Maurice Lam: “It is high time for the country to look at the use of land”

Business Magazine talked to Maurice Lam in the wake of FDI data released by the Bank of Mauritius. The chairman of the Board of Investment, who spoke in his own name, said it is imperative that Mauritius attracts FDI into green field projects.

BUSINESSMAG. Foreign direct investment in Mauritius jumped 67.3 per cent to Rs 7.926 billion in the first six months of 2014. How do you explain this performance?

First, allow me to clarify one point. Looking solely at the FDI figure to measure the attractiveness of Mauritius as a destination to do business could be misleading. This measurement is useful when a country attracts investment in buildings and plants, but not in economic sectors that do not need heavy investments in production facilities. An example would be the ICT sector where the investment would be in laptops, computers and possible servers.

FDI increased 67.3 %, or Rs 3.2 billion, during the first six months ended June 2014. The increase in FDI is a result of the continuing effort of all stakeholders to make Mauritius an attractive and business friendly base to do business. There is a continuing effort of our policy makers to improve the business climate, improve the infrastructure, increase the Internet, air and sea connectivity of the country to the global marketplace, ensure a sound legal system and maintain law and order.

Mauritius is also getting the benefits of being viewed as an African country. Given our status as an upper middle-income country, with a good system of government, political stability and with relatively good health care and education providers, Mauritius is an oasis of stability and safe haven for companies willing to set up their Africa regional headquarters and for families of expatriate staff.

BUSINESSMAG. Why is it that the real estate sector continues to attract most of the flows?

When one looks at the FDI flowing into the hospitality and property sector, one has to make the distinction ofthe FDI into the hotel industry, immovable properties for business purpose and residential properties.

During the first half of the year 2014, Rs 7.5 billion of FDI went into the hospitality and property sector, representing 76.5% of the total FDI of Rs 9.8 billion of the period. Rs 2.2 billion went into the hotel sector, a sign that foreign investors see value in the hotel sector and have confidence that they will be able to fill these hotel rooms. This is a sure sign that foreign investors believe in the potential of Mauritius in attracting foreign visitors to come and spend their holidays in the country.

Many companies with fo-reign shareholders bring FDI to acquire immovable properties for their own use to house their offices, factories and warehouses. This is a sign that these companies are here for the long term. One does not buy an immovable property unless one has the intention to stay for the long term. Finally there are still foreign buyers for the villas under the IRS and RES schemes.

Of course, we, at BoI, are focus in increasing the FDI flowing in the other sectors of the economy. We are making efforts to promote the country to attract FDI into the services sectors like logistics and distribution, financial services, ICT-BPO, education and health and life sciences. These sectors do not require the same amount of investment as that required to purchase immovable properties.

You might wantto know that during the same period, Rs 300 mil-lion went into logistics and distribution, Rs 958 million into the energy sector and Rs 600 million into financial services.

BUSINESSMAG. Does it mean that promotion of productive sectors by the Board of Investment is a failure?

The answer to your question depends on how you define the productive sectors. You will agree that the services sectors are productive. An example is the financial services sector. This is a very vibrant and profitable one,provi-ding high paying employment to our population. Banks, management companies and accounting firms are adding high value to the economy, generating export revenues and tax revenue to the government.

In my opinion, BoI has done a good job in attracting players into the productive services sectors. Granted, if productive sector for you means manufacturing, I would say that BoI has been less successful.

There are many reasons for this. It is a fact that our young people prefer to work in an office space than in a factory environment. It is therefore a major challenge for any company starting a manufacturing operation to attract workers. In addition our labour cost has risen to a level where Mauritius cannot compete for low value addition manufacturing.

Our distance away from raw materials and markets puts Mauritius at a disadvantage to countries in Asia like Vietnam and Cambodia, and in Africa like Ethiopia and Kenya, due to insufficient sea and air connectivity.

Just on account of these two factors, you will agree that it is not easy to sell Mauritius as a manufacturing base to companies that sell to the global marketplace and even to the African market.

BoI views the low level of FDI into the manufacturing sector as a serious challenge.

BUSINESSMAG. For how long would Mauritius be able to sustain investment in non-productive sectors like real estate?

I would like to suggest a slight change in your question by removing the words “non productive”. The real estate sector is productive. This sector contributes to the GDP growth of the country. It employs a good number of our population. There are many companies operating across the entire supply chain, from the land surveyor, master planner, architect, supplier of construction materials, builder, electrician, interior decorator, landscaper, the supplier of furniture, sanitary ware, kitchen outfit, and finally the house cleaner. These are surely productive persons.

Now you might infer that this sector is not bringing in export receipts. There is one time effect of export proceeds when the buyer brings in funds to acquire the immovable property, if it is a villa. If it is a hotel, the hotel generates revenues from foreign sources. If it is a warehouse or factory, it is for production activities. Finally, if it is an office, it is supporting activities that contribute to the economy. Thus one has to be careful in our treatment of FDI into the hospitality and property sector.

Allow me to challenge you. You are aware of the difficulty faced by the sugar industry. Every year, there are planters stopping growing sugar cane. What will happen to the land which then remain non productive? Do you not think that there is an urgent need and it is high time for the entire country to look at the use of land, at our attitude towards land and its ownership, the emotional issues associated with it due to our past history and come up with a fifty-year plan for land ownership and use that would be embraced by the entire country.

Throughout history, as a country’s economy progresses, the value of land as a means in the creation of wealth has been declining. One has to remember that the richest fortune in the USA like the Wal-Mart family, Bill Gates, Warren Buffet and the Google founders built their wealth though they did not own a large track of land. Similarly in China, the founder of Alibaba created his fortune from an idea, not from the ownership of land. In my opinion, it is high time that we see Mauritians make their fortune thanks to their idea and not be fixated to the belief that they need to own land to create wealth.

