Port Louis, Mauritius | 12 May
Morning: Technical session
Introduction to workshop
· Mr Nikhil Treebhoohun (Global Finance Mauritius) – welcome and introduction to workshop
· Mr Raj Makoond (Joint Economic Council) – welcome and introduction to workshop
· Dr Dirk Willem te Velde (ODI) – introduction to ERD 2014, process and target groups, research question and structure of report. Different focuses of country illustrations, reports to address: finance options used, the role of finance in transformation (via enablers), how non-financial MOI have helped, and the forward looking challenges
· Ms Amanda Lenhardt (ODI) – International Futures model used to predict future trends in baseline and shocked scenarios: (1) increased aid from DAC countries to 0.7 % GDP, (2) 40% increase in FDI, (3) increased government effectiveness, (4) combined impacts of increased finance and government effectiveness. Found that aid continues to play an important role in LICs, showing the largest increase in GDP per capita if both aid and government effectiveness are shocked. Increasing aid to MICs does not impact the baseline scenario, but aid shocked with government effectiveness has a significant impact on GDP per capita. Increasing FDI has a significant impact in all countries categories. Shocking government effectiveness and finance together has a multiplicative impact. Shocking government effectiveness and FDI allowed Mauritius to escape the MIC trap by 2025 (but neither of these did in isolation)
Mr Nikhil Treebhoohun – Introduction to Mauritius country illustration
· Focus on economic transformation from a monocrop economy to a diversified business platform, which has also brought about social transformation
· Enablers: human resource development (education/skills), infrastructure, governance (state), policy coherence, trade access and global linkages (donors). Some tensions exist between fiscal and monetary policy (particularly in trade exports)
· Reductions in inequality (Gini coefficient has fallen from 0.42 in 1975 to 0.38 in 2006/7)
· Financing: mostly DRM, also important was DFIs (grants 1% with the rest as loans), also private domestic finance and ODA (concessional loans)
· Other MOI: public-private dialogue, institutional framework, macroeconomic policies, macroeconomic management, global environment
· Constraints: (1) debt levels (aim to reduce to 50% of GDP by 2018), (2) lots of money coming through Mauritius but not allowed to do business in Mauritius, (3) new products post-2015, (4) 155 million rupee infrastructure investment needed, where to get finance from?
· Ensuring the banking sector facilitates development: (1) democratise access to financial services, (2) create competition amongst banks to promote longer-term project investment
· Declining quality of civil service (& social service provision) – shift in political environment
· Problem of definition e.g. government effectiveness – who is asking the Q / providing the reply? IF model uses world governance indicators, econ performance and educational results
· Structural transformation driven by trade preferences (external policies) which are being eroded. Mauritius used trade receipts to stimulate other sectors e.g. sugar à tourism. More countries promoting the export-driven economy model. What are policies are required to make better use of other (non-trade) capital? FDI will be important and stock exchange. But how will the political economy shape this process?
· Low levels of ODA but impact on institutions/infrastructure/capacity/science and technology has been significant – need to instil discipline on other flows (government effectiveness)
· 150 billion rupees infrastructure investment required to become a HIC. Need info on how other countries have done this e.g. venture capital, infrastructure funds. An infrastructure fund has been set up for Africa, but also need one for Mauritius for domestic investment
· Important to look at channelling and allocation of funds in the future, and the sources you should be focused on tapping into in new financing landscape
· Need to identify key investments required to unlock transformation; requires transparent rules and effort to regulatory bottlenecks in key sectors (i.e. infrastructure/people/ governance). This cannot be funded by DRM alone, need to look for alternative sources
· Volume of investment required is a challenge, as the magnitude of funds required is much larger (especially upfront costs) than with previous transformations (where domestic resources were sufficient) now need to approach alternative and innovative mechanisms
· Logistics will be critical to future competitiveness of sugar industry – study found southern Africa competitors were better in terms of field productivity and milling but Mauritius were much more competitive in logistics (roads/border facilities). Need research on this
· Institutions have played a critical role in transformation e.g. shifts in tax reforms which uncovered stock exchange opportunities
· Should focus on the indicators that underlie increases in GDP per capita e.g. literacy rate, infant mortality, health and access to education (effectiveness in social service provision
· Need to restore domestic ownership, rather than focusing on foreign business promotion
· The role of the state was an enabler in the past, now shifting to more of a facilitator role (policies and seed money) to build a conducive infrastructure and business environment
· Inequalities (domestically and globally) in access to infrastructure and physical capital are less well documented: globalisation, franchisation of the economy, technology. How to convince policy-makers to address inequality issues, as even in very unequal societies some countries are demonstrating very high growth rates
· Next big shifts : (1) investment in land and (2) financialisation of the economy (role of government in creating conducive market environment for shift)
· Money present in Mauritius financial institutions is greater than Mauritius GDP, how do you attract and retain those finances?
· Credit expansion is a big concern for Mauritius, most is earmarked for more productive sectors of the economy due to high-level risk of less productive sectors
· 2009 stimulus package introduced PPPs. Need this approach to be institutionalised, where wholesale credit from government is used to boost certain goals/sectors. Corporate guarantees and bank portfolio guarantees have been successful in Mauritius, and the enabling factor has been public-private governance in how to manage these funds
· Need innovation in financial intermediation (regulation) at commercial level
· High level of liquidity in banks, with low levels of access/interest rates; challenge is how do we leverage from new mechanisms and increase national savings?
