Rising to the challenge of our ambitions

Budget Speech delivered by Hon. Pravind Kumar Jugnauth, Minister of Finance and Economic Development,​ on 8 June 2017

When this Government took office in December 2014, we made a pledge to shape a new destiny for our country and our population.

We said we would put the economy back on track, reduce the unemployment rate, take families out of absolute poverty and achieve development that is environmentally sustainable and more inclusive.

Economic Achievements and Progress

Today, as we look at our economy at the dawn of our country’s 50th independence anniversary, I am pleased to report to the House that we are making good progress on our pledges.

The thrust of last year’s Budget has allowed us to build a strong framework for economic revival. It has propelled our economy to a higher growth rate of 3.9 per cent in 2016/17, compared to 3.2 per cent in the previous year.

We are expecting the growth rate to rise further to 4.1 per cent in 2017/18.

The unemployment rate has fallen to 7.3 per cent in 2016 and the inflation rate was one per cent in that same year. The real growth rate of private investment, which has been negative since 2012, has picked up with a positive growth of 5.7 per cent in 2016.

But we should not rest on our laurels.

We have high ambitions for our country, as spelled out in Vision 2030.

Our aim is for Mauritius to be a high income country by 2023, with an income per capita of around USD 13,600 against the current level of USD 9,740.

Last year, in my Budget Speech, I spoke about my vision of a new era of development – a vision of a society without any families living in absolute poverty, where there will be a narrower gap between the rich and the poor, no gender bias, better opportunities for all, with modern infrastructure and a quality of life that will meet the standards reached by advanced countries. This Budget which I am presenting today reflects my deep resolve to lead our nation to realise these ambitions.

Indeed, Budget 2017/18 is about Rising to the challenge of our ambitions.

This Budget focuses on five central challenges.

First, fostering higher growth for more and better jobs.

Second, investing massively in the infrastructure of the future.

Third, further improving the quality of life of our people.

Fourth, ushering in a New Social Paradigm.

And fifth, consolidating macro-economic fundamentals.

To succeed, we need to be clear on the path we have to follow.

I am, therefore, introducing a three-year rolling plan to support our medium-term and long-term objectives. This budget is cast within the context of the first Three-Year Strategic Plan 2017/18 to 2019/20, copies of which will be included among the budget documents.

We will also circulate an Annex as an integral part of the Budget Speech to provide greater details on measures, schemes and legislative amendments in the Budget.

Before elaborating on the policies and measures in the Budget, let me highlight that this year again, we are getting an exceptional financial support from the Government of India to implement several key development projects and programmes.

I am pleased to announce that the Government of India is offering a financial support envelope of USD 500 million, that is, around Rs 18 billion, through a line of credit.

Another tranche of USD 130 million, that is, Rs 4.5 billion, which was approved in February 2012 is also available, thus adding up to a total of Rs 22.5 billion. This support from India is over and above the grant of Rs 12.7 billion that was given to us last year, making a total of Rs 35.2 billion.

The line of credit of USD 500 million, bearing an annual interest rate of 1.8 per cent, will be made available to the SBM (Mauritius) Infrastructure Development Company Ltd for investment in redeemable preference shares. These shares will be issued by public sector entities implementing infrastructure projects and will have a redemption period of 20 years, with an initial grace period of 7 years.

Fostering Higher Growth for More and Better Jobs

I will now articulate our policies on the first challenge of this Budget, which is to foster higher growth for more and better jobs.

We need to imperatively strengthen institutional capacity to support our growth objectives. To that end, an Economic Development Board (EDB) will be established to ensure greater coherence and effectiveness in implementing our policies and actions. The EDB will have three main directorates.

• The first directorate will be responsible for national and sectoral economic development planning.

• The second directorate will be in charge of investment and export promotion. The various functions of the existing promotion organisations, namely, the BOI, Enterprise Mauritius, the Financial Services Promotion Agency and the Mauritius Africa Fund will be integrated in the Economic Development Board.

• And the third directorate will manage the elicensing business platform. The EDB will thus be the main business licensing agency in Mauritius – no more office hopping to obtain a business license.

We are also setting up a National Economic and Social Council under my chairmanship to address key socioeconomic issues and strengthen dialogue with the private sector and civil society. The Council will meet on a quarterly basis.

To boost up growth we will equally act on the demand side. Our embassies and consulates will channel more of their resources to export and investment-driven diplomacy in strategic markets.

As Africa offers great prospects for our export sector and cross-border investments, we are consolidating our diplomatic footprint in Africa.

Thus, a number of joint commissions will be held with countries such as Cote D’Ivoire, Ethiopia, Ghana, Kenya, Madagascar and Zambia. Our aim is to further enhance bilateral cooperation with these countries in various sectors, including trade, investment and capacity building.

