Budget 2016-17: How to relaunch the economy

Since this week, Mauritius has a new Finance Minister following a mini-reshuffle of Cabinet posts. Vishnu Lutchmeenaraidoo, who was the previous Chancellor, will now be heading the Ministry of Foreign Affairs, while the incumbent to that post, Etienne Sinatambou, is now Minister of ICT.  The Prime Minister will now be spearheading the country’s economic agenda as Minister of Finance. Sir Anerood Jugnauth will be heading a ministry he has become acquainted with in the past when Lutchmeenaraidoo resigned as Finance Minister. The timing of these changes comes at a time when the government is preparing itself to present its second Budget. This one being for the 2016-17 financial year. And to say the least, challenges abound. The country’s economy is in much need of a boost, and the Prime Minister will be shouldering great expectations from the private sector – comprising of large and small economic operators – the population, job seekers, government employees and low income earners. The adventure won’t in any way be an easy ride. The Alliance Lepep, led by Sir Anerood Jugnauth, promised a second “economic miracle” during the December 2014 general elections which it won by a surprising landslide majority. The leader is reckoned by far and large as being the “special one” who steered Mauritius from predicted doom in 1982 and transformed the country into a success story on the African continent whose image radiates across the globe and is taken as an example of economic stewardship. In an article published in 2011 – “The Mauritius miracle, or how to make a big success of a small economy” – American Nobel Prize winner Joseph Stiglitz commended the country’s performance and said that many other countries could learn a lesson or two from it. “Mauritius, a small island nation off the east coast of Africa, is neither particularly rich nor on its way to budgetary ruin. Nonetheless, it has spent the last decades successfully building a diverse economy, a democratic political system and a strong social safety net. Many countries, not least the US, could learn from its experience.”

Economic diversification

The economic success of Mauritius is due, among others, to economic diversification. In fact, such a policy has been a hallmark of the Primeministership of Sir Anerood Jugnauth during his successive terms in office, from 1982 to 1995, 2001-2003 and since 2014. During the 1980s emphasis was laid on tourism, sugar and manufacturing. In fact, the country became a manufacturing hot-spot and attracted scores of investors from Hong Kong who would set up textile shops in every nook and cranny across the island. Tourism flourished with hotels mushrooming around the island’s coastline. Once the country entered the 1990s, the country knew another growth spurt with the launch of financial services, more specifically the offshore sector. Foreign companies rushed in to take benefit from the advantageous conditions of the Double Taxation Avoidance Agreement between Mauritius and India. Manufacturing moved into higher value-added products and financial services was all set to become an economic pillar, which it eventually did. During his second term in office from 2001-2003, Sir Anerood Jugnauth launched the ICT-BPO sector. The first step of this new adventure came with the construction of the Ebene CyberTower1 on lands acquired from the sugar industry. Ebene is now a cyber city with towers left, right and centre. 15 years later, this sector accounts for 10% of GDP and employs 15,000 persons. During that mandate, the seafood hub also took shape and is now set to become another economic pillar.

Now and the future...

To relaunch the economy, Sir Anerood Jugnauth came up with his “Economic Mission Statement – Vision 2030.” This blueprint aims at transforming Mauritius over the next few years and enable it to join the league of high income countries. To do so, new sectors will be launched while consolidating existing ones. At the same time, reforms are announced across most aspects of economic life. The first measure announced, and by far the largest one, is the construction of smart cities – 13 of such are planned across the island. These will become new sources of economic development with a mix of live-work-play features and the inclusion of smart transport and facilities. Financed and promoted by the private sector, with the exception of the Heritage City project, these projects propose to change the landscape of the country and would cost hundreds of billion rupees. Another aspect of this economic revival is the trade aspect. This strategy is two-fold, increasing port capabilities with an extension of Port Louis and airport facilities through a logistics smart city along with the Africa-Asia air corridor. Trade between the two continents is expected to boom over the coming decades and Mauritius being strategically located, it makes sense. The Prime Minister’s strategy also rests upon the emergence of new sectors. The ocean economy industry is touted as being “the next big thing” in terms of development. Being surrounded by the sea and having a huge 2.2 million sq.km exclusive economic zone, Mauritius has if anything failed to make the most of this valuable asset. The government wants to make ado by exploring all opportunities and teaming up with countries who can help. Nearly half of working Mauritians are employed by small and medium enterprises. These businesses are involved in an expansive range of activities, from handicraft to cutting-edge technological products. This wide spectrum of activities is also source of problems as the authorities cannot have a blanket policy – solutions need to be tailor-made. Access to finance, transfer of technology, market access, management skills, marketing and product design are just some of the endless list of issues encountered by SMEs. The government wants to transform this sector into a major pillar of the economy. By its very nature, being so widely diversified, this sector confers an added advantage.

