MCCI's overview on the Budget 2019/20
The Prime Minister and Minister of Finance and Economic Development, Hon. Pravind Kumar JUGNAUTH presented the National Budget 2019/2020 against a backdrop of increased uncertainties and downside risks to the economic development globally, leading to unbalanced growth and a period of increased uncertainty. In Mauritius, growth has been following this global trend, with economic expansion peaking at 3.8 percent in the last three years. The resilience of the Mauritian economy has been largely due to an expansion in internal demand – with improvements in consumption and investment growth – whilst on the external front, exports of goods and services has been affected by the prospects in the global economic context.
The Mauritian economy in 2019 is faced with a number of challenges, with a shifting global economic landscape and downside risks linked to growing trade tensions between the US and China, uncertainties linked to Brexit, as well as the impact of the yellow vests protests in France and the Reunion Island. The economy is further faced with rising challenges linked to weather disruptions and the effects of climate change. In 2019, on the back of challenges to three growth drivers to the economy – the Manufacturing, Tourism and Financial Services sectors – the country needs to engage in a number of structural levers to improve its economic potential and enable Mauritius to graduate to a high-income, innovation-driven economy in the next 5 years. Against this backdrop, the MCCI believes that the Budget 2019-2020 provides a unique window of opportunity to transform our economic model to face the challenges of tomorrow through strong measures to foster inclusive, innovative and sustainable growth levers.
Throughout its budgetary consultations, the MCCI advocated for a Budget, which would enable the ‘Unlocking of the Economic Future of Mauritius’ with a three-pronged agenda namely economic planning and fiscal policy alignment, foundations for macro-economic transformation as well as structural strategies to foster sustainable, inclusive and innovation-driven growth.
The MCCI is pleased to note that the Budget indeed addresses a number of the above concerns with a particular focus on mainstreaming entrepreneurship in the country through extended support to SMEs, a marked strategy towards Innovation and R&D for technology adoption and development of IP Assets as well as measures to bring about a sustainable and inclusive model of economic development with strong measures towards the cleanliness and protection of the Mauritian environment, a move towards renewable energy and e-mobility and incentives to promote the a circular economy through reduction, re-use and recycling of wastes. These measures will inevitably have a spillover effect on the different sectors of the economy – from tourism to manufacturing and the retail sector.
1. Inclusive Growth
At the outset, and in the current economic and political context, the MCCI commends the Government’s measures towards ensuring social inclusiveness and a Growth for All Agenda in order to improve the purchasing power and standard of living of the Mauritian citizens. These inclusive growth initiatives with a balanced and targeted approach in terms of the increase in old-age pensions, the introduction of silver bonds as well as the reduction or review of indirect taxes and levies on a number of products of daily consumption, shall contribute to improving the consumption expenditure of households. Measures targeted towards low income earners such as the free access to Broadband for those under the Social Register, as well as a number of measures targeted at the middle class to, inter-alia, invest in their own dwellings shall contribute to secure higher levels of inclusive innovation and growth in the population. Those different measures shall indeed inevitably have a ripple effect on the consumption expenditure of households with the MCCI estimating a 0.56 percent increase in GDP Growth for every one percent increase in consumption expenditure.
2. Digital Economy & Innovation
The Budget 2019/2020 sets the right tone towards the Digital Economy and Innovation, which have been strongly advocated by the MCCI since 2015. Indeed, with an R&D expenditure as percentage of GDP at less than 0.2 percent, the country is ranked 92nd in the Global Innovation Index and there was a need for policies to implement the E-Economy and innovation-led growth model of Mauritius. Indeed, the National Innovation and Research Fund under the new Mauritius Research and Innovation Council (MRIC) shall enable the financing of innovative projects. This strategy is being furthered with the review of the Innovation Box Regime, as proposed by the MCCI, to cater for all enterprises generating income from IP Assets locally. The Innovation Box Regime is a game-changer, which has had success in countries such as Ireland and the UK and its extension to existing companies has the potential to benefit to a number of local enterprises. The Budget further makes provision for a number of new courses in AI and Robotics. To enable the development of this strategy, the MCCI looks forward to the new Industrial Property legislation which shall pave the way to accelerating innovation in the country through the adherence of Mauritius to the Madrid Protocol, the Patent Cooperation Treaty and the Hague Agreement.
