Current Affairs and Issues By K.N. Bunjun

2 August 2011

• “Fundamentally, man is the key to all problems, not money. Funds are valuable only when used by trained, experienced and devoted men and women. Such people, on the other hand, can work miracles even with small resources and draw wealth out of barren land”

Dag Hammarskjöld

• Some background definitions

• International scene The Euro crisis

• The Local context•

• “the economic future of Mauritius is dominated by its population problem. …. unless resolute measures are taken to solve it. Mauritius will be faced with a catastrophic situation."

• “…It is going to be a great achievement if Mauritius can find productive employment for its population without a serious reduction in the existing standard of living.... The outlook for peaceful economic development is poor…”

• J. E. Meade, 1961.

A Rich Economic HistoryPREFERENCES-based economic

paradigm

A Challenging Future (Economic Shocks)• Dismantling of Multi fibre Arrangement (End of Textile quotas)

• EU Sugar Reform (36% decrease in Sugar Price)

• Oil and commodity price uncertainties

• Global Economic slowdown (Economic Crisis)

Global Competitiveness

Mauritius

6

Decline in Competitiveness: External Trade Shocks and Domestic Policies

External• Erosion of preferences • End of Multi Fibre Agreement• Sharp Cuts in the Price of Sugar• High and volatile Energy pricesDomestic• Structural Rigidities: obstacles to investment/business • Incentive system work at cross purposes• Low Productivity in Protected and Preference-dependent

sectors

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In June 2006, Government launched a program of In June 2006, Government launched a program of accelerated reforms aimed at …accelerated reforms aimed at …

Fiscal Consolidation Fiscal Consolidation and Disciplineand Discipline

Improving Investment Improving Investment Climate Climate

Program to improve Trade Competitiveness and put the Program to improve Trade Competitiveness and put the Economy back on High Growth PathEconomy back on High Growth Path

Restructuring and Restructuring and Diversifying IndustryDiversifying Industry

Broadening the Circle Broadening the Circle of Opportunitiesof Opportunities

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Highlights of Reforms

• Facilitating Business and Investment[ Inv climate]• Opening the Economy• Removing Trade Barriers• Reforming the Tax System • Focusing Public Spending• Promoting Markets and Competition Upholding

Good Governance • Setting up of Economic Empowerment

Program/Accompanying Social Measures for Managing the Transition

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Facilitating Business and Investment

• Target: Be among the TOP TEN countries in the WB Doing Business Index

• Business Facilitation Act passed- Put an end to suffocating bureaucracy- Shift from prior approval to ex-post control- Set comprehensive and clear guidelines- Streamline administrative procedures

• Investment certificates requiring prior approval abolished except for IRS & Freeport

• The EPZ and non-EPZ sectors integrated

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Opening The Economy• Attract Foreign Investment, Talent and Know-how

– 3-year “Occupation Permit” (combined Residence and Work permits) forI. investors with annual turnover of over Rs 3 million, II. professionals with monthly salary over Rs 30,000,III. self employed with annual income over Rs 600,000.

– Application processing with 3 working days

Infrastructure Development [port, airport, inland transport , alternative energy - PPP projects

Human Capital• Encourage return of diaspora; circular migration

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Removing Trade Barriers • Accelerated Tariff liberalisation

No of bands Top Rate July 2004 8 80%July 2005 7 65%July 2006 3 30%

• Local Industry must restructure to become more efficient and competitive

• Tariff revenue less than 1% of GDP• Moving to Duty-Free Island by FY 2009 - not achieved

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New Income Tax System• At June 2005, top tax rates were:

– Personal income: 30%– Corporate income: 25%

• As from 1st July 2007, flat tax rate of 15% on both personal and corporate income

• Broadening of tax base by removing tax breaks

• Levelling the playing field across sectors by removing sector-specific tax incentives

• Extension of Tax Deduction at Source

Everyone pays his fair share at lower rate

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Focusing Government Spending• Impose Expenditure Rules and promote fiscal discipline

• Modernise budget management, improve budget resource allocation and support operational efficiency of public services

• Undertake a Public Financial Management assessment based on Public Expenditure Financial Audit

• Accelerate move to PBB, embedded in a MTEF

• Review role/functions of public sector bodies

• PSIP

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Promoting Markets and Competition

• Labour Market Reform- move to one single labor market- link pay to performance and productivity- Shift protection from jobs to workers

• Price Policy- Move away from direct price control and State intervention - Competition Policy [Competition Commission and Observatoire des prix]

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Economic Empowerment ProgramDeveloping entrepreneurship spirit (women also)

Reinforcing the support framework for new entrepreneurs and SMES

Training,financing instrumentsbusiness guidanceinfrastructure and business facilities

Increasing export capacity to regional markets(COMESA & SADC)

Rs 5 billion program

..tourism is the new main growth driver

Source: Bank of Mauritius

US $ m.

