This budget attempts to mark the beginning of a new era. It has a new focus, an entirely novel approach and a strong economic rationale. It calls for a dramatic shift in mindset to meet the daunting challenges the country is facing. Perhaps we had made our opinion prematurely in a fatalistic manner that every thing would be the same and the status quo will always prevail. But the budget has come to belie that notion. It wants to inculcate a culture of discipline in Mauritians, a discipline in the management of public finances, a discipline in public service and a discipline in the private sector as well.

This is a very tall order and only time will tell whether it will succeed. It has many facets and undertones; not all of them are explicit. There are more in it than meet the eyes, either favourable or unfavourable. Many of the measures still remain to be well defined. But this article will tackle one particular aspect of these measures, namely, the implications of the budget for employment and growth.

The budget identifies the right priorities for the country. There is a major preoccupation for the creation of jobs which pervades the entire budget speech. It is repeatedly summed up in these words: create jobs, promote employment and return to high growth. The Government is obviously concerned with unemployment which has reached 9.5 per cent. Nobody will deny that unemployment is high although I have always maintained that the figure is on the higher side because there is a high degree of underemployment.

It recognizes our dismal economic performance compared to Southern Africa Development Community and Common Market for Eastern and Southern Africa. The entire African continent has a growth of 5 per cent in 2005 which provides food for thought as to the appropriateness of the business environment in Mauritius. If we compare our performance with Asia, we are in a worse predicament. Asia grew by 7.8 per cent. We are trailing behind when many countries are making big leap forward.

The priorities are right for sustainable development and the constraints well-diagnosed paving the way for targeted measures and action. Low investment, low savings, high unemployment, colossal balance of trade deficit, balance of payments deficit, huge budget deficit and excessive public debt are surely signs of an ailing economy.

The situation is akin to the late seventies which culminated in two devaluations. In fact, this is precisely what the Minister of Finance wants to avoid although the rupee has been consistently depreciating over the past two decades. Of course, the budget refers to numerous difficulties on the external front but it recognizes the need to put our own house in order and many of the causes for our current situation is endogenous.

To start with, it calls for action to improve the investment climate, to instil confidence in business and to encourage initiatives. The business environment has deteriorated over the years because policies had not been adapted to meet the mutations taking place locally and internationally.

There had been a high degree of complacency as if the world would be waiting for us. The budget goes at length to improve this environment for business which is important for creation of jobs, promotion of employment and economic growth. Some of the measures are very harsh but it is a signal that economic realities are also harsh. They require a new mindset and, above all, sheer hard work.

Never has a budget in the past referred so much to the need for openness, to adapt to global competitiveness, to integrate the global economy, to productivity, efficiency, competitiveness and flexibility. These are brutal realities we have to face. The waves of globalisation have swept our shores and it is important to flow with the current and not to be tossed around in the ocean. “No man is an island,” said Alexander Pope and we are not shielded from international developments.

Mauritius has to learn this lesson since we are heavily dependent on the world economy. The bitter truth is that we have not kept pace with developments on the world economy. Over the years, we have lost our market share. We are still in the grips of the triple shocks, namely, decline in sugar prices, erosion of trade preferences and rise in energy prices.

For small countries there is no option but to become fully integrated into the global economy. From an exporter of bananas and coffee two decades ago, Costa Rica has been transformed into an exporter of computer chips and is dependent on tourism. Costa Rica’s President Sanchez said: “Only if we open up our economies we will be capable of attracting direct investment flows that will make up for our own chronically low domestic saving rate and benefiting from the most advanced technology and know-how that, in the end, will help our own employers. Only if we open up can we develop dynamic productive sectors, capable of competing internationally. But, above all, only if we open up will we create sufficient high quality employment for our youth.”

<B>Towards a business friendly environment</B>

The budget attempts to create a business friendly environment. An enabling environment is a prerequisite for investment, employment and economic growth. Some of the conditions for an enabling environment already exist in Mauritius while we have to make significant improvement on others. The budget focuses on some of them which are crucial at this stage of our development and which require immediate attention. We will only highlight a few of them here.

Four ways in which the budget wants to create a business friendly environment is by increasing investment, undertaking labour reform and eliminating bureaucracy and red tapism and investing in training. It is well known that our investment ratio has been on the decline, reaching an alarming rate of 21 per cent in 2005, the lowest rate in two decades.