The E-economy and digitalization process of Government services is indeed a cornerstone to the development of the Mauritius ease of doing business environment. Strategies are being implemented by various authorities to digitalize their service delivery through, , the e-licensing platform of the EDB, as well as the implementation of e-payment solutions, and issuance of certificates and signatures electronically. This is combined with the development of Single Window systems for submission of documents electronically for Customs, financial services and global business applications. These strategies shall enable the removal of administrative burdens, “office hopping” and undue delays for the delivery of permits.
3. Ease of Doing Business Reforms
Whilst Mauritius is now in the Top 20 countries worldwide on the Ease of Doing Business rankings of the World Bank, Business Facilitation remained high on the agenda of the current Budget, with the implementation of a new Business Facilitation Bill in conjunction with the Finance Bill to rationalize a number of licenses and permits through the adoption of the silent is consent principle approach for the delivery of licenses and permits, which has been recommended in our Budgetary recommendations for a number of years. These includes, for instance, the review and rationalization of trade fees in order to avoid duplication of payments by companies. The MCCI would also like to commend the measure for the setting up of a Regulatory Impact assessment (RIA) Framework for evidence-based business related rule making in collaboration with the OECD. The MCCI believes that the RIA framework, which will be developed as from September 2019, should become a mandatory step prior for all new business related legislations in the country.
On the doing business agenda, Mauritius ranks 27th on Enforcing Contracts and 35th on Resolving Insolvency according to the World Bank Ease of Doing Business Report 2019. In fact, it takes on average 490 days to enforce contracts and 1.7 years to resolve insolvencies. This is why, as part of our requests, and in line with World Bank advocacy, the MCCI has proposed that the Government adopts a financial incentive for parties to attempt mediation, conciliation or arbitration. We are pleased to note that the measure has been adopted through a 150 percent deduction of the case-filing fees. This shall further enhance the attractiveness of Mauritius as a strong jurisdiction for Alternative Dispute Resolution (ADR) mechanisms.
4. Strategic Public Infrastructural projects
To further facilitate the development of existing and emerging sectors of the economy, the current Budget makes provision for a number of strategic public infrastructural projects to address inland and outward connectivity. The Budget 2018/2019 indeed provides for a capital expenditure of Rs. 17 billion with a continued acceleration of the public infrastructure projects such as the Metro Express, and the Road Decongestion Programme. The MCCI commends the extension of the airport capacity to an expected 8 Million passengers annually and the increase in the aircraft capacity which shall enable the positioning of Mauritius as a tourist, business, cargo and transit hub in the region. We further commend the implementation of the Port Breakwater on a Public private partnership basis in order to finance the Rs. 12BN of investment expected in the project. This project is crucial for the economy with an increase in weather disruptions affecting our port operations with more than 20 days of port closure in the first four months of 2019. Indeed, the Government is promoting public private partnerships for public infrastructure projects with a review of the legislations to facilitate the latter. In line with our vision for the tourism eco-system in Mauritius, the MCCI further approves the implementation of the Passenger Cruise Terminal, which shall include a space for shopping by tourists. On private sector investment in construction activities, we are pleased to see a review of the VAT Refund and relief of payment of registration fees for acquisition or construction of new residences, with an increase in the household income eligibility criteria which shall enhance access to first time dwellings for a number of households.
5. Towards an integrated tourism eco-system
Indeed, there have been a number of strong measures to boost the tourism sector, which has been faced by a number of challenges in terms of competitiveness and its external market. The sector sees an enhanced marketing and visibility campaign towards China, where tourist arrivals has been decreasing, as well as certain new emerging markets which include Saudi Arabia, Kenya, Scandinavian countries and Eastern Europe. A medium-term strategy to embellish the nation’s beaches is being implemented with a tax deduction on such works afforded to hotels. Amongst MCCI’s advocacy, we are pleased to see that the tourism strategy is further being integrated in the local economy, with the extension of the voucher scheme to tourists buying handicraft products to all locally manufactured products. This is complemented with the development of 200 km of walkable and cycling trails overs the island over the upcoming years.
There is furthermore a strong move to promote alternatives to beach tourism, with measures to incentivize the Meetings, Incentives, Conferences and Events (MICE) markets through a Rs. 200,000 grant and VAT refund on accommodation services for such conferences with more than 100 attendees. This measure will enable the marketing of the Mauritius destination as a MICE market, especially in the low tourist season. Finally, these are being enhanced with incentives for the development of marinas to attract high-end tourists.
