Republic of Mauritius Ministry of Finance and Economic Empowerment

From Mono crop to Diversification and Economic Resilience

Republic of Mauritius

Macroeconomic Unit /

Outline

1. Economy at Independence

2. Development Strategies and Basis of Success

3. Economic Diversification

4. Importance of Tourism Sector

5. Mid 2000s Fundamental Reforms

6. Impact of Reforms

7. Impact of crises and Measures taken (2008

onwards)

8. Achieving Success: Mauritian Development

Background: At Independence Monocrop: Sugarcane

Sugar >91% of total fob exports

State of Mauritius in

1968

USD 200

High and rising unemployment ( >16%)

Low labour and capital productivity

Low in both Primary & Secondary

Low Standard of Living Poor access to Water, electricity & Decent dwellings

Growth rate of 3% Low Life Expectancy (61 male; 66

female) High Infant Mortality (64)

Economy

Income per Capita

Unemployment

School Enrollment

Quality of Living

Demographics

Infrastructure

Poor Infrastructure

Macroeconomic Unit /

Monocrop to Diversification and Economic Resilience

1970s: Sugar - 70% of export revenueIncome per Capita @ $ 200

1980s: Industrialization & Tourism Development Income per Capita @ $1500

1990s: Export of ServicesIncome per Capita @ $3000

2006 + : Open economy with Diversified ServicesIncome per capita @ $8600 (2011)

Development Strategies

Economic diversification: Agriculture

(Tea, Tobacco) Tourism

Labour intensive -import substituting industrialisation

1st Strategy: 1960s 2nd Strategy: 1970s

Mix strategy of import substituting and export led industrialisation

Tourism Use of preferences (EC

and US sugar quotas; Multi-Fibre Agreement quotas; African Growth and Opportunity Act)

Population Control Rural Development

Programmes Investment in road

network, education and other basic infrastructure

Primary goals: Industrialisation, Diversification, Employment Creation

3rd Strategy: 2006+

Paradigm shift to openness and global competitiveness

Transition to services economy and move from 4 to 8 pillars

Widen Circle of Opportunities

Empowerment & Solidarity

Maurice Ile Durable Corporate Social

Responsibility

Building blocks for economic independence

From low tomiddle income

From middle to high income

Basis of Success in 1970s Favourable Climatic Conditions specially in early 1970s

Very High Sugar Prices in Both Quota and Non-quota Markets

Sugar Protocol Arrangements

Non-Reciprocal preferential market access under Lomé Convention Industrialisation and Consolidation of Labour Intensive EPZ Industry

Fiscal and Monetary Incentives to EPZ Enterprises

Government Pump Priming Policies for Infrastructure Development

Successful Sectoral Specific Policies in Diversification and Consolidation of Economic Base i.e., EPZ and Tourism

Political Stability

Enabling Institutions

Basis of Success in 1980s Successful Stabilisation Programme

Stand-by Arrangements Structural Adjustment Lending Devaluation Containment of Public Recurrent

Expenditures Tightening of Domestic Credit Liberalisation of Deposit and

Lending Rates Removal of Restrictions on

Imports Major Changes in Industrial

Policies Export Led Industrialisation Recovery of World Economy By Mid

1980s Strengthening of Economic Ties with

Asia and Europe

Lome Convention Sound Macroeconomic

Management Consensus Building and

Social Safety Nets Cheap Supply of Educated

Labour Force Flexibility and Adaptability

of Workforce – Bilingual and high mobility of labour

Strong Public/Private Sector Participation with government playing a facilitating role

Commitment to Success Culture of Hard Work and

Saving Political Stability

Evolution of Key Sectors 1990-2011

Agricu

lture

& fishing

Man

ufacturin

g

Constr

uction

Wholes

ale &

retai

l trad

e

Hotel

s and re

stauran

ts

Tran

sport

&communica

tions

Finan

cial in

termed

iation

Rea

l esta

te & busin

ess

Others(m

ainly

servic

es)0.0

5.0

10.0

15.0

20.0

25.0

30.0

1990 2000 2005 2011

Macroeconomic Unit /

Tourism Sector and Market Diversification

1 2 3 4 5 6 7 8 9 10 11 120

200

400

600

800

1000

1200

051015202530354045

Tourist Earnings (Rs bn) and Tourist Arrivals (000s)

Tourist Earnings(Rs bn), RHSTourist Arrivals (000s)

2000200120022003200420052006200720082009201020110

2000

4000

6000

8000

10000

12000

85

90

95

100

105

110

115

No. of Hotels and Tourist Nights

No.of Hotels (RHS) Tourist Nights

EUROPE AFRICA ASIA OCEANIA AMERICA OTHER & N.STATED

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0% of Tourist Arrival by Region