Diverse ways are explored to boost investment and attract foreign investment. It calls upon Mauritians abroad to invest in the country and attempts to attract foreigners as well. The amount is kept relatively low to attract funds and to democratize the economy. However, an important consideration for such investment lies in our income tax system and here the attractiveness is mitigated.

While the objective is to attract know-how, technology and funds, it takes cognizance of the obstacles on the way and announces measures to facilitate residence and work permits and the granting of visa. The second aspect of this strategy applies to the long list of permits and licenses required for business and takes the bull by the horn. We consider the cumbersome procedures as the biggest obstacles that discourage entrepreneurship, initiative and enterprise creation. This requires a new mindset in Ministries, parastatal bodies, municipal councils and district councils. Perhaps this is the biggest challenge of this budget.

As mentioned earlier, we operate in a globally competitive environment. If our product markets are open, our labour market cannot be closed. This is the missing link in the entire reform process that has taken place over the past two decades. An open economy needs an open labour market. On this score, the budget rightly sets out one of its priorities to render the labour market flexible.

Our actual labour legislation is not compatible to the needs of the country with the multiplicity of institutions determining wage increases without due consideration to productivity and performance, when increases are determined by all yardsticks except economic ones. The performance of these institutions has contributed to an inflationary wage policy that has been detrimental to our exports, employment, investment and economic growth and ultimately to workers themselves. Our soaring labour costs have made the Mauritian industry uncompetitive. The wage system is a major cause for our rising unemployment.

A high degree of government intervention in industrial relations has led to wage drift and more dangerously out-priced our products on world markets. Collective bargaining should be the cornerstone of our industrial relations system. The National Wage Council will no doubt help to promote tripartism and social dialogue and ensure a more rational and structured wage policy taking into account productivity which is the main factor to ensure sustainable wage increases and higher real income.

There was a dire need and urgency to instil a degree of flexibility in the system to encourage investment and by extension employment. This has been the experience of many countries. In an article in the Economist of 17-23 June 2006 on Organisation for Economic Co-Operation and Development (OECD) countries, it is stated that: “Several countries have tried to ungum labour markets by deregulating them, by trimming marginal tax rates and by making benefits less generous. Broadly, these policies have raised employment.”

This is concrete evidence that flexibility is the route for the creation of new productive jobs, for the generation of income, for combating poverty and improving the lot of vulnerable groups. There are no short cuts for sustainable development. “The cornerstone to create employment must be flexibility in employment regulations.” In the past, too much lip service has been paid and policies have been harmful to those they were intended to protect.

The budget also aims at investing massively in training and reskilling, training of entrepreneurs, the unemployed, redundant workers, vulnerable groups, training of apprentices. It will encourage both on the job training and formal training. In this respect, it is worth mentioning that we should not throw the baby with the bath water. Institutions that have been involved in training and have a good record should be empowered to do more training.

We should not reinvent the wheel and lose the experience and expertise of institutions like the Industrial and Vocational Training Board and the Ministry of Education and Human Resources that have already effectively managed skills development programmes.

In terms of training, it is important that there should be complementarity among institutions rather than duplication. The budget advocates efficiency and best utilization of resources. Training should also be complementary between public and private sectors using the expertise, experience and comparative advantage of each sector. The training of consultants to advise entrepreneurs is a good idea but in a world of business and entrepreneurs what is required is practical guidance and support.

The country has been successful in establishing four pillars namely, textiles, sugar, tourism and financial services. The budget calls for further diversification with the emergence of new pillars and many areas have been identified with progress achieved already in some of them. Small and medium enterprises (SME), information and communication technologies, knowledge hub, medical hub, seafood hub, pharmaceutical cluster have been identified. The potential is there but has to be exploited.

The budget has a mission to double per capita income in 10 years. It is an ambitious target but attainable. This presupposes high growth although it is not quantified. One thing is sure that with 3.5 per cent growth we wont reach there. We also have to create 50,000 jobs. We need to have appropriate policies and actions to achieve this goal. The budget shows that there is a will to effect the right reforms. It will be presumptuous to assume that with the budget everything will change immediately. The platform has been set. Much depends on implementation. We hope that action will follow. The taste of the pudding is in the eating.

<B>Azad JEETUN</B>