L’Express | 10 janvier 2007
Triangular Cooperation Mauritius-India-Africa: The Mauritian perspective
The Comprehensive Economic Cooperation and Partnership Agreement (CECPA) was yet again the focal point of discussions between Mauritian International Trade Minister Madun Dulloo and his Indian counterpart Kamal Nath last week in Delhi. CECPA, whilst being a powerful bilateral instrument to enhance trade and economic ties between our two countries, is also an inventive collaborative effort which will ultimately make of Mauritius the ideal step-stone on the India to Africa economic route.
The era of preferential treatment is over. Mauritius is slowly reconciling with this fact. But doing away with old habits is tough. Since the 1970s, the local economy has thrived on preferences. Through European Union’s (EU) Sugar protocol, it has enjoyed privileged access and guaranteed prices for the sale of its sugar production in Europe. At a later stage, the Multi Fibre Agreement (MFA) has protected the Mauritian textile industry from fierce Asian competition. Attracting a myriad of south east-asian investors that produced and exported knitted and woven garments, quota-free, over the world.
But MFA has been dismantled for over a year now. During the last five years, Hong Kong investors that once held Mauritius as an ideal production place for textiles have moved to China, India or Sri Lanka. The textile sector has been enduring negative growth rates for four consecutive years. The Export Processing Zone of Mauritius has known negative growth rate of 13% in 2005 alone.
The sugar sector, as a consequence of the restructuring of EU’s Sugar protocol, is facing drastic fall in revenue that will oscillate between 5% to almost 40% by end 2011. In 2005, this sector has registered a -9,1 growth rate.
Up to late 1980s, the sugar industry together with textiles generated more than half the country’s Gross Domestic Product (GDP). In 2005, their contributions have fallen to less than 10%. And there is no indication that growth in both sectors will be picking up steadily in the short term.
Partners that were once helpful no longer are. Sectors that were once having a bright future are now stagnating. Mauritius now needs to diversify its economic base. Whilst still working with its traditional partners it desperately needs to find new ones. There are some that have been known for years. But on which not enough hope or emphasis has been laid. Now is the time to turn to them.
The elder brother
The Indian High Commissioner in Mauritius, Pripuran Singh Haer likes to remind people “that the cultural ties between Mauritius and India have always driven the bilateral relationships between the two countries”. The sub-continent for the last 20 years has ascertained itself as one of the major economic and commercial partners of Mauritius.
As at now, India stands out as a major supplier of Mauritius, in consumer goods as well as in heavy machinery, etc. This country has been constantly ranking amongst the top three or four suppliers of Mauritius during the last five years.
Apart from these, India also tops the list of Foreign Direct Investment (FDI) sources for Mauritius in sectors as diverse as consumer goods, pharmaceuticals, textiles, petroleum product distribution, banking and information and communication technologies, outpacing the UK and France on the list.
India has also positioned itself as a very important development partner in Mauritius. Lines of credit or special grants, topping the Rs 5 billion mark for the past seven years have helped in constructing major landmark development tools for Mauritius. Namely, the Ebene Cyber City, the Swami Vivekananda International Convention Centre of Pailles, as well as various educational facilities.
India and Mauritius also have very effective instruments of cooperation at work. The double tax avoidance treaty that links the two countries has worked wonders to provide both Indian and foreign investors to use Mauritius as a conduit to channel investment in India. As at now, this tool has had a very limited positive impact in Mauritius. As the only benefits that Mauritius has derived from this is the setting up of few offshore management companies and banks that employ, at best, around 50 Mauritian nationals for such activities. Mauritius, in the process, enjoys the title of first (artificial) provider of FDI in India. More than 51% of FDI injected in the Indian economy from April to December 2005 (ie $1.9 billion) was routed through Mauritian offshore banks and companies.
But a new era of economic partnership is shaping up between Mauritius and India. Through the forthcoming Comprehensive Economic Cooperation and Partnership Agreement (CECPA). This multi-pronged instrument comprises a Free-Preferential Trade Agreement between the two countries, but also numerous other tools to promote investment and facilitate trade in goods in services as well as help technology diffusion.
