(ix) the threat to our offshore sector as a result of the initiative by the OECD to categorise offshore centres;

(x) the forthcoming round of multilateral trade negotiations in Year 2000 with rising pressure on such areas as agriculture and preferential trade arrangements;

(xi) the impending completion of discussions of the SADC Trade Protocol; (xii) the dismantling of the Multifibre Agreement by December 2004;and (xiii) the difficult ACP-EU negotiations on the Post Lome IV arrangements. The deterioration in some of the key economic indicators vis-a-vis the 1999/2000 targets shows that Mauritius must address a number of structural constraints if it wants to join the rank of High Performing Economies. Accordingly, there is an urgent need to revisit a range of policy issues which will allow the economy to compete effectively in the new international economic environment and make Mauritius graduate to a high-income status country.

3. OBJECTIVES OF THE 1999/2000 BUDGET

In the light of the above stated considerations and with a view to ensuring the competitiveness of the economy, the JEC firmly believes that the 1999/2000 Budget should aim at the following objectives; viz to:

(i) ensure a stable macro economic environment;

(ii) foster greater fiscal discipline and restore financial health;

(iii) integrate all sectors of the economy in order to reduce distortions and improve efficiency of investment;

(iv) consolidate and enhance existing productive sectors;

(v) move Mauritius closer to an information based economy and a knowledge hub in the region; and

(vi) meet the targets enunciated in the New Economic Agenda within the next 3 years.

4. BUDGET PACKAGE

In order to meet the objectives stated at paragraph (3), the JEC would suggest that the 1999/2000 Budget focuses on the following package:

(i) to enhance the overall investment environment of Mauritius;

(ii) to contain public expenditure;

(iii) to re-dynamise the stock market;

(iv) to modernise the telecommunications and information technology environment; and

(v) to enhance overall productivity and competitiveness.

5. TO ENHANCE THE OVERALL INVESTMENT ENVIRONMENT OF MAURITIUS

A. Harmonisation of investment regimes

(i) The smooth and successful implementation of the VAT last September was a major step in the move towards the modernisation of the economy. This year VAT should become instrumental in the integration process of the various sectors of the economy. However, there are two issues which we wish to highlight:

(a) In order not to penalise local producers whose products are exempt, we suggest that all locally manufactured goods which Government will choose not to be VAT inclusive, be zero rated; and

(b) JEC would like to draw the attention of Government to an area where double taxation exists. The Tourism Sector should be subject to VAT only and the Hotel and Restaurant Tax of 2% for the year 1999/2000 should be revisited.

(ii) With the announcement made in the 1998/99 Budget that corporate tax for EPZ companies would be 15% by year 2001, all the main sectors of the economy, namely, manufacturing, tourism and agriculture will soon be aligned on the same corporate tax treatment.

(iii) In die light of the substantial customs duty exemptions extended on capital goods, mainly equipment and machinery under Sections 84 and 85 of the HS Code, it is clear that the Government revenue on these items are now very low. Accordingly, revenue is no more a constraint for eliminating duties on equipment and machinery. This would no doubt send a very positive signal to economic operators.

(iv) In view of paragraph 5(i), 5(ii) and 5(iii), the JEC argues that the economy today, in an environment of Value Added Tax, can make a major leap forward by a thorough standardisation of corporate tax at 15% and a zero customs duty rate on machinery and equipment for all companies falling under any one of the following regimes:

• Export Processing Zone;
• Pioneer Status;
• Strategic Local Scheme;
• Modernisation and Expansion Scheme;
• Industrial Building;
• Small and Medium Enterprise Scheme;
• Agricultural Development;
• Hotel Management Services Certificate;
• Hotel Development Certificate;
• Export Service Zone;
• Agro-based Industry Status;
• Pioneer Financial Services Status;
• Health Development Services Certificate.

