Within the last 10 years, the unemployment rate has been consistently rising. A closer examination of Figure 1 shows that the pace of increase in the unemployment rate has been faster since 1998 than during the period 1991-1997. In fact, the average annual rate of increase in the unemployment rate for the period 1998-2001 is 1,2% as compared to 0,53% for the period 1991-1997.

Failure to shift from a low skill/low technology model to a knowledge/service economy

Mauritius is still largely locked in a low skill and low technology economy, where competitive advantage is measured in terms of cheaper labour and preferential market access. The distribution of our labour force by skills unfortunately confirms that around 97% of employment are in the categories of semi-skilled and unskilled.

Table 1 shows a comparison between the labour force of Mauritius and that of Singapore.

Table 1 Skilled Semi-skilled Unskilled

Mauritius (2000) 3% 47% 50%

Singapore (1998) 34% 28% 38%

Note:

Skilled refers to those with post secondary education and above Semi-skilled refers to those with secondary education Unskilled refers to those with below secondary education

With a unit labour cost which is 300-400% higher than that of competitors in similar activities, a rigid business environment and a rapid erosion of its preferential market, there will be an acceleration of job losses unless the existing sectors undergo significant re-engineering.

The new economic landscape is one of knowledge intensive service industries driven essentially by globalisation and, information and communications technology. Unfortunately, indicators in terms of level of job occupation in various industries (Table 2) show that Mauritius, except for the financial services sector and to some extent the tourism sector, has not yet moved into the new economic landscape. Nearly 63% of all jobs in Mauritius are in the bottom-tier level (elementary occupations, plant & machine operators, etc.).

Table 2 Agriculture, hunting, forestry, fishing Manufacturing Construction Hotels & restaurants Finance, real estate, Business services Total workforce

Employment 54 300 147 800 39 600 17 400 18 000 499 800

% in top-tier job level 2,6 14,5 6,6 65,5 79,4 37

% in bottom- tier job level 97,4 85,5 93,4 34,5 20,6 63

The investment impasse

The investment rate during the last few years is on a downward trend. From a high of 27,3% of GDP in 1999, the investment rate fell to 24% last year and it is expected to reach a low of 23,5% this year. The same trend is to be noted if we exclude the purchase of aircraft and marine vessel. Furthermore, the share of Private Sector investment in total investment is expected to further decrease from 76% in 1999 and 73% in 2000 to 70% this year.

This situation is mirrored by the low level of FDI last year. The country managed to attract a mere Rs 61 million worth of foreign investment, excluding the equity participation of France Telecom in Mauritius Telecom.

As regard to investment on the Stock Exchange, the year 2000 witnessed a net disinvestment by foreigners to the tune of Rs 90 million. The bearish stock market is depicted in Figure 2.

The national business environment

(i) Inappropriate education system

The poor output of the present education system is a major contributor to this low skill trap. Out of the total number of pupils enrolled at standard I in primary schools, 66% do not reach O level and 83% never reach A level. Consequently, it is almost impossible for many workers as well as the unemployed to integrate the learning process. The education system does not provide a proper base for life-long learning.

(ii) Labour market rigidities

The industrial relations framework in Mauritius is characterised by excessive intervention in the traditional sectors. This situation has resulted in an over-regulated environment which is not compatible with the movement of the economy away from low skill activities to more efficient ones.

The existing industrial relations framework besides representing a constraint for flexible wage negotiations is also a major obstacle to corporate re-engineering.

(iii) Weak administrative infrastructure

The Investment Policy Review carried out by UNCTAD ranks the policy and investment framework of Mauritius in the category of low growth economies and identifies it as one of the prime causes of low FDI.

Bureaucratic impediments in obtaining permits and licences, and the considerable delays in the approval of projects, impede investment. A number of institutions need to be rationalised and modernised to cope with the new context of globalisation and rapid technical change. The costly and cumbersome procedures for changing company structures through consolidation and unbundling need to be streamlined.

(iv) Lack of macro economic discipline

The budget deficit for the current fiscal year is estimated to be above the 6% mark. Corrective measures should urgently be taken to contain the budget deficit to a sustainable level given that a high budget deficit has a significant negative impact on macro variables like inflation, interest rates, investment, the balance of payments and the level of public debt.

The weak financial position of parastatal bodies is also of concern to all of us.

Constraints to developing ICT in Mauritius

The present telecommunications environment is a major obstacle for the utilisation of ICT applications in the economy with a view of generating significant productivity gains and helping turn Mauritius into a cyberisland.

Existing indicators suggest that the ICT environment in Mauritius is not competitive:

(a) The main ICT indicators in the Global Competitiveness Report 2000 (Table 3) show a marked deterioration in the rankings of Mauritius compared to those of the previous year.

