Marjaana Sall: “Supporting Mauritius’ high income status aspirations”

Though Mauritius is an upper middle income country, as a small island developing state, it still has certain vulnerabilities and will have inter alia to improve its connectivity, observes Marjaana Sall, the ambassador of the European Union to Mauritius, Comoros and the Seychelles.

BUSINESSMAG. Can you give us an overview of the partnership between Mauritius and the European Union?

The European Union (EU) and Mauritius have good longstanding relations. The EU has provided more than 300 million euros during the past seven years to Mauritius in terms of bilateral aid mainly in the form budget support. Most of these funds have been allocated to the sugar sector reform programme (under the accompanying measures for the Sugar Protocol).

Although Mauritius has attained the upper middle income status, the EU continues to provide grant funds to the country. The EU is actually the biggest provider of grants in Mauritius. Of course, this relationship goes beyond the traditional donor recipient relationship. We cooperate and have a partnership on many global issues as well.

We work together on the Small Island Developing State (SIDS) agenda, of which the EU is a supporter. We cooperate in the area of trade, and we share an interim Economic Partnership Agreement. We also undertake political dialogue with the government to discuss issues of mutual interest including global challenges. The latest EU-Mauritius political dialogue took place on January 18. It was an opportunity to discuss about our partnership and the way we can work together to address global challenges such as climate change, sustainable development goals, regional economic integration, and peace and security. We confirmed that the EU stands ready to assist the government in achieving its vision to evolve to a high income country. We expect that this partnership will evolve in the years to come. The relationship now needs to be based more on trade and investment, on mutual interest, shared values, as well as global and political issues such as climate change.

BUSINESSMAG. How can the EU help Mauritius become a high income country?

Even though Mauritius has attained the upper middle income economy status, we still acknowledge and recognise that Mauritius has certain vulnerabilities as a small island developing state. Therefore, we want to partner with the government and stand by it to support its aspirations towards high income status.

For the next funding cycle (the 11th European development Fund (EDF), we have decided, together with the government, that 9.9 million euros in the form of bilateral grants will be allocated to two sectors, namely: tertiary education and research and innovation.

We feel these are the sectors that can add value and help Mauritius to make the leap to the high income economy status. The programming document will be signed this year.

By turning our attention to these two sectors, we want to address the skills mismatch in the labour force through tertiary education. We will work together with all stakeholders to determine the needs of the private sector so that this issue is addressed. Through research and innovation, we will also assist government in putting in place a governance structure to attract more funding for research.

There are other programmes which will be ongoing, such as the Global Climate Change Alliance programme. We will also provide support for the implementation of the interim Economic Partnership Agreement, with around 7 million euros. We will continue to discuss with the government to identify the areas requiring support to facilitate trade and increase economic regional integration.

In its Economic mission statement, the government has set high expectations and it is already setting the tone. We are ready to support the government of Mauritius in its objective of becoming a high income country. Through our bilateral cooperation with the Republic of Mauritius until 2020, our focus will be on enhancing the human capital available to the country, which is key for unlocking future growth.

BUSINESSMAG. There is an ongoing debate on the need to achieve at least a 5% economic growth for the economy to flourish. What is your take on this?

It is a high target of course since the growth rate has been around 3% for a while. There are some initiatives and priorities government is discussing, such as infrastructure. If these materialise, it is likely to bring about growth opportunities. However, these projects would take some time, and would happen in the long to medium term. In the short term, growth would probably need to come from other sectors like manufacturing, tourism, financial services and exports.

Mauritius is a SIDS with issues such as a small labour market, connectivity challenges and challenges for the supply of raw materials for its manufacturing sector. Then again, I think the regional economic integration could play a big role in helping the country attain its growth ambitions.

I see now that Mauritius wants to tap into the African market – one of the priorities of the Finance minister. The EU is a keen supporter of regional economic integration. We have a longstanding experience in this area. Intra African trade currently amounts to only around 10% of Africa’s total trade. So there are many opportunities for growth. The EU supports several regional organisations of which Mauritius is a member, such as the Indian Ocean Commission (IOC), SADC and COMESA. A key feature of our support to these organisations is regional economic integration, trade facilitation and addressing non-trade barriers.

Also, if our bilateral support is decreasing, on the other hand, our regional support is increasing. 1.3 billion euros has been earmarked for the region in the next funding cycle, including 85 million euros for COMESA, 90 million euros for SADC and 50 million euros for the IOC. All the member states of regional organisations can tap directly into these funds and implement actions. Mauritius can do so as well, but of course the programme needs to be regional in nature and follow the set procedures. It is worth noting that the EU funds around 80% of IOC portfolio of projects.

BUSINESSMAG. How are the Seychelles and Comoros economies faring?

Seychelles is a much smaller economy than Mauritius. In Seychelles, because it is now a high income economy, we are decreasing the amount of bilateral funds. For the past seven years, the bilateral European Development Fund was about 20 million euros. Now, it will be up to 2.2 million euros.

It will be in the form of technical assistance, and studies that the government feels that they need with the aim of facilitating the identification of other donors or projects. These studies are to be used as leverage for other funders.

