MEANINGFUL COMPETITIVENESS
1. INTRODUCTION
A broad consensus on a new
economic model is emerging. During a
consultative exercise carried out last November by the NPCC on the
competitiveness of
The
strategic assumptions which have influenced the thinking of both policy makers
and board rooms are no longer relevant to the new competitive environment
characterized, at the international level, by the irreversible loss of
preferential market access and the emergence of new global players such as
China and India and, on the domestic front, the disappearance of the dominance
of any one big sector (such as sugar and garment manufacturing). The new economic model will be one of
Mauritius becoming an integrated, clean and efficient platform in the global
supply chain, mainly in services and driven by good governance, an open
transparent investment climate, high skills and state of the art infrastructure.
The
object of this Memorandum, which builds on the Report of the JEC Task Force on
the Economic Transition of Mauritius (Feb 2001) and the NPCC’s Discussion Paper
on Competitiveness Foresight (November 2004) is to highlight the key strategies
which need to be implemented for achieving the required paradigm shift to put
Mauritius back in the league of high growth achievers.
This
Memorandum focuses deliberately on a range of issues which have been the
subject of discussions and consultations in various fora and which can be
implemented almost immediately without bringing any serious disruption in the
Mauritian society while concurrently triggering a fundamental shift in the
supply-side and entrepreneurship capability of the country. The proposed road map could constitute, an
initial “offensive package” to accelerate the emergence of a new economic
model.
The
proposed “offensive package” adopts a “building block” approach and is far from
being fully comprehensive. As
highlighted in the World Development Report 2005 of the World Bank,
“persistence, not perfection is key” and what is essential is to agree on the
trajectory and maintaining a momentum for implementing strategies on which
broad consensus has been reached.
2. OFFENSIVE PACKAGE
The
“offensive package” for the emergence of the new economic model could,
accordingly, be constructed through the implementation of a number of decisions
around a number of key strategies. The
strategies are divided into two categories; the first category contains
proposals which have been subject to substantive discussions and can be
implemented almost immediately. The
second list contains issues on which concrete final proposals could be
finalized within the medium term but need to be discussed now. The
proposals in each of the two categories are listed hereunder:-
(a)
Strategies for
immediate implementation
(i)
Good governance;
(ii)
Open and efficient
investment climate;
(iii)
Competitive air
access;
(iv)
Optimising Tertiary
Education opportunities; and
(v)
Rationalising
current sectoral incentive schemes and moving towards a single integrated and
competitive platform.
(i)
Labour relations
system;
(ii)
Capital market
reforms; and
(iii)
Improved access to
3. STRATEGIES
FOR IMMEDIATE IMPLEMENTATION
Over
the recent years, a number of initiatives have been undertaken to improve
governance at national as well as corporate levels. While the enactment of the Financial
Reporting Act has clearly set the calendar to enhance good corporate governance
following the work by the Committee on Corporate Governance, there is no clear
implementation plan with respect to the recommendations of the Report ‘Select
Committee on the Funding of Political Parties’ (October 2004).
The
Select Committee’s Report addresses two essential components of the regulatory
framework; these relate to the sources of finance and the mechanics for
regulating the financing of political parties.
There
is a fundamental difference between the Sachs’ Report and that of the Select
Committee. Whereas Sachs’ position is
radical and prescribes State funding as the only source, the Select Committee
takes the view that funding could be made by various stakeholders with the
State giving some “minimal” reimbursement. The Sachs’ approach is exclusive and
“State controlled” whilst the Select Committee’s adopts a more participatory
and inclusive approach.
We
believe that the position of the Select Committee is more appropriate and
relevant to the context of
The
Select Committee (building on the Sachs’ Report) has made a wide range of
recommendations. While some of these will need further analysis prior to
implementation, it is felt that the Report contains a critical mass of key
recommendations, which, if implemented, could change the landscape of funding
of political parties immediately. These
recommendations are as follows:-
(i)
an enhanced role of
the ESC; and
(ii)
ESC should maintain
proper Reports on the finance of political parties for consultation by the
public.