Table 3 International telephone service Email E-commerce Internet for customer service Internet for supplier relation

1999 30 32 30 30 4

2000 48 38 56 54 35

(b) The Paper on e-commerce and Internet prices of the EPZDA points to the fact that our "Internet environment" especially in terms of cost does not compare favourably with many other countries (Table 4).

Table 4 Mauritius Chile Malaysia Korea Netherlands United States France

Number of ISPs 1 13 2 31 130 4 354 250

1999 Internet monthly access prices for 20 hrs off-peak (US$) 23,05 6,61 8,42 10,50 14,10 15,00 16,26

Number of Internet hosts per 10 000 inhabitants (July 1999) 4,66 25,36 35,79 85,14 636,79 1,229,82 174,10

(c) The limited availability of high capacity bandwidth throughout the island and its high cost has constrained the utilisation of existing ICT investments. By way of comparison, a 1 MB lease line in San Francisco costs US$ 450 per month while, in Mauritius, it is more than 20 times dearer with a cost in excess of US$ 10 000.

(d) Mauritius is also expensive for basic telephony. A 3-minute telephone call to the US in peak hours costs US$ 3,95 in Mauritius compared to US$ 1,66 in Singapore and Taiwan, and only US$ 0,20 in Switzerland.

Furthermore, in the field of e-education, the training gaps in IT skills at primary, secondary and tertiary education are massive (Table 5).

Table 5 Primary Secondary Tertiary

Number of Students 130 000 90 000 10 000

Training gaps for each level of IT skills Computer awareness 130 000 5 000 0 Computer literacy 130 000 5 000 0 Computer proficiency 88 000 0 Computer professionals 600 IT specialists 95

In spite of licences being already issued for ISPs, the interconnection agreements as outlined in the Policy Framework for ISPs have not yet been satisfactorily finalised. This is a major obstacle in the advancement of ICT in Mauritius.

Although there is a shared vision to make Mauritius a cyberisland, MTA as an effective regulator is still very weak. We believe that the legal provisions in the Telecommunications Act 1998 are adequate and the MTA must only be given the "capacity" to act.

PART II: 2001/2002 BUDGET OBJECTIVES AND PROPOSALS

Budget Objectives

The JEC believes that the main thrust of the 2001/2002 Budget should be to successfully manage the economic transition by unlocking Mauritius from a low skill economy through a significant re-engineering of our traditional sectors, on the one hand, and the establishment of a more conducive environment for the knowledge/service industries, on the other hand. In so doing, we can legitimately hope for an improvement in the job market. Accordingly, the forthcoming Budget should focus on the following main objectives:

(a) to remove all policy constraints for an in-depth re-engineering of the traditional sectors, namely sugar, manufacturing and tourism;

(b) to effectively implement all the stated policies of Government in the ICT sector and to liberalise the telecommunications sector immediately;

(c) to aggressively promote our financial services sector and other services in general (headquartering, the language industry, the retirement industry, conferencing, specialised medical services, etc.);

(d) to ensure that there is an appropriate business environment for increased domestic and foreign investment; and

(e) to bring back macro-economic discipline.

Budget package

In order to achieve the above objectives, the JEC would like to propose the following budget package.

(a) An in-depth re-engineering of the traditional sectors

It has been clearly substantiated in the JEC's Report on The Economic Transition of Mauritius that all the traditional sectors of the economy will have to undergo significant changes to become competitive.

· Sugar

The urge for an in-depth restructuring of the Mauritius sugar sector is widely acknowledged and need not be restated. In that respect, we expect that the New Sugar Sector Strategic Plan, to be announced soon by Government, would enable a complete re-engineering of the industry. Current policies, processes and practices shall have to be thoroughly reassessed and reviewed. These include, inter alia, labour laws, forex management, price of sugar on the local market, global cess and land conversion.

New measures should be introduced to create a business environment that is appropriate for productivity improvement and competitiveness. The bottom line is to enable the shift from the current US$ 500 per tonne cost level towards the US$ 250 per tonne international benchmark.

We also propose that the Mauritius Sugar Authority be transformed into a strategic institution to promote the sugar cane cluster.

· Manufacturing

The manufacturing sector, both the EPZ and the non-EPZ, has to be restructured given the fierce international and regional competition.

The textile industry, in particular, is undergoing and will have to undertake further massive transformation from a low skill, labour intensive and low technology segment to activities which will be more capital intensive and require higher skills and levels of creativity. Furthermore, our traditional EU and US markets of apparel are facing severe recession at the retail level while there is excess capacity and supply in countries of the Far East and Eastern Europe. As to the Euro, it is still not picking up thus rendering the transition even more difficult.

We propose that a special support programme be devised in order to smoothly effect the transformation and consolidation of the textile sector. We also need to strengthen the Clothing Technology Centre for it to become a strategic ally of the corporate sector in textiles - by providing state-of-the-art back-up and devising strategies in consultation with companies. As regard to the setting up of weaving and spinning plants in Mauritius, we need to have an energy strategy for competitive electricity prices.

