Current Affairs and Issues By K N Bunjun

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 History PREFERENCES-based economic paradigm Mauritius 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

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 prices Domestic • Structural Rigidities: obstacles to investment/business • Incentive system work at cross purposes • Low Productivity in Protected and Preference-dependent sectors 6

In June 2006, Government launched a program of accelerated reforms aimed at … § § Fiscal Consolidation and Discipline Improving Investment Climate § § Restructuring and Diversifying Industry Broadening the Circle of Opportunities Program to improve Trade Competitiveness and put the Economy back on High Growth Path 7

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 • • • 8

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 9

Opening The Economy • Attract Foreign Investment, Talent and Know-how – 3 -year “Occupation Permit” (combined Residence and Work permits) for I. III. investors with annual turnover of over Rs 3 million, professionals with monthly salary over Rs 30, 000, 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 10

Removing Trade Barriers • Accelerated Tariff liberalisation No of bands July 2004 8 July 2005 7 July 2006 3 Top Rate 80% 65% 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 11

New Income Tax System • At June 2005, top tax rates were: – Personal income: 30% – Corporate income: 25% • As from 1 st 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 12

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 13

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] 14

Economic Empowerment Program ü Developing entrepreneurship spirit (women also) ü Reinforcing the support framework for new entrepreneurs and SMES Training, financing instruments business guidance infrastructure and business facilities ü Increasing export capacity to regional markets (COMESA & SADC) ü Rs 5 billion program 15

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 Ø Diversification Process Continues § Consolidation of traditional sectors § ICT and BPO: Knowledge-based Economy § Sea Food Hub § Land-based Oceanic Industry § SME Development Ø Improving Investment Climate Ø Fiscal consolidation • Medium Term Expenditure Framework and PBB (MTEF) • Pension Reform Ø Aid for Trade Strategy Ø Energy Management (MID Fund)

Organisational change • To eliminate overlapping functions between Economic Development and Finance. • In the 21 st 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 PMS Both 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

Mauritius Development Path ü ü ü ü Beyond 2005 ü Sugar ü Textile/ garments ü Tourism ü Financial Services 1995 ü ü Cane Cluster Fashion Cluster Hospitality Cluster Business Services Cluster ICT Cluster Property Development Seafood & marine resources Cluster Knowledge Cluster Land based oceanic industry ü Sugar ü Garments ü Tourism 1985 1975 ü Sugar Monocrop Economy 1 st Wave of Diversification Four-Pillar Economy Business and Services Platform 27

Knowledge Hub A 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 ongoing 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 60 th 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 5 E’s: Energy, Environment, Education, Employment and Equity

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

WG 5 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