Last week, I wrote about how our parliamentarians have yet to embrace the roles and responsibilities which they were elected to perform. Everyone is so intent on getting into government – or staying put, once there – that they ignore most of the political tools available to them.

On Thursday last week, distracted by a looming no-confidence vote, Parliament passed dangerously flawed legislation amending the Employment Act. The changes included improvements in maternity leave, adjustments to employer liability when a staff member resigns on short notice and changes to the way annual leave accrues.

But what got every employer’s knickers in a knot was a change to how severance is handled. The rate of accrual was increased by 300%. Worse, every worker, no matter how short their employment or the circumstances of their departure, is to be eligible.

The outcry was immediate, irate and, occasionally, irrational. Many employers immediately sacked all their staff, paid out whatever severance was due and re-hired everyone, sometimes at reduced rates calculated to discount the increased severance. Others requested that their staff resign, avoiding severance payouts entirely.

Expat workers were needlessly affected. In spite of being ineligible for severance, employment offers were shelved, contractors were shuffled between companies, salaries cut. Businesses closed briefly to process the artificial staff turnovers.

None of this was necessary. Not now at least, and in some cases not ever.

The source of this mini-crisis stems – again – from a dysfunctional system of governance which we have all neglected in our pursuit of expedience.

In order to achieve the force of law, these amendments had to pass through the Council of Ministers and be read (and voted) twice in Parliament. In many nations, the first reading would simply introduce the Bill, which would then be sent to committee in order for consultations and negotiations to take place.

In Vanuatu, both readings happened back to back. The entire business was completed in next to no time. I’ve received uncorroborated reports that 2 or 3 MPs, among them Moana Carcasses Kalosil and Ralph Regenvanu, abstained. Everyone else present voted in favour.

This is a classic case of government serving politics, instead of politics serving government. So distracted were all our MPs by their own internecine quarrels that they passed a broken Bill, without more than a moment’s reflection on the costs.

Before we comment further on the mote in our brothers’ eye, let’s admit something else: We are none of us blameless in this.

The media rightly complains that proposed bills are not commonly released to the public. The Chamber of Commerce has a valid beef that they were not consulted. Likewise local trade unions and civil society. But did we have to wait for a crisis like this to complain?

And why did I have to resort to anonymous sources to get copies of the Amendments, the Act and commentary on the vote itself? The lack of transparency and accountability is astounding.

Not to put too fine a point on it, we are all complicit in a culture of complacency, timidity and expedience that has hamstrung governance in Vanuatu.

Everyone acts with the best of intentions. Minister Crowby is not to be faulted for wanting to improve the lot of ni-Vanuatu workers. Nor is the media for their immediate – if partly ill-informed – reaction to the vote. The Chamber of Commerce should be commended for organising a well-attended meeting of business owners and government.

The fact remains, though, that to date there has been no methodical analysis conducted on the Amendments. Public reaction has been out of scale with the problem, and in some cases perpetuates the very abuses that caused the crisis in the first place.

Some have lobbied the President not to sign the Amendments into law. That is anti-democratic, unconstitutional, and unnecessary.

Section 77 of the Act clearly states that the Minister has broad powers to exempt any group from most elements of the Employment Act. Lawyers I’ve spoken with agree that Minister Crowby is well within his rights to exempt businesses from the changes until such time as Parliament has undertaken appropriate remedial action.

And the CoC’s Chicken Little pronouncements concerning Vanuatu’s apparent weakness in the face of global recession are not borne out by the facts. The consensus among experts I’ve spoken with directly contradicts this view. Vanuatu is in fact better positioned to ride out the coming storm than most developed nations.

Tourism is increasing. P&O cruises have increased their capacity and the frequency of their visits to Vanuatu. Pacific Blue has lowered its fuel surcharge and put on extra flights. Air Vanuatu has new flights from overseas to both Vila and Santo. Projections indicate that Australian tourist numbers will increase, though per capita expenditure might fall slightly. At worst, we’re looking at a wash, more likely, a modest boost.