6. Demographics: Openness, Labour and Skills Development
With a rapidly ageing and decreasing population, the Budget gave a particular focus on some of the Demographic issues to address fertility rates through a graduated increase in exemption thresholds for dependents, with higher increases of Rs. 45,000 for individual with four dependents, thus reducing the inequality in treatment of dependents and doing away with Malthusian policies which favored couples having less children. This was combined with corrective measures to ensure gender mainstreaming in the workforce with particular support in terms of maternity leaves and confinement to women in the public sector as well as support through the National Inclusion Foundation to Crèches and Nurseries.
The opening up of the economy to foreign talents through the easing of procedures for companies employing a large number of highly specialized labour, and the introduction of a 3 Year Post-Graduation Work Permit for foreign students in areas of skills scarcity such as ICT, Fintech, AI and Biotechnology have been part of the MCCI’s position vis-à-vis the authorities and we are thus pleased to note that these have been positively taken into consideration and been prominent in this year’s Budget. We also note the easing of criteria’s for retired non-citizens to come to Mauritius with a lower monthly transfer of USD 1,500. This could enable Mauritius to tap into the silver economy, with special focus on British and European retirees, who are looking to relocate due to the uncertainties surrounding Brexit.
On training and skills mismatch, with ongoing issues surrounding skills development and mismatch, as highlighted by the World Bank recently, we commend the Government’s initiative of coming up with a National Skills Matching Platform as well as the operationalization of the Skills Development Authority to confer awarding powers to training institutions in the Technical and Vocational Education Training sector. Finally, the MCCI commends the extension of the SME Graduate Scheme to medium sized companies of Rs. 100M and for diploma holders. This measure will support small and medium enterprises, whilst at the same time assist in addressing youth unemployment in the country.
7. SME, Entrepreneurship & Access to Finance
Indeed, with more than 99 percent of all companies, accounting for 35 percent of GDP, and nearly half of the country’s employment, SMEs are considered to be the backbone of the economy. The current Budgetary exercise gave a strong focus towards entrepreneurship and SME development, with the creation of a new Mid-Market Size company of between Rs. 50M to Rs. 250M, which is part of MCCI’s advocacy initiatives to support the middle segment companies who have so far been unable to benefit from a number of schemes and incentives of the Government. This will be complemented with a new MME Financing Scheme and a review of existing leasing schemes to enable such enterprises to benefit from incentives to modernize their equipment. Moreover, and in line with our proposals, the micro credit scheme is being extended to projects of up to Rs. 500,000 at a concessionary interest rate. To support the SME sector towards digitalization and e-commerce, Government is further providing for a Rs. 3000 Grant to SMEs to join the MCCI’s E-commerce platform.
8. Strategies to address de-industrialisation and enhance exports
There have further been a number of medium-term measures to support the local industries in the agricultural and manufacturing sectors and addressing the issue of de-industrialisation, This includes a revamping of the Investment Support Programme with a budget of Rs. 1BN and a significant reduction in the interest rate under the LEMS Schemes to less than 4 percent, to enable manufacturing enterprises to acquire new technologies, as well as the introduction of a Food Standards Agency, which is in line with our recommendations to create a new Food & Drug Agency to support the industrial sector, and address issues of food security, traceability and standards. The rising issues of industrial closures due to lack of cashflow or succession planning is further being addressed with the support of the EDB. This is complemented with a marked move to support local production of goods with the extension of the Made in Moris grant and an extended 30 percent bid price preference on public procurement for SMEs having a Made in Moris label. The current measures announced in this Budget shall be complemented through a joint initiative towards a roadmap and strategy for the Industrial sector with the support of the World Bank, in the upcoming months.
As Mauritius aspires to achieve a high-income economy status, promoting export to the region and the world is vital in order to reduce current account deficits and diversify our economy from traditional products and markets. Over the past years, we have noticed a number of export led companies affected with issues surrounding cash flow, which has been addressed with the Export Factoring Scheme to support enterprises engaged in factoring in USD and EUR. The Budget further provides for Rs. 150M for a new trade and marketing scheme to the EU, with possibility of extension to the USA for airfreight exports. To boost investment and export in the African region, the Budget provides for a number of investments in Africa to facilitate companies in the textile, Liquefied Natural Gas (LNGs) and Industrial and Technology sectors to invest in the new Special Economic Zones (SEZs) and such economic spaces being developed for Mauritian enterprises. We further commend the review of the Mauritius Africa Fund (MAF) and strategic partnerships with Pan-African and international multilateral development financial institutions, which shall support enterprises to achieve this Africa strategy. Such economic diversification and export-led strategies should, in our view, be supported with a coordinated implementation of the National Export Strategy (NES), which provides a roadmap for the further diversification of our markets and products.