(v) The introduction of a single, consistent and simplified investment policy will remove discrimination among sectors of the economy. This exercise will also reduce dramatically the bureaucracy and administrative hurdles in the business environment. A wide range of companies in all the productive sectors will be able to do business without delays. Furthermore, this approach would be a major shift from the conventional "sectoral approach" to the more dynamic "activity approach" which would facilitate, on one hand, all possible backward and forward linkages and, on the other hand, the emergence of strong clusters of activities.

B. Rationalisation of Tariff Structure

Mauritius can now both streamline pocedure and remove any remaining anti-export bias by adopting a rationalised and simplified import tariff structure (max. of 4 levels), based on transparency, by year 2001. Such a policy should aim at achieving a low and uniform effective protection rate and at eliminating distortions in resource allocation.

C. Energy production

Government should encourage the Private Sector to embark on electricity production by putting in place a clear policy framework as well as a mechanism for working out contractual arrangements between producers and the main distributor to ensure efficiency and competitive tariffs.

D. Board of Investment

Government should also implement the Board of Investment proposals stated in the 1998/99 Budget.

E. Implementing the provisions of the SIE Act

The implementation of the provisions of the SIE Act of 1988 as subsequently amended with regard to the Concession Agricultural Land for investment purposes.

F. Air Access Environment

The present programme of reforms undertaken by Government is wide ranging and ambitious. However, it does not include the issue of air access which, definitely, has far-reaching impact on all sectors of the economy. We believe that air access policy is of such strategic importance for the future of our economy that it needs to be looked at urgently. We recognise that the issue is very complex and must be analysed in a very serious manner. In this context, we would propose the establishment of an Air Access Advisory Council (AAAC) with representatives of Government and Private Sector.

The main tasks of the AAAC would be to formulate recommendations on the following areas:-

• The present air access policies and institutional arrangements.
• The need for a framework for a new competitive air access environment; and
• The status, role and structure of the regulatory body.

G. National Productivity & Competitiveness Council

We welcome the inactment of the recent legislation on the setting-up of the National Productivity & Competitiveness Council. This is a very important measure and it would be an important signal to the business community if Government could announce a calendar regarding the implementation of this project. We believe that the National Productivity & Competitiveness Council should be set up within the next six months.

(i) Education and Training

Education, training and human resource development have to play a crucial role in the improvement of productivity. This has been the experience of other countries having successfully completed the transition to a newly industrialised economy. Mauritius is not scoring well with respect to education; universal primary education has been attained "but without the requisite quality". Secondary enrollment is much lower than that reached by a number of South East Asian Economies and enrollment in higher education is equally too low with poor output in science and engineering subjects. A new impetus has to be given to education if we want Mauritius to join the league of High Performing Economies.

6. AN ACTION PLAN TO CONTAIN PUBLIC EXPENDITURE

Having implemented successfully a major reform on the revenue side with the implementation of the Value Added Tax last year, it is crucial that Government sends very clear signals with respect to containing public expenditure. We would like to focus on the following:

(i) Civil Service Reforms

Civil service reforms must be undertaken to encourage not only the mobility of labour to more productive sectors through the implementation of a portable pension scheme and labour redeployment programmes, but also to ensure a high quality of service by attracting more of high calibre personnel.

(ii) Targeted Social Transfers

Whilst recognising the need to support the more vulnerable groups of our society, we are convinced that Mauritius has to opt for a more targeted and focused approach in the process of social support.

The 1999/2000 budget should therefore start'a new process with a view to rationalise universal support and to encourage a re-allocation of aid to the more needful, after conducting appropriate needs analysis.

(iii) Contracting-out of the NPS

It has been the trend in more developed countries which have similar social security systems as ours to allow employers who have set up good quality pensions schemes to opt out of the National Pension Scheme and to provide the entire retirement provision of the employees through their own pension schemes. It would be beneficial, both for the government and for the employers, if this possibility were to be introduced in the Mauritian NPS.

