SPEECH OF THE PRESIDENT

It is my privilege and honour to welcome you to the 159th Annual General Meeting of the Mauritius Chamber of Commence and Industry.  Thank you for your interest in the activities of our institution and your support to its mission.  My special thanks to the Minister and the Secretary for Foreign Affairs who have taken time out of their busy schedule to be with us this morning.

You are all aware of the business of our AGM, which is to review our activities during the past year and to approve the programme for the coming year, with due respect to the financial and governance aspects of the management of our institution.

We have, in addition, since quite some time now, taken advantage of this major event in the life of our institution, to share with our Members, policymakers, the press and the public at large our predicament on the state of the Mauritian economy.  In the present juncture this exercise might seen to be superfluous given the scores of analysis and comments on the economy from so many quarters.  It seems that the reaction to the new economic strategy launched in 2006 has made of every Mauritian ‘un économiste en herbe’!  Which is not a bad thing at all.  But there is a need to see clearer through the haze of scattered pieces of partial analyses.

Given the 158 years of existence of our institution and its past contributions on this subject, I can humbly submit that we have been able to rise above narrow interests, sectorial issues and specific policy shortcomings to identify the key challenges facing us as a nation.  Where others are looking at the trees we try to see the forest of our economic landscape.

This is no easy task.  My predecessors have done it well.  I shall try to follow in their footsteps.

The latest statistics available on the macro economic performance over the last year confirms that the new economic strategy, developed from the findings of the ‘National Competitiveness Foresight Study’ and implemented in a more coherent manner since 2006, has the potential to put the country on a new and higher growth path.  GDP grew by 5.6% in 2007 and prospects for 2008 are even better : 6% according to CSO estimates, 7% for the IMF Team who recently visited Mauritius.  We might surprise some people.  But it is our considered view that this strategy has the potential to take the country to even greater heights, maybe double-digit growth rates.

To support this view we want to underline a few significant developments.  First, three productive sectors, namely tourism, construction and the textiles industry, have recorded simultaneously in 2007 their highest growth rates in 20 years.  Four other sectors had growth rates in excess of 7%.  More importantly, this growth performance was achieved in spite of supply capacity constraints, especially in terms of skilled labour and infrastructure.

Second, Foreign Direct Investment at a record Rs. 11 billion last year was 4 times the level in 2006 and more than 50% above the 2007 figure.  Total investment grew by 12% after the 5.6% of 2006.

Third, the overall balance of payments showed a surplus of almost Rs. 14 billion in 2007 compared to a deficit of Rs. 4.6 billion in 2006.  Fourth, and I know this will certainly raise some eyebrows, since its delinking from the Pound Sterling, the rupee has for the first time registered such a significant appreciation against the main foreign currencies; and this is not a mere blink in the long saga of continued depreciation.  I shall have the opportunity to come back on this issue.  Finally, the attractiveness of Mauritius as a destination for business and leisure has never been as high, as illustrated by the international ratings on a number of indicators.

However, to capitalize on the new growth momentum and unlock its full potential there is need to do more on the main thrusts of the new strategy.  First, on opening Mauritius more to the world.  How can Mauritius be truly open to the world when its connections to the world are so inadequate?  We have a window of opportunity to make of Port-Louis the hub of the region and we are taking years to adopt the formula which works in the best ports of the world.  This is a question of national interest, which should override any other consideration.  Similarly, the musical chair of CEOs and Chairman at the airport for years now has prevented any development to enhance the handling capacity.  Extension works are routine in all dynamic airports of the world and in Mauritius we are taking so long even to start, while at the same time we are fixing ambitious targets for passenger throughput at Plaisance.  In the mean time there is already saturation.

Apart from sea and air links, telecommunications are key to keep us connected to the world.  We have succeeded to put into place the regulatory framework and to bring down telecommunications costs.  We need now to enhance the capacity and reliability of our connectivity and bring down costs further.  Mauritius should be at the forefront of new initiatives like the EASSY project.

Opening to the world is also about bringing talent, know-how and skills to Mauritius.  There is no way that by bringing the 50,000 unskilled and low-skilled unemployed (and we know that this figure is inflated) to active work and adding the 10,000 maximum new entrants on the labour force every year, we can provide to the productive sectors the numbers and range of skills required to propel the economy higher on its growth path.  At least not in the medium term.  And in spite of all our efforts to retrain and re-skill.  I shall come back on this issue.  Taking into consideration this fact, our policy should not be merely to facilitate the entry of foreign workers.  We shall need to devise an active foreign workers recruitment policy in order to address the bottlenecks, which are already emerging and will certainly worsen in future.