Mauritius belongs to two strong and developing African regional blocks: the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC).
Within the COMESA, Mauritius already has very strong economic and commercial ties with Egypt, Madagascar and Kenya, to some extent. Nine COMESA member states namely Djibouti, Kenya, Madagascar, Malawi, Mauritius, Sudan, Zambia and Zimbabwe eliminated their tariffs on COMESA originating products, in accordance with the tariff reduction policies set by the association.
A Free Trade Area and Customs Union covering all the 20 COMESA members is being negotiated since early 1990. But Mauritius, amongst other members, fears that very competitive Egyptian exports might flood local markets, devastating local industries in the process.
Mauritius’ position in SADC is even more crucial. With South Africa and Botswana and Namibia, the country maintains a driving position within the organisation. With the recent joining of Madagascar, Mauritius sees SADC as the regional organisation that best serves it’s economic interest and within which economic partnerships are most vibrant. Mauritius enjoys steady FDI flows to and from SADC member states.
A time frame has been set for major developments within this block. In march 2004, deadlines were set by the SADC secretariat. By 2008 a Free Trade Area (FTA) should be set up, two years later a common external tariff should be adopted.
Kailash Ruhee, Chief of staff of the Mauritian Prime minister’s office and former partner of regional consultancy firm DCDM likes to remind that “the SADC and COMESA regions’ middle class and upper class population hovers over the 200 million people mark. Needless to say then that there is tremendous potential in this region for exports and setting up of businesses.”
How do we then get Mauritius, its elder brother and lost cousins to work together? Mauritian and Indian authorities have been talking about trilateral cooperation between these three partners yearly. But still, no concrete example of trilateral cooperation has yet been concretely identified and put in place. So does the idea of pooling resources and business from the tree partners hold any water?
The crucial question remains. Why should Indian firms bother to channel their investment and activity through Mauritius to land in Africa? And similarly, why should African businesses choose the same route the other way round?
Gérard Sanspeur, former Managing Director of the Board of Investment, who is currently working with the World Bank on Madagascar’s Investment Code, sounds pessimistic. “Stopping over in Mauritius before investing elsewhere in Africa would definitely entail costs. This can be a loss of time and money, as fees will have to be paid to various intermediaries.” Mauritian business tycoon Tim Taylor, Chief executive officer of Rogers, is harsher: “This is a sweet dream,” he vows. Though his group plans to invest in the IT sector in India. Prega Ramsamy, former SADC secretary general nails the coffin. “There existed a comparative advantage 15 years ago. Till then African countries have opened up, the sub Saharan region is well interlinked with roads. Investment facilitation programmes have been set up. Business conclaves are held in Zambia, not in Mauritius. Indian businessmen are more and more business-minded, they go where they find the best opportunities. And if that means going directly into Africa,” asserts Ramsamy.
But proponents of the India, Mauritius and Africa axis are as many. Rajiv Servansingh, deputy Secretary General of the Mauritius Chamber of Commerce and Industry is one of them. He insists on the fact that the country should tame its ambitions. “We should play it smart not safe by targeting each and every country in the COMESA and SADC. These are too heterogeneous groupings. We should choose our partners” Tanzania, Uganda, Botswana, Mozambique, Kenya, Madagascar and South Africa stand out of the lot. The local private sector already has certain business relations with partners in these countries. On a state level, governments of these countries share a same business-friendly approach that aims at attracting investment in new sectors of their economies.
“We need to be first movers and bring our products to African consumers before other producers decide to flood the market once tariff barriers go down.”
Amédée Darga, Chairman of Enterprise Mauritius (EM), agrees to this but points out that whilst concentrating on countries of “frontline interest”, Mauritius should not neglect opportunities that might be cropping up in neighbouring countries.
