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'To move forward and up'.

Between a bank failure and difficult global conditions, Mauritius nevertheless emerged strong from the last fiscal year-now its top officials shed light on plans for the future.

On 29 July, Pravind Jugnauth, Minister of Finance and Economic Development, did not just present Mauritius' 2016/2017 Budget, but also its plans to emerge as a country "on top" in trade, manufacturing and financial services for the region.

Jugnauth began by noting how the global context has influenced budget goals. "The background is indeed fraught with uncertainty, adversity and tough challenges, while the expectations are many and the aspirations are high," he said.

"If we stay the course, the confluence of adversities and challenges will most certainly pull us back. If we decide on a new course, we can change things for the better and come on top," he continued. "The choice is clear. Today we choose to come on top-to move forward and up."

Despite global headwinds, Mauritius has fared solidly over the past year. The Minister said that inflation at just 0.9 per cent for 2015/16 and unemployment at 7.6 per cent in Q12016, more than a percentage point lower than a year prior. He also said that overall balance of payments in the last year was in surplus of MUR 20 billion, with the current account deficit as a ratio of GDP, at 4.6 per cent. The country's official reserves are also ahead of international standards, from 6.2 months of imports in December 2014 to 8.5 months in June 2016. The budget deficit for the financial year 2015/16 is about 3.5 per cent.

However, Jugnauth said that Mauritius cannot rely on its solid fiscal position in the year ahead. "There are many reasons to think that the pressures of global trends on our economy will become more acute. The Brexit event is another staunch reminder of this reality," he said. "We must therefore lift up the growth path before the three to 3.5 per cent growth trend of recent years becomes the 'new normal'.

How will Mauritius achieve this? Jugnauth presented a multi-pronged approach to fueling key sectors and "fostering a wave of modern entrepreneurs" through SME growth, including a blend of trade support, tax holidays and investment mobilisation. Jugnauth said that he would suspend the payment of trade fees for licences of MUR 5,000 and below, for a period of three years for all SMEs, except those engaged in activities such as gambling, and sales of liquor and cigarettes. He claimed this measure will benefit some 75,000 existing businesses.

Other incentives included an eight-year tax holiday for businesses that register with the country's Small and Medium Enterprises Development Authority (SMEDA) while existing businesses with a turnover of less than MUR 10 million will benefit from a four-year tax holiday. Financial companies that fall under 'global headquarters administration licence', as well as high-net worth individuals investing at least $25 million into the country, will each benefit from a five-year tax reprieve.

These breaks will run alongside a number of investment schemes, including a national SME incubator programme, an SME Venture Capital Fund and several fund for sector-specific support, such as a MUR 7 million programme for bee-keepers.

Jugnauth also highlighted the financial sector's need to adapt to global realities. He announced plans for a new Mauritius International Derivatives & Commodities Exchange (MINDEX) with a MUR 50 million initial investment and said that the Bank of Mauritius Act and Banking Act will be reviewed. Besides the tax holidays for headquartered companies he announced that asset and fund managers, treasury management centres, international laws firms, investment banks and overseas family corporations could all be eligible for five-year tax holidays.

In a statement following the budget, advisory group Axis said that the budget plan was effectively a no-tax budget with VAT and Corporate tax remaining at 15 per cent.

"Although there were some fears of the introduction of capital gains tax, it was a relief that the status quo was maintained. In order to expedite tax appeal cases exceeding MUR 10 million, an Alternative Dispute Resolution mechanism at the Mauritius Revenue Authority will be set-up," the statement read. "The combination of the fiscal and non-fiscal measures will ensure that Mauritius remain a very competitive jurisdiction and will continue to appeal to international investors and clients."

ABAX, a corporate advisory, also released an opinion on the budget.

"We welcome the renewed commitment of the government to ensure Mauritius continues to craft the right ingredients for investment," it said. "We are relieved that there have been no drastic fiscal changes that could have sent the wrong signals to business. These are positive steps that underpin the strength of Mauritius as a place where investors are confident to invest.

"It is our view, however, that the government should come up with additional measures to further integrate Mauritius to the African continent and attract international businesses to use Mauritius as a preferred international financial centre. Also, there is even more scope today to do business in Mauritius and from Mauritius rather than merely through Mauritius."

Tightening banking regulations

On the same day as the budget was revealed, Bank of Mauritius Governor Rameswurlall Basant Roi, G.C.S.K., addressed regulatory concerns at the International Monetary Fund (IMF) Africa Training Institute in Ebene, Mauritius.

"Effective banking supervision is an evolving discipline. Free flows of capital in a globalised world marked by all kinds of disruptions, unleashed by economic and non-economic forces, the quests for high returns by investors and quick profits by speculators, fraudulent practices, excessive risk-taking and violent economic cycles, amongst others, have made regulation and supervision of financial institutions an unprecedentedly challenging task. The regulator's job has become increasingly complex and demanding in terms of skills and clairvoyance, more so after the August 2007 international financial crisis," he said after going in-depth on the regulatory changes that the bank has been through since his first turn as Governor in 2000.

"Last year, the Bank of Mauritius revoked the banking license of a seven-year old bank that was part of one of the biggest corporate bodies in the country. It was a systemically important Group of companies. Poor corporate governance, fraudulent practices, related party transactions, poor asset quality, capital deficiency, liquidity crisis, amongst so many other factors, brought down the bank," he said, referring to the Bank's intervention in Bramer Bank following an alleged Ponzi scheme of over $693 million. The institution formed National Commercial Bank in its wake to absorb remaining assets.

"This bank failure provided us with invaluable lessons that regulation and supervision of financial institutions cannot be taken lightly. No bank forming part of a broader group of companies should ever be overseen by the regulator in isolation from the other related entities. Regulatory framework should indispensably allow for consolidated supervision. Those who fail to learn from history are doomed to repeat it. The economic and social costs of policy errors are enormous and, indeed, very painful," Roi said.

"In a small open economy like Mauritius, we have an additional but very tricky regulatory challenge-to get the balance right such that the solution does not become part of a bigger problem. In the wake of the 2007 financial crisis, effective regulation and supervision of financial institutions was brought back to the table with an elevated sense of seriousness. Basel III gained greater importance worldwide. This awakening has brought with it several new challenges for regulatory authorities, not only in Sub Saharan African countries but also the world over. Digital technology has made far-reaching inroads in the financial industry. The inherent risks associated with digital technology in banking and finance cannot be understated. Regulatory authorities in most parts of the world face a formidable task: to get the right kind of skills for a job that needs to be done right now! One of the most obvious challenges is capacity building," he concluded.


Mauritius is trying to promote 'a new normal' of economic activity, says Minister of Finance and Economic Development Pravind Jugnauth. Here's how:

Trade fees for licences of MUR 5,000 and below are suspended for three years

Eight-year tax holiday for businesses registered with the Small and Medium Enterprises Development Authority (SMEDA) and financial companies with 'global headquarters administration licences

Five-year tax holidays for several other financial company classifications and high-net worth individuals investing in the country

The SME Venture Capital Fund, a merger of existing funds with a new capital base of MUR 500 million

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Publication:CPI Financial
Geographic Code:6MAUI
Date:Oct 6, 2016
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