Joint
Economic Council
Memorandum
on 2006/2007 budget
1. INTRODUCTION
The object of this Memorandum is to outline the views of
the Private Sector with respect to the present economic context and summarize
the proposals of the Joint Economic Council regarding the 2006/2007 Budget.
2. PRESENT
ECONOMIC CONTEXT
The document entitled “Setting the stage for Robust
Growth” had already, in August 2005, showed that all major economic indicators
were in the red. The latest data
released by the CSO on the National Accounts estimates have shown a further
deterioration of those indicators.
The continuous negative growth in the textile and
clothing sector, the slowing down of the non-EPZ manufacturing, the upcoming full
blast of the sugar price reduction, the macro economic environment
characterized by rising unemployment, huge public debt, high budget deficit,
falling investment and savings rates and unprecedented high oil price warrant
an immediate overhaul of the investment climate.
3. OBJECTIVES
OF THE 2006/2007 BUDGET
The “Setting the stage for Robust Growth” document stated
in very clear terms that “the only route to more robust growth is more
investment.
The growth equation is brutally simple. “No investment – no growth”.
Building on this fundamental premise, the 2006/2007
Budget should focus on “ways and means” for optimizing foreign as well as
domestic investment.
The 2006/2007 Budget should aim at putting
The JEC believes that raising the investment rate to 30%
is realistic in the light of the investment potential in the emerging economic
model of
(i)
Hospitality &
leisure cluster;
(ii)
Seafood & land
based oceanic cluster;
(iii)
ICT cluster;
(iv)
Knowledge cluster;
(v)
Sugar cane cluster;
and
(vi)
Textile, clothing
& fashion cluster.
3.1
Hospitality & leisure cluster
The hospitality cluster will be driven by leisure hotels,
integrated resorts, duty free shopping malls, super speciality health centres
and MICE activities. The hospitality
cluster will provide the most significant investment opportunity in terms of
construction of 18,000 additional rooms, 2,500 villas and at least 5 major
shopping malls. Total investment in that
cluster should be around Rs 120 billion.
3.2
Seafood & land based oceanic cluster
The seafood cluster which will comprise mainly of
activities in aqua culture, fish processing, cold storage, construction of
infrastructure facilities such as fishing quays, provision of ancillary
services (namely, ship repairs, nets repairs) and land base oceanic
activities. This cluster is expected to
trigger at least Rs 10 billion of investment in the next five years.
3.3
ICT cluster
The ICT development in
3.4
Knowledge cluster
With the establishment of an appropriate regulatory
framework for the tertiary education, Mauritius will develop a knowledge
cluster, which will by driven by a mix of public funded institutions, namely
the University of Mauritius and the University of Technology as well as a
number of private institutions. The main
areas of training will be in the field of medical/paramedical training, ICT
,engineering, management and finance.
Total private sector investment in this cluster, including
infrastructure will be around Rs 2 billion.
3.5
Sugar cane cluster
The main components of the sugar cane cluster will be the
production of raw sugar, refined and special sugars, electricity and
ethanol. Private investment (excluding
the social costs) would be around Rs. 15 billion.
3.6
Textile, clothing and fashion cluster
As the textile and clothing industry will enter the
consolidation stage, it will be characterized, on one hand, by vertical
integration for some large plants and on the other hand, an “unbundling” of a
number of companies which will migrate towards upper segment and niche
markets. The main components of the
textile, clothing and fashion cluster will be fabric, upmarket segment for
shirts, bottoms, Tshirts as well as back-up services in testing, marketing and
design. Investment in this cluster will
be around Rs 10 billion.
4. CONSTRAINTS
TO INVESTMENT
In
(i)
the transformation
of
(ii)
the adoption of
transparent, simple and minimum procedures to start and operate businesses;
(iii)
the establishment of
a competitive air access policy;
(iv)
the introduction of
competitive pricing policies for international bandwidth;
(v)
the establishment of
an open policy to import high skills;
(vi)
the operationalisation
of the Public Private Partnership (PPP)
legislation; and
(vii)
the mainstreaming of
SMEs in the new economic model;
(viii)
transforming the
labour environment into a more flexible one; and
(ix)
establishing the
right balance between legislative control and “space” for investment.
