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Thursday, September 29, 2022

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Budget 2022-2023 : Speeding Up The Economic Recovery

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The 2022-2023 Budget sets out the course for post-COVID economic development. It seeks to deliver on the following objectives:

  1. Put the economy on a higher growth trajectory to achieve Government’s vision of a high income–high wage economy
  2. Inclusive growth and social justice, i.e. strengthen social protection policies to help the poor and the middle-class families cope with the impact of global food and energy inflation
  3. Increase significantly local food production
  4. Accelerate the energy transition in electricity generation and in transportation in line with our ambition to cut greenhouse gas emissions by 40% by 2030
  5. Further opening up the country to the world – Attract more foreign investors, tourists, professionals and retirees
  6. Boost manufacturing to sustain higher levels of export and local production

The Budget measures build on the early signs of post-COVID recovery in all key sectors of the economy. They are designed to speed up growth, strengthen economic resilience and improve labour markets.

The Minister of Finance, Dr Renganaden Padayachy, is expecting a GDP growth of 8.5 percent for fiscal year 2022-2023. Investment as a share of GDP will increase to 21.2% in calendar year 2022 up from 19.2% last year.

The GDP should reach its pre-pandemic level by December 2022.

Some Rs 20 billion worth of FDI are expected to flow in this year as opposed to Rs 15.4 billion last year.

The unemployment rate is on a downward trend to 7.8% from 9.1% a year ago.

Impetus to private sector investments

The Minister of Finance has come up with a large array of tax, financing and regulatory initiatives to add productive capex, skills and innovation to both the traditional and emerging industries and create more jobs and entrepreneurial opportunities in the country.

The Mauritian economy has survived the COVID crisis thanks to Government intervention of an unprecedented scale – 32% of our GDP – to protect lives and livelihood of the population.

Despite two sanitary confinements and border closure for a prolonged period, Government has managed to save as many jobs as it could and avoid large-scale bankruptcies.

Government did its upmost best to protect the production apparatus and the stability of the banking sector.

This has created the conditions for a gradual economic recovery while keeping risks of COVID-19 resurgence very low.

The Budget 2022-2023 is, now, addressing another challenge of a tall order. It will have to help the economy navigate though stormy waters yet again. It will have to infuse new strengths to the economy amidst risks of global stagflation as a result of the war in Europe.

The World Bank has in the past week cut its growth forecast for the global economy in 2022 from 4.1% to 2.9% on the assumption that the war in Ukraine will continue to disrupt activity, investments and trade and impact global demand adversely.

A combination of stagnating growth and high inflation will have harmful consequences for middle and low-income countries.

Given its high exposure to the global economy, Mauritius will inevitably be impacted through the trade channels, capital flows and the financial and forex markets. With this Budget, Government will be acting on all growth engines, i.e., investments, domestic production, exports and consumption, to keep economic activity afloat.

Today’s investments mean tomorrow’s jobs and economic growth. Higher economic growth, in turn, attracts even more business investments, thus unleashing a virtuous circle of economic prosperity as well as higher purchasing power and faster social mobility for the people.

Fresh investments are expected to come from all segments of the private sector – SMEs, start-ups, mid-cap companies, large corporates but also from fishermen cooperatives, small planters, farmers and breeders.

The Budget has left no one aside. The expectations of all groups of economic operators have been taken on board. Moreover, the incentive packages that are being proposed will attract new players with bankable projects.

The Green Transition

Government is also enlarging the space for investible opportunities. Never before has a Budget laid so much emphasis on mobilising green energy investments. The Green Transformation Package that has been announced is expected to generate some Rs 20 billion worth of private investments over the next three years.

According to Government plans, the national electricity grid will take in some additional 200 MW of renewable sources of energy between now and 2025. This will increase the share of green energies in the mix to 40%.

Government, for its part, is developing additional energy storage battery capacity to allow greater intake of solar, wind and other intermittent sources of energy and turn them into baseload power without endangering the stability of the grid.

This green transition is a technology-intensive business. It will create opportunities for skilled jobs from maintenance of solar panels to high-end electrical engineering. Besides, there is a high degree of transfer of know-how as many large-scale renewable projects are being promoted or partnered by foreign operators.

