paid US$ 1 a share, equivalent to SR 5.60.

Within the same year, the shares changed hands again. This time to the Seychelles Pension Scheme chaired by then Principal Secretary of Finance and Governor of the Central Bank Francis Chang Leng. According to the managing director of the Pension Scheme, the “investment” cost SR 59, 000, 000 or SR 18 per share, a hefty capital gain for the friends of Mukesh Valabhji. But that was not all, these same friends of Mukest Valabhji subsequently became the proud owner of the Fisherman’s Cove hotel which had just signed a 20 year lease agreement with Meridien – the international hotel management company – which amounts to US$ 60 million. The fisherman’s Cove was owned by a parastatal called COSPROH, whose managing director was Mukesh Valabhji. COSPROH has been quietly dissolved without filing audited financial statements for the last 3 years of its existence.

As a member of the board of the Seychelles Breweries Mrs Nair is presiding over a cash hoard amounting to nearly SR 303 million, which the company accumulated over the years. It would have been even larger had the company not spent some of that money buying property including an exotic island. 90% of the cash hoard is held as liquid cash in the banks in Seychelles. The banks are in turn obliged by the Central Bank to invest 70% of it in government bonds issued by no other than Mrs Nair.

The cash hoard, however, is no loose money as the uninitiated may think. But while the brewery’s board, which includes Mrs Nair, contemplates what to do with all this money, it also has to grapple with the fact that they cannot pay their creditors overseas, the largest of which is the brewery’s largest shareholder, the multinational drinks giant Diageo. Diageo has provided the brewery with raw materials, plant, machinery and technical services over the years. In addition the brewery owes it commission and royalties. Altogether over the years it has come to SR 129 million or US $ 23 million – and Diageo must be paid in foreign currency.

This arrangement may appear convenient for the government, but as it currently stands, it places the banks in serious problem. When and if Seychelles Breweries is ever able to use this money, the government will not be in a position to refund the banks unless the Central Bank buys the bonds off the banks. That is tantamount to printing money. The Minister of Finance, the boss of Mrs Nair has already said that when the government will be able to provide enough foreign currency for everyone to convert their rupees, Seychelles Breweries will be the last one in the queue, which must have embarrassed Mrs Nair no end among her fellow board members.

Like the Government, whose finances Mrs Nair is managing, the brewery has lots of rupees but it cannot settle its overseas debts. Thus the finances of our largest commercial enterprise exposes the flaws of our country’s finances.