These were some comments on the objective of opening Mauritius to the world.  The second element of the new economic strategy is fiscal consolidation.  With the level of Budget deficit and the accumulated Public Debt in recent years, consolidation was inevitable.  But the manner it is done is not neutral to the other objectives of the new economic strategy.  The new approach to better link spending to results, and the medium term budgeting approach contained in the MTEF, are certainly positive steps.  However, from latest statistics available it seems that the reduction of the deficit is being achieved mainly at the expense of public investment.  In fact in 2007 public investment dropped 25% compared to its 2006 level.  Worse, in real terms public investment has dropped by 34% from its 2003 level.  With the current level of investment, major bottlenecks will emerge in future, compromising the growth momentum.  We mentioned earlier the inadequate investment in the airport, port and telecommunications.  The situation is as bad for the utilities.  The situation regarding the supply of water, is self speaking.  In spite of having an average rainfall which can meet our requirements, year in year out we experience shortages.  I need not stress on torrential rainfall now showering the whole country.  The Inadequate investment in the storage capacity and distribution network results in considerable loss of water.  As we move to a services economy, with a much bigger hospitality industry, the demand for water will increase significantly.  If not addressed urgently, this will be probably the first serious bottleneck for future growth.

Energy is not as bad yet.  But lack of clear policy and an independent regulatory body can be source of paralysis that can quickly lead us to a situation as being currently experienced by South Africa.  From the cheapest producer of electricity in the region and a net exporter to neighbouring grids, this economic powerhouse is to-day going through power cuts and actually being forced to import electricity from Mozambique.  Special attention should be given to the separation of generation and distribution activities so as to create a level playing field for all actors in the sector.

Government will need to put its act together to boost investment in economic and social infrastructure.  It would be in the interest of its fiscal consolidation programme to encourage private investors to provide for economic infrastructure and utilities.  But whatever the scenario, it will have to invest more to support the economic momentum.  Consolidation cannot be achieved at the expense of public investment.

Then the legitimate question that follows is : where can savings come from?  Recurrent expenditure has to be reviewed.  I would like here to underline one item which has been the subject of intense debate since a few months : targeting of subsidies and social transfers.  In theory it already made sense to us.  But recent developments have only confirmed the urgency to put it in into practice.  The drastic increase in the prices of energy and food items, is making universal subsidies on these products a more and more expensive item in the Budget.  The question is not whether we should have targeting.  But how best to put it into practice.

So much about fiscal consolidation.  The other main element of the new strategy is business facilitation.  There is no doubt that a lot of progress has been made on this front which is reflected in the higher level of FDI and the number of registrations of new businesses.  But in a number of areas, especially on land use, more needs to be done to make the deadlines for issue of permits effective.

A low and uniform direct tax and a duty free regime were the other objectives of the new strategy.  These elements are important to project Mauritius as the open business hub similar to countries it wants to emulate.  Promotional campaigns during the last 18 months have proved that this package is a huge marketing argument.  The fast-tracking of the reductions of maximum corporate and personal income tax rates to 15% in the last Budget were certainly a boost to the whole strategy.

However, we should be more mindful about uniformisation.  Our Chamber has been a great proponent of uniformisation in the past.  We fought for the uniformisation of the regime applicable to the whole industrial sector, we have been in favour of a low uniform tax and we were the first to support the Duty Free Island concept.  But we should avoid being doctrinaire in our approach. 

A uniform tax should not exclude some deviations in the medium term to accommodate activities, which operate in specific circumstances.  For example, it was wise to find a formula which overnight did not eliminate the tax-free regime enjoyed by the international financial services sector.  Latest statistics on Freeport activities suggest that activities have gone down significantly.  In fact the value total re-exports fell by a third last year.  Although the major part of this decline is explained by the decrease in the re-exportation of mobile phones to the United Arab Emirates, there is clear evidence that business is down in the Freeport.  Given the ambition of the new strategy to make of Mauritius a business hub, including a logistics hub, the decline in Free Port activities is a counter performance, which should be redressed.  In these circumstances, the decision to apply the uniform corporate tax rate to this sector needs to be reviewed and formula based on that applicable to the International Financial Services Sector might be more appropriate.

In the same vein, the duty free regime was to make supplies across the board cheaper and promote shopping tourism.  Maximum duties have thus been slashed from 100% to 30% within a two-year period.  However, the reality on the ground was that such a trade liberalization pace was not sustainable to the local manufacturing sector.  Government was wise not to cut duties further in the last Budget.  And it is to its credit that it has agreed to a joint proposal from the Chamber and the Association of Mauritian Manufacturers to set up a Task Force on the local manufacturing sector to support the sector to undergo the change that can make it survive and prosper in a more liberal trade environment.