Mauritius is on a high-learning curve and is building capacity to cater for the future of energy in Mauritius, whilst at the same time displacing fossil fuels and reducing greenhouse emissions.

There is also a huge potential for economic democratization in the energy sector. This Budget translate into reality the political will of Government to open up green energy production to small business, planters, cooperatives, households, schools, NGOs and religious organisations.

The Terragen incident is a wake-up call. We just cannot leave our energy sovereignty in the hands of a few.

With attractive feed-in tariffs of Rs 4.20 kw per hour, subsidized loans for the purchase of photovoltaic systems by households and the Carbon Neutral Loan Scheme for the industrial sector to achieve carbon neutrality by 2030, the Green Transformation Package is set to be a game changer in the energy landscape.

Transforming agriculture and manufacturing

The 2022-2023 Budget also sets the scene for a transformative change in agriculture and in manufacturing, two large sectors which can rapidly increase their respective shares in our GDP and in employment generation in the next few years.

Investing in food security has become a key focus of economic policy, especially in net food importing countries. Government and the private sector are working together to attain at least partial self-sufficiency in vegetables, fish and meat and increase import substitution for dairy products and a wide range of processed food.

In view to increase food output in Mauritius, the Budget is proposing a number of high-impact initiatives:

  • An integrated Modern Agricultural Morcellement Scheme to promote smart and innovative agriculture
  • A guaranteed price mechanism for producers of potatoes, onions and beans
  • Grants and subsidized loans for sheltered farms
  • Preferential leasing facilities for the purchase of equipment
  • Agro-processing parks in Henrietta and Rivière du Rempart
  • Five dedicated livestock zones across the island
  • Grant of Rs 50,000 per arpent under the Cane Replantation Scheme and subsidized loans under the Cane Replantation Revolving Fund
  • Increase in the grant for acquisition of semi-industrial fishing vessels from Rs 4 million to Rs 6 million
  • Six barachois for production of crabs and shrinks and four new sites for off-lagoon aquaculture

This Government recognizes the importance to re-vitalize and diversify the industrial base of the country. The Budget provides a new impetus to the manufacturing sector in view to raise local production and to increase our export output.

Increasing domestic production to partially substitute for imports has become an ineluctable reality. With supply chain disruptions across the globe and rising costs of imports, our factories will have to step up production to meet domestic demand for essential food and non-food consumables.

It is true that in the wake of trade liberalization, many of our local products have been overshadowed by foreign substitutes. So, we need to make them more visible to consumers and businesses. The Minister of Finance has announced the holding of a “Semaine de l’industrie locale” and the operationalization of a Virtual Exhibition Platform which will help local producers, including SMEs, reach out to a wider marketplace.

In view to increase exports and generate more foreign currencies in our economy, the Budget is also supporting manufacturing firms with extension of the Freight Rebate Scheme and Promotion and Marketing Scheme and reduction of port charges.

Regional maritime connectivity

But more importantly, Government is coming up with a bold measure to implement a regional maritime connectivity service which will help our manufacturers develop trade in the Asia-Africa corridor.

Government is chartering two regional feeder vessels to service the South Asian and Eastern African markets. Eastward, we will have “La Route de l’Inde” which will connect us to South Asia, including India, Sri Lanka and Seychelles. On the Africa side, we will have “La Route de l’Afrique orientale” which will service the Eastern African countries, including, Tanzania, Madagascar and Kenya.

This major development will provide further impetus to regional trade. Mauritius has signed the CECPA with India and an FTA with China and we have the COMESA-EAC-SADC Tripartite which is strengthening and deepening economic integration of the southern and eastern Africa region.

We know that a lack of maritime links among our countries has hampered regional trade and integration. With this vessel service, our operators will tap into more supply chain and export opportunities.

Consumers, for their part, will have the benefit of a wider choice of products from neighboring countries.

This Budget is expected to create real and lasting wealth for the country. The measures which are announced are meant to raise national incomes through investments, efficiency and productivity gains. This means better wages and purchasing power for the workers.

The Budget has created a feel-good factor both in the business community and in the working class. It has reignited optimism despite unyielding global challenges.

Arjun Laksh

Economist

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