Seychelles - Domestic policy



In the years between independence in 1976 and the 1993 Constitution, René espoused a socialist ideology with state control of key economic resources. Though the Seychelles enjoyed the highest per capita income in Africa, the domestic economy showed negative growth in the mid-1990s. In 1995, René announced the creation of the Seychelles International Trade Zone (SITZ), an attempt to attract foreign capital and to develop an off-shore sector that would supplement tourism and fisheries as the primary foreign exchange earners of the national economy.

In November 1995, René proposed the controversial Economic Development Act (EDA). For an investment of at least $10 million, the EDA gave immunity from extradition or seizure of assets to foreigners. Great Britain and the G-7 members complained to René that the Act was tantamount to encouraging trafficking and money laundering. In 1996, an Economic Citizenship Program gave foreigners Seychellois nationality in exchange for payments of $25,000. Under domestic and international pressure, the government rescinded the EDA, but external investors have remained skittish of the government's extensive control of the economy, and wary of the administration's commitment to clamp down on tax evasion and other illegal practices.

One issue confronting René has been the chronic shortage of labor. Enterprises such as the Indian Ocean Tuna Company (IOT) have had to import labor for its fish processing plant in Victoria. The first group of workers for this facility arrived from Sri Lanka in 1998. Presently IOT hires workers from Philippines, Thailand, Kenya, and Madagascar. The cannery has pressured foreign employees to accept wages as low as $120 per month due to lower catches in 2002. Local employees earn $350/month.

Owing to the 11 September 2001 attacks and a more than 15% decrease in tourism, real GDP growth in 2002 was around 0% showing only slight improvement to 0.5% in 2003 and expected to rise to 1.5 in 2004. Inflation was 2% in 2003 and was projected to rise to 4.0% in 2004. Record high tourist numbers in 2002 reached 132,000, but well off-track to reach the 180,000 target set for 2005. Slow economic growth has been attributed to the government's reluctance to adopt market reforms. In addition, the budget deficit doubled in 2002 owing to increased spending running up to the December elections. Off-shore manufacturing has progressed slowly, and a dockworkers' strike threatened to incapacitate the Hunt Deltel Shipping Agency, which may lose $1.2 million a month in tuna business. In other developments, the preferential treatment that Seychellois tuna exporters receive from the EU market was threatened by appeals from Thailand and the Philippines to the WTO against EU tariffs on their tuna. Seychelles is a member of the Asia, Caribbean, and Pacific (ACP) countries, which have tariff-free access to the EU market.

René's government has attempted to remedy its lackluster performance by putting forward a five-year macroeconomic plan. Two key goals of the plan are to finance capital improvements, and to enhance competitiveness in order to free up foreign exchange reserves.

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