If proponents for the India, Mauritius, Africa route exist, those defending the possibility of major business and investment opportunities the other way round are not easily found. The main issue remains India’s reluctance to open its gates to cheap African produce or manufactured goods that can be routed through the Mauritian Freeport to enter India as soon as the FTA between the two countries comes into action.
Geethanjali Nataraj, member of the faculty at the Indian Institute of Foreign Trade in Delhi puts it clearly. “Mauritius is the centre for trade activity and a major international port. India is apprehensive of the fact that many countries may start routing their products into India through Mauritius and, therefore, the question of rules of origin becomes crucial. (...) So that goods from other countries do not enter India through Mauritius and get an unfair advantage (...) India would prefer to avoid trade diversion and also major revenue losses on account of the decreased level of tariffs to Mauritius. Rather, it is being suggested that it would be better if the two countries explored the possibility of giving tariff preferences to each other for items of export interest to each other,” cautions Nataraj.
But why then, does the India, Mauritius Africa route seem to hold interesting prospects? “Mauritius enjoys a positive bias. We are not perceived as threats and are seen as a success story by both African and Indian businessmen”, enthuses Darga. Added to that, Mauritian businessmen turn out to be having the right mix of African and Indian culture. Sanspeur thus thinks that Indian businessmen in certain African countries suffer from quite a negative perception as being shrewd and uncompromising bosses and partners. In other African countries, white business partners are held in as low esteem. “We bridge the cultural gap, we naturally act as a cultural facilitator between Indians and Africans” asserts Darga.
Other reasons are less intangible. In September 2005, the Doing Business 2006 survey by the International Finance Corporation ranked Mauritius on the 23rd position amongst 155 countries. Putting Mauritius first in Africa. Rajiv Sant, the Chief Executive Officer of Universal Breweries in Mauritius talks about this aspect. “We’ve set up our brewery here just for that. Mauritius offers a unique platform in this region, apart from South Africa. We have a democracy, a finance hub where our investments here are protected, good port facilities. So we can now use Mauritius as a steeping-stone into Africa. We want to grow out of Mauritius” tells the Indian national. Universal Breweries will soon be shipping its first orders in the African and Indian Ocean Region. In coming months, a new beer, Beck’s, will be manufactured under licence from Inbev. It will be exported to neighbouring countries from Mauritius.
The mix of advantages that Mauritius provides is attracting other partners that want to use Mauritius as a steeping-stone to Africa. Pakistan has thus been pressing for a FTA between the two countries. The pakistani ministry of Commerce is proposing no less that another CECPA that will encompass trade in goods and services technology transfer, investment and economic cooperation between the two countries. “Things are going very fast. We get the definite impression that Pakistan wants this FTA to be set up as fast as possible. So as to become a major economic partner of Mauritius. They want to follow India’s strategy,” asserts Asad Bhuglah.
Malagasy ambassador, Bruno Ranarivelo thinks that the position of Mauritius is most strategic. “All major Indian companies who have wanted to invest in Africa are in Mauritius. We can benefit from having these companies on hand here so as to start having a more developed economic relationship with India. Mauritius and India share extraordinary ties, so it is totally farfetched to think about attracting Indian investment without seeking help from Mauritians,” explains the diplomat who is also accredited in New Delhi. Mauritius, it seems, has a lot to offer. But we still have to identify the opportunities more clearly.
Betting on the right horse
Mauritius does not have huge areas of land available for cultivation or industrial purposes. When a factory worker in Mauritius costs an average $140 per month, in Madagascar, it drops down to around $40. (Source: Sadc secretariat and Central Statistics Office of Mauritius).
Mauritius offers hardly any comparative advantage to an Indian company who needs to start mass production of a good at cheap cost. “We should focus on services,” says Darga. He is quite right. If Africa is unknown territory for a vast majority of Indian investors, it is not the case with Mauritians, who have a better knowledge of the terrain, the people and some existing frameworks for cooperation. These help them to identify the promising sectors and find the interesting business opportunities. Local consultancy firms like Straconsult and DCDM have built strong reputations as being business opportunity identifiers in Africa.