· Tourism

While tourist arrival figures continue to show growth, the pace of the growth rate could be contracting with arrivals going up by only approximately 4% from our European market for the first quarter of 2001 instead of a compounded 8.4% over the last three years. In view of the economic downturn in EU and the weak Euro, the European market is not expected to improve its performance soon. Furthermore, the per capita tourist expenditure has shown a decline in the recent years.

In the light of the above and the uncertainty of the South African market, Mauritius has to seriously put into place a plan to diversify its markets and build some strong dollar-based segments. Mauritius needs a bold, independent and innovative air access strategy for new markets. The up-coming discussions with Emirates, the national carrier of Dubai, must be carried out in the context of a new national vision.

The Private Sector believes that the Mauritius Tourism Promotion Authority must be re-engineered to become an institution, which in partnership with the Private Sector, will provide strategic support to develop the hospitality cluster, regulate the informal accommodation sector and preserve the image of Mauritius as a high-class destination.

(b) An effective implementation of Government's stated policies in the ICT sector

We propose the following measures for improving the ICT environment in Mauritius:

(i) The Government's Policy Framework for ISPs should be implemented, with MTA given the full capacity as regulator to ensure that competitive tariffs are offered;

(ii) For the sake of fairness and transparency, the same terms and conditions as concluded between Mauritius Telecom and the Business Parks of Mauritius Ltd should be applied to all other enterprises;

(iii) In the education sector, IT skills should be considered as an essential supporting tool and a vast training programme should be devised so that all the 10,000 teachers are at least computer proficient by 2003. The priority, however, should be the training of the secondary school teachers and raising the IT skills for the 88,000 secondary school students to the computer proficiency level;

(iv) At tertiary level, private institutions can significantly contribute to increase enrolments in IT and IT-related degree courses. To that effect, the TEC Act has to be amended to enable it to give accreditation to private institutions;

(v) An incentive scheme should be put in place for private providers of post-secondary education; and

(vi) All schools should be given unlimited free access to the Internet.

(c) An aggressive promotion of the financial services sector

The shift to a knowledge/service economy rests not only on ICTs but also on the financial services sector. The strengthening of the institutional and regulatory framework of the financial services sector, with the enactment of the Financial Services Development Bill, the Companies Bill and the Trusts Bill, is a step in the right direction.

In view of the new regulatory environment for the financial services sector and the fact that this sector is a high-skill one with clear competitive edge, Mauritius should launch an aggressive promotion campaign so as to attract activities with more "depth" in the financial services sector.

(d) An appropriate environment for increased domestic and foreign investment

In order to enable potential "quality" investors, both local as well as foreign ones, to implement their projects within the shortest possible time, it is important that the Board of Investment be empowered to streamline bureaucratic procedures to the minimum. The letter and spirit of the legislation which has established the BOI must be translated into reality.

In terms of attracting portfolio investment, over and above developing new activities and re-engineering existing ones, urgent steps should be taken to develop an active secondary market for corporate bonds and Government papers.

(e) A restoration of macro economic discipline

· Fiscal Policy

On the fiscal side, Government should contain the public deficit to a reasonable level, acting on both the revenue and expenditure sides.

Government must undertake an exercise to measure the extent of tax "losses" across the economy with special focus on activities which have been traditionally considered as informal but have now undergone significant transformation.

By enlarging the tax base and making a more effective utilisation of VAT while rationalising the structure of import duties, Government should be able to implement a single 15% uniform rate of corporate tax to enable a better integration of the economy and to maintain our competitive edge. In this context, it would also be appropriate to rationalise all the incentive regimes.

On the expenditure side of the equation, it is becoming very clear that Government will not be able to sustain the present size of the civil service, meet the ever increasing pension contribution for the public sector and, simultaneously, improve the quality of services (mainly health and education) it is offering.

Accordingly, Government and the Private Sector should seriously explore the possibility of working together with the objective of raising health and education standards through shared funding responsibility and the provision of appropriate services in some specific areas.

We believe that private health insurance schemes should be encouraged to alleviate the burden on the public health system. With the right set up, the target of 40% of the population with private health insurance could be reached compared the existing coverage of 10 %.

· Monetary policy

As far as monetary policy is concerned, we must strengthen the monetary policy making process as to enable a more comprehensive approach in the appreciation and analysis of monetary and exchange rate issues. In this context, the cost of the economic transition, the real effective interest rate which the economy can bear, and the choice between the ills of inflation and unemployment will be of paramount importance. All monetary policies will be futile if they are not accompanied by productivity gains, job creation, investment and business confidence building.

CONCLUSION

Mauritius is presently going through a very critical transition phase which has to be managed with optimum attention and diligence. Urgent corrective measures, some of which could prove to be painful, must be taken to halt our country from sliding to an untenable state of economic decline. We are of the opinion that the problem of unemployment should be given top most priority in the forthcoming Budget.