The conditions which need to be fulfilled by the pensions schemes which may qualify for contracting out need to be laid out. The beneficial effect of such a move would be to reduce the potential future liabilities of the NPS and therefore avert some of the future financial pressures on the Government. In order for this scheme to work, there should be a review of the existing framework. We therefore suggest that a joint Government/Private Sector Task Force be set up to study the whole question and make within the next six months recommendations to Government.

(iv) Parity of adjustment for pensions in the Public and Private Sectors

The pensions of employees of central government are paid out of the annual budget of the government. These pensions are linked to the salaries of the employees who are still in post and last year's PRB review resulted in massive increases to pensions of already retired civil servants in line with the PRB increases. This has added several hundred million rupees to the Government expenditure. The practice in the private sector, as set out in the Income Tax Regulations, is that increases are limited to a maximum of 3% per annum or the actual increase in the Additional Remuneration Orders. We believe that the adjustment allowed for pensioners of the private sector should become the basis to adjust the change applicable in the public sector.

7. TO RE-DYNAMISE THE STOCK EXCHANGE OF MAURITIUS

The Stock Exchange has been struggling in a bear market for the past 15 months and there is a clear need to introduce measures which would boost trading activities, attract local equity investment and encourage foreign portfolio management. We wish therefore to suggest the following:

(i) the urgent setting-up of an effective secondary market for Government securities. An active secondary market in Government securities will increase trading activities in the stock market and will also allow the Bank of Mauritius to carry out open market operations. Such operations cannot take place in the absence of a secondary market in Government securities and a reasonable portfolio of these securities be held by the Central Bank; and

(ii) In the 1997/98 Budget the Minister of Finance announced the decision to allow 15% of the funds of the NFS to be managed by external fund managers. There has been only a relatively minor move in that direction. It would be desirable to give a fresh impetus to this decision of the 1997/98 Budget by initiating a proper invitation to tender and an appointment procedure in order to select fund managers to manage these earmarked funds of the NPS. This would have the dual beneficial effect of improving the yield achieved on the assets of the NPS and therefore reducing the long term cost of the funds, and also of potentially stimulating the interest in the local capital markets. There are now professional firms in Mauritius which can advise the Ministry of Finance and the Board of the NPS on the procedures for appointing fund managers and also to monitor the investment activities of the managers.

8. TO MODERNISE THE TELECOMMUNICATIONS AND INFORMATION TECHNOLOGY ENVIRONMENT

Government should go ahead with the modernisation of the Telecommunications and Information Technology environment. Given that the new Telecommunications Bill has already been approved by the National Assembly, we would suggest the following actions:

(i) the setting-up of the Mauritius Telecommunication Authority within the next three months.

Weakness in the telecommunications environment in Mauritius is mainly a result of the absence of a strong, financially autonomous and well structured Regulatory Body. A key objective of me Regulatory Body should be to ensure fair competition among operators and provisions for such a Body have been made in the new legislation; and

(ii) the opening up of the provision of internet services and other telecommunication services to competition.

In its White Paper on the Telecommunications Sector, Government stated that it "will open internet services to competition by the end of 1998" (page 30 of the White Paper). The White Paper is very explicit on the reasons for opening up the internet market. We wish accordingly to invite Government to increase the number of internet service providers as soon as possible. The opening up of internet services and other telecommunication services will have a dramatic impact on the utilisation of internet-based value added services by the business community, including commerce.

9 CONCLUDING REMARKS

We would like to reiterate the concluding remarks the JEC made in its Memorandum on the 1998/99 Budget:

"We believe that every year during the presentation of the country's Budget, Government has an opportunity to share its vision of the economy and to list the actions it proposes to undertake to meet that vision. The Mauritius economy to-day needs to address a range of structural issues. We hope that the above proposals, which are in no way exhaustive, could form part of a coordinated strategy that would send the right signals to local and international investors".

The 1999/2000 Budget should be one geared towards bringing flexibility, integration and competitiveness of our economy. This is a sine qua non for the success and prosperity of our country in the world of global competition and trade liberalisation.