Joint Economic Council
Memorandum on the 2005/2006 Budget
1. INTRODUCTION
The JEC’s Memorandum on the 2005/2006 Budget is based, in a
significant manner, on the document entitled “A Road Map for achieving
meaningful competitiveness”, submitted to Government in the context of the
Government/Private Sector meeting held on the 12th February 2005.
2. CONTEXT
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.
3. MAIN
BUDGET OBJECTIVE – ACHIEVING COMPETITIVENESS
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 immediately to trigger a shift
in the supply-side and entrepreneurship capability of the country.
The
2005/06 Budget package for the emergence of the new economic model could be
constructed through the implementation of a number of decisions around the
following strategies:
i.
Open and efficient
investment climate;
ii.
Rationalising current sectoral incentive
schemes and moving towards a single integrated and competitive platform;
iii.
Competitive air
access;
iv.
Making
v.
Optimising tertiary education opportunities for the emergence of
the knowledge industry;
vi.
Removal of rent
control of business premises;
vii.
Openness to
‘knowledge intensive’ persons;
viii.
Establishing a
flexible labour regime for the ICT sector;
ix.
Competitive access
to SAFE
x.
Improved road access
to
xi.
Capital market
reforms; and
xii.
A new industrial
relations framework
3.1 Open and
efficient investment climate
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. Accordingly, a number of
legislations were enacted to improve the investment environment, namely, the
new Local Government Act, the Planning and Development Act and the Investment
Promotion (Miscellaneous Provisions) Act.
In order for these new legislations to have concrete results,
appropriate action must now be taken with respect to 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.
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;
iii.
The local authority
should issue licenses consistent with the guidelines and time limits
established for the issue of the permits and licenses should be respected;
iv.
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
v.
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.
3.2
Rationalising current sectoral incentive schemes and moving
towards a single
integrated and competitive platform
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.
3.3 Competitive
Air Access Policy
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.
In
the light of the above, the Report concludes the present air access policy is
not sustainable and
i.
a competitive
bilateralism;
ii.
a selective charter
policy; and
iii.
strengthening of the air access policy unit.
In
the forthcoming budget, Government should send a clear signal and set the new
air access policy as proposed in the Report:
Present Policy Recommended Policy
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
The
implementation of the proposed air access policy is essential for enhancing the
tourism industry as well as for the new economic trajectory of
3.4 Making
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
Furthermore,
by becoming a duty free territory for textile and apparel,
3.5 Optimising Tertiary Education opportunities for the
emergence of the knowledge industry
The
emerging economic model of
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.
3.6 Removal of
rent control of business premises
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
3.7 Openness to
“knowledge intensive” persons
We
would also recommend that the implementation of the SAPES scheme be simplified
and accelerated to ensure that prospective candidates not be discouraged.
3.8 Establishing
a flexible labour regime for ICT sector
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.
3.9 Competitive
access to SAFE
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
As
such, the industry feels that
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
3.10 Tackling
the road and transport problematique
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 o’clock “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
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.
3.11 Financial
intermediation
3.11.1 Capital
Market Reforms
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
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.
3.11.2 Special
Guarantee Fund for emerging entrepreneurs
Concurrently
with the objective of making the capital market more efficient and vibrant,
there is a need to find ways and means to support emerging entrepreneurs.
In the
absence of a developed venture capital market, the majority of these
entrepreneurs are not in a position to offer the necessary ‘guarantee’ to
commercial banks, which in turn, cannot, on their own, take the ‘total’ risk. In this context, we believe that Government
should set up a Guarantee Fund to share some of these risks. Such a Fund, would
support, in a significant manner, a large number of emerging entrepreneurs in
new areas, such as, clustering initiatives and services during the crucial
‘start up’ time.
3.12 A new
industrial relations framework
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.
4. CONCLUSION
Meeting
the target of 5% budget deficit for the fiscal year 2004/05 augurs well for the
public finance stability. However,
16 February 2005