4.1 Transformation
of
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;
(iii)
to accelerate the
culture of outsourcing and improve productivity; and
(iv)
to facilitate the emergence
of new clusters (seafood, knowledge, ICT, etc)
A compartmentalised approach with different corporate tax
rates, customs duties and administrative procedures is a major impediment to
the emergence of this new economic model.
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 an integrated business
platform will give an opportunity to Government and the business community to
revisit all distortions and correct anomalies within the system.
In the light of the above, the JEC would like to suggest
one business platform with the following parameters:-
(i)
one single corporate
tax rate of 15%;
(ii)
one VAT rate of 15%;
and
(iii)
low customs duty
except for a list of “hypersensitive products” (the list of products identified
by the Joint Working Group) which will have a customs duty rate of around 25% -
30%.
4.2 Adoption of transparent, simple and minimum
procedures to start and operate businesses.
In the light of the findings of the Investment Climate
Assessment survey, Mauritius can overhaul its outdated “licenses and permits” regimes
by adopting a business registry for start ups and abolishing a number of permits
which have either become obsolete or being used for ‘revenue raising’ purpose. As a matter of fact, Government should now
make effective its policy announced last year regarding “silent agreement”.
Extensive work has already been undertaken and we believe
that the 2006/2007 Budget would be the ideal opportunity to send a strong
signal to the world that, henceforth,
In that respect, we would invite bold decisions
regarding:-
(i)
moving away from
business licensing to a system of business registration;
(ii)
introduction of business
visas;
(iii)
simple and clear
guidelines regarding work permits for “high skills” persons;
(iv)
abolition of
unnecessary clearances;
(v)
clarity for
non-Mauritians to purchase and invest in property development; and
(vi)
simplifying
procedures for registration of property developments.
4.2.1
Business registration
The procedures for start ups should be streamlined and the
existing licensing system should be replaced by a simple business registration. Furthermore, the period for such registration
should be reduced to the minimum.
4.2.2
Business visas
The procedures to obtain a business visa should be similar
to those for a tourist visa, that is at the ‘airport’ for a period for three
months. Furthermore, the change of
tourist to business visa should become possible within the country.
4.2.3
Work permits
The criteria for work permits for ‘high skills’ should be
clearly spelt out and obtainable within a period not exceeding 10 days.
4.2.4
Abolition of
unnecessary clearances
At present, a number of permits and clearances (namely, development
permits and clearances for fire services, police and health), though relevant only
once (normally at the time of construction) have to be provided for, whenever a
company moves in ‘approved’ premises. Requests
for such permits for activities which do not necessitate major physical changes
(e.g services) should therefore be cancelled.
4.2.5
Clarity for
non-Mauritians to purchase and invest in property development
All non-residents should be able to invest and purchase,
in any BOI approved investment automatically. The Non-citizen Property Restriction
Act should be amended accordingly.
4.2.6
Registration duties
for property developments
The ranking of
Accordingly, the procedures for registration of deed of
transfer on immovable property should be streamlined. Furthermore, we would suggest that on the
sale for future completion, duty be levied on the property effectively sold and
not on the construction not yet effected.
4.3 Putting
into place a competitive Air Access Policy
The new economic model of
The main findings of the NACO Report, unequivocally show
that the present air access policy is uncompetitive and is designed to restrict
and manage competition. An analysis of
the Bilateral Air Services Agreements has also concluded that the general
framework is restrictive and the present air access policy is not sustainable.
It is therefore urgent to implement the main
recommendations of the NACO Report which has suggested that
(i)
Multiple designation
with a view to increase capacity and frequencies;
(ii)
Competitive fares;
and
(iii)
Code share with more
competition.
In this context, it is also crucial that Government establishes
a strong technical unit to take in charge the negotiations of bilateral air
services agreements.
4.4 Reducing
the price of international bandwidth
In spite of the policy decision to open the
telecommunications sector in November 2002, IPLC rates continue to be uncompetitive
because of the unfair market conditions regarding SAFE.
