There has been much criticism lately in many quarters of the lack of investment by the private sector. Such criticism may not necessarily be founded since there is no drought of private investment. The private sector is expected to invest Rs 20 billion in 2003. It is true that private sector investment has declined by 10 per cent over the highest level reached in 1999 but it still represents the bulk of investment in both absolute and relative terms. On the other hand, public investment has more than doubled in the past five years reaching Rs 15 billion in 2003. Its share will rise to as much as 42.4 per cent of total investment in 2003. The private sector share drops to 57.6 per cent. This year may not be a normal year for comparison since public sector investment has probably reached a peak owing to heavy infrastructural investment and the bunching of different types of investment. If we take a five-year average to iron out fluctuations or exceptional expenditure, the private sector share reaches 66.9 per cent which is not a low figure by any standard.

It is not therefore unrealistic to state that the private sector continues to invest. Public investment is on a more colossal scale, in a few, big and highly visible projects, whereas private sector investment is generally of smaller magnitude, more diffused, less visible and made by hundreds of enterprises, small, medium and large. These big projects with long gestation periods would not have materialised had it not been for public investment. The latter type of investment is designed to strengthen our national infrastructure, e.g. schools, roads and the cyber city. The private sector on its part traditionally focuses on projects with shorter gestation periods.

Some would say that public sector investment is crowding out private sector investment but the two sectors are not necessarily competitive. On the contrary, public investment has the potential to increase private investment in priority sectors of the economy by providing the much needed facilitating infrastructure and is clearly complementary. This is not only desirable but essential for our economic and social development. The public sector will not be able to sustain investment on such a scale indefinitely. It is therefore in the public sector interest that the private sector investment rebounds in future. Otherwise, our investment rate hovering around 22 per cent will fall.

Our ability to attract investment depends on a business-friendly environment. If local investors are not investing, foreign investment will be more illusory. It is well known that in recent years we have not been able to attract foreign investment. Neither the public nor the private sector has been able to do so on a massive scale. We therefore have to increasingly rely on local investment.

Why is Mauritius in such a predicament? Do we have a business-friendly environment? The budget focuses prominently on this question. The 2003/04 Budget recognises that there is room for improvement in this regard and the Government is striving to create an enabling environment by eliminating the remnants of constraints to that end. A number of areas for improvement have been identified, three major ones being the granting of permits and licenses, good governance and labour market development. All these are important for investment. We look forward to concrete measures in these areas. The ingredients of a business-friendly environment are as follows:

Political and Social Stability

Political stability has been one of the strengths of Mauritius. The country has displayed a high degree of political and social stability in a multiparty democratic system that has played a key role in the success of Mauritius. Enterprises have no doubt seized this opportunity and contributed to the industrialisation process, the diversification of the economy, the creation of employment and the generation of economic growth. Investors do not invest in an insecure and uncertain environment. Potential foreign investors in particular will shun away countries they consider as high risk on account of political uncertainties and turmoil. Many African countries are in such a situation.

Good Governance

Good governance is not just another hyped-up concept but one emerging as vital in creating and strengthening healthy business, economic and social environments. International and local events have proved that good governance has an economic payoff. Investors increasingly seek countries with solid track records of good governance, be it at the level of government or of private institutions.

In Mauritius, the reliability of the legal system, the setting up of institutions like ICAC, the forthcoming Code of Corporate Governance send strong positive signals to investors. Mauritius has also benefitted from good international ratings. However, much still remains to be done to inculcate a culture in which bribery and corruption are not tolerated.

Acceptance of the Concept of Private Enterprise and Market Mechanism

Historically, both public and private sectors have been partners in development. We strongly believe in the concept of mixed economy. This was stated in the Second Plan: ??we have a mixed economy which depends as much on the enterprise and initiative of private entrepreneurs as on the decisions and activities of Government?. This is still valid today. The domains of activities and intervention areas of each partner are generally well-defined although a few exceptions still remain, with the involvement of the State in commercial activities and certain institutions still proving a burden on government finance.

Effective and Consistent Economic and Social Policies

Favourable external factors have played an important role in the economic uplift of the country. The access of Mauritius to the European market through the Lomé Convention had its own singular impact on our development. However, we should not belittle the contribution of our economic policies. The platform for the long term economic development of Mauritius was set in the years after independence. This was consolidated and clearly defined in the eighties with bold policy decisions. These were spurred by the structural adjustment programmes after the devaluations of the rupee in 1979 and 1981. A step by step approach was adopted to implement appropriate policies in view of the limited means at our disposal.

Moreover, Government introduced appropriate investment incentives in diverse areas, for example, agricultural development, import substitution, EPZ, Export Service Zone, hotel management, SMEs, Freeport, financial services and offshore activities. Many of these were consolidated in the Industrial Expansion Act 1993. There has been a package of policies catering for different industries, so that Mauritius has been able to adjust to the changing world environment and adopt policies to diversify the economy and to set up new pillars. Mauritius has experimented with different forms of incentives, assessed their impact, reviewed them and introduced new ones as and when needed.