(i)
private funding will
be permitted under mandatory procedures for disclosure to ensure transparency;
(ii)
donations to be
properly regulated;
(iii)
no foreign funding;
and
(iv)
funding by religious
organisations and parastatals should not be allowed.
(i)
political parties to
keep audited accounts on their sources of finance and to be submitted regularly
to the ESC;
(ii)
political parties to
be corporate bodies; and
(iii)
spending limit be
set at Rs, 1,000,000 for individual candidates as well as candidates forming
part of a political party; and
(iii)
a distinction has to
be made between campaign and non campaign expenses.
The
recommendations above will be necessary for establishing a transparent and
clear framework for the funding of political parties and should be implemented
urgently. We believe that the other
proposals contained in the Report should be subject to further analysis and to
be added, subsequently, to the regulatory framework.
The
emphasis on transparency and the enhanced role of the ESC are essential
elements of the proposed mechanism. This
regulatory framework concurs with Section 23 of the JEC’s Code of Ethics which
invites all companies opting to finance any political party to declare such an
activity in their books.
The establishment of a
regulatory framework is urgent, and as such, the Select Committee’s main
recommendations should be implemented now.
Such an action will improve transparency in the electoral process in a
significant manner. As stated in the
Report, “transparency acts as a powerful guard against corruption and promotes
trust and accountability”.
During
the last two and a half years, Government and the Private Sector have been
discussing the permits investment environment in various instances and a
consensus has emerged regarding the main reasons for the inefficient investment
environment; these reasons are as follows:-
(i)
- absence of a clear
and transparent policy guidelines (distinct from incentives which are
horizontal and cross sectoral) for the
various sectors of the economy;
(ii)
treating every event
as a special situation with the creation of specific regulations. This approach has resulted in the
proliferation of, often unnecessary, rules within a space of discretionary
application.
(iii)
no clear
demarcation line between policy making
and implementation responsibilities. This situation of confused
responsibilities results very often in poor coordination and complex decision
making process;
(iv)
no established
process and mechanism for interface between promoters, the Authorities and the
BOI. The lack of clarity on such a
process is another cause for delays and unnecessary repetition of presentations
and explanations by the investors to an array of Authorities. The experience of
investors after meandering through a number of Ministries, Technical committees
and the BOI, is deemed to be extremely time consuming and frustrating;
(v)
no on-line
information system among the various Authorities to monitor the progress of
applications.
In
the light of the various legislations enacted recently, namely the new Local
Government Act, the Planning and Development Act and the Investment Promotion
(Miscellaneous Provisions) Act, appropriate action must be taken to implement
the following:-
(i)
The formulation of
investment policy guidelines, within the next three months, by the various
Ministries in their respective area of responsibility; these guidelines, once
agreed, should be posted on the Website of the respective Ministry;
(ii)
The setting up of a
joint public-private sector technical committee to rationalise regulations and
identify and eliminate rules which are, or have become unnecessary;
(iii)
All interface
between any investor and the Authorities will take place at the level of the
BOI. This platform for interaction at
the BOI should not, in any manner, be construed as if Ministries or other
Agencies would be relinquishing their authority. The essence of this platform
is to provide for an interface between investors and Government bodies as well
as among the Authorities themselves with the latter retaining their right to
issue their respective permits but subject to Section 18 of the Investment
Promotion (Miscellaneous Provisions) Act 2004;
(iv)
The local authority
should issue municipal licenses consistent with the guidelines and time limits
established for the issue of the permits and licenses should be respected;
(v)
The BOI should
publish and post on its Website the guidelines, investment
policies/schemes/incentives/procedures with a view to facilitating promoters and
investors; and
(vi)
An on-line
investment network should be set up as a priority component of the e-government
programme to establish virtual links among the various government bodies as
well as with investors.
