Mauritius and Madagascar will be signing an investment protection agreement this week. Mauritian investors suffered heavy losses in the 2002 Malagasy crisis. This kind of institutional and political safeguard may help attract fresh Mauritian foreign direct investments (FDI) as well as providing reassurance to those who fled the country two years ago.

But investment protection schemes are however, only part of the equation. There is no better cushion to investors than sound economics. For the moment, the Malagasy Republic is offering a few elements of what investors generally look for: political and social stability, business-friendly policies and institutions, a lot of spare capacity and a large pool of low-cost labour.

Growth opportunities in a number of activities especially in agro-business, tourism development, infrastructure works and distributive trade abound. It is up to the entrepreneur to transform this host of factors into profitable business ventures.

Close economic and political ties between nations make it possible for them to explore ways and means of providing a more secure framework for the movement of capital between them. However, very often, this hardly goes beyond the usual cooperation rhetoric. Investment protection agreements sometimes fail to live up to their promises. Mauritian businessmen are wise enough not to ignore the limits of such contracts. Madagascar seems to have a cycle of crises of its own. Unless Malagasy leaders show a fair degree of consistency in their socio-economic plans, investments in this country will never be immune from homegrown instability.

So much for capital flows on a bilateral basis. But investments are more of a multilateral issue. FDI are increasingly becoming part of the realm of the World Trade Organisation (WTO). Cross-border investment is one of the four controversial (from the developing and less developed countries? point of view) Singapore issues.

The G-90, a coalition of small developing countries including Mauritius, opposed the opening of talks on the investment issue at the Cancùn ministerial meeting last September. The main contention is that this area may limit the ability of national governments to regulate the entry of foreign firms into their domestic markets. Resource-deficient local industries should be given due protection against powerful multinationals, goes the usual argument. Subsidies and other forms of government support to nascent enterprises are therefore warranted.

Here Mauritius will have to do some serious soul-searching as it faces a very awkward situation. The country is bound to become a net direct investment exporter to neighbouring countries. The investment potential in the regional markets would be better exploited only when all the competitive conditions are there. Why then should our investors expect a level playing field abroad when Mauritius itself fails to ensure one to foreign investors?

The Singapore issues do threaten the interests of small island economies in a number of ways. Mauritian diplomacy ? which, as a matter of fact, spear heads the G-90 ? has a very delicate task hand. But, at the end of the day, Mauritius will have to show flexibility and openness on the matter. The bottom line is that we just cannot afford restraining attitudes towards FDI.

Mauritius lobbyists should not attempt to buy time at the Doha Round for the mere sake of negotiations. The country should rather make the most of possible exceptions to develop world-class enterprises that could match the big foreign players.