Furthermore, if Mauritius wants to position itself as a
destination to attract companies to provide for 24 x 7 real time services, we
need to ensure continuous telecoms availability, and as such , a downtime of
0.1% is not acceptable. Accordingly, one
submarine fibre optic (SAFE) with satellite communication as the only back-up
to the outside world is a major deterrent.
The ICT industry, to-day, is driven by supply and
competition. As such, the whole ICT
environment has changed, in a dramatic manner, when compared to the one
prevailing in the mid 1990’s when
Given the above context,
In order for the connectivity to EASSY to be meaningful,
(i)
offer a fibre optic
cable back-up separate from SAFE to companies; and
(ii)
facilitate an
“ownership structure” of EASSY which will bring in some real competition in the
telecommunications sector.
In the light of the above, the JEC believes that Government
should invite a “Request For Proposal” for a joint Government/Private Sector consortium
including international investors, to own and manage EASSY. This will be a critical and fruitful long term
investment, in line with ICT long term objectives of
4.5 Applying
an open policy for skills acquisition
The emerging economic model of
In view of the above, high skills will have to be
imported for the immediate needs. In
that respect we suggest that clear parameters for “skilled labour”, in terms of
years of training and experience as well as the level of income, be set. On the
basis of these transparent parameters, work permits, including residence
permits could be approved within a maximum period of 10 days.
4.6 Operationalising
the Public Private Partnership (PPP) legislation
The JEC would like to reiterate the urgency to
operationalise the PPP legislation. The
PPP instrument is the ideal tool to maintain capital expenditure without
putting pressure on public debt and the budget deficit. However, we believe that the present PPP Act
should be amended to consider also “unsolicited proposals”.
4.7 Mainstreaming
SMEs in the new economic model
As the manufacturing sector undergoes its difficult
transition and large companies move to smaller and lighter “architecture”,
there will be a growing need for
specific support services which, indeed, will become essential for sustaining the
supply chain. Such services comprise
fashion design, merchandising, marketing and training. Similarly, growth in the ICT sector will
depend on the provision of expert services in areas such as software
development, translation, multimedia design and customer-relations management
(CRM). What is common to both types of
activities is that they are usually provided by small-size service companies
run by experienced or “knowledge
intensive” individuals.
The implementation of the measures mentioned at 4.1 to
4.7will have a major impact on emergence of a more vibrant SME sector. Notwithstanding the indirect effect, the
direct results on the smaller companies will be as follows:-
(i)
Integrated platform
Linkages between SMEs and larger companies will be easier
and less cumbersome. These linkages will
encourage a culture of outsourcing and therefore facilitate the emergence of
‘clustering’.
(ii)
New ‘license and permits’ environment
It will be easier for SMEs to start their businesses
without any heavy bureaucratic delays.
(iii)
Competitive air access
Smaller hotels and non hotel accommodation will improve their
occupancy rates in a significant manner.
(iv)
Competitive international bandwidth
SMEs will be able to cut their telecommunications cost in
a significant manner.
(v)
Openness to skills
It will be easier for SMEs to have access to higher
skills without going through the labyrinth and unending procedures for obtaining
work permits. It will enable SMEs to
become more knowledge intensive.
4.8 Transforming
the labour environment into a more flexible one
The existing Industrial Relations Framework should move
away from an approach which is based on conflict resolution to one which will
be of “participative negotiations”.
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
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.
4.9 Establishing the right balance between
legislative control and “space” for investment
Whilst recognizing the need for a strong regulatory
environment, the JEC would like to caution against the danger of over
regulations and the risk of constraining investment. The right balance between the appropriate
legal framework, self regulation and investment space is an objective that all
stakeholders should aim for.
We would, therefore, invite Government for very close
consultations with the business community prior to the enactment of new
legislations and measures which could have an adverse effect on investment.
5. CONCLUSION
Opening up for
higher growth
The twin challenges facing the economy in terms of low
GDP growth and public finance pressure need to be addressed urgently. However, we believe that by focusing on
investment this year, the economic buoyancy that would be triggered would
impact positively on employment creation and reduce the pressure on the public
finance.
The investment potential is fairly significant and
The opening up of the economy will put
JEC
May
2006