One of the professed objectives of the Government is to democratise the economy. This was mentioned in the report on the state of the economy Setting the Stage for Robust Growth and reiterated in the budget. Democratisation of the economy is a laudable objective but at the same time a sensitive subject.

Like its progenitor, democracy, it may have different meanings and significance. Democratisation can be achieved in a smooth manner through appropriate policies or in a drastic manner that may disrupt the entire economic and social fabric. The Minister of Finance, Rama Sithanen has opted for the former route in large measure. Mauritius has a culture of its own and the budget paves the way for better participation of all Mauritians in economic development to suit our own economic and social fabric and for social stability.

The concern of Government is dictated by a host of factors, to wit, the need to promote equality of opportunities, to protect the vulnerable groups and the need for development to be fair and equitable and for the fruits of development to filter among all segments of the population and to be shared equitably. The budget aims at attaining the democratisation objective in diverse ways, namely, by encouraging Small and Medium Enterprises (SME) and entrepreneurship development, distributive fiscal policies and providing wider opportunities to different groups via heavy investment in training. We will deal with each one in turn.

Creating a circle of opportunities, nurturing a new breed of entrepreneurs and participation in the development process constitute a positive approach to integrate all segments of the population and all sectors in the mainstream of the economy. These are political, social and economic imperatives. The ultimate objective of such a policy is to have a balanced and sustainable growth that benefits the entire population.

In this context, focusing on SME is part of the overall strategy of the budget but it does not mean larger enterprises are neglected or have no role to play. Larger enterprises will continue to be the driver of our economic development and this is recognised in the budget. In fact, the budget also wants to reassure all investors and businessmen that they do have a key role to play in the economic development. No wonder Rama Sithanen is concerned of developments occurring on the international scene for our pillars, namely the sugar sector, export and processing zone (EPZ), tourism, financial services, etc. The budget counts on the performance of these sectors to achieve higher growth. The budget is also conscious that it should not discourage investment by large businesses especially in the tourism industry which has the potential to generate jobs on a larger scale, both directly and indirectly.

?Mauritius will have to inculcate the spirit of entrepreneurship in Mauritians from an early age and the inclusion of entrepreneurship or business programmes in the school curriculum will be desirable.?

The budget wants to create a better synergy among all enterprises. Larger enterprises can help in the development of smaller ones especially by making the best use of forward and backward linkages, outsourcing and sub-contracting. There is no doubt the development of such activities will have a favourable impact on small enterprises. The establishment of ?villages touristiques? offering shopping outlets, restaurants and leisure facilities to be operated by small operators is a case in point.

It cannot be denied that SME can contribute more to the economy since they have the potential to generate jobs on a larger scale compared to their larger counterparts. This is the experience not only in Mauritius but worldwide. For example, in the past ten years, SME created more than 40, 000 jobs compared to larger enterprises that generated only

2, 000 jobs. The focus on SME is thus, a rational decision to optimise job creation. It is also common knowledge that the amount of capital required to create a job is smaller in SME than in large enterprises. If we concentrate on SME at a time when funds are scarce, we may optimise job opportunities.

The budget intends to eliminate biases in law, taxes and tariffs that are in the main favourable to large firms over small ones. Mauritius has a system that provides incentives to invest in different industries or sectors. It may be construed that most of the beneficiaries have in the past been large firms whereas small firms have not really benefited from them which is not entirely true.

In all sectors of the economy, we can see that small, medium and large firms coexist. It should be remembered that our entire economic transformation is a product of incentives. The exact impact may not be quantified scientifically but it cannot be denied that they had a positive influence on our economic development.

Mauritius has been successful in diversifying its economy from a monocrop economy to one with multiple pillars thanks to the diverse incentive packages. Even the SME had their own promotional institution, for example, Small and Medium Industries Development ORganisation (SMIDO) and package of incentives. Somehow, they did not make the significant impact because many constraints prevented this sector to take off.

It tries to redress the situation in diverse ways. First, it wants start ups with minimum administrative constraints and eliminates the numerous steps to start a business. A dozen measures are announced in the budget. Before starting a business, at least 14 permits are required sometimes taking more than a year to obtain. Starting a business was an ordeal and entrepreneurs had to contend with a long list of permits and trade licenses and, the budget admits, ?a very cumbersome system with complex and long procedures?.

For the first time, the procedures are eased. ?We are freeing enterprises and new investors from bureaucracy?. Elimination of bureaucracy will benefit all enterprises whether they are small, medium and large. There is a presumption that these obstacles are particularly onerous for SME who cannot afford to wait for permits to start their business and ultimately give up. In this sense, we have been killing the goose that probably lays the golden eggs. Failure of entrepreneurs implies dependence on job opportunities elsewhere. It will be wrong to presume that these constraints apply only to SME. Their removal will have a salutary effect on all types of enterprises.

The Government intends to play a supportive role in the development of SME. The budget wants to nurture businesses from birth to adulthood. These enterprises will benefit from advice, support in preparing projects, access to finance, industrial estates tailored to their needs, training and a wide range of targeted services.

The role of institutions is redefined to deliver an effective service. Some of the key institutions are Development Bank of Mauritius (DBM), Bank of Mauritius, SEHDA, Enterprise Mauritius, State Investment Company, Business Parks of Mauritius and Mauritius Trading Houses, each with a specific role. For example, Government will provide finance and equity and loans through DBM. It will provide subsidies to the DBM to offer below market financing. It is referring to businesses that are very small with loans of Rs50,000 or less, quasi-equity up to Rs300,000. These facilities are extended to entrepreneurs who may require financing to the tune of Rs3 million. There are many innovative ideas and projects in the budget which may not be understood easily by small-scale entrepreneurs; they may not realise all the implications of different measures. There is, therefore, a need to create an awareness of all these measures which should be explained and marketed by different institutions. Their implementation will not be easy and there may be need for a change in mindset and approach even by entrepreneurs themselves. They have to adapt to the new environment and be prepared to take risks.