This month, the first Special Economic Zone in Senegal will be inaugurated. Mauritius-Africa Fund is a partner in that venture. In fact, Phase 1 of the development of that Zone is completed and will give Mauritian companies access to warehouses and office spaces totalling 31,000 square meters on 13 hectares. Phase 2 of the development will be on 40 hectares.

As regards Ivory Coast, the Mauritius-Africa Fund has secured access to land, on preferential terms, in the “Zone Franche de la Biotechnologie et des Technologies de l’Information et de la Communication” for Mauritian enterprises to undertake development projects.

To facilitate the implementation of joint projects by Mauritian enterprises in Africa, the Mauritius-Africa Fund will establish a Business and Investment Platform for Africa (BIPA).

We will also pursue negotiations on Free Trade Agreements (FTA) with China and the European Free Trade Association. And we will step up efforts to finalise the Comprehensive Economic Cooperation and Partnership Agreement (CECPA) with India.

Building Innovative Mauritius

I now turn to our plan to build Innovative Mauritius. This will be crucial to global competitiveness, higher valueadded production and to creating better jobs.

As research and development is the bedrock of innovation, our plan is to put an unprecedented focus on encouraging research.

We are fundamentally reviewing and restructuring the Mauritius Research Council to transform it into the Mauritius Research and Innovation Council (MRIC). The Board of the MRIC will include wider representations of the private sector and relevant stakeholders.

It will manage a National Innovation and Research Fund to finance research in public and private institutions.

It will also set up a Mauritius Research Repository to which the public will have access.

And the Industrial Property Office will eventually be integrated in the MRIC.

Moreover, a Bio-Technology Institute will be set up under the aegis of the Ministry of Agro Industry and Food Security.

We will also promote academic research in all our universities. To that end, Government is injecting Rs 50 million in a Research Fund to be managed by the Tertiary Education Commission (TEC). An Innovator Occupation Permit will be introduced for innovative start-ups with a minimum operational expenditure of 20 per cent for R&D purposes.

In the same vein, I am allowing accelerated depreciation of 50 per cent per annum, in respect of capital expenditure incurred on R&D.

Companies will be allowed to claim a double deduction in respect of qualifying expenditure on R&D. This will apply until income year 2021-2022.

Doing more to facilitate business

We must have, at all times, an environment that is conducive and efficient for businesses to operate and to be globally competitive.

We have recently passed the Business Facilitation Act. Today, we are introducing more measures to improve the doing business environment.

We are significantly decreasing the cost for businesses to connect to the electricity network:

Firstly, the cost of extension of high tension networks for commercial projects will be reduced by 50 per cent.

Secondly, we are eliminating the processing fee for new applications in respect of all categories of customers, including domestic customers, but excluding parceling of land and Property Development Schemes projects.

Plan approvals from CEB, CWA or the WMA will not be required anymore when applying for a Building and Land Use Permit in zones which are well networked and serviced, as well as in morcellements.

To eliminate inefficiencies and duplications in the licensing processes, BOI will carry out a business process reengineering on more than 125 licenses and permits where some 14 Ministries are involved.

To further attract foreign investment, high tech machines and equipment brought by an investor from abroad will now be considered as part of the minimum investment of USD 100,000 required to obtain an Occupation Permit. This will be subject to complying with set criteria.

Stimulating growth and employment in key productive sectors

I will now elaborate our actions to boost investment, growth and job creation in the main sectors of our economy, starting with manufacturing.

First, I am introducing a major tax reform to encourage our domestic enterprises to expand their export capacity and seek new markets, especially the SMEs. Their profits from exports of goods will be taxed at the lower rate of 3 per cent, instead of 15 per cent.

Second, to encourage the development of new growth poles, we are introducing an 8-year income tax holiday for new companies engaged in the manufacturing of pharmaceutical products, medical devices and high tech products.

Third, to address the threats from Brexit, we established last year a Speed to Market Scheme for the textile and apparel exports on the European markets. I am extending that scheme to the export of jewellery, medical devices, fruits, flowers, vegetables and chilled fish.

Fourth, I am introducing the Innovation Box Regime for Intellectual Property assets which are developed in Mauritius. New companies involved in innovation-driven activities will benefit from a tax holiday of 8 years on the income derived from the totality of Intellectual Property Assets.

Fifth, as there is good potential for the production of medical devices, the existing Clinical Trials Act will be amended to allow for the testing of such devices.

Sixth, I am extending the 8-year work permit policy for expatriate workers in the export-oriented enterprises to all manufacturing activities.

Seventh, the issuance and renewal of work permits will be made within the reduced timeframe of 15 working days, instead of 40 working days.

