The export revenue of the Export Processing Zone (EPZ) has gone down by Rs 1.4 billion between 2002 and 2003. This is due to the difficulties faced by the textile industry, which have been ongoing for more than one year. Structural problems and the world economic environment have brought major factory closures, which have inevitably led to a further decrease in exports. ?Globalisation and liberalisation are the most obvious culprits which can be blamed for the sorry state of affairs,? Rajendra Servansingh wrote in l?express Economic and Business Supplement.

The globalisation process is on its way and has not favoured the EPZ so far. The end of the Multifibre Agreement in 2005 and China?s membership of the World Trade Organisation will help end preferential market access and favour competition. The September 11th terrorist attacks and the Malagasy crisis have also had a negative effect on the development of Mauritian industry.

Apart from the tough international context, local factories have faced structural problems. The access to bank loans is one of their biggest worries. Actually, EPZ firms, which benefited from major loans a few years ago can no longer pay their debts. Moreover, banks are reluctant to give more loans and want their money back regarding advances to the EPZ.

<B>Portable pension</B>

This sector also suffers from a bad image concerning the labour force. EPZ employees, particularly in the textile industry, are said to work hard and long hours for a low salary. Consequently, although the unemployment rate has reached around 10%, there is a labour shortage in the textile industry.

Employees either think working conditions are bad or they are afraid of losing their jobs in a near future. This is why the government is thinking of implementing a portable pension for EPZ employees. They will thus keep their pension rights even if they change jobs.

In the wake of all these problems, some foreign investors have decided to leave. The next expected departure is that of Novel. The Hong-Kong group?s Chief Executive Officer, Kee Chung Chao, is said to be in Mauritius to conclude the sale. If the takeover negotiations succeed, this departure will be less painful than in many other cases. But the trend is bound to continue... especially since there is some doubt as to whether AGOA III means to add Mauritius to the list of 3rd fabric countries. (see Inset)

Yet, the authorities, as well as the Mauritius Export Processing Zone Association (MEPZA) president, Edley Chimon, are convinced that the situation is not so alarming. As Rajendra Servansingh points out, ?only clinically dead could be a more appropriate description of the present state of affairs since the sector continues to consume resources which would otherwise be absorbed by other activities or be idle.?

The International Monetary Fund could bring some relief to the EPZ. Actually, it has set up a Trade Integration Mechanism to help developing countries face liberalization. Mauritius is one of the 18 countries that could benefit from this aid.

However, the mechanism is intended for countries with a high deficit in their balance of payments and this may not be the case for Mauritius. Although textile exports have gone down, it has yet to be proved that the country has a negative balance of payments.

The prime minister is sure that things are going in the right direction and has made it clear that improvements are indicated by the fall in redundancies.

The MEPZA president is quite optimistic about the future of the EPZ. ?One must not see only the negative aspects and the difficulties of the sector. In 1971 already, many thought the free zone would disappear. However, it is still there.? He also highlights that the bad image of the sector should be remedied: ?The EPZ is not only the opportunity for many people to earn a living, but it is also a way of reaching a higher place on the social ladder.? He nevertheless remains ?objective and realistic?: ?There will still be some job losses. Foreign firms may go away but Mauritian companies will still be there. They will have to make the best use of the facilities proposed for the restructuring of the sector.?

The Joint Economic Council (JEC) agrees on this point saying that ?flexibility? should be the key word. There should be a restructuring of the EPZ to help companies face the international context and the new challenges. The president, Gilbert Espitalier-Noel, is adamant: ?The environment of flexible work that can be found in the EPZ must in no way be changed.?

The Textile Emergency Support Team (TEST) is a rescue plan set up by the government to restructure the textile sector. However, opinions diverge on the issue. The minister of Industry and Financial services is convinced that the TEST has already done a very good job in identifying the strengths and weaknesses of firms. Restructuring and modernisation programmes are being implemented. The MEPZA, for its part, considers the process is still too slow although it appreciates the efforts made by government.

It particularly deplores that the financial side has been overlooked. But the minister disagrees and points out that the National Equity Fund has just been created to help textile companies with flexible conditions. The textile modernisation scheme of the Development Bank of Mauritius is also aimed at helping firms.

In short, companies have to be more competitive in the difficult environment prevailing. They might have to bring in changes in the way they operate. But the authorities also have an important role to play in creating mechanisms to boost the sector, which continues to generate revenue for the country despite its problems.

<B>Mauritius puts its faith in the advent of AGOA III</B>

The Africa Growth and Opportunity Act (AGOA) is an important trade agreement between the United States and sub-Saharan Africa. Thanks to AGOA, many products from sub-Saharan Africa benefit from duty-free and quota-free access to the US market. AGOA has led to a sharp increase in our exports to the United States, 90% of them being textile products. Mauritius was one of the first countries to qualify under AGOA textile provisions on 18 January 2001.

?Less Developed Countries? (LDC) can benefit from a special rule, (third-country fabric), which allows them to use raw materials from outside the region while keeping duty-free access to the US market. All the AGOA-eligible countries, apart from South Africa and Mauritius, currently enjoy LDC status and this special rule. This extension is now included in the AGOA III legislation presented to the US House of Representatives and the Senate. According to AGOA III, the derogation for LDCs would be extended for another four years and the AGOA preferences, due to end in 2008, would be extended to year 2015. Even if Mauritius has not yet been included on the list of countries benefiting from the third country fabric, the Mauritian trade representative in Washington is optimistic. For him, the fact that AGOA has reached Capitol Hill is an ?unexpected bonus,? considering the US presidential campaign has already started.