India’s “Africa Focus” programme, financed by its Exim Bank, devised in 2002 and spanning up to 2007 identifies key sectors in which Mauritius needs to venture. During his speech before the South African Parliament on the 15th of September 2004, Indian President A. P.J Abdul Kalam listed key sectors that should be developed by or with India. They are (1) Agriculture and Food processing (2) Education and Healthcare (3) Infrastructure development (4) Information and Communication technologies (5) Critical technologies and strategic industries. Anand Sharma, Indian minister of Trade Affairs recently stressed that small and medium enterprises (SME) should be particularly forceful in finding opportunities in these areas. Mauritius has the means to act as the missing link between Africa and India in almost all the domains listed above.
Mozambique and Madagascar and to some extent Uganda and Tanzania offer greatest opportunities here. “Since 1997, the Mozambican government has granted Mauritians firms the possibility to exploit 100,000 hectares of land. Not a single projet has spawned yet!” laments Kailash Ruhee. Mauritian entrepreneurs don’t have skills or the experience of exploiting such huge areas for cultivation. But these 100000 hectares might just not remain fallow land if some known recipes are tested by local entrepreneurs with the help of Indian counterparts. The Mauritius Sugar Industry Research Institute, that also focuses on research on cash crops and alternative crops to sugar cane, can also help to identify and breed new varieties of crops that would be most suitable to the weather conditions prevailing in those countries.
This is a field where Mauritians can play a new role. Amedée Darga stresses on the fact that local companies “should show keen interest in privatisation of existing organisations and new projects in Infrastructure”. He identifies two ways in which the Mauritian business community can venture in Africa alongside Indian companies. Darga says local quantity surveyors, architect firms and engineering firms should pool together. Some of them already deal with African clients. It is through them that these firms are likely to discover new projects that are taking shape and start working on these projects whilst looking for partners that would be ready to step in at implementation stage or to fund projects that might have been set up. “Small mauritian firms need to look beyond their own little differences and work in collaboration with others when it comes to dealing with big African clients and Indian partners”.
Mauritius has since early 2000 gathered new experience in the field of power generation. The Centrale Thermique de Belle Vue in the northern region of the country generates electricity by burning bagasse. Another plant of the same time has been set up in the South. This one produces electricity by burning bagasse and coal. Mauritians have now sufficient experience to enable them to run or even set up such power plants in African countries where a huge quantity of biomass is available either from sugar cane or corn crops. They might not be bringing capital, but they can share expertise in setting up and running of such facilities in a joint venture with Indian partners.
“Mauritius thus offers the interface and the knowledge of the market whilst India might bring in the investment.”
Dozens of SME in Mauritius specialise in assembly of computer equipment for sale locally. They still have to focus on Africa and EM is trying to get them to do that. Local box movers, like Leal Informatics, see little opportunity in Africa for the moment. Because computer products are actually sourced from suppliers who cannot provide local companies with huge quantities at competitive prices. EM, Mauritius for Africa fair in June will lay particular emphasis on linking local resellers to major suppliers. Indian firms are been keenly looked for.
Madagascar, which will be linked to the new Eassy Fibre optic cable by end of 2007 is yet another country where local firms might be able to venture with Indian partners. Thomas Buffard, French investor in the Call Centre Business in Mauritius states that investors around the world are keenly waiting for Madagascar to be connected to set up activity there. The cheap, readily available and relatively well-educated French-speaking labour force being quite an attractive element. “There is the element of first mover advantage. Mauritius is a neighbour. Local firms now know how to run a call centre business, they have the contacts, the knowledge of a buoyant francophone market. It’s up to them to look for partners to tap into the francophone market from Madagascar”, predicts Buffard. And those future partners to local firms better be Indian. India nationals suffer from poor lingual skills in dealing with the Francophone market. This has constantly kept them away from it. Mauritius thus offers the interface and the knowledge of the market whilst India might bring in the investment.