Eighth, the Fashion and Design Institute will be reengineered to focus on training in areas where skills mismatch in fashion and design are most severe and will include training in jewellery. To this end, the jewellery centre will be transferred from the MITD to the Fashion and Design Institute.

Ninth, we are setting up two 3D Printing Service Centres at the National Computer Board to support manufacturing firms, university students and start-ups.

Tenth, Mauritas, which is currently established as a department under the Ministry of Industry, Commerce and Consumer Protection, will be given full autonomy to offer accreditation services locally. This should result in lower costs of accreditation for our exporters.

Eleventh, I am eliminating Registration Duty and Land Transfer Tax on any transfer of immovable property for the setting up of a business for high-tech manufacturing.

Ocean Economy: building a future pillar

I now turn to the ocean economy which holds tremendous potential to boost exports and create good quality employment opportunities.

First, the validity of the fishing rights permit will be extended from one year to five years for fishing vessels flying the Mauritian flag, subject to all their catch being unloaded and processed in Mauritius. This should make it easier for them to access finance.

Second, I am making provision to upgrade and equip the Maison des Pêcheurs at Cap Malheureux, Tamarin and Mahebourg. Our aim is to provide the fishermen cooperatives with the facilities to transform their fish catch into value-added fish products.

Third, the scheme that we launched last year for fishermen cooperative societies to acquire semi-industrial vessels will be extended for another year.

Fourth, I am providing for grants to the fishermen cooperative societies for the acquisition of refrigeration vehicles.

Fifth, to promote coral farming by fishermen and SMEs, I am making provision for the setting up of sea-based coral farms for developing ornamental corals for the tourism sector, aquarium market and high-end jewellery manufacturing.

Sixth, appropriate amendments will be made to the Maritime Zone Act to cater for marina development.

Seventh, the Mauritius Shipping Corporation Ltd, in collaboration with the Royal Institution of Naval Architects, will set up a new Maritime Training Institute that will focus on training our youths for jobs on cruise ships and in the maritime sector.

Financial services

I now turn to the financial services industry which holds good potential for growth and employment.

This industry is facing numerous challenges from the international community, not least from the OECD and the European Union.

At the same time, there are opportunities arising from the new global economic order which need to be tapped.

Our response will therefore be to consolidate the sector, gear up to face the emerging challenges and ensure that international norms, standards and compliance requirements are respected.

Our strategy is to take our global business sector to a new level, based on quality of product offerings rather than only on non-sustainable fiscal advantages.

I am therefore announcing that a blueprint will be elaborated by the Ministry of Financial Services, Good Governance and Institutional Reforms, in collaboration with the EDB, the Bank of Mauritius, the Financial Services Commission and all stakeholders in the financial services sector. This blueprint will focus on the vision for the sector over the next 10 years and will also take on board the forthcoming international requirements with regards to taxation without undermining the competitiveness of our jurisdiction.

We are also taking measures to further enhance the reputation of Mauritius as a jurisdiction of substance. Currently, a GBC1 company must fulfil at least one of six criteria established by the FSC to demonstrate substance. They will henceforth be required to fulfil at least two of the criteria – thus making the guidelines more stringent on the substance requirement.

Government is also amending the Companies Act 2001 to allow for Islamic Financial Institutions and Islamic Banks to adopt accounting standards issued by the Accounting and Auditing Organisation for Islamic Financial institution.

The Stock Exchange of Mauritius will engage with Euroclear to transform the local debt market and set up an international capital market which would attract Governments and Corporates from Africa and other regions to issue multi-currency bonds in Mauritius.

The legal obligations on Special Purpose Funds will be aligned with those of GBC1 companies.

We will also reform our tax regime for global business companies so that it evolves and meets the new international requirements.

Mauritius must also harness the benefits of the fintech revolution the more so that there is good potential for making of Mauritius a Fintech Hub for Africa.

In this respect, the EDB will engage with stakeholders to create a Regional Fintech Association. The Association will act as a think-tank, advise on necessary regulatory and business climate amendments and create network and tieups with international institutions such as Innovate Finance London and the Fintech Circle.

The FSC will set the rules for regulating the Fintech activities such as peer-to-peer lending and funding, as well as mobile wallet.

Furthermore, the minimum capital requirement of banks will be raised from Rs 200 million to Rs 400 million. Existing banks will be given two years to adjust their capital to the new level. The Banking Act will be amended accordingly.

Making further strides on our ambition of a fully-fledged digital economy

Last year I spoke about our strategy to move towards a fully-fledged digital society. This year we will make further strides to realise this ambition.

Our strategy is to provide the right ecosystem for this sector to grow above 10% in the years ahead.

I am therefore introducing measures that will encompass all enablers to drive this transformation.