We
would urge a new mindset in the Civil Service.
It needs to become more developmental and more familiar with business
practices and investor needs. It should
act as a facilitator instead of purely an administrator/regulator of business.
To follow the example of
The
consensus reached with respect to the removal of rent control of business
premises should be implemented urgently as it would give a boost to the
property development market and exchange the emergence of construction-related
services sector.
ICT Labour
Regime
A
consensus has already been reached regarding ICT Labour Regime. The implementation of this decision will send
the right signal to the ICT Sector, which is already developing at an
encouraging pace.
The
opening up of the telecommunications sector in December 2002 was the right
decision and the positive impact is already visible. Furthermore,
The
SAFE Cable System is owned by a consortium of 36 investors who have invested in
installation of the cable system from Sessiembra (
The
fundamental key to the optimum utilization of the SAFE is in providing
competitive price and service options to prospective customers. However, given that C&MA grants MT the
exclusive ownership of the Landing Station of the SAFE optic-fibre at Baie
Jacotet, Mauritius may not be able to optimize this crucial advantage. The
continuation of the de-facto monopolistic environment will be surely perceived
as a deterrent to prospective ICT investors.
As
such, the industry feels that Mauritius is losing some of its competitive
advantages due to high cost of telecommunications. For example, the price of the SAFE between
Reunion and Paris is now Euro 1550 per megabit per month compared to USD 8600
Mauritius/Paris.
The
business community believes that such a vital question should be addressed and
all parties, should together work out a “way forward”. Accordingly, we would suggest that a high
level independent consultant undertake a study and propose policy options for
Mauritius.
Mauritius
should adopt a clear and simple policy vis-à-vis knowledge intensive persons
wishing to come to work in any given sector.
To that effect, we would like to suggest that companies wishing to
employ personnel, with at least a university education and five years working
experience, should obtain the necessary permit on demand.
We
would also recommend that the implementation of the SAPES scheme be simplified
and accelerated to ensure that prospective candidates not be discouraged.
The
Report entitled “Master Plan for Air Transportation ” offers a pertinent
analysis and proposes a more modern and relevant policy based on competitive
bilateralism, selective charter and a strong air access policy unit.
The
main findings of the Report, unequivocally show that the present policy is
uncompetitive and is designed to restrict and manage competition. Furthermore an analysis of the bilateral
air-services agreements (BASA’s) concludes that the general framework is
restrictive.
We
concur fully with the conclusion reached with respect to the status of the
present policy.
The
new international context regarding air access policy is characterized by
competition and pressure is building up, especially in the European Community
and Asia for partners to reciprocate.
The
new economic trajectory of Mauritius will be driven by the services sector and
a ‘value for money’ up market tourism.
In
the light of the above, the Report concludes the present air access policy is
not sustainable and Mauritius must adopt a new policy based on :-
(i)
a competitive
bilateralism; and
(ii)
a selective charter
policy.
We
agree with the above policy recommendations.
The
Report recommends the use of various tools for each of our main markets; these
tools which are presently being used to restrict competition would become the
instruments of competitive bilateralism.
The Report suggests the following changes:-
From To
(i) Single
designation; Multiple
designation;
(ii)
Limited traffic right & frequencies; Increasing capacity and frequencies;
(iii) Fare
control; Competitive
fares
(iv)
Code share without competition Code
share with more competition
We
agree with the above proposed policy guidelines.
The
consultants have recommended an immediate strengthening of the air access
policy unit.
We
fully endorse these recommendations.
However, we believe that a timetable should be established for making
the Air Access Policy Unit operational and effective.