All these underline the supportive role that Government has played in the development of enterprises and of the country. Government adopted long term fiscal, monetary, and exchange rate policies in order to encourage savings, boost investment, create employment and stimulate economic growth. Attempts have been made all along to rationalise these policies. In terms of economic policies much reform has taken place since 1982, from the time the sales tax was introduced until the rise in the VAT, especially in the fiscal field. This has been an ongoing process with continuous rationalisation, streamlining and fine-tuning. The process continues even today.

Monetary reform followed suit and today, it plays an important role in influencing business decisions. The Lombard rate has been lowered, influencing interest rates to a certain extent. The complexity of interest rate determination has to be acknowledged to ensure attractiveness of both savings and investment. It appears that the cost of money is still very high in Mauritius and more action is needed in this respect. The rate of inflation is only one determinant. We therefore understand why controlling inflation as a top priority has been the central objective of the Bank of Mauritius. Containment of inflation is a key element because it has tremendous ramifications on other variables. The cost of borrowing, wage increases, the exchange rate of the rupee are all linked to inflation in one way or the other. We should ensure that control of inflation should be a cornerstone of our economic policy and we should not deviate from this objective at any cost.

Sound Economic Management

There is no doubt that Government has devoted much effort to the management of the economy, in taking decisions to remove bottlenecks that might hamper our economic performance. Certain key parastatal bodies have improved their financial situation as a result of decisions taken to improve their viability. The budget refers to reforms being undertaken to improve the management and financial viability of some of them. We can also assess sound management from the point of view of budget deficit. This requires first and foremost fiscal discipline on the part of Government.

On the one hand, the budget deficit remains very high and the cost of debt servicing colossal. On the other, it seems that Government is in a hurry to modernise both the infrastructure and the economy. It has undertaken massive investment to that end, which will no doubt enhance the absorptive capacity of the economy and make it more productive. A deficit is not bad per se provided the funds are utilised efficiently and the investment in social overhead capital emboldens the private sector to double its own investment efforts. We have to reinforce our infrastructure to implement certain reforms and diversify the economy, but once this is attained, public investment should take a normal course. In the medium term, we should aim at a lower deficit level..

Investment in Infrastructure

Government continues to invest heavily in physical infrastructure to ensure the smooth operation of enterprises, develop new pillars, and enhance the human resource capability of the country, e.g., education. Investment in industrial estates, road and communication networks, and in the essential services etc have supported industries.

Investment in Human Capital

The management of the economy, implementation of policies, development of enterprises all require managerial, professional and technical expertise. Investment in human capital is as important as investment in physical capital.

Mauritius has a broad system of education, whereas not much was done in the field of training prior to the establishment of the IVTB in 1988. The IVTB was a model of private-public sector partnership. Today Government has embarked on a major reform of the educational system to keep pace with the needs of the country.

There is a need for planned academic, technical and vocational education so as to improve productivity, the quality of products and services and the competitiveness of the country.

Supporting Institutions

Investment has not been limited to physical infrastructure. Institutional support for promoting investment, export, marketing and support services has been colossal. Government has set up various institutions, especially in the eighties, for example the Mauritius Export Development and Investment Authority now converted into MIDA, IVTB, EPZDA, MTPA, BOI, FSC, SEC etc.

Social Dialogue

Mauritius has a long history of consultation and collaboration between Government, employers and trade unions and a strong tradition of social dialogue. The spirit of consultation and participation in the development process has been a key element in our economic and social progress. Social dialogue has evolved beyond purely labour matters to include economic and social issues. Social dialogue is considered central to good governance, which is highly topical nowadays since it is conducive to greater transparency, accountability and responsibility in decision-making.

The confidence of investors is of utmost importance and this can be instilled via social dialogue and consultations between Government, the private sector and other stakeholders.

Rationalisation of Government Regulatory Measures and Elimination of Bureaucracy

The formulation of macro-economic policies designed to create a favourable climate for private sector development is necessary but not a sufficient condition to attract private investment. Government policies may be well-conceived but the performance of the private sector may be seriously constrained if the public sector remains inefficient. Cumbersome administrative procedures and requirements, unusual delays in obtaining licences and permits, unnecessary layers in the decision-making process will contribute to the failure of enterprises.

A lot of improvements have been registered in recent years. There is a genuine interest to modernise the civil service with the implementation of civil service reform and training. This has not yet reached the local authorities, at the district and municipal council levels, which still require substantial improvement. Attitudes and mindsets however still need to be changed, as emphasised by the Prime Minister during the Annual Counter Service Awards Scheme in the Public Sector recently.

I may quote here what Ugandan President Musevini said in1994

?there are three groups of people in our society: 1) there are those who produce wealth, 2) then there are those who record wealth, and 3) those who just spend the wealth produced by other people. The mistake in Africa is to give too much power to the recorders: the bureaucrats. This can lead to distortions.

What we are doing is to give the power over their own affairs back to those who produce wealth.?