9. Global Business and Financial Services Reforms
The challenges to the financial services and addressing the EU concerns on our partial exemption system whilst ensuring the continued competitiveness of our jurisdiction was one of the strategic thrusts which was awaited by all. Indeed, the Budget 2019/2020 provides for the necessary changes to our legislation as well as an extension of the partial exemption regime to new business categories such as re-insurance, aircraft asset management. Moreover, the MCCI advocated for new frameworks for fund administration and management, which is a growing segment of the financial services sector, and we are pleased to note that the current Budget makes provision for a number of new licensed activities for private investment funds, a scheme for headquartering of e-commerce activities, as well as Fintech and Crowdfunding activities amongst others. It is also noteworthy that the FSC, in the context of the Comprehensive Economic Partnership Agreement (CECPA), is entering into an agreement with the Gujarat International Finance Tec-City to recognized Mauritian licensed funds and management companies as qualified to operate in the Gujarat jurisdiction. Such international partnerships will further enhance the Mauritius offering for the financial services sector.
10. Other Economic Sectors
In terms of new sectors of development, the MCCI commends strategies to develop the Ocean economy, the Sports & Recreation activities as well as measures to enhance the arts and culture landscape of the country.
11. Sustainability, Environment Protection and Circular Economy
Last but not least, the Budget 2019/2020 gives a strong signal towards sustainability and inclusive growth in the economy with sturdy measures to enable sustainable economic development, aligned with a clean environment strategy, a resolute move towards renewable energy and e-mobility and a circular economy model. Under the “Moris Nou Zoli Pei’ slogan, the Budget provides for a number of measures to clean and embellish the country through a Centralised Cleaning Coordination Committee with a particular focus on public areas including public beaches, lagoons, drains amongst others. These measures, if implemented in a coordinated and effective manner, have a potential to enhance the attractiveness of the Mauritius destination. The renewable energy strategy is further a strong game changer with the removal of the 30 percent limit and the connection fee for solar energy production, which shall accelerate the adoption of solar energy by households and businesses towards achieving the 35% renewable energy mix in the upcoming years. Throughout our Budget consultations with the Government, the MCCI advocated for strong measures to mainstream the e-mobility strategy and we are pleased to note strong measures such as the reduction in excise duties for electric and plug-in hybrid cars, the provision of tax deductions on the acquisition of fast chargers for households and businesses as well as the extension of the subsidy for Bus Modernisation to fully electric cars.
The MCCI has been a strong advocate of the potential of the circular economy eco-system for Mauritius, with an estimated marketable amount from waste at some Rs. 270 million daily. The budget provides a number of incentives to promote the 3R - Reduce, Re-Use and Recycle – for a number of waste products. With a tipping fee of Rs. 300 per ton of waste taken from transfer stations to be recycled, it is estimated that more than 600 tons of waste can be recycled daily. In addition, the Government is implementing the e-waste management system in collaboration with the MCCI for the collection and export of e-wastes in the country. The MCCI further proposed that such extended producer responsibility be extended to other products and we are pleased to note incentives afforded to the recycling or export of waste tyres and used PET bottles. This is combined with the rationalization of the strategy on scrap metal with the review of the ban on its export. This has been a request of the MCCI for the last two years, with a number of operators being affected by the ban. We also commend the implementation of the scrapyard facility for end-of-life motor vehicles, which goes alongside the Government strategy to promote the circular economy.
On a macro-economic level, the Budget 2018/2019 forecasts positive indicators on growth, investment and the budget deficit, with an aim to reach above the 3.9 percent growth rate in the current fiscal year, in line with IMF forecasts and our own GDP Growth predictions. The Government further aims to achieve the 60 percent Debt to GDP ratio before the statutory delay of 2021 with an early repayment of some more than Rs. 18BN in the upcoming fiscal year. The planned balancing of the country’s recurrent expenditure and revenue for this fiscal year is in line with MCCI’s advocacy towards sustainable public finance.
The MCCI is of the view that the Budget 2019/2020 has the potential to be a catalyst of development for the future of our economy with a complete and swift implementation of the measures announced of the fiscal year.
The MCCI shall continue to work closely with the Government towards the implementation strategy of the Budget, which shall be a key determinant to enabling Mauritius to attain its objectives to transition to the league of High-income economy and pave the way for a smooth transition to a inclusive, sustainable and innovation-led economy by 2023.
A detailed brief of the main Budgetary measures shall soon follow.