We will continue funding projects around climate change and the implementation of interim Economic Partnership Agreement which will receive a considerable amount of support (about 7 million euros).

We have been partnering with the Seychelles in the area of maritime security. Seychelles took up the chair as of this January of the Contact Group on Piracy off the coast of Somalia. This was previously chaired by the European Union.

For the next funding cycle in Comoros, we have undertaken a joint development cooperation programming with France. We will provide considerable amount of bilateral funds since Comoros is a least developed and fragile country. We are providing around 60 million euros over the next five years in support of governance, elections, justice, transport, roads and education.

BUSINESSMAG. How do you assess the management and utilisation of funds allocated by the EU to the government of Mauritius?

As I mentioned, 95% of our previous support was general budget support. There are certain conditions a country needs to fulfil before the European Union can actually provide budget support, namely: sound public finance management, macroeconomic stability and good economic and social reforms.

Mauritius has met all these three conditions. The European Union also has stringent processes in terms of monitoring the results against indicators agreed jointly between the EU and the government. We need to make sure that EU taxpayer’s funds are well utilised.

BUSINESSMAG. Should the United Kingdom stay in the European Union given the current economic plight in the euro zone?

At their December meeting, the members of the European Council agreed to work together closely to find mutually satisfactory solutions in all the four areas mentioned in the British Prime Minister’s letter of 10 November 2015. At a historic meeting of the European Council on 19th February 2016, heads of state or government and president Juncker, in the presence of the presidents of the European Parliament and the European Central Bank, reached agreement on a new settlement for the United Kingdom within the European Union which will permit the Prime Minister David Cameron to campaign for the United Kingdom to stay in the EU in the upcoming referendum on 23 June 2016. On that occasion, the president of the European Commission, Jean-Claude Juncker, welcomed the agreement and stated that: “The deal we have agreed now is a fair one, a fair one for Britain, a fair one for the other member states, a fair one for the European Union.” Now it is up to the people of the United Kingdom to vote.

BUSINESSMAG. Some African economies favour the idea of a single currency across the continent like the euro. Is Africa ready for such a move?

Economic integration is a long process. Before a single currency can be established, several issues have to be discussed and agreed in order to set up the necessary regulatory framework. There are various conditions before a single currency can work, and it will take a long time to achieve them.

BUSINESSMAG. The survival of the Mauritian sugar sector will once again be in jeopardy with the abolition of sugar quota in 2017 which will favour European beet farmers. Can Mauritius expect further support from the European Union to enhance the competitiveness of its sugar sector?

The EU has supported the reform of the sugar sector since 2006. The main objective of the reform was to enhance the competitiveness of the Mauritian sugar industry. We supported the economic and social reform programme of the government of Mauritius, which included the sugar sector reform, through general budget support to the tune of more than 300 million euros since 2006. I believe that our funding has played an important role in reforming the sector and making it more competitive in the world market. I believe the sugar sector is better off now than it was some years back.

The abolition of the sugar quota forms part of the reform of the EU Common Agricultural Policy, which is based on internal EU policies. This reform is on-going since 2005. As mentioned earlier, the EU support to the sugar sector in Mauritius aimed at making the sector more competitive, in order to face global challenges. The EU also funds an ACP sugar research programme. I was just a while ago at the MSIRI and I was positively surprised that out of the 13 proposals, 8 grants were actually provided to Mauritius.

 BUSINESSMAG. A regional airline and maritime company is in the pipeline. How strategic is it for the Indian Ocean countries?

One key issue for these small island states is better connectivity. I can only welcome that. But it is up to the states concerned to make a decision on the best options.

BUSINESSMAG. Mauritius as an offshore jurisdiction recently found itself on the EU blacklist. How can the country strive to make its jurisdiction cleaner for foreign investment?

There was never an EU blacklist. And in October 2015, the EU published a technical update of EU member states lists on its website. The update reflects the changes in member states’ assessment. Also, the reference to uncooperative jurisdictions has been removed. Mauritius is still on EU member states national lists. We have encouraged Mauritius to hold discussion with the 8 EU member States as to why they are on the national lists and how they can be removed from the individual lists. This is all part of the EU’s good tax governance discussions.

BUSINESSMAG. How can Mauritius better position itself to capture the flow of investment going on between China and Africa?

Europe is still your biggest trading partner, with most of the foreign direct investment coming in from Europe and 61% of goods and services exported to Europe. In my view, Mauritius can play an important role as a bridge between Africa and Asia. It is for the government to decide how they will go about it.

BUSINESSMAG. Economic recovery in the euro zone is long-awaiting. When do you expect Europe to come out of recession?

It is much linked to global issues. We have all been facing some challenges for the past years. A lot of reforms have been done, and Europe will continue with the reforms to increase the competitiveness of the European industry.

I believe that Europe is on its way to recovery. The Commission forecasts GDP growth to be 1.8% in the EU (1.5% in the euro area) in 2015 and expects the trend to accelerate to 2.1% in 2016 (1.9% in the euro area). However, the EU still faces some underlying weaknesses, namely on unemployment. While the labour market situation is gradually improving, not least due to reforms implemented in several member states in recent years, unemployment is still intolerably high (9.6%).