The fading Australian dollar will result in lower prices on most imported goods, and fuel prices are showing every sign of falling even further. The Reserve Bank and its commercial cousins are not overly exposed to the credit crisis. Credit defaults might increase slightly due to recent rises in interest rates, but there’s no cause for immediate concern.

If we’re going to settle things satisfactorily, business needs to offer a more measured response. Without a doubt, several of these amendments could push some businesses under and drive others away, but let’s keep things in perspective here.

Frankly, the biggest danger our institutions face right now is a crisis of confidence. While we must absolutely act to protect business interests, confidence is built as much through the process as the result. Panicking won’t help anyone.

There is no quick fix for our culture of complacency, venality and expedience. The bottom line is this: We all need to slow down, do our respective jobs properly and well, respect the governance structures we have, and talk to each other.

For better or worse, we’ve got the government we deserve. It’s up to us now to demonstrate that we deserve better.

I’ll be writing more comprehensively about this issue in Saturday’s Weekender, but there’s a lot of meat on this issue, and I thought I’d package up the wonkery first….

Severance

There does seem to be real cause for concern regarding the changes to severance payments. First, increasing the liability for employers by 300% make a big difference. I spoke with someone yesterday about the potential impact and he related the story of one of his senior staff. This person makes a decent salary in a competitive sector. After nearly 7 years of service, he’d be due roughly 1.7 million vatu (about USD $17,000). But – again, under the current rules – he’d only be eligible for severance if:

1. He stayed at least another 3 years; or
2. His boss was foolish enough to let him go.

Neither is likely to happen.

Under the new rules, this person’s boss would be liable for nearly 7 million vatu. To make matters worse, there’s no longer a requirement that an employee serve a designated amount of time before becoming eligible for severance, should s/he resign.

7 million vatu is more than enough to buy a nice parcel of land, build a house on it, and live at leisure for some time. To say nothing of how happy one’s family would be to share in such a windfall. I can assure you that the temptation to take the money and run is extreme. Especially in competitive sectors where finding further employment is not as challenging as unskilled or semi-skilled work in construction, retail or hospitality.

Maternity Leave

I confess to a little confusion here. The Daily Post[*] recently ran an editorial stating that maternity leave has been doubled. But when I reviewed the amendments, I found that:

1. Additional protections have been put in place to ensure that a women returning from maternity leave is given the same or equal status in terms of work, remuneration and benefits;
2. her time allocated to breast-feeding is doubled to (although the number of times she can breast feed has not been changed);
3. women are granted up to 12 weeks maternity leave, starting 6 weeks before delivery and lasting 6 weeks after.

I’ll be the first to grant that this conclusion is based on what I remain convinced is an ambiguous and redundant insertion (noted in blue in the preceding post). That said, the only quibble I can find with that breast feeding a child only twice between 7:30 a.m. and about 5:00 p.m. would be problematical for some children. Having twice as much time (1 hour instead of 30 minutes) in each interval is useful, but ultimately of questionable value without some flexibility over how that 2 hour total is apportioned.

[*] Full disclosure: I write a weekly column for the Daily Post. Evidently, that doesn’t mean I can’t disagree with some of their editorial stances.

Misc

The remaining changes are mostly neutral or of moderate effect:

• allowing an employer to deduct from severance if an employee hasn’t given adequate notice;
• increasing the rate at which annual leave is accrued;
• reducing the eligibility time for annual leave.

It seems businesses are well within their rights to grouse over this, especially given that Vanuatu workers currently enjoy more public holidays than just about anyone else. But in my opinion there’s no cause for crisis.

And where in all of this is the previously announced decision by Minister of Internal Affairs Patrick Crowby to increase the minimum wage? To be fair, the issue isn’t dealt with in the Employment Act, but it strikes me that an increase there would be of greater import to the average ni-Vanuatu worker than improved severance and maternity benefits.

Work-arounds

The problems created by this 400% increase in severance and related changes are real, and require remedy. Certain of the larger institutions in this country would face insolvency if their staff were to avail themselves of the windfall awarded them by these amendments.