Tourism (net)

Other services (net)

Tourism development

• Air access policy: adaptability to the seasonality of European holiday schedules

• Opening of new routes: Dubai, Hong Kong, new areas in India

• Calls for regular and increased consultations between the hotel industry and airline operators

• Democratisation of the IRS scheme

Pension reform

• Ensure the financial sustainability of the basic retirement pension scheme and the Civil Service Pension Scheme

• Improve the governance and the returns to assets of the National Pension Fund

• Consolidate the regulatory framework of the third tier (voluntary occupational pension schemes).

Corporate governance

• Trustworthy and credible base for doing business

• High-value added business activities • Improve/promote corporate image of

Mauritius • Inculcate responsible and ethical behaviour,

and• bring about more dynamism and higher level

of professionalism in the conduct of business

Economic Strategies

Diversification Process Continues Consolidation of traditional sectors

ICT and BPO: Knowledge-based Economy

Sea Food Hub

Land-based Oceanic Industry

SME Development

Improving Investment Climate

Fiscal consolidation• Medium Term Expenditure Framework and PBB (MTEF)

• Pension Reform

Aid for Trade Strategy

Energy Management (MID Fund)

Organisational change • To eliminate overlapping functions between

Economic Development and Finance.• In the 21st Century the Civil Service is called upon

to act as a ‘model employer’ in society. E.g– Optimizing conditions for staff to develop– Preserving the dignity of employees, particularly their

rights to participate in decisions that affect them, and – Ensuring that the talents of all groups from which the

public workforce is drawn, both women and men, are effectively harnessed.

• Rising expectations for value for money, quality and timely services

PMS

• The Performance Management System (PMS) measures and rewards individual initiative towards delivering the agreed outputs of the agency.

• The PMS measures individual initiative by benchmarking it to individual tasks derived from the agreed outputs of the agency concerned.

• Thus in a manner similar to PBB assigning outputs at the agency level, the PMS breaks these outputs into tasks that are assigned to different individuals for the purpose of measuring and subsequently rewarding their performance.

PBB PMSBoth systems aim at improving performance by•Building on the agreed mission and strategic direction of ministries and departments; •Spelling out in clear and measurable terms what Government ministries need to achieve through the efforts and commitment of their staff; •Measuring the actual progress made towards those required objectives; and • Reporting back on the results of progress so far, analyzing where more needs to be done, and trying again

PBB PMS•Both PBB and PMS should ensure achievement of overall goals by identifying meaningful and measurable outcomes and specific objectives •Aim is to ‘align’ the two so that arrangements required and developed for PBB are consistent with the arrangements that are required and developed for PMS so that there is no duplication or waste of efforts• Systems are consistent, and easy to understand. PBB and PMS are both pushing (and pulling) in the same direction

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SugarSugar1975

Monocrop Monocrop EconomyEconomy

SugarSugar GarmentsGarments TourismTourism

1985

1st Wave of 1st Wave of DiversificatioDiversificationn

SugarSugar Textile/ Textile/

garmentgarmentss

TourismTourism Financial Financial

ServicesServices

1995

Four-Pillar Four-Pillar EconomyEconomy

Cane Cluster Fashion Cluster Hospitality Cluster Business Services

Cluster ICT Cluster Property Development Seafood & marine

resources Cluster Knowledge Cluster Land based oceanic

industry

Beyond 2005

Business Business and and

Services Services PlatformPlatform

Mauritius Development Path Mauritius Development Path

Knowledge HubA knowledge-based economy is• one in which all sectors are knowledge

intensive, are responsive to new ideas and technological change, are innovative, and employ highly skilled personnel engaged in on-going learning.

• In short, knowledge and skills have to be useable and used in the production of all manner of goods and services.

