12 Apr Interview with Dr. the Honourable Renganaden Padayachy, Minister of Finance, Economic Planning and Development, Republic of Mauritius
Q: “Deciphering Africa: Present and future Objectives, Needs and Opportunities” from the vision of the continent’s most important leaders is an ambitious project that wants to portray the leaders whose visions are shaping the present and future of their countries. We believe Africa’s voice is in fact made up of many voices, with countries having distinct priorities and facing different challenges. Starting from your economic vision, the strengths and weaknesses of Mauritius’ economic pillars and financial position, the country’s development needs and its current capabilities, could you summarize Mauritius’ priorities, targets, present and future challenges, and not least, how the country fits regionally and internationally?
Mauritius has been able to position itself as a platform of choice for business, with economic, political and social stability firmly anchored as unique selling points for international investors. This has been made possible through decades of astute policy-making and sound macro-economic governance which have enabled the jurisdiction to be resilient, to prosper and to become an investment destination of choice for the international business community locally and in the region. In addition, Mauritius has a well-qualified and bilingual population, an competitive fiscal regime and a highly conducive business environment.
Thanks to the resilience of the Mauritian economy and population, as well as to the bold and effective strategy rolled out by the Government of Mauritius, the country has bounced back from the crisis. With a GDP growth of 8.7% in 2022, a sharply declining debt and unemployment, the Mauritian economy is booming. In 2023, we expect a growth higher than 5%.
Nevertheless, there are several challenges facing the economy, mainly resulting from the unstable international context and other external factors. The Covid-19 pandemic has had a devastating impact on the global economy, and the economy of Mauritius has not been spared at that time. Thankfully, the country has since returned to prosperity. The Russia-Ukraine conflict has further resulted in inflationary pressures and raised challenges relating to food and energy security. Additionally, rising challenges due to climate change poses many questions for our economic sectors as much as for our population.
While Mauritius has fully recovered from the pandemic, it has become evident that we need to strengthen economic growth and resilience to future shocks, and this is why the Government of Mauritius has adopted a multi-pronged strategy to address these issues.
First, we are investing in the consolidation of existing sectors such as the manufacturing sector, financial services sector, tourism sector and ICT sector with the aim of building a stronger and more resilient future.
Second, we have put in place several incentives to diversify the economy and move up the value chain by developing niche high-value-added sectors such as medical and biotechnology industries, renewable energy sector, and the technology sector.
Third, to improve our resilience to import shocks and improve self-sufficiency in terms of food security, we are accelerating the transformation of the agricultural sector through mechanisation, innovation and sustainability.
Fourth, several actions and initiatives are being undertaken to address the negative effects of climate change and reduce our dependency on imported fuel. We have set an ambitious target of increasing the share of renewable sources in the energy mix to 60 percent, and to phase out the use of coal by 2030. We are well on track to achieve this. We have also put in place several policies for the electrification of the vehicle fleet and encourage adoption of ESG standards in companies.
In the near future, the vision of the Government will focus largely on positioning Green Energy as a new economic pillar by engaging in increased production of energy through renewable sources and accelerating the implementation of climate change policies. The overarching objective is to hence achieve an Inclusive, High Income and Green Mauritius.
Finally, to address the market size constraint, we are multiplying efforts to improve market access to major economies. Over the last few years, we have successfully negotiated preferential access for our goods and services to India, China and the African continent. Today, we have preferential market access for our goods to more than 75 percent of the world population.
This is a role that Mauritius can play in the region- that of being a transshipment and manufacturing hub for the African continent as incomes continue to rise. At the same time, the Mauritius International Financial Centre offers a suite of sophisticated products and services and possesses all the right ingredients which embolden the international community to use the jurisdiction as a financial center. The Mauritius jurisdiction is strategically poised to play a key role in driving quality investments and promoting prosperity for and across Africa. The ranking of the jurisdiction as 1st in Africa in numerous international accolades attests to the tremendous progress Mauritius has made in becoming an inclusive and resilient economy.