Training is another important component in the equation. Consultants will be trained and placed at the disposal of SME. This may not be a realistic proposal. Assisting small-scale entrepreneurs requires a long period of training and different types of skills and wide experience. Entrepreneurs by their very nature are practical people and need practical advice. It is for this reason that the Mauritius Employers? Federation in collaboration with the Human Resource Development Council has come up with a project on mentoring of SME with the involvement of a pool of businessmen and professionals who can advise and guide entrepreneurs.

This mentoring project is complementary to the work being done by various institutions. The unemployed will benefit from different types of training in the private sector, especially on the job training. It is a signal that the private sector should create the bulk of the jobs and public sector jobs will be extremely limited. Formal training will be supplemented by increasingly emphasising on-the job training. The Industrial and Vocational Training Board will play a key role especially through the National Apprenticeship Scheme. Given the projected expansion of the tourism industry, training will be done by a number of institutions, both public and private.

Appropriate programmes will be designed to encourage entrepreneurship especially among the unemployed and women to enable them to set up their own businesses. Training is an important avenue to ?broadening the circle of opportunities? to Mauritians because it will help develop and upgrade the skills and improve employability and integration in the world of work. Those who will benefit from training are the unemployed, those recycled from their jobs, women, young people and SME.

It should be conceded that entrepreneurship development is a long-term process. Results will only be achieved in the medium and long terms. Mauritius will have to inculcate the spirit of entrepreneurship in Mauritians from an early age and the inclusion of entrepreneurship or business programmes in the school curriculum will be desirable.

In fact, the entire educational system should encourage creativity and entrepreneurship and provide a notion of business. In this context, partnership between industry and educational authorities is essential. Given the experience of the Mauritius Employers? Federation in small enterprise development for more than two decades, it can contribute to such a programme especially at the secondary level.

While tax holiday is being removed for large enterprises, this notion is retained for SME for four years. In the field of indirect taxation, and to create a level playing field for SME, duty on 275 items is removed. Footwear and clothing industries are to be sheltered from competition and tariff cuts are deferred. The local manufacturing industry will benefit from such measures and Mauritius is on the way to integrate EPZ and Non-EPZ.

?In the past ten years, SME created more than 40, 000 jobs compared to larger enterprises that generated only 2, 000 jobs. The focus on SME is thus, a rational decision to optimise job creation.?

Democratisation is expected to promote social justice. This redistributive role is also done through stimulating growth and enlarging the size of the cake rather than sharing a stagnant cake. But this budget plays that redistributive role by selective tax measures that are aimed at better off segments of the population who are called to bear the major brunt of taxation. It is in this perspective, that the National Residential Property Tax, the Campement Site leases and Personal Income Tax measures should be understood. All these have a bearing on democratisation and on equitable income distribution.

These measures have wide-ranging implications especially for salaried earners whose burden of taxation has risen substantially with the changes announced in the budget. This is particularly the case for income tax and the middle-income group will be further squeezed. Income taxation is an important vehicle to create incentives to work, to save and invest; in its concern for redistribution and search for revenue, this budget fails to create such incentives at least in the short run. Income tax payers have to find solace in the hope for lower taxes in the years ahead. This aspect requires a more indepth analysis and it will be treated in another article.

We should not have the impression that democratisation will automatically follow now that many measures have been announced. Bureaucracy sometimes finds ways to perpetuate itself. But there is a momentum which can be sustained. There is a need for monitoring and follow up to ensure that budgetary intentions are implemented. This is the litmus test of this budget.

There is no substitute for growth if we want to better the lot of the population especially the most vulnerable. SME will benefit from linkages. No matter what reforms or measures take place, they will have very little impact if the economy is stagnant. That is why the budget reassures all stakeholders and do not alienate all of them. An important element in the promotion of SME is the production of quality products and services. An institution that is not mentioned is the Mauritius Standards Bureau which can play a key role in quality. All efforts will be in vain unless the quality of products improves so that they can enter the export market.

There is a lot of work to be done in this respect. There should be no illusion that we have to export. We cannot be a nation of entrepreneurs and attempt to sell on a limited local market only. The export orientation strategy of the country was already decided in the seventies. Quality is an area where the budget does not devote much attention. Unless our products bear the label of quality, there will always be a preference for imported products.

There are a number of messages conveyed by the budget. It sends a signal that the people should be able to share in the fruits of development. In fact, there should be greater linkages among enterprises whether large, medium and small. It is the idea of clustering, sharing and solidarity especially in difficult times. Mauritians should not only be job seekers but job creators. Those who will pick up the challenge will get a helping hand. Above all, success requires hard work so that people do not remain on the fringe of development.

Development should lead to integration and there should not be poverty in the midst of plenty. It is a long time since John Kenneth Galbraith wrote The Affluent Society. Social stability is an important consideration in the development process. Socially excluded groups, vulnerable groups and the unemployed require special attention.

The long array of measures listed should give an impetus to SME. These are incentives that have to be tapped. Although the budget mentions that the incentive system may not be always effective, it is providing numerous incentives for the growth of SME. Some entrepreneurs who started with less than 25 persons more than two decades ago, now employ thousands and are a reference. The case of Compagnie mauricienne de textile is a glaring example. Such success stories are rare but may be replicated. You can bring a horse near the river but you cannot force it to drink.

Azad JEETUN Director