Covid-19 crisis has also brought an opportunity for the country to refocus attention on structural reforms, and build back a resilient economic system
By Tahir Wahab
For most governments across the world, Covid-19 had undoubtedly brought a dilemma: creating a balance between protecting lives and livelihoods. Luckily, with the availability of vaccines, there is now a glimmer of hope.
Covid-19 crisis has also brought an opportunity for the country to refocus attention on structural reforms, and build back a resilient economic system that will propel Mauritius towards new sectors in our economy which will create investments and jobs.
Economic recovery. Photo – cica.net
In the financial services sector, new technologies and disruptive innovations such as blockchain and Fintech (including artificial intelligence) represent potential openings for our knowledge economy. They can revolutionize the economy, and in addition help our existing pillars which are fading out, especially the textile and sugar sectors.
Moreover, technology and innovation have the potential to allow people to create wealth and boost growth, and be competitive, especially in the development of innovative SMEs.
On the other hand, food self-sufficiency is something we should ponder on. We should go beyond just planning for vegetable crops, and look to grow value-added products like organic farming which is becoming a new trend and which can be exported to the region and to Europe.
Moreover, ocean or blue economy which has stalled for years, should be given a push as it has huge potential in terms of income and employment.
People in the EPZ sector who are currently unemployed can be recycled to work in the transformation plant. Mauritius being surrounded by sea can be exploited to produce medicinal products from the sea, solar photovoltaics on the seas, wind turbines using waves to convert into electricity. It is indeed time to create new catalysts that will boost our economy.
2. The way forward
Ending the year 2020 with a contraction of the economy of 14.2% (i.e. negative growth) is not that promising. Our economy was therefore partly under artificial respiration due to increase in inflation rates resulting in a general increase in price coupled with low spending capacity of the population.
Despite most sectors of the economy running since July 2020, business activities were not sufficient to cover their existing overheads due to decrease in demand. Covid-19 has been quite disastrous especially for the export sector due to low demand on the international market and lockdown in different countries. Consequently, some businesses had to shut down and even lay off people
The New Economic Order will be a world of increased government intervention and fiscal policies in conjunction with monetary policy. Government should look at means and ways not to overburden offshore companies with additional taxes which are already experiencing financial distress due to the blacklisting of Mauritius. Otherwise, we might run the risk of damaging our financial services sector and hamper the jobs of almost 20,000 people employed directly and indirectly in the sector.
Moreover, with the general increase in prices due to inflation, there is an impact on demand for products generally.
In this perspective, Government income through tax collection will also decrease due to less consumption. To create a real boost in the economy, government should ponder on lowering the VAT rate which will in some way ease the lives of those who are in financial difficulty and, secondly, create aggregate demand in the medium-term for the local sector to flourish.
With a vaccine now available, we might see some improvements in the some sectors which were on the low side like travel, tourism and all tourism-related activities.
However, it will take several months before we can expect to return to pre-Covid-19level.
On the other hand, in addition to ensuring a Covid-safe economy, Government should continue to provide further support to vulnerable sectors of the economy given the scale of the challenges including falling inflation and high unemployment rate.
3. Can we expect a pick-up in some sectors especially the financial services sector?
The financial services industry has proved itself time and time again, and more than ever during early 2021. Our financial system will therefore be under close scrutiny by the Financial Action Task Force (FATF) and the OECD with regard to the five breaches which led us to be blacklisted. Obviously, we cannot expect Mauritius to turn from black to white overnight. It will undoubtedly take several months or even years to be able to completely erase this black dot on our flagship financial services. The financial sector contributes 12% of our GDP (gross domestic product) and having a qualified workforce, with advanced technologies, we will have to imperatively ensure that we move out of the blacklist. The blacklist already indicates loss of capital to other offshore jurisdictions which are in direct competition with Mauritius such as Singapore, Seychelles and Ras Al Khaimah in Dubai. Besides no new businesses, there are several other consequences such as increased due diligence and hesitation of the international banking and financial sector to deal with companies in Mauritius. This has been felt with the offshore and banking sector which are interlinked.
With regard to the tourism sector, an essential pillar of our economy, it’ll take quite some time before things go back to a degree of normality.
Sometime within the next six to twelve months, the world will be split into two: those that have been vaccinated, and those who have not. From a travel perspective, it is clear that accessibility to international travel will largely depend on a person’s vaccination status as the world rushes to halt the spread of Covid-19 through global mobility.
Most probably, an international certificate of vaccination will be mandatory and be part of the travel kit of passengers to enter certain countries.
When it comes to tourism, it is fair to say that free-flowing travel will resume between developed countries first; in fact, we are already seeing a spike in interest in travel within Europe. This means that poorer nations like Mauritius whose economy relies heavily on tourism are expected to experience a re-emergence of tourism later in 2021, keeping their borders restricted until the health crisis is under control.
On the contrary, for those countries relying heavily on tourism, we may also notice that they open their borders to vaccinated individuals, regardless of whether their own population has been inoculated yet.
Traveller confidence and trust building have become essential in the wake of Covid-19. Countries that are perceived to be safer, more responsive to the virus pandemic and managing it in a controlled, calm manner, are likely going to benefit from higher traveller visitation.
Tahir Wahab is a Fellow of the Chartered Association of Certified Accountants, Chartered Banker, and holds an MBA with Specialisation in Strategic Planning
* Published in print edition on 5 February 2021
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