This last remark on the conditions for the success of the new economic strategy takes us logically to the last part of my remarks : the new challenges emerging form the implementation of the new strategy.  By opening the country to the world and enhancing its attractiveness to outside investment, know-how, talent and skills, the new strategy has undoubtedly created new opportunities for growth.  But as for the local manufacturing sector, I mentioned earlier, the new strategy has also created conditions which the various local actors cannot on their own manage and take advantage of.  The new strategy, while opening up new opportunities has also increased the risks of marginalisation of organizations, enterprises and individuals alike.  The weaker one is the higher the risks of marginlisation.  The shift from a preferences-based economy to one which is open to global competition does not boil down only to a re-engineering of existing enterprises; it requires an adaptation by each individual, each enterprise and institution and a change of mindset of the whole nation.

In our view, the reason for so much opposition to the new strategy is that this fundamental aspect has been overlooked and, as a result, not explained to the various actors from their own perspectives.

Let me give you some examples of this new situation.  First on job creation.  The increase in total employment is estimated to have been 8,400 in 2007, which is a good performance.  But the number of jobs taken by foreign workers was 4,900, an exceptionally high number, given that the number of foreign workers was on a declining trend between 2003 and 2006.  More than 50% of new jobs going to foreigners is a completely new phenomenon.  With such a ratio the rate of unemployment would have actually increased if there were not some structural changes in the labour force.

Second, foreign exchange and exchange rate.  I know this is a contentious issue.  Sorry to disappoint you as my intention is not to speak on the merits of a weak or strong rupee; But to underline that with greater openness of the economy, the potential for greater volatility in the exchange rate of the rupee has increased.  Both the rapid depreciation of the rupee in 2006 and the unprecedented appreciation in recent months call for a new approach from all concerned, be it the Bank of Mauritius, the financial institutions and those transacting in foreign exchange.  What we know is that fluctuations of that magnitude over short periods of time are destabilizing for our economic activities.  There is a need to develop new mechanisms to stabilise the exchange rate in the face of risks of increased volatility.

Another development which is not the result of the new strategy, but which has had a major adverse impact is the surge in the prices of oil, commodities and food products in general.  What importance do we need to attach to renewable energy and food security in this new strategy?  Last night we had the opportunity to listen to Mr. Vergès, our Guest Speaker, on the impressive achievements of Réunion in the field of solar and wind energy generation, and its initiatives with regards to geo-thermal and wave energy.

There is no reason why we cannot do as well.

Regarding food security, we should give more attention to the development of the local food industry.  In this context the threat of closure on ‘Les Moulins de la Concorde”, an efficient and competitive producer of wheat flour, with the unfortunate decisions taken last year on the procurement of flour, runs counter to the strategy that we should be following.  Let us in future not compound our difficulties by such unwarranted initiatives.

Of more significance is the fact that the opening of the Mauritian economy to the world, its consolidation into a service economy and its general sophistication will exercise an upward pressure on prices in general, starting with property but affecting every walk of life.  This development will be in tune with our progress on the development ladder.  There is no magic formula to counter this trend and certainly not through price control.  There is now a wide consensus and the Minister of Industry and Commerce has repeated it several times : price control will have to go and the market forces should be regulated by the Competition commission, the earlier the better.

The sustainable response to this general increase in prices is an even more pronounced upward movement in incomes through the migration to higher value-added activities and significant gains in productivity.  Unfortunately, in our view, this will not happen through individual initiatives, at least not on a scale that can make a difference.  Those who are currently working on the Empowerment Programme can testify that the availability of new job opportunities cannot alone connect the unemployed to these opportunities.  It takes more to mainstream those who are marginalised. 

In the same way the deep and fast changes triggered by the new economic strategy will result in more polarization : on one side these who are capable of taking advantage of the new opportunities would move fast; and those unable to do so will fall behind.  There is a huge task to empower the largest section of the population to be in the mainstream.  On this count, it is erroneous to believe that this task should limit itself to the poor or the unemployed.  Of course, they should get the maximum of the attention and resources of the State.  But genuine inclusive growth is about connecting every enterprise, institution and citizen to the new economic paradigm.  What is needed is in fact a national Empowerment Enterprise, not the one which is currently under implementation.

And at the heart of this national endeavour is the need to devote more resources to quality education and training.  These resources need not come solely from the State.  A more enabling environment should be put into place to promote greater public-private partnership in the provision of training and education facilities.  The skills and education profile of the whole nation should undergo a major transformation to connect every one to the new opportunities.  Then the benefits of the new strategy will accrue to our workers and enterprises while providing opportunities to foreign labour, enterprise and investment.

That is the most formidable challenge that we face as a nation, which has just celebrated its 40 years of independence.  It is our capacity to succeed in this challenge that will make or break the new economic strategy.