Mike Rees: “The Euro zone financial crisis is over-analysed”

Mauritius can cushion the effects of the major transformations in the world economy by capitalising on new avenues of opportunities on the African continent, said Mike Rees, Group Executive Director and CEO of Wholesale Banking at Standard Chartered Bank.

BUSINESSMAG. During your last visit to Mauritius, you made recommendations as part of the International Advisory Board set up by the Ministry of Finance and Economic Development. What are these recommendations?

Mauritius sits in a triangle of growth, beset by the hydrocarbon wealth from the Middle East, the rapidly growing consumer markets in Asia and the resource-rich African continent which holds a sizeable emerging middle class. The neighbouring continent spells significant opportunity for Mauritius. There are two aspects of capitalising on those opportunities: firstly, understanding the very substance of those opportunities and secondly, the ability of Mauritius to position itself with respect to the continent to tap those opportunities.

In substance, the African opportunities can be presented under three headings namely the commodities and energy potential, the growing consumer market and the mounting infrastructure needs.

There is also an agricultural dimension to the picture. With its domestic production unable to feed its 1.3 billion strong population, which accounts for 20% of the world’s population, China is no longer food self-sufficient. Africa has clear agricultural potential, given that it has large expanse of cultivates land. According to the World Bank 60% of the world’s uncultivated land is in Africa.

Africa agricultural trade is still small, but there is potential.Given the interlinked pressures of urbanisation and shrinking arable land, China will need to turn to imports to meet domestic demand. More than 80% of China’s soybean consumption is already met by imports, mainly from the US, Brazil and Argentina. But given Africa’s potential, China is likely to turn more towards it. China’s current engagement in African agriculture is primarily aimed at addressing African food security. By investing in the region with the greatest agricultural potential, China could also be seeking to support its long term food security.

The booming African consumer market also spells significant opportunities. With a young population (currently, 55% of its population aged below 24), Africa is expected to have a population of 2.1 billion, that is 22% of the world’s population, by 2040. The Mauritian approach in tapping those opportunities should be organised along those three lines. Additionally the International Advisory Board sees the opportunity for Mauritius to become the knowledge centre of Africa . Of course, this cannot be achieved overnight. All the ingredients should first be put into place.

BUSINESSMAG.How far has Mauritius progressed in this respect?

We met in May 2012. There has been considerable progress since. Some key examples are the setting up of the Africa Centre of Excellence, freeing visa restrictions to many African countries, daily flights to China, etc. I am sure there is more to come. We want Mauritius to be the Jewel of Africa. Of course, we cannot run before we start to walk. We are walking for the time being. But we will quicken the pace soon.

So far, several bilateral treaties have been signed including one with Nigeria. Another with Kenya is underway. Also, investor protection has to be taken into account.

The International Advisory Board also welcomes the efforts taken in making Mauritius an international centre for arbitration which will increase investor confidence, prompting more investments in Africa and seeks to lay the foundation for this.

BUSINESSMAG.What is your forecast for the Euro zone and by extension that of the Euro?

I have no doubt that the European single currency will sustain itself. I did hear some political commentators speak profoundly on it. The Euro zone crisis ought not be overanalysed. One of the risks of an over analysis would be to disregard or overlook the social and economic hardships that ensued in Europe in the wake of the Second World War.

The current economic hardship is minute compared to some of those trials. The European integration has yielded 50 years of peace and was truly recognised when the Nobel Peace prize was offered to the European leadership this year. This is no mean achievement and should not be underrated. Thus the real driving force behind the Euro is actually to prevent the economic and social hardship of war ever happening again and I think the determination of European leaders to achieve that goal is very strong. I am confident that Euro zone will emerge from the current crisis. Institutional reforms are however needed.

BUSINESSMAG. Heavy emphasis has been placed on positioning Mauritius as a gateway to Africa in the last budgetary exercise…

Interest in Africa is a recent phenomenon. The international community is only now waking up to Africa. When I was at Davos for the IMF conference three years ago Africa was not in focus. The talks were more geared on India, China and Indonesia. But when I went to Davos this year, Africa comes up much more often as a topic of interest. At least half of our clients to which I spoke there mentioned the opportunities in Africa.

For Mauritius to become the gateway to the African continent, visibility is the key word. In terms of visibility, we can always do more though. We cannot afford to be complacent. For instance attracting more expats here will heighten visibility. The education hub can also play a significant role in this respect. 

Other ingredients also need to be put into place. At the end of the day, the success of Mauritius in its endeavour to become the gateway to Africa will depend on its ability to be the knowledge centre of Africa with high levels of global connectivity.

BUSINESSMAG. IMF forecasts a growth rate of 3.7%. A figure which coincides with growth expectations of the Ministry of Finance. However the sustained deficit in the current account has come under fire by the IMF. How can the said deficit be curtailed?

Those issues cannot and should not be considered on a year by year basis. When it comes to companies we do not talk about today’s financing needs but about their financing strategy. Similarly, the bigger issue to me is the financing strategy of Mauritius over the medium term and what we are trying to achieve. So we need to look at fiscal and current account deficits from that perspective. Unfortunately the International Monetary Fund (IMF) and the World Bank often display short sightedness in their recommendations and fail to take the medium term aspects into consideration. There should certainly be responsible fiscal regulation and fiscal trade deficits. The point here is what is the medium term plan, what are the elements of the trade deficit that are sustainable and not sustainable. A big part of the current account is energy. Alternatives that can potentially reduce the energy bill need to be considered in a bid to reduce the national current account deficit. Creating alternate sources of exports revenues through diversification of the economy is an effective way of addressing the issue.

The line should also be drawn between current account deficit and fiscal account deficit. Pension reform, which has been advocated by IMF, concerns fiscal account deficit. Moreover, the ageing population is a global phenomenon, not exclusively a concern for Mauritius.

BUSINESSMAG. How is Standard Chartered Bank planning to make the most of the African opportunities?

Standard Chartered Bank is currently focusing significantly on Africa. We are present in 17 countries in Africa so far, in many markets for over a century. We have committed an investment USD 100 M in the next 18 months and would be opening an additional 150 branches in Africa. We are seeing immense opportunities and expanding as well. We have finalised plans to expand into franchise in Mozambique and Angola this year.

We have taken a proactive stance in investing extensively in Africa and are advising the same to our global clients.