Financial Sector: Pending Issues

Titbits

Like the electoral reform proposals, the two-day ‘Mauritius International Financial Centre-Forward Looking’ conference held on , 19 & 20 September 2018 at Intercontinental Mauritius Resort, turned out to be a non-event, more of a damage limitation exercise after the Eastern and Southern Africa Anti Money Laundering Group (ESAAMLG) damning report. It was was all about the latest trends impacting on our financial sector but limited in its “open dialogue” on the pending issues that are worrying the global business operators. Many of them felt that they were left in the lurch on most of the issues. Rather than the conference, it will be the ‘Practice Circular’, which is expected to be ready in two weeks’ time, outlining some of new parameters for operators, that they hope will help to clarify things – especially the new stringent criteria for determining the residency of Global Business Companies, the tax exposures and the limitative nature of the application of the partial exemption and the return on disposal of securities, among others. Indeed, the conference was so forward looking that it had time-travelled most of the participants to 2030 with the financial sector doubling its size, its contribution to GDP in real terms attaining US$1.9 billion and boosting employment to 17,000 jobs and increasing revenue to US$0.3 billion in real terms. But some participants who more grounded had to shake off the irrational exuberance of some speakers and bring them back to the local realties. We have a pattern here typical of hierarchical structures. Keep on repeating and spreading the all-knowing bosses’ incendiary rhetoric till one and all start believing it is an irrefutable theme of our distorted reality. We have been through this before, you recall the Sugar protocol which was so sacrosanctly eternal, the IT sector which would create thousands and thousands of jobs, the plethora of hubs that would soon be emerging and for the past 10 years we continue displaying the typical hyperbole that we are a “Gateway to Africa”. There’s no problem in being ambitious, but we just do not have the necessary demand and the resources to realise it. A crucial input to realise our financial sector ambitions is our ICT infrastructure which is still struggling to move up the value chain to provide higher value added activities and services focusing on innovation and creativity – for example, just in terms of fixed broadband penetration, international bandwidth availability and mobile broadband subscriptions, we still have a long way to go. While we sat on our laurels, content with the low value added BPO/call centres, some African countries have bypassed us. Major companies such as IBM and others have already set up research labs in Kenya’s Silicon Savannah. Botswana and Rwanda are catching up fast. To our wizards of the world of finance, Fintech-Blockchain-Crypto-assets seem to be the new holy grail or necessarily the cure-all panacea for our financial sector. But this world-changing technology is: a) costly – the computer networks consume lots of energy, b) a sophisticated and a computationally intense security network – it will be needing highly qualified people to man it, and d) risky – legislators have largely failed to keep pace with innovators (or scammers). It also needs a large market capacity to be profitable – economies of scale-, and it has yet to mature – presently as the number of computers accessing and writing to the network grows, it can be slow and cumbersome. A very recent report on crypto-assets by the Treasury Committee of the House of Commons warns us that the slow, costly and energy-intensive verification process for transactions of crypto-assets based on public decentralised blockchains may ultimately limit the extent to which crypto-assets and blockchain can replace conventional money and payments systems. The Committee even doubts whether universal applications of the technology are currently reliably operational. The report recommends that “in deciding the regulatory approach, the UK Government and regulators should evaluate the risks of crypto-assets, and assess whether their growth in the UK should be encouraged”. Indeed, if we cannot know better than experts in the field, let us move a step at a time. And if we could tone down the irrational exuberance, which is more a reflection of our speakers rather than that of our infrastructure and markets, we may succeed in gradually innovating and transforming the Mauritius’ international financial centre by 2030.

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The Tourism sector: Reduce ticket taxes!!

The Director General of IATA recommends that we lower our ticket taxes and airport charges. We are classified 116th by World Economic Forum’s Travel and Tourism Competitiveness Report in terms of competitiveness in ticket taxes and airport charges. In reply, the Minister of Tourism argues that “nous devons rester upmarket. Nous ne voulons pas devenir une destination bon marché et avoir des touristes sac-à-dos à Maurice.” This is an argument that we have been using years back; when the sector was facing the global downturn, it responded with all-inclusive packages and aggressive campaigns targeting the Chinese and Indian, including British-Indian tourists. Was it a sell-out of our “upmarket” standards? At that time there was no question of “touristes sac-à-dos”. Nou ti dan bez!!! Now that the growth of international travel has picked up, we go back to business as usual. No, because the changing nature and volatility of the tourism industry, the increasing number of air links, the bulging affluence in emerging markets, and the general technological improvements in global travel have changed the profile of tourists as well as the demands on the destination. The sector and its parameters have been redefined. Our market now has many segments, besides enclave or beach-based tourism, which are offering enormous possibilities to revitalize the agricultural and rural economy, support the sustainable development of rural areas, develop community-based tourism with a cultural content, agricultural tourism, family owned hotels, guest houses, eco accommodation, traditional organic and authentic products and Mauritian cuisine, environmentally friendly hotels, green holidays, sports clubs providing services. While our minister is seemingly glued hanging diffidently to its upmarket segment, a new tourism is emerging — sustainable, environmentally and socially responsible, and characterised by flexibility and choice. A new type of tourist is driving it: more educated, experienced, independent, conservation-minded, respectful of cultures, and insistent on value for money. To remain competitive, tourism destinations and industry players alike must adapt. And our challenge is to formulate the sector policies that best reflect these changes and the new thinking that the benefits from tourism activities should be spread to all segments and more evenly throughout the society. Different segments have different things to offer. Lower ticket taxes will be profitable to all segments in the sector. Policy orientations should not be decided by the corporates but be based on the profile of our tourists and the characteristics of our market.

* Published in print edition on 28 September 2018