2009

2010

2011

With Euro Crisis Mauritius has been investing in market

diversification: India, China and Russia

Macroeconomic Unit /

Tourism Sector

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

-10.0

-5.0

0.0

5.0

10.0

15.0

Tourism growth rate and share of GDP (%)

% growth rate % of GDP

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Tourism Employment (thousands)

2000200120022003200420052006200720082009201020110.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

Earnings (Rs bn)

Mid 2000s Fundamental Reforms & New Development Paradigm

Investment facilitation Greater openness/attracting foreign

capital, skills, talents, expertise, ideas

Doing Business Environment

Fiscal Policy Reforms

Low flat income tax rates of 15% Tax expenditure reforms PFM Reforms

Labour Market Reforms

From job protection to worker protection

Flexibility Workfare

Reducing energy consumption Leveraging renewable sources:

Solar, Wind, Ocean-based

Maurice Ile Durable

Arts & Culture

Promotion & Development of artists via: grants, training, and festivals (Kreole, Film)

Solidarity

Targeted social safety nets Empowerment programme Social housing Education & Healthcare CSR

Vulnerable Groups

National Empowerment Fund(NEF) targets the highly vulnerable

Training programmes in Literacy & Numeracy, and Life-skills

Special programme for re-training of unemployed women

Intergrated Social Development (Housing) Programme:

Lease-to-buy over 25yrs Civic, Literacy & Numeracy

training Job placement for at least

one adult in household Use of “green” technology:

biogas, composting, solar heaters

Empowerment Programme

Operates via NGOs/Grassroot movements

Building material for housing Transport/Shoes/Food for K-6 Microcredit schemes

Trust Fund

Eradication of Absolute Poverty

EAP & Ministry of health conducting screening of children to provide glasses, hearing aids, and provide for other disabilities

Collaborates with trust fund on educating children in K-6

Collaborates with NEF on the integrated social development approach

Widening the Circle of Opportunities

Shift in Labour Market From Manufacturing (Sugar/Textiles) to Services (Tourism/Tech)

Workfare programme emphasising training & re-skilling Training programme for unemployed women Creation of better post-college institutions offering wider curricula Support for development of new entrepreneurs & SMEs Assistance for outsourcing and encouraging the virtual office

Widening the Circle of Opportunities

Maurice Ile Durable

Incandescent bulbs replaced with CFLs (1 Million to date)

Government subsidy for solar water heaters

Bus modernisation scheme Replacement of fleets with

energy efficient and less polluting buses

Street & Traffic light replacement Large scale composting for

agriculture

Reducing Energy Consumption

Wind turbines in Mauritius & Rodrigues (almost operational)

Mini-hydropower stations Waste to Energy Gas(Landfill) to Energy

Alternative Energy Sources

Macroeconomic Unit /

Growth in Exports of goods and services

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0

2

4

6

8

10

12 Real GDP Growth Rate & Unemployment Rate (%)

Unem-ployment rateGDP Growth

Rising Growth

Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-120

10

20

30

40

50

60

70

80

Public sector debt as a share of GDPImproved debt

ratio

2000200120022003200420052006200720082009201020110

2

4

6

8

10

12

14

16

15

17

19

21

23

25

27FDI (Rs bn) & Investment Rate (% of GDP)

FDI GDFCF as a % of GDP

Rs b

n Rate (%)

Unemp falling

Improved FDI & Investment Rate

Impact of Reforms2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0.020.040.060.080.0

100.0120.0140.0160.0180.0200.0

Exports of goods and services (Rs bn)

Macroeconomic Unit /

Economic Success AFRICA• 1st. for Doing Business environment, • 1st open economy, • 1st. in paying taxes index, • 1st. in 2011 Mo Ibrahim Index, • 1st. in Global Competitiveness Index 2011-12, • 1st. in Travel & Tourism Competiveness Report 2011, • 1st. in Global Information Technology Report 2010-11, • 1st.Global Gender Gap Index 2011, • 1st. in Open Borders Index 2011, • 1st. in Democracy Index 2011) • 1st.2010 Environmental Performance Index, • 1st.in Quality of Life Index 2011, • 1st. in Political Instability Index 2009/2010, • 1st. in Women’s Economic Opportunity Index 2010, & • 1st. in Knowledge Economy Index.

