In the face of fundamental changes in development philosophy it is the responsibility of all our institutions to revisit and adapt their roles. I believe it is appropriate that we recall here the existence of more than 100 parastatal bodies in Mauritius. They have been set up to build capacity to implement national policies and strategies. Each one of them must therefore operate at maximum effectiveness and to do so they must all align their goals, mission and vision on national policies.

To carry through the transition from preference based development to global competitiveness means succeeding on various fronts including: empowerment, corporate social responsibility, good governance, moving from a four to a ten pillar economy, being among the 10 leading countries in doing business environment, lean and effective government, robust public finance, balanced and stable macroeconomic fundamentals, a larger class of new entrepreneurs, a thriving SME sector, a well democratized economy and the right balance between GDP growth and social development. These are but a few of the features of our development model and they should be on the checklist of every public and private sector institution.

Democratization of the economy should be one of the most prominent items on their checklists especially for institutions that have a say in the mobilization of resources and the way they are allocated. Here again I must say that I never missed an occasion to stress the need for our financial services system, in particular banking, to be inclusive. And the Prime Minister also highlighted this need in his speech at the celebration of the 40th anniversary of the Bank of Mauritius.

Democratization of the economy is to me simply to broaden the circle of opportunities for all. However, it is very complex in its implications, meanings and outcomes. There can be no doubt that the degree of concentration of wealth and productive assets, including land, capital, labour and entrepreneurship is the single most important determinant of the ability of a society to have an equal and fair distribution of income. Our statistics show that around 60 percent of national income are generated from assets and only around 40 percent from labour. It therefore follows that if the ownership of productive assets are concentrated, then income distribution will always be skewed. The only way out is to ensure a more equal ownership of productive assets. Income in the form of interest, profits, dividends, rents, and capital gains must reach a much greater number of families than is presently the case. The inequality of income and inequality of assets can have deleterious consequences on growth. For example, it is now well recognized that policies to expand education will have less of an impact in countries where assets, and with them access to entrepreneurial opportunities, are distributed in a highly unequal fashion. And financial markets can be one of the mechanisms through which the effects of such inequality can be transmitted to investment in human capital and to long term growth. We know fully well that access to credit depends on ownership of assets that can be used as security. Then the distribution of assets in an economy, in addition to the mean income, will determine how many individuals are able to undertake investments in physical or human capital. In more unequal economies, fewer individuals would be able to make investments, resulting in lower stocks of human and physical capital, and, as a consequence, lower growth.

That is why, this Government has made democratization of the economy the cornerstone of its development philosophy and of its actions. Government is determined to face up to inequality. In the past two years we have been implementing a blend of fiscal, sectoral, and social actions to secure a better distribution of income in the country. Our efforts to develop the SME sector are unprecedented. We have flattened the playing field for all investors through the reforms on business facilitation. As we consolidate traditional sectors and diversify our economy we have made clear that our industrial policy is to widen the circle of opportunities to enable SMEs to participate, in particular in downstream activities on large projects and through outsourcing. Government is setting the example, with the Land Based Oceanic Industry which should allow for maximum participation by SMEs in downstream activities. In the Tourist villages, as well, space will be made available to carry through the democratization process.

In this year?s Budget we have exhorted the corporate sector to help in the promotion of micro and SME development as part of their corporate social responsibility. In particular, the IRS promoters are being required to provide support to develop outsourcing with local fishermen, planters and micro-enterprises. We will also ensure that a substantial part of the contributions that IRS promoters are required to make will focus on creating opportunities for women, for youth and the long term unemployed.

In last year?s budget we announced one of the most comprehensive sets of measures ever to boost the SME sector. These actions span access to finance, land, capital, training, markets both domestic and regional, monitoring and follow up, mentoring as well as assistance with the preparation of business plans. Our aim is to facilitate as much as possible the setting up of businesses in the SME sector and to expand and establish a strong class of risk takers in the world of business.

?There can be no doubt that the degree of concentration of wealth and productive assets is the single most important determinant of the ability of a society to have an equal and fair distribution of income.?

It is still early to see all the desired outcomes of the democratization process but I must say that we are very encouraged by the results we are seeing so far. There is a genuine interest in entrepreneurship. But we must recognize that we are asking our people to change their culture and their thinking. We are asking them to become risk takers rather than risk avoiders. This will not happen overnight. That is why the Empowerment Programme is working closely with the public sector institutions, with government and also with the private sector. It is a challenge that requires concerted collective efforts. But we are confident that a new reality is unfolding. The democratization process is taking hold.

The potential for democratizing the economy is unprecedented. The opportunities for doing business is not limited any more to the four traditional pillars. There is wider economic space now in a wider array of sectors including ICT/BPO, construction, seafood, aquaculture, land based oceanic industry, knowledge hub, medical tourism, etc. There are more foreign investors looking for local partners, for joint ventures and these opportunities will grow. There is greater opening on the region which is also enjoying renewed economic dynamism.

It is most appropriate that the DBM asks the question of what is its role in that democratization process. How can the DBM contribute more effectively to help our entrepreneurs harness the full potential of this unprecedented fertile ground for SME development?

?In particular, the IRS promoters are being required to provide support to develop outsourcing with local fishermen, planters and micro-enterprises. ..?

As a financing arm of government, the DBM can review its role, raise more finance, create new and better adapted instruments and reach out to significantly more SMEs and new entrepreneurs. But we must also be realistic. It will require substantial efforts for DBM to meet all the needs of the growing market for SME financing. More than 98 percent of the total financial resources in the banking system are mobilized by the commercial banks. DBM accounts for less than 2 percent. Clearly even if DBM capacity for raising finance quadrupled in the next few years, it would not be enough to finance the democratization of the economy. Nonetheless, the DBM remains the key player in SME finance and it must build more capacity. It must continue to support government policy. In fact, as you thrash out this issue on the role of the DBM today, you should not lose sight of the underlying principle that led to its creation and indeed of development banks around the world. The DBM was established to provide financing to entrepreneurs who could not get them from the commercial banks. To many investors, in particular, budding entrepreneurs, development finance means lower cost and more flexibility on risk. To Government, DBM was a means to secure the finances necessary to see through its policy priorities with regards to investment and job creation. And so new instruments would be created as government policy emphasis changes. So much so that at a point in time the DBM had around seventy financing schemes for its customers to choose from. Now that we have cleaned the system of most investment incentive schemes, the DBM can revisit its financing schemes to adapt them to present priorities. I am confident that as the DBM reviews its role it will enhance its effectiveness for the benefits of the SME sector and the wider economy.

I should like to end by stressing that the challenge for the DBM will be how to enhance its role as support to Government policy and at the same time achieve greater commercial viability. The democratization process must go on and must be deepened. We are well on the way to higher economic prosperity. Democratizing the economy is the surest way to ensure that the prosperity reaches the greatest number of families while at the same time bridging the income divide between rich and poor in our society. We must be alive to the fact that high levels of inequality are very difficult and costly to reverse. Government will continue its efforts to avoid situations where high levels of inequality hurt overall growth as well as situations where growth itself can widen the income and asset divide. We will continue on the present policy path that promotes growth and equity at the same time.

<B>By Rama SITHANEN