Q: It has been written that Mauritius is one of the few countries in Africa which has greatly benefited from AGOA. However, as Mauritius graduated to a high-income country by World Bank standards right before the COVID pandemic and will most likely regain its high-income status in the near future, it risks being left out of the AGOA. Is this a matter of concern for you? How important was AGOA in the past decade?
Last year, Mauritius Exports to the United States accounted for USD 150 million of which exports of garments represented nearly 50 percent. However, over the years, we have noted a diversification of products exported to the US which do not depend on AGOA preferences. These include medical devices, sugar, tunas, vanilla, sunglasses, leather products, amongst others.
While the classification of Mauritius as a high-income country puts in context the economic progress achieved by Mauritius since independence, it also entails wide-ranging implications in terms of preferences in trade and development finance.
We believe that the AGOA has greatly helped Mauritius as well as other African countries, and its continuation would be an important signal in terms of the deepening of the relationship between the US and Africa. As a Small Island Developing State, Mauritius stands to benefit a lot from a potential extension and deepening of its scope.
At the same time, we can explore the option of negotiating a bilateral free trade agreement with the US. A bilateral FTA can offer more market access to Mauritius in terms of exports of products and services as well. Another one could be to negotiate a bilateral trade agreement with the US using our existing Regional Economic Communities. For example, Mauritius along with four Eastern and Southern African (ESA) States have negotiated and concluded an agreement with the European Union. Having a similar framework with the US will be to the advantage of exporters from both the US and ESA region.
Q: Taking into account the geopolitical and economic tensions, from wars to the weakening banking system in the U.S., high inflation and energy prices, scarcity of resources and the impact of climate change, among other factors, what is going to happen with the economy of Mauritius in 2023?
Mauritius, being a small and open economy, remains vulnerable to the geopolitical and economic tensions that is prevailing on the international front, especially as an export driven nation and a country reliant on investment.
However, the Government of Mauritius has put in place an array of incentives and schemes to sustain and strengthen economic growth and diversify the economy. Synergies are being developed to foster the development of new and emerging sectors and to diversify both our products and markets as mentioned previously.
The Government has been working to address imported inflation and rising energy prices through measures such as revision of tax brackets to benefit the middle-income earners and income allowances to the most vulnerable, including the elderly and the disabled. In addition, Bank of Mauritius has been continuously intervening through the constant revision of the repo rate and foreign exchange market to address inflationary pressures. .
For the year 2023, the Mauritian economy is expected to outperform the global economy growth with local and international institutions projecting GDP growth to remain strong. Statistics Mauritius is projecting a growth rate of 5.0 percent for the year 2023 while international institutions are forecasting higher growth rate. The International Monetary Fund (IMF) is estimating the Mauritian economy to grow by 5.6 percent whereas the World Bank is anticipating GDP to increase by 5.5 percent and AfDB is expecting GDP to grow by 5.4 percent. The tourist industry is fully operational and with flights starting their regular service and increased connectivity, the tourist industry is expected to attract some 1.4 million tourists. FDI inflows is anticipated to exceed the threshold of MUR 20 billion.
While 2023 remain challenging especially with the global banking crisis, Mauritius is constantly working towards ensuring a stable and resilient economy with shared prosperity among its nation.
Q: Mauritius has been working on the growth of a Sustainable and Green International Financial Centre. The economic evolution of Mauritius may be an opportunity towards a continent-wide FTA with the USA promoting trade and investment, and consolidating Mauritius as the preferred Trade and Investment Hub for Africa, but how to achieve it? What is the actual recipe your government is putting in place?
Similar to other upper middle-income countries, we face a twofold challenge creating an environment that continues to attract Foreign Direct Investment and enforcing regulatory framework to protect our nation, national resources, and ecosystems.
A continental wide FTA with the US seems appealing, and there are several steps that need to be undertaken, especially with regards to negotiations and implementation. First, there need to be a harmonisation of the Continent’s trade objectives and investment strategy. Not all countries on the African continent are at the same level of development, some countries have both a comparative and a competitive advantage in agro-industrial products, others in industrial products while a few economies like Mauritius exports a lot of its services.