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[[{"type":"media","view_mode":"media_large","fid":"13332","attributes":{"class":"media-image wp-image-21989 alignleft","typeof":"foaf:Image","style":"","width":"281","height":"219","alt":"Pierre-Dinan"}}]]Pierre Dinan: “It is time to train Mauritians” According to the economist, we must pursue in the line of the previous Budget. “Many projects were announced and the government must continue in this direction to relaunch our economy while also taking care of the different industries. We must not forget our present industries among textile and agriculture while trying to look out for new ones. For example, we must develop and modernise sectors like our fishing industry to generate more productivity.” Pierre Dinan trusts that it is not only the government’s or stakeholders’ task to re-launch the economy but that it concerns every Mauritian. What do we need to do? “We need jobs to be done well, we need productivity and most importantly a good leadership through our government,” he says. Pierre Dinan explains that we can export niche products. “We must also go towards self-sufficiency and produce our own products for our population. The agricultural training is a must as well as skill acquisition in the textile industry. We have been employing thousands of foreign workers in the textile industry for years because we did not have a skilled labour. It is time to train Mauritians.” Asked about the importance of the ocean economy for Mauritius, Pierre Dinan says that the reality is crystal clear. “We are surrounded by an exclusive economic zone which is over 2 million square kilometres. It is a resource which we must exploit but this requires knowledge in the domain. We need to bring experts to work and develop this industry,” he states. For Pierre Dinan, launching the ocean economy is a very good idea but nothing much has emerged till now. [[{"type":"media","view_mode":"media_large","fid":"13334","attributes":{"class":"media-image wp-image-21991 alignleft","typeof":"foaf:Image","style":"","width":"276","height":"223","alt":"Vishal-Ragoobur"}}]]Vishal Ragoobur: “Need to increase our production capacity” The economist of the Mauritius Employers’ Federation investments must be re-launched in the country to boost the economy. “There is the need for stability, to restore confidence and give access to finances. We also need to give better support to small and medium enterprises. There is a lot to do to re-boost our economy,” he utters. Vishal Ragoobur believes that we must be able to further increase local investments as well as attract foreign ones. “Government must go towards public investments in terms of infrastructures, energy, and water, among others. Also, if we want a sustained growth, we need to work and revive all the different sectors such as manufacturing and agricultural. We also need to re-diversify our financing sector.” Regarding the ocean economy, Vishal Ragoobur says that there always has been the fishing industry but what is lacking is an expertise that can help to launch the sector. He trusts that the ocean sector will definitely help to re-launch the country’s economy. “To sum up, we can say that we need to increase our production capacity along with improving our productivity and competitiveness. However, we must bear in mind that our major markets depend on the international economy. The international perspectives are in fact not favourable at the moment. Our capacity to increase growth is limited. We unfortunately cannot control external factors. But we can definitely influence our internal factors to relaunch the economy.” [[{"type":"media","view_mode":"media_large","fid":"13331","attributes":{"class":"media-image wp-image-21988 alignleft","typeof":"foaf:Image","style":"","width":"277","height":"224","alt":"Arvind-Nilmadhub"}}]]Arvind Nilmadhub: “Focus on manufacturing sector” Economist Arvind Nilmadhub explains that the Government is doing a good job by investing in infrastructure and by providing the proper incentives. “Nevertheless, there are many things which can be done, namely focusing on the manufacturing sector. The Government should focus on this specific sector, as this is the sector which brings more employment.” Encourage investment culture: Society ultimately benefits from efficient markets where people can trust that the capital markets are fair and transparent and offer them the opportunity to be rewarded for the risk they take. Financial literacy is one of the ways through which the Mauritians can be empowered so that the country can grow a generation of more job creators than job seekers. “In order to encourage and inculcate a savings and investment culture among Mauritians, the Government through the Financial Services Commission and the Stock Exchange of Mauritius can encourage people to form Investment Clubs to pool their money together and invest in local and foreign stock exchange. Many Mauritians are unaware of how the Stock Exchange works. Through Investment Clubs, Mauritians will understand how the finance world works. Moreover, he proposes that investments made by investment club members be tax-deductible to encourage participation,” he says. In order to democratise this market, he proposes that small management companies be allowed to enter this business upon registration with the FSC. Benefits:

• Financial literacy for people & less leeway for fraud
• Income Tax deduction for people forming part of Investment Clubs
• Wealth creation in the capital market and ultimately job creation.
• Encouraging an entrepreneur culture among young Mauritians.

Encourage our people to work in other countries and then invest back in Mauritius. We cannot absorb the number of people on the job market. One thing which the government can do is encourage our citizens to work in another country and then send money to their families as this will boost the economy, similar to the Portuguese culture.