The law was passed unanimously by Parliament (about which more later) The law was passed, apparently, with only two or three abstentions and no votes against; it remains only for the President to sign it and for it to be gazetted before it has legal effect. As much as one might be inclined to encourage His Excellency to sign off on some of the other Acts awaiting his pen (most notably the Family Protection Act), there’s really nothing to be done but accept that a bad law has been passed, to put it into place and then (quickly!) to take measures to mitigate the worst effects of the legislation.

The Employment Act stipulates that the Minister has broad rights of exemption where employment issues are concerned. About the only thing he can’t do is legalise forced labour. He could, at his sole discretion, exempt everyone from the severance provisions of the Act with the promulgation of a single letter. This might buy enough time to either repeal the relevant amendments, or better yet, to perform a decent consultation and enact some more sensible further amendments in a later Parliamentary session.

[Update: The consensus among the experts I've spoken with is that a blanket exemption from the most contentious amendments would be an exceptional, but entirely legal, course of action.]

If this doesn’t transpire, there does seem to be another loophole. In cases where there’s been a seamless transition between employers (e.g. a change of ownership following the death of a principle, the re-shaping of a partnership, or the transfer of ownership of a company), the Act has the following to say:

(6) An employer who is liable to pay severance allowance under subsection (5) shall –

(a) be entitled to deduct any period and to make any deduction which any previous employer would have been entitled to deduct or to make had the previous employer become liable to pay severance allowance; and

(b) be exempt from any liability to pay the allowance in respect of any period for which any previous employer was exempt from such liability.

(Emphasis mine.)

Now, that says to me that with a little corporate sleight of hand, a company owner could maintain continuity in the workplace, avoid having to terminate all his staff and pay out their existing severance immediately, and remove ‘any’ liability prior to the enactment of these amendments.To my feeble faculties, ‘any’ sounds like it includes pre-existing severance rates which existed ‘any’ time in the past.

(CAVEAT: I’ll re-visit this last point once I’ve had a chance to pass it by some lawyers. I may well be am talking through my hat.)

And here’s the update: I’ve spoken with a couple of lawyers, and they agree that, although the Act seems somewhat contradictory in this section, to construe it as I have done would be “a tortuous interpretation” in the words of one. He continues:

“The general rule is that a piece of legislation should be read as making sense. A common sensical interpretation, for me, would be that the exemption from liability did not relate directly to the original liability, but to extraneous exemptions[.]“

Denis O’Brien, owner of the Digicel Group, graces the cover of the August 11th issue of Forbes Magazine. Their profile, titled ‘Babble Rouser’, begins with a tone of detached and vaguely supercilious astonishment at the risks that Digicel has incurred in the course of its lightning-quick expansion across the island nations of the world. It quickly sobers, though, when it reports that the Digicel Group earned $505 million in operating profit on $1.6 billion in revenue in the financial year ending March, 2008.

Forbes leaves it to O’Brien himself to explain his damn-the-torpedoes philosophy:

“Get big fast. [Damn] the cost. Be brave. Go over the cliff. [The competition] doesn’t have the balls.”

I suspect he used some word other than ‘damn’.

Most anyone would enjoy downing a beer with the honey-tongued chancer from Cork, but Denis O’Brien didn’t make the cover of Forbes merely because of a flamboyant devil-may-care attitude. He’s noteworthy because he saw an opportunity where others didn’t, and he got rich capitalising on it.

The idea is simple enough: If you give everyone – literally everyone – access to mobile services, you can make money everywhere. In O’Brien’s world, there is no such thing as low-hanging fruit. Every single market gets aggressively cultivated. The fruits of such labours are truly remarkable.

O’Brien is not the only one to have realised that there are fortunes to be made in places once considered unserviceable. Indeed, much of the government’s telecoms policy is predicated on the certainty that market forces will provide enough incentive to encourage well-funded entities like Digicel to invest in Vanuatu without requiring some sort of financial crutch.

The economic manifestations of Network Effects are becoming increasingly well understood in the business community. Indeed, it appears that TVL has been pleasantly surprised to find that mobile phone services were far from the money-losing service they first thought it would be.