First, I am pleased to announce that in line with the Government’s strategy to boost the ICT and BPO sector, the prices of International Private Leased Circuits (IPLC) and Global Multiprotocol Label Switching (MPLS) services will be lowered by at least 15% as from 1st of July 2017.

Second, the Data Protection Act will be amended to comply with the new EU data protection regulation which will come in force in May 2018. This will encourage companies in the ICT sector to use Mauritius as a platform for their services.

Fourth, to enable the development of the right environment to nurture the growth of digital entrepreneurs, Government will build capacity in new technologies like robotics, Big Data and Internet of Things at the Réduit Polytechnic.

Fifth, I am providing for a cloud computing integrated platform to offer a ‘Mauritius ICT plug and play platform’ to attract digital nomads.

Sixth, Mauricloud will be created to offer a platform for issuance and verification of documents & certificates in a digital way.

Seventh, a Digital Youth Engagement Programme will be set up by the NCB to provide introductory courses on coding to youngsters.

Eighth, Government is setting up an Open Data Portal as a single point of reference for public datasets.

Ninth, as scarcity of skill remains a severe constraint on investment and growth in the ICT sector, I am announcing a new policy to encourage firms to allow their employees to work at home. The Employment legislation will be amended accordingly. This policy will attract more women into the labour force, reduce cost for the enterprises and raise productivity nationally.

Supporting Micro, Small and Medium Enterprises and Cooperatives

As we consolidate our various industries, we will also strengthen the SME sector and cooperatives. I am therefore announcing the following measures:

First, SMEs and cooperative societies will be given dedicated space in four new market fairs that will be built at Goodlands, Bel Air, Chemin Grenier and Mahebourg to market their products.

Second, an SME e-platform will be set up to provide more visibility to SME products.

Third, to further help SMEs and cooperatives improve the marketing of their manufacturing products, Government will contribute Rs 5,000 towards the costs of membership in the ‘Made in Moris’ label.

Fourth, an Export Financing Facility will be introduced to assist manufacturing enterprises in the SME and cooperative sectors. This will include, amongst others, loans at concessionary rates.

Fifth, the SME Venture Capital Fund which was established last year is now operational. It will provide equity financing in projects by local SMEs.

And Government will continue to guarantee the loans made to SMEs under the two financing schemes which are operated by commercial banks. Since 2015, banks have disbursed a total amount of Rs 3.2 billion under these schemes.

Sixth, DBM will provide finance to SMEs at the interest rate of 6 percent. In addition, the interest rate on its loans to micro enterprises is being brought down from 6 per cent to 3 percent.

Seventh, an amendment will be made to the Code Civil Mauricien and the Code de Commerce to allow the use of all movable assets as loan collaterals.

Eighth, CEB will implement a new scheme for solar PV for small commercial businesses. Under this scheme, the initial investment cost for the installation of a 2 kw solar PV will be financed by CEB. Fifty per cent of the investment will be paid back by the small enterprises over a period of 24 months through a net metering scheme. Thus, the enterprise will have the benefits of consuming electricity free of charge and exporting any surplus electricity generated to the CEB grid.

Ninth, Government will relax the criteria and speed up the processes for SMEs and cooperatives to employ foreign labour.

Tenth, Government is providing Rs 100 million over the next three years for the implementation of the 10-Year Master Plan for the SME Sector.

Eleventh, we need a fundamental institutional reform to better support the SMEs and as recommended in the 10-year Master Plan for the SME Sector, ‘SME Mauritius’ will be set up to replace SMEDA.

Investing Massively in the Infrastructure of the Future

Let me now turn to the second challenge that this Budget addresses – Investing massively in the infrastructure of the future.

Transforming the Port

Let me now speak about the port which is making good progress in its transition to becoming a regional maritime hub, with investment of some Rs 3 billion this year and a further Rs 1.6 billion in the coming financial year.

The extended Mauritius Container Terminal berth will be fully operational by October 2017, with an increased capacity to handle up to 750,000 TEUs. The objective is to further increase the capacity to 1.5 million TEUs by 2030 through the Island Terminal project.

Moreover, the MPA has finalised its Port Master Plan and will be preparing a Master Plan for the development of a quay for leisure crafts and fishing boats at Vieux Grand Port.

The MPA is also proceeding with the construction of a second breakwater. Works are planned to start in early 2018 and to be completed by mid-2019.

And it will invest around half a billion rupees in a new Passenger Terminal Building at Les Salines to accommodate both Cruise and inter-island passenger traffic.

As we consolidate the competitiveness of the Port, we are also unlocking the growth potential at Riche Terre. The Riche Terre Business and Industrial Park should attract some Rs 4.4 billion of investments over the next three years.

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See also: Focusing on priorities: National Budget 2017-18 from PwC (PDF)