The
emerging economic model of Mauritius will also be knowledge intensive and, as
such, optimizing tertiary education opportunities will be a key objective. The present level of expenditure on tertiary
education is 0.4% of GDP and far below a respectable level of 1.5% as in
Singapore. Given the budgetary constraints,
it is clear that in order to reach the Singapore benchmark, Mauritius needs to
create space for private tertiary institutions, including private universities,
to operate. In that respect, the
following policy decisions need to be urgently implemented:-
(i)
the establishment of
a regulatory framework to allow the establishment of private universities. In line with paragraph 222 of the 2004/05
Budget Speech, Government needs to set up one regulatory body for the purpose
of registration, accreditation and monitoring of tertiary institutions. Such a body does not exist in the present
legislation.
Given that quality by all providers (public, private and
overseas) should stand to the same standard, it would be appropriate that ‘one’
regulatory body be identified and empowered accordingly. We believe that the Tertiary Education
Commission could fulfill that function.
(ii)
the package of
incentives agreed by the Knowledge Hub Working Group be enacted; and
(iii)
investment
promotional activity to attract investors in tertiary education in priority
areas, such as, ICT, business, finance and financial services, hospitality and
leisure, medicare and health delivery etc, be also included in the investment
promotion programme of the BOI.
Mauritius
needs a more “integrated economy” in its new trajectory. The main reasons for this integrated approach
are:
(i)
to optimize
inter-sectoral linkages;
(ii)
to facilitate the
clustering approach given that all existing sectors are being re-engineered
into dynamic clusters; and
(iii)
to accelerate the
culture of outsourcing and improve productivity.
A
compartmentalised approach with different corporate tax rates, customs duties
and administrative procedures is a serious obstacle to the emergence of the new
economic model.
The
introduction of the VAT, the rationalization of customs duties, the framework
of the Companies Act 2001, the new Banking Act, the integration of the “offshore”
companies in the tax regime, and almost all sectors paying 15% corporate tax
are all reasons in favour of working out a single rate of 15%. We believe that uniformisation of a single
15% tax regime will give an opportunity to Government and the business
community to revisit all distortions and correct anomalies within the system.
Furthermore,
in view of the weight of textile and garment sector in the economy and given
that most inputs to the industry are already duty free, we believe that the whole
industry should become duty free in Mauritius with a view to accelerating
linkages between the EPZ and non-EPZ in this sector. Such a policy will also accelerate the
emergence of textile-related services, thus positioning Mauritius as the
textile related services hub for the region.
4. STRATEGIES TO BE DISCUSSED NOW FOR
IMPLEMENTATION IN THE MEDIUM TERM
In
response to the White Paper, the Mauritius Employers Federation has stated
that, while the provisions contained therein do aim at promoting Collective
Bargaining, the approach remains one of conflict resolution instead of
participative negotiations. There is
still far too much state intervention.
We
need to develop reward and work systems that reconcile both business objectives
and employees’ interests. Such systems
should build up motivation, develop commitment, inculcate a sense of belonging
and encourage productivity. This can
only happen in a voluntary system of industrial relations with Collective
Bargaining based on principles of cooperation and consensus generation.
The
business community believes that Mauritius must put into place an Industrial
Relations Framework that will require moving away from Government intervention
to enterprise bargaining. Collective
Bargaining at enterprise level should therefore be the primary source of
regulations in the employment relationship.
Collective agreements should replace Remuneration Orders and a bipartite
private agreement negotiated between two parties should not suffer from state
interference and be given full legal force.
The Private Sector holds the
view that the White Paper should be subject to further consultations among all
stakeholders in order to reach an appropriate industrial relations system..
Capital
markets play a vital role in sophisticated economies in that they support
economic development by providing long term non-bank financial instruments for
project financing and re-structuring.
The absence of an efficient capital and debt market in Mauritius is a
major obstacle to sustained growth and development.
