POLICY RECOMMENDATION TO PROMOTE GROWTH AND DEVELOPMENT, GIVEN THE CURRENT GLOBAL FINANCIAL CRISIS

Dr. Gerard Adonis

Job Opportunities and Expatriate Employment

Both Seychelles and Mauritius rely greatly on expatriate labour. Number of foreign labour employed in Mauritius is estimated over 30,000 while Seychelles about 8,000 Despite rapid transformation in the socio-economic development of the country, such gain has not been accompanied by a revision of the education system.

 As a result has led to a serious incidence of skills mismatch and in consequence rising unemployment. Recommendation Government divert more resources into education if want to attain objective of replacing expatriate workers and avoid skill bottleneck. Need to ensure quality education in all the institutions.

Trade Preference
In their effort to diversify, Government have to ensure reduction of dependence on trade preferences for their product. Recent Events Dismantling of Multi-fibre Agreement Lower guaranteed sugar prices (39%) from EU (Mauritius & ACP countries)

 In finding ways to make economy more resilient, Government should focus on empowering the private sector to improve their capacity and competitiveness.
How?

Proposed Reform in the Tax System (Seychelles case)

Among the reform proposed are;

 Review of tax concessions and exemptions. New tax code to be introduced in January 2010. Existing tax rate of 40% (above SR 250,000) on businesses will be reduced as of January 2010. Companies operating in the import zone under special import licences must operate on the same terms and conditions as domestic importers Retail mark up (30%) in calculating GST will be eliminated as of January 2010. Introduction of the personal income tax to replace the existing Social Security contribution January 2010. Replacement of GST by VAT

Creation of Regional Integration

Being small is disadvantageous

To overcome their inherent development constraints and benefit from economies of scale some African countries (incl Mauritius and Seychelles) actively promoting and participating in regional cooperation and economic integration.

 Seen over the years creation of regional groupings e.g. SADC, COMESA and IOC Despite existence of those regional groupings, trade cooperation among members limited. E.g. Trade among IOC members less than 10% Need greater economic integration by addressing issues relating to;
Trade Barriers Tariffs

 Creation of Regional Banks

In-depth study should be undertaken to explore possibility of setting up Regional Banks. Unfortunate that continent of Africa has only one major Bank With FC at its peak and Governments inability to bailout their local institutions, many have no recourse but banging on the door of AfDB. Consider scenario of having many more of the other African countries queuing at the door of AfDB! Having Regional or Sub-Regional Banks therefore would definitely be advantageous.

Adoption of Single Currency Time has come for countries in Africa and IOC to seriously explore eventuality of creation of single currency Can start at regional level

Often small economies do not have luxury of large reserves to defend their local currency. Having single currency may help cushion the economies from adversities like the one the world is currently experiencing.

Economic Diversification

Many African countries depend too much on traditional sources and on only 1 or 2 sectors for their economic development. When crisis strikes they are the first ones to be affected Governments should do their utmost to speed up process of diversification and modernise their economies, hence reducing reliance on traditional sources.

 Should explore potential of venturing into service sector devt s.a financial services. Need good infrastructure Sound Macroeconomic Policy Inflationary Target Stable Exchange Rate Transparent & non-discriminatory Tax Policy

Promote Local Investment Governments should take more proactive role to kick start the economy

Could be achieved by;

Encouraging more effective public sector investment. Encourage local businessmen to undertake investment activities in the local economies. Facilitate the availability of funds Negotiate and establish line of credit facilities with overseas institutions through local Devt Banks.

Import Substitution Small economies are often at a disadvantage when comes to global trade. Difficult to negotiate fairer price and cannot benefit from economies of scale Are heavily dependent on import Recommendation

 Government should encourage more import substitution by;

Providing fiscal incentive to local enterprises Level playing field Make available necessary funding (e.g. Concessionary Credit Agency Seychelles)

Concurrently promote export-oriented industries

Promotion of Small Enterprises

Many African countries have large informal sector Botswanas informal sector estimated to contribute about 33% towards GDP
As those activities go unrecorded, could undermine the countrys future development prospect.

Seychelles and Mauritius been very successful in promoting small enterprises because governments provided fiscal incentives.
loans at favourable rate easy access to financial resources tax exemption (business tax)

Benefits
formalising the informal sector promoting employment creation broadening the tax base

Debt Management

Most African countries, including Seychelles have one thing in common - high unsustainable public debt.
Very few countries in Africa have an efficient debt management system in place, i.e. transparent and reliable.

Recommendation
Establishment of a Public Debt Law to strengthen transparency and management of public debt Creation of a Public Debt Service Fund purpose will be to help the Government service its domestic public debt hence reduce reliance on commercial bank borrowing.

Foreign Direct Investment Despite Africas vast resource base, the continent has been unable to attract large FDI. One aspect often criticised by foreign investors is infrastructural bottlenecks, and lack of skilled labour.
Area Governments should improve on by; guaranteeing adequate funds encouraging more effective public sector investment

 Recommendation

Inflationary Target Lite

If Government seriously want to attract further investment, need to; restore the shattered business confidence address the issue of cost of borrowing To achieve that; Consider adopting new monetary policy regime to control inflation

 Exchange Rate Policy Strongly recommended that Government set longterm target for the exchange rate. This will help; restore confidence in the currency, cushion it from external shocks.