The African Continental Free Trade Area (AfCFTA) that came into operation in January 2021 has shown the commitment and willingness of African States to simultaneously liberalise and deepen trade integration within Africa. The AfCFTA will further assist the continent in consolidating its intra-African trade and position itself as a major trade and investment block.
It is an important starting point, and once all the negotiations on all the chapters are completed, it could become the ideal vector to start negotiations on a comprehensive trade and investment agreement between the US and the continent.
Q: The US will reinforce its presence in Mauritius with a new Embassy in the Moka Smart City. The US Ambassador David Reimer revealed that the US will invest more than USD 250 million in the project and stated the project is a strong message that the U.S. is with Mauritius for the long term and that US and Mauritius enjoy strong economic and security partnerships. Could you describe the partnership with the U.S. and U.S. lead financial and economic institutions up to 2022, and the outlook and trends in 2023 and beyond.
The new building of the Embassy already demonstrates the commitment of the US to enhance ties with Mauritius, but we should note that US-Mauritius relations dates to 1968 whereby the cordial relation and collaboration between both countries accentuate on bilateral relation as well as regional and multilateral issues.
Mauritius is already a leading beneficiary of the African Growth and Opportunity Act (AGOA) and a US partner in combating maritime piracy in the Indian Ocean. The US Assistance to the country is accentuated on strengthening the country coastal and maritime security capacities as well as granting different exchange programs in different fields of expertise.
Mauritius exports to the USA through the AGOA is significant with export products ranging from textiles and apparel, precious stones and jewelry, processed fish, primates, sunglasses, and sugar. It is worthwhile to highlight the US support towards promoting Mauritian entrepreneurship, including participation in exchange programs.
We are constantly working towards improving the diplomatic and economic relations between Mauritius and the US, and we will explore all possible avenues of collaboration to meet these ends.
Q: The world’s largest economy and richest nation must play a larger role in promoting prosperity and development on the African continent through trade, investment and deeper cooperation. Is Mauritius the best option to engage with the rest of Africa? If so, why is Mauritius competitive and attractive for U.S. companies? What makes Mauritius the best bet?
Today, Mauritius owns a highly valued image brand equity which has been built over the past years. It has forged a solid reputation in terms of ethics, good transparent governance, economic and political freedom. The country remains 1st in Africa in several regional and worldwide indexes. It is the consequence of a multipronged approach in addressing both administrative and legislative impediments to doing business.
There is no exchange control in Mauritius and the principle of free movement of capital is acquired. It is therefore possible to send home funds invested, profits, capital gains and dividends outside the country, without any restrictions or particular formality. With respect to taxes, there are no taxes on dividends, capital gains, or wealth tax. There are no inheritance taxes for direct descendants. There is no property tax or housing tax. The only real estate tax is due on purchase of an immovable property levied at the rate of 5% of the purchase price.
The country takes advantage of its strategic position at the crossroads of Africa, Asia and Australia. It has gradually transformed itself into a centre and an international court for investors in search of security, transparent regulation and high value-added, as a platform for creating, to invest or create activities in Africa.
The ‘financial and insurance activities’ sector has remained resilient and continues to benefit from the reputational advantage gained with the country’s exit from the Financial Action Task Force list of countries under enhanced monitoring, the UK’s and the EU’s lists of high-risk countries. The banking sector is assessed to be sound and resilient. The capital and liquidity positions of banks continue to be robust with comfortable levels of buffers well above the minimum regulatory requirements imposed by the Central Bank.
Mauritius has gained a global reputation as the preferred gateway for investment into (and out of) Africa. The value of Mauritius is largely reputational, and Mauritius has met expectations by ensuring a strong legal and regulatory framework, good corporate governance, an array of modern financial products and services and global connectivity, not to mention competitive operational costs.
In a nutshell, Mauritius can be regarded as a great place to invest and live, with future ready infrastructure, global connectivity and world class talent. It has a low tax jurisdiction with low corporate and personal taxes, business-friendly regulations, a stable democracy, a country that is pleasant to live in, with excellent telecommunications and good health and education facilities.