Rama Sithanen is back in the helm of the country’s economic management after ten years in opposition. When he left in 1995, the economy was at almost full employment and government finances pretty robust. Ten years later, the new “strong man” of the regime is having quite a few thorny issues to sort out before he can return jobs, economic growth and investment to a sounder foothold.

The Finance minister painted a very bleak picture of the MSM-MMM economic legacy at his first press conference since he has been in office. Economic growth will be around 4% this year (as opposed to the forecast 5.1% figure). Budget deficit, which is already on the high side, will be wider than what was estimated earlier this year.

Rama Sithanen wants to have his priorities clear at the very outset of his mandate. The most effective way to turn things around is to stimulate private investment. Government will have to do a lot more to create a climate that really attracts both domestic and foreign businessmen.

A strategy of handing out fiscal incentives to individual industries has done its time. Deeper shake-offs are needed to create an environment that is conducive to businesses big and small alike. Firms should be given more flexibility to hire and fire workers and should be encouraged to reward their employees more in line with prevailing market conditions. Business licensing systems should be revamped so that entrepreneurs have their projects sanctioned in minimal time and with the least possible annoyance.

Stimulating investment also means getting more aggressive in prospecting potential investors locally and abroad. The Mauritian economy needs a larger variety of sources of wealth than it has hitherto relied upon. The traditional pillars, namely sugar and textiles, are under tremendous pressure in world markets. Thousands of jobs are still under threat and the likelihood of a lasting improvement in the economic growth outlook under the present development model is rather poor. Mauritius will henceforth have to refocus its development strategy and look at several smaller industries (particularly in the services) with high potential for value addition. As Mauritius moves into a services economy, no single sector will be able to create jobs in large numbers.

The reform process is irreversible. It will be futile to keep postponing the key changes that the economy badly needs. Nonetheless, economic diplomacy can buy us some precious time during the adjustment phase. The sugar lobby led by Mauritius and its ACP (Africa, Caribbean and Pacific) partners in Europe is entering a crucial phase. Our politicians and diplomats have only a few months left to convince European leaders to come up with a sugar regime reform that is less painful to our economies than the one that is currently on their desk (a 39% price cut over a four-year period).

The Mauritian sugar sector will not survive a sudden fall in export prices despite the ongoing re-engineering of the industry locally. Only purposeful sugar diplomacy can save the industry from massive job losses.

The Finance minister has stopped short of announcing whether he will present a new budget or opt for a special package of economic measures. In any case, the time is ripe for a new direction in the management of the economy.