· Need financial education for lower income people (protection from ponzi schemes)
· Almost exhausted role of labour productivity; now need to move to increasing productivity in other areas (very bright educated people who have this knowledge for innovation…)
· Which countries will be able to industrialise post-2015? Example of South Africa: developing because it is highly protected, if these were removed they would not be able to compete
· Global companies that have survived have been able to reinvent themselves, Mauritius companies cannot be an exception to this – reinvent through diversification
· Done well with bringing together finance and project development; now need to move forward in both financial instruments used and the projects developed
· Sequencing important for planning change: i.e. what comes first for stimulating the economy
· Policies were the most important for structural transformation in the past (not finance)
· What is the most strategic role of aid? Social sectors or infrastructure? Lacking soft capacity e.g. in education and infrastructure. Aid was historically used in sugar sector. There is a case for using it for transitional costs of structural transformation i.e. losers
· Measure incrementals (indicators) achieved through spending in social, environment and economic sectors – can we model this at sector level to forecast what can be achieved?
· Shift in social dimension has been through gender equality, e.g. rate of female employment has increased since 1975 through the introduction of free education schemes
· How do you bring poorer people through on next transformation: the only solution is skills upgrading and education, which requires significant time investment and is expensive
· Also important to ensure sustainability so gains are not reversed
Afternoon: Public Meeting
Introduction to meeting
· Mr Nikhil Treebhoohun (Global Finance Mauritius) – how to finance structural transformation?
· EU Delegate to Mauritius – outlines ERD 2014, the importance of post-2015 agenda and the need for backward and frontward look
· Mr Raj Makoond (Joint Economic Council) - economic transformation has occurred in Mauritius over past 30 years, however this is a never ending process. Aid has played a small role, with increased mobilisation of private sector resources. New challenges have emerged
· Secretary of finance – inclusive high income economy vision to be delivered over the next 5-6 budgets; increase GDP per capita to $ 10,000 USD (50 fold increase); ¾ of the way to becoming a HIC. Focus on diversifying into new sectors: ocean economy, new Africa strategy, airport hub and baking hub, green economy, biotechnology and film-making/multimedia industry – to create more middle and high income jobs. Significant investment in public infrastructure projects required (5 billion USD required in next 5-10 years) including roads/boat/airlines, education and training, and protecting/enhancing the environment. Financing needs exceed domestic resources therefore finance is a major constraint. Political commitment for transformation exists, need to provide investment climate for public infrastructure (must generate returns). Highlights the importance of technical assistance to deliver on a conducive investment climate
· Dr Dirk Willem te Velde (ODI) – introduction to the ERD report. MDGs helped to mobilise $130 billion per annum in social sectors, from $50 billion per annum. Now there is a need to move beyond finance to include non-financial means of implementation. Finance flows exceed total finance needs. In comparing Mauritius to the average MIC has an average level of taxation, and lower levels of FDI, remittances and ODA
· Ms Amanda Lenhardt (ODI) – presented an overview of modelling results from the ERD report.
· Mr Nikhil Treebhoohun (Global Finance Mauritius) – introduction to the Mauritius country illustration. Highlights that Mauritius private international finance rises from stable low levels ($ 39 - $482 million per annum) to $ 8,266 million in 2010, dropping to - $6,508 million in 2011. Need to identify the reason for this
· Need innovative approaches to private sector involvement, including a shift in procurement laws. PPP has not yet delivered as there is no example of a large-scale PPP project
· Political desire to further involve the private sector, however low salience of gov withdrawal
· Pension fund asset and investment fund statistics show significant rises but less than 1% is in (long-term) infrastructure projects. Need blending of instruments (including aid) to demonstrate initial return and fulfil investment criteria. Government currently working on this mechanism through a public investment fund. Capacity building and seed finance also necessary to access pension fund finance
· Lack of willingness to tender: fear over IP rights being copied by international competitors
· How to access offshore capital and ensure trickle down to Mauritius capital markets?
· Need to invest in skills for new players in new financial engineering
· Occupation permits: to what extent are politicians really interested in opening up the econ?
· What model is needed for increased FDI investment to more productive sectors?
· Environment area is an area where more effort needs to be orientated
· Need a consumer base to sustain a diversified economy, requiring a good migration policy for high-skilled immigration and urbanisation policy to provide entertainment / health / education services for an attractive living environment
Conclusions – Dr Dirk Willem te Velde (ODI)
· ERD 2014 will address the financing of enablers for structural transformation e.g. infrastructure and skills. Post-2015 implementation is taking place simultaneously to the overarching agenda
Organised by Global Finance Mauritius and Joint Economic Council
Venue: Joint Economic Council offices, Port LouisMauritius has demonstrated economic transformation through restructuring of its sugar sector from traditional sugar production into the production of energy and other by-products, as well as the shift from a monocrop economy into a diversified manufacturing and services economy over the past 40 years. The workshop addressed the financing (and other means of implementation) of these economic transformations, within the wider context of sustainable development transformation. The Permanent Secretary of the Ministry of Finance and Economic Development was present alongside the Delegation of the European Union to Mauritius and other private sector representatives to discuss financing options that have been essential for economic transformation.