Mauritius will certainly pass the test on most of these counts. We have travelled a long way towards establishing and reinforcing an enabling environment which has been instrumental in boosting our economic performance. The environment has significantly improved over time and Mauritius has had a proven track record internationally. But the concept of enabling environment is a dynamic one. It changes over time. It has to be adapted to the emerging needs of the country. There is still some work to be done on a few of them. The need for good governance is direly felt. Action is being taken to strengthen good governance. Government has already published a draft code and the fact that it came up with this idea was daring enough; the World Competitiveness report had repeatedly drawn our attention to the poor ranking on this count.

If the climate is generally conducive the pertinent question is: why are we not able to invest more? The reply lies in the fact that with the wave of globalisation, competition has become tougher. We are not competitive enough to withstand the tide of imports flooding Mauritius, especially from countries whose industries derive economies of scale. We are not productive, innovative or quality-conscious enough to compete with exportables of traditional competitors or new players joining the export market. As Michael Porter says: ?True competitiveness, then, is measured by productivity. Productivity allows a nation to support high wages, a strong currency, and attractive returns to capital ? and with them a high standard of living.? In his study, Mauritius ranked 49th on the Microeconomic Competitiveness Index and 50th on the Quality of the National Business Environment. If we look at the results objectively, there is room for improvement.

Moreover, an enabling environment requires an enabling legislation. However, in Mauritius regulations that are meant to facilitate business sometimes become cumbersome. They become ?controlling? legislation. Too much control stifles business. It becomes a self-defeating process no matter how good the intent was by the legislator. This is apparent in many areas and opportunities are thus lost.

We need some bold decisions akin to those taken in the eighties when income tax rates were drastically reduced, when the number of holidays were reduced, when the sales tax was introduced. Examples are legion. This applies to all policies especially our labour legislation and wage determination machinery, which have remained untouched for decades and are not compatible with the emerging needs of Mauritius. However, while there have been various reforms in the fiscal, monetary and exchange rate fields the labour legislation and wage determination machinery have not been revisited. Today they emerge as severe constraints to employment generation, productivity enhancement and competitiveness of Mauritian products and services. As the budget mentions: ?Our labour market is out of tune with economic realities.? It does not help us to survive in a global economy, let alone carve a niche for ourselves.

Such legislation should be overhauled to ensure higher productivity. A wage policy based exclusively on inflation is a recipe for disaster, for unemployment, for closures of enterprises and for lower foreign direct investment. The bottom line is that we are no longer competitive and an urgent wage reform is required. Wage reform should be through productivity and performance-linked wages. There is no other solution. Wages cannot be determined through legislation and regulations. Other countries like Malaysia or Singapore have followed this route.

It is also imperative to invest heavily in human resources to be able to enhance productivity, to improve the performance of individuals, employees and enterprises. Enterprises should also adopt a professional approach to training and should not hesitate to spend on their employees? training. Expenditure on training is an investment and should not be considered as a cost only.

The Budget provides a number of incentives to that effect, which complement those established by the IVTB. But we believe more funds are needed to reduce the disparity between investment in education and training. Investment in infrastructure, in schools, in roads is undeniably good but we should not overlook investment in training, which requires substantial funds and commitment. Government?s commitment is exemplified in the setting up of various institutions to promote training, the latest one being the Human Resource Development Council. The impact of such measures will no doubt be felt in the medium term. The lack of appropriate skilled manpower becomes a constraint to development. Mauritius has improved its training infrastructure over the years after the establishment of the IVTB, which has mounted a number of innovative programmes, e.g. in IT. In the years ahead these initiatives will bear their fruits.

It is clear that private sector investment responds to economic policies, sometimes with a lag. We are today at a crossroads and we need restructuring to be competitive. It is a transition period. Some sectors or industries will expand while others will contract. Mauritius can only move forward if the net effect is positive. Investment depends importantly on economic as well as psychological factors. The latter may have a more dominating influence and it is therefore imperative for us to have a positive attitude to business and not to shake the confidence of private sector operators in the business prospects of the country. As the saying goes: ?You may bring a horse to the river but you cannot make it drink?. The private sector has a potential for additional investment. Recently, Business Magazine published statistics on the top 100 companies in Mauritius. Their total profit amounted to Rs 10 billion. Of course the total profit of companies will be higher if we include others not in this league. How can we encourage these companies to channel the bulk of their profit in better quality, innovative products or projects is a pertinent question. All of us are aware of the challenges. We have to be innovative in everything we undertake, creative in products and services, aggressive in marketing, innovative in decisions, strategies and policies. This applies equally to both the private and the public sectors. We also need a new approach to marketing Mauritius. The traditional way may not be appropriate. Recent declarations by the Chairman of MIDA and the speed at which the Textile Emergency Support Team has been established are concrete examples of what can be achieved. This is a path that we can follow and replicate. This is the responsibility of both the public and private sectors. Private-public sector partnership is both a means and an end, a partnership that has to be built and nurtured as a means to achieving our economic and social objectives.

In sum, the primacy of investment in diverse areas for our economic and social development cannot be denied. We need investment in infrastructure, in intellectual capital, in institutions and in information technology. The country requires innovation and incentives and improvement in productivity. All these can be achieved with the involvement of, and interaction with, all stakeholders for an integrated approach to development. These ten ?i? may sum up exactly what Mauritius needs.

Azad jeetun