AMONG THE TOP WORLDWIDE

• 2012 Index of Economic Freedom

• 2012 Doing Business Index• 2011 Democracy Index• 2011 Fraser Institute Index of

Economic Freedom• 2011 Forbes Survey for Best

Countries for business• 2010 Environmental

Performance Index• 2009 Social Institutions and

Gender Index

Impact of Crisis Risk of:

• Job losses in in Export Oriented Sectors & slowdown in job creation in other sectors

• Slowdown in Textile, Tourism, Construction and Real Estate sectors

• Drop in export volume of Textile/Apparel & non-Textile manufacturing and drop in growth of tourist arrival

• Stagnation in FDI flows & drop in Private sector Investment rate

• Possible deterioration in revenue buoyancy of Government, leading to a deterioration in debt ratio

Macroeconomic Unit /

Measures to unlock growth Opening economy for international investment flows, increased labour

mobility (including circular migration) and incentive for innovation and technology transfer

Maintaining a simple and investment friendly tax regime

Level playing field for local and foreign economic operators

Increased investment in capacity building

Front loading public sector investment

Reviving the micro, small & medium enterprise sector

Fiscal Consolidation

Reprioritizing spending to improve public sector investment

Restructuring public enterprises

Contingency planning

Special package to address challenges arising from worsening of global

economic conditions

Managing crisis/building resilience

Performance of the economy – Before and after the crisis

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Unemployment Rate (%)

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Inflation rate (%)

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0.0

1.02.03.04.05.06.07.08.09.0

10.0 Real GDP per capita growth rate

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Real Growth Rate (%)

Labour

2000200120022003200420052006200720082009201020110

5

10

15

20

25Net Job Creation (000s)

1 2 3 4 5 6 7 8 9 10 11 120

2

4

6

8

10

12

14

16

18 Unemployment Rate (%)

Male Female

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.0

1.0

2.0

3.0

4.0

5.0

6.0Growth in Labour productivity (%)

Base Year: 2000

Social Indicators

2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 Jul -Dec 2009

2010 20110.0

1.0

2.0

3.0

4.0

5.0

6.0

10.0

10.5

11.0

11.5

12.0

12.5

13.0

13.5

Social Functions Expenditure & components as a % of GDP

Housing and community amenities Health Recreation, culture, and religion Education Social protection

Social Functions Expenditure (RHS)

Macroeconomic Unit /

Addressing Youth Unemployment reforms

• National Youth Employment Program: building capacity and promoting/ sponsoring employable skills among

the youth through intensive training for positions and provision of basic job readiness skills as well as some trade-specific abilities;

assist the young person to sustain the employment throughout a period of time;

build a dynamic pool of skills based on demand from industry thereby leading to a reduction in foreign /imported labour.

• Encourage higher participation of women aged 16-25 years.

• Huge possibilities for employment on cruise ships; dispensing training through the hotel training school (both public and private)

• Developing a contractual employment program with other countries necessary training and skilling is given to secure higher-end and skilled jobs in these countries where such skills are required.

Govt

Private

The People

Close Consultations between Government and the Private Sector

Development partners play a key role by providing financial and technical support

Encouragement of Civil Society Organisations

Emphasis on Corporate Social Responsibility following tax cuts

Innovative CSR tax to encourage private sector to work with Civil Society on tough social issues

Government – Private Sector – Civil Society

Development Partners

Republic of Mauritius Ministry of Finance and Economic EmpowermentMacroeconomic Unit /

Thank You!

Government

The National Assembly Maximum 5 year term 3 MPs elected first-past-the-post

in 20 constituencies 2 MPs for Rodrigues 8 MPs elected to normalise

representation of minorities

The Cabinet The Prime Minister heads the

Government The President of the Republic

nominates the Prime Minister from coalition with majority in the National Assembly

The President 5 year term Elected by the National

Assembly Largely figurehead role (UK,

Commonwealth and Israeli model)

The Constitution Mix of British & French laws

The Courts The UK Privy Council The Supreme Court Intermediary Courts

Nomination of Judges to the Supreme Court

Chief Justice is nominated by the President after consultation with the Prime Minister

Puisne Judges nominated by the President with consent Judicial and Legal services commission

The Judiciary

The ExecutiveThe Legislature

Mauritian Rankings 2012 Index of Economic Freedom : 1st in Sub-

Saharan Africa 2012 Doing Business Index : 1st in Sub-

Saharan Africa Global Competitiveness Index 2011-12 : 2nd in

Sub-Saharan Africa Travel & Competitiveness Report 2011: 1st in

Sub-Saharan Africa 2011 Mo Ibrahim Index: 1st in Africa Network Readiness Index: 1st in Sub-Saharan

Africa

Triple Shock of 2005

1 Dismantlement of the Multi Fiber Agreement

2 End of preferential EU sugar prices

3 Soaring Energy Prices (~$30 to $60 for a Barrel)

Brief History

Île de FranceFrench Colony

1715 - 1810

MauritiusEnglish Colony

1810 - 1968

MauritiusIndependent

1968 - Present