In
order to create an efficient and vibrant capital market, the following issues
should be urgently addressed:-
(i)
encourage a more
efficient intermediation between providers of capital (i.e savers and
investors) and borrowers. One of the
options is to encourage the consolidation of the financial intermediaries. Presently there exist a number of small
intermediaries who lack the financial resources as well as the skills required
to provide a comprehensive array of services competitively. It is believed that a consolidation of the
financial services sector will bring financial intermediaries that can afford
to provide a high level of services in the area of corporate finance, equity
and debt financing, mergers and acquisitions and regional project finance;
(ii)
development of a strong
institutional investors base
through their active participation in the corporate debt market, private equity
for venture capital and re-structuring;
(iii)
creation of an
integrated financial services sector through the further development of an
active secondary market for Government and corporate debts. One option that
needs to be encouraged is the creation and development of a short-term
corporate debt market with the institution of an active commercial paper
market. In order to ensure the proper
assessment of credit risk, a Credit Rating Agency, preferably a
government/private sector joint venture is required for the credit risk assessment
of corporate debt issues; and
(iv)
removal of fiscal
anomalies which are penalizing long term corporate debt instruments.
We
propose a joint Government/Private Sector Working Group on Capital Market
Reforms.
One
of the top priority for improving productivity access across the economy as
well as in the services sector is transport.
At present, the 4 oclock “clear out” is as much to do with ‘rater mon
transport’ as it is unwillingness to stay.
The transport system can not support the new flexible working hours that
Mauritius will increasingly have to adopt in the new economic model.
With
the PPP legislation already in place and various reports carried out, we
believe that it is crucial that policy makers agree on a calendar to finalise
strategies as well as setting up an implementation plan.
Mauritius
must move away from being a “much changed caterpillar” to a butterfly and what
is needed is a paradigm shift.
JEC
3
February 2005
ANNEX
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Open Letter from Singapore Ministry of Trade & Industry –
Pro Enterprise Movement. |
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|
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Dear Reader Review of
Government Rules 1.
As part of our PS21 (Public Service 21) effort
to ensure that government regulations and rules remain relevant and
supportive of a pro-business environment, we welcome feedback from all
sources, including MNCs, SMEs, professionals and private individuals. 2.
All feedback and suggestions, big and small,
are welcome. They could be on any Government rule which may have become
outmoded, cumbersome, or no longer needed. Feedback on approval processes,
and unnecessary red tape is especially useful to allow the public service to
focus on them with a view to simplifying them. 3.
For example, by acting on feedback on
unnecessary (and costly) testing of imported sanitary ware, the Environment
Ministry has deregulated and removed the requirement for such testing. This
has given the industry more choice in the solutions they can use and has
resulted in overall cost savings. 4.
Feedback is also welcome on rules which could
help facilitate business development, particularly for the New Economy
initiatives, or to encourage competitive services and raise efficiencies all
round. 5.
For example, a recent feedback has led HDB to
liberalise its rules on the use of HDB flats to allow technopreneurs to
operate from there. This has lowered the barrier to entry by young
technopreneurs. It is especially relevant in Singapore where all HDB flats
are already cabled up on broadband. 6.
Another feedback has led MOF to repeal the
Auctioneers' Act, so as to enable on-line auction, a common web application. 7.
Internally, all Ministries will continue to
review their Rules and to update them as necessary. But our own efforts will
not be sufficient or timely. The business community is closest to the market
and will be most aware of the rapid changes in the market place. Hence, we
are looking to you to help us enhance our pro-business environment. 8.
We are especially keen to review (a) rules
which inadvertently add hidden costs to the business processes in general
(such as unduly cumbersome or long approval processes), (b) unnecessary
constraints which could be liberalised or lifted. Public Service will
consider all such suggestions and act on them where appropriate. 9.
I am therefore writing to seek your assistance
to help us improve on this aspect of our pro-business environment. Please
give us your feedback, not
one-off, but continuously. 10.
We will post all suggestions on the website,
including the follow up actions. If suggestions are not implemented, the
reasons will also be posted. 11.
I hope you will take advantage of this
invitation. I look forward to a strong and steady flow of suggestions. 12.
Let's collectively make Singapore No 1
Pro-Business in the world, for all enterprises, big and small. Heng Swee Keat |