The urge to communicate is fundamental to human nature, and people are willing to go to great lengths to talk to others. More willing, in fact, than they consciously realise. An early usage survey of an email network in the Solomon Islands showed that, contrary to expectations, well over 60% of messages were between family members exchanging news. Those messages cost about 50 vatu each back then.

Digicel is benefiting from this desire to communicate primarily because of its first-mover status and commitment to its chosen course. That implies a fair degree of risk, but risk is one thing the private sector handles better than most others.

Now, let’s not overstate things. Denis O’Brien is not the Oracle at Delphi. He’s simply better positioned than the majority of corporate leaders. What we have here is a corporation tapping new reserves in a market that most others considered unserviceable. The job of other CEOs, as they saw it, was to consolidate revenues and find new ways to tap existing markets. There’s probably not a telecoms CEO anywhere that wouldn’t have been pilloried for attempting what Digicel did. If the board hadn’t ended such apparent rashness, the shareholders certainly would have.

It’s true that O’Brien was one of the first entrepreneurs to see the business potential of Network Effects in the developing world. But the process of commoditisation of hardware and software that made this investment possible has been visible for years.

My first brush with this phenomenon came when I was living on Baffin Island in Canada’s eastern Arctic. In 1994, a few friends and I created the most remote commercial Internet Service Provider in the world. We found that we were able to take a frighteningly expensive satellite link and make good money from it by slicing and dicing the bandwidth between hundreds – and later thousands – of customers.

After only six months of operation about 25% of the local population – over a thousand people – were subscribed to our service. Our competition, belatedly set up and funded by the local telecoms monopoly, had 7 customers. I’ll admit we surprised even ourselves.

Lest this be construed as an exercise in self-congratulation, the lesson here is that Network Effects work. That’s been obvious to anyone who cared to think about it since Bell Telephone president Theodore Vail first described the phenomenon a century ago in 1908. The 1990s saw a resurgence of the effect due to the advent of the Internet. In this decade and the next, low-power handheld devices will be where most of the growth occurs.

To sum up: O’Brien put two and two together, and has made a couple of billion out of it so far.

We can too, if we want. The next wave of innovation in technology and communications is happening right here in the developing world, and thanks to the vision of a few dedicated individuals here in Vanuatu, we’re further along than the majority of our neighbours. If we take advantage of the investment that O’Brien and others are making in Vanuatu, we can become allies in an island-hopping campaign reminiscent of General Douglas MacArthur’s conquest of the Pacific.

Both Digicel and TVL are investing heavily in localisation of staff and management positions. The advent of competition led directly to the promotion of a few key individuals in the TVL hierarchy. Most notable among them was the appointment of the first ni-Vanuatu comptroller in its corporate history.

John Delves, General Manager of Digicel Vanuatu, states that he is “aiming to localise all positions as soon as possible and our current experience is that there is tremendous talent here. Our ultimate goal is for Digicel Vanuatu to be run by people from Vanuatu.”

Judging by its performance in other markets, Digicel seems to favour a high degree of independence in each national operation. This is achieved in no small part because of a willingness to invest in the local population. They are currently actively recruiting both Sales and Technical Operations managers.

But these are not the only opportunities available. Improving communications requires significant policy change and the creation of strong regulatory mechanisms as well. This is another area where Vanuatu can take the lead. Some of the World Bank consultants helping Vanuatu put together its regulatory regime are citizens of Caribbean nations, veterans of the liberalisation process in their region. There is no reason why a few talented ni-Vanuatu couldn’t join their ranks. There will also be demand for logistics experts, marketing and customer service staff – you name it.

The immediate benefits of investing in this area are blindingly obvious. Salaries for skilled technology positions are higher than in most other employment sectors. Work in this field is not bound by geography. I continue to work in Port Vila with clients around the world. This means that we can export our talent throughout the developing world without losing it ourselves.

Digicel is the first company to really grasp the market potential of marginal markets like those in the Pacific. They aren’t the only ones, though. The people of Vanuatu need to take note of this regional phenomenon and commit themselves to strengthening it. If we aren’t complacent about our role in this process, the rewards for us and our neighbours will be considerable.