BUSINESSMAG. Is it not high time to review the whole promotional structure of the country (and the BoI) to align it with the objective of becoming a high-income country?

Good question. BoI regularly addresses this question and finds answers. In 2006, Mauritius became “Open to the World”. It was a strategy to project the country as an open platform to companies that wanted to have a safe and stable jurisdiction. Once we found that this positioning has exhausted its effectiveness, we move to “Mauritius the gateway to Africa”, which evolved into “Mauritius linking Asia and Africa” or “The hub between Asia and Africa”. Certainly more can be done to position Mauritius as the business island of Africa.

BUSINESSMAG.What is the missing link to position Mauritius as a real hub between Asia and Africa?

We have had some success in this positioning but as mentioned earlier, more can be done. Mauritius can have the ambition to be the business island of Africa. We need to proclaim and be proud of our belonging to the African continent. We have a bilingual population, with ancestral roots from Asia (India and China) and from Africa. Thus we have a competitive advantage based on our population. Add to this the traditional link of business and trade with Europe; we surely have a winning combination to be the island business of Africa.

It could be a place that welcomes qualified persons from Africa, Asia and Europe to come to work, live and rest. Imagine if we were to open up the country selectively to attract yearly 10,000 highly qualified individuals: professionals, researchers and entrepreneurs, and their families to become permanent citizens. Immediately there will be a need for 10,000 new dwellings. If each family were to employ a house cleaner, this will create 10,000 new jobs. You can imagine the spill over to the retail and restaurant trade, and the cultural life.

Mauritius would need to have daily air connectivity to the major cities of Africa. For example, a regional manager based in Mauritius needs to be able to go to Lusaka in the morning, do business during the day and be back home at night. We are far from achieving this but it can be done.

BUSINESSMAG. How do you explain that growth rate is on the decline although investment flows to Mauritius are rising?

This is indeed a puzzle. In theo-ry an increase in FDI usually contributes to an increase in the GDP of a country, provided the FDI are to finance green field projects. Take the example of the Rs 2.2 billion that went into the hospitality sector. This was for the buying of existing hotels. This FDI did not add extra capacity to this sector. It was a change of ownership. It is imperative that Mauritius attracts FDI into green field projects.

BUSINESSMAG. Do you share the view that more can be done to promote Mauritius as a financial centre in this part of the world?

There is always more that can be done to promote Mauritius as the regional financial centre of sub-Saharan Africa. The regulatory environment has to be supportive of business and not become an impediment. There is a need for a regulatory environment, which does not add additional cost to doing business here. Singapore is a good example. There the regulatory authority works in partnership with the financial institutions. It regulates to ensure a robust, flexible and cost effective regulatory environment. Such environment will attract more financial institutions: commercial banks, investment banks, wealth managers, and insurance companies. These would in turn provide the backbone of an ecosystem that would attract regional treasury centres, capital-raising activities and risk-mitigation activities.

BUSINESSMAG. Do you feel that a rebranding of Mauritius as an investment destination is needed?

I would not call for a rebranding. Mauritius has made serious advances in its positioning as a business centre. There is room for improvement in the expression of this branding. This would require a change of mindset of the entire population. The foreign businessperson arriving at the airport needs to have a feeling that he is welcome. The driver bringing him/her to the hotel needs to act in such a way as to promote the image of a country that is serious about business and welcome the foreign businessperson. This applies to the hotel where he/she stays, the government and the various persons he/she interacts with. Our media and service providers need to project the same image. We have to aim for this if we are serious about the brand image of the country.

BUSINESSMAG. What are the new sectors that are attracting foreign investments?

Mauritius has been successful in diversifying its economy, with now many sectors contributing to economic growth. There are still growth opportunities in the existing sectors, like financial services, tou-rism, logistics and transportation and the ICT/BPO.

Of course, the country needs to constantly find new growth sectors in order to diversify further its economy and improve its resilience to external shocks. New growth areas are the knowledge industry, which not only includes education and training but more importantly using knowledge to generate high value-added activities like design and marketing in our manufacturing sector with the actual manufacturing being relocated to other countries, trading in commodities as Africa needs to export its agricultural products and Asia need them, and providing consulting services to Africa.

We can also build on existing pillars of our economy. For example, we could have traders in sugar and cotton based in Mauritius.

BUSINESSMAG. This week, Mauritius will host another Private Equity Conference. What are the benefits that we have derived from such events over the years?

This is an annual event, part of marketing Mauritius as the regional financial centre of sub-Saharan Africa. We expect to see the further consolidation of Mauritius in this position, given that private equity funds are becoming more and more the providers of capital for investments in Africa. I hope that our local business community will take advantage of this opportunity to establish valuable contacts and identify potential partners.

BUSINESSMAG. As the chairman of a promotion agency, what would you expect from the next budget exercise?

I prefer to wait and see. In my opinion, the budget is preferably and essentially an event with the government presenting how and where it will get its revenue and how it will spend the taxpayers money. Is the government planning to invest for the long term, spend taxpayers’ money in a responsible manner and do not spend more that it has, as a responsible person would do? The economic strategy would be better outlined in the government programme, with the annual budget outlining the execution of the programme.

BUSINESSMAG. Mauritius is expected to go to poll later this year. Do you think this will have a positive impact on the investment climate of the country?

At the risk of disappointing you and your readers, in my opinion, the election, if it were this year or next year, would not have a significant impact on the investment climate. Mauritius is known for its political stability with regular elections almost five years, with a vibrant democracy. The next election will not change this good image of the country.