Three major functions (1&2) • generate new basic knowledge of relevance to

industries, both old and new• In addition, they also generate applied

knowledge that is directly and immediately relevant to local industries

• Secondly, knowledge hubs capture (and participate in creating) knowledge generated elsewhere, nationally or internationally, and develop this further to meet specific local needs

Three major functions ()

• National or international knowledge is translated, applied or transferred into locally useful knowledge

• Support existing industries, generatesnew industries, informes public policies and meets other kinds of community needs such as health, urban planning, environmental control, education, and aged care

Three major functions (3 ii)

• The transmission function of a knowledge hub takes place through educational institutions,firms, community based institutions and a variety of government agencies and services including hospitals, clinics and professional associations

M I D

• In 2008, P M announced the vision of making Mauritius a sustainable island M I D

• Record-breaking oil prices of mid-2008 did more than enough to allow the MID project to take off.

• Budget 2008 was a key milestone. MID Fund budget of Rs 1.3 billion. TORs: energy efficiency and renewables

M I D 2

• Most successful measures• Subsidy of Rs 10 000 - solar water heaters• Distribution of 1 million Compact Fluorescent

Lamps (CFL) at reduced prices.• The summer-time pilot project was to be a

non-starter.

M I D 3

• Long term future of Mauritius based on the common ‘engagement’ of public, para-public and private sectors as well as NGOs.

• Fighting poverty and climate-change are highlighted as foremost challenges, both locally and globally.

MID 4

• Development in a large variety of fields from transport to tourism through textiles, all intrinsically linked together in a sustainable manner.

• A set of clear targets specified for the 60th Anniversary of the Independence in 2028

• Prof Odendaal’s green paper endorsed by Government April 2011

• National Consultations launched Feb 2011• Six working groups for four one day workshops on 5E’s:

Energy, Environment, Education, Employment and Equity

• Papers available on mid.gov.mu

WG 1

Energy: Energy conservation and climate change•Energy•Buildings•Transport•Housing •Lands

WG 2 Environment

Preservation of biodiversity and nat resources•Marine and terrestrial biodiversity•Forest•Agriculture•Fisheries•Water•Tourism

WG 3 Environment II: Pollution etc

• Air quality• Noise• Wastewater• Solid waste• Recycling• Environmental health• Embellishment of the environment

WG 4 Employment: Promotion of green economy

• Tourism• Industry• IT and Communications• Greening of existing and new jobs• Sustainable consumption and production

WG5 Education: Informed trained and responsible citizens

• Empowerment of citizens• Environmental education• Education for sustainable growth• Public health education

WG 6 Equity

• Governance• Institutions• Poverty alleviation• Gender equality

Regional capacity building

• Purpose of RMCE - build capacity to formulate and implement regional economic development strategy and policy within COMESA, the East African Community (EAC), IOC, the Inter Governmental Authority on Development (IGAD) and the SADC.

• RMCE incorporated as a not-for-profit company limited by guarantee.

• The focus would be on improving Member States’ professional capacity for addressing issues of REI in five core areas of common regional concern: macroeconomic management, trade and transit cross-border finance, business development and investment, common sectoral policies

• Technical Assistance Centre for Southern Africa (AFRITAC South), following Mauritius’ offer to host the Centre. Will SADC region (13 countries) and offer Technical Assistance (TA) to assist in implementing reforms in macroeconomic and financial management.

• Local expertise and on-the-ground capacity building with strategic advice from IMF Headquarters. Delivery modes include resident advisors, short-term experts and workshops and seminars

Rebalance growth Improve Productivity

Consolidate Social Justice

Strategic priorities

Less Euro centric Quality and accessible education

Eradicate absolute poverty

Higher value activities Global competitiveness Empower the vulnerable groups

Promote SME Efficient and effective Public service

Dignity for elders

Cleaner, Greener, and safer (environment)

Improve the tourism product portfolio

Social and cultural integration

Inclusion and equality

Improving the Doing Business Environment

Consumer protection

Climate Change/Maurice Ile Durable

Economic Efficiency/productivity enhancement

Safety and security

Regional Integration Promote intellectual property development

Overhaul of the justice system

Increase food self-security ratio

Promote Research and development

Capacity building of NGOs

Promoting the Creative Industry

Fostering a culture of sport

More accessibility to leisure facilities

ICT hub

Promoting duty free shopping

Human rights

Seafood hub

Improving Health Standards

Medical hub Good governance Leisure and Cruise Hub

Utility/infrastructure efficiency

Service hub Sustainable land use

Industrial sector Promote exports