Tourism is an emerging sector in Africa that is still far from being properly managed and developed. “Mauritius has learned from its experience as a world known tourism destination. We are gifted enough to have a very solid experience in hospitality field. This is certainly not the case in India.” But Indian investors are seeking opportunities to invest in the field in Africa, be it in the northern coastal region of Madagascar, in Kenya or Ugandan bush. Mauritian partners can help in the daily management and initial design of these hotels whilst Indian partners bring in funds.
The CECPA could once again prove to be an extraordinary tool for economic cooperation between India and Mauritius. Indeed, during the latest round of the CECPA negotiations held in Mauritius in May, a very promising initiative has been set on the table. This agreement, when operational, will provide for lines of credit from Exim and other Indian banks for financing projects relating to trade in services and goods. The Mauritian delegation has recently put on the table the idea of priority funding, by loans from the line of credit, to any project involving a joint venture between Mauritian and Indian partners in view of setting up a business in Africa or that will trade with African countries. If adopted, this elements is believed to be of definite importance for the India-Mauritius-Africa axis.
A lost battle, unless...
South Africa stands out as the major threat to Mauritius’ strategy to serve as the conduit of Indian Investment and business into Africa. This country is using its driving force within the Southern Africa Customs Union (Sacu) to further develop economic cooperation with India. The Sacu is in talks with India for the signing of a FTA. This initiative aims more largely at creating another trilateral cooperation axis that is seen with keen interest by Indian private sector: the India Brazil South Africa (IBSA) cooperation. Major pharmaceutical and automobile industries in India are believed to be waiting for the signing of this FTA to start producing in South Africa (PTI report dated March 4, 2006).
But Darga doesn’t see South Africa as posing a major threat to the position of Mauritius with India. “South Africa cannot replace Mauritius in India’s strategy to penetrate Africa. First because Mauritians are seen as more neutral by other African countries. Secondly South Africa, being a huge partner, it would be requiring a much larger share of the business with India. In joint ventures, South African companies would require as many benefits than that of their Indian counterparts. Whereas Mauritius could be less ambitious in what it expects from India,” reassures Darga.
Other question remains as concerns the predictability of business in the region. Rajiv Sant cautions: “I need to see tariffs getting zeroed as soon as possible. We will be able to produce and export on African markets only if the conditions to entry are favourable. We need to be first movers and bring our products to African consumers before other producers decide to flood the market once tariff barriers go down.”
Ultimately, whatever governments do, at the end of the day, it is the private sectors of respective countries that will get the axis to work or not. One major weakness in Africa for the time being is the lack of linkages and exchange of information between chambers of commerce of respective countries. The SADC chambers of commerce association which started as a vibrant organisation is now in slumber. Preventing information about business opportunities in member states to be properly channelled to Mauritius for example. “It’s not about governments. The business communities, individual investors must be on the look out for investment and joint venture possibilities with each others,” warns Rajiv Servansingh.
Lastly the Mauritian business community needs to review it’s own agenda. By embracing the fact that Africa is a land of opportunities and not just the eternal under developed cousin with whom they cannot exchange their goods and share business opportunities.
Mauritius should not be under the impression that trilateral cooperation will solve its major economic problems. As it appears, from this strategy, Mauritius will not benefit in terms of job creation. But this should be balanced by greater revenues that will be derived when investment flows and business ideas channel through Mauritian firms before landing in the final African destinations.
In many cases the predominant business model of a firm working on the India, Mauritius Africa route, will be something resembling to a specialised consultancy firm that gathers and distributes business information to partners who pay for such services. In fewer cases, actual joint ventures between Indian and mauritian companies will be built to sell or produce goods or services on African soil.
However, it is only if a tremendous amount of SME as well as larger firms go for Africa with Indians as partners that this new axis will come to life. It will all depend on the willingness and the preparedness of the local business community to venture into Africa. Because, if local businessmen remain idle for a long period, business opportunities that do exist in agro industry, ICT or hospitality might be taken up by quite rapidly by other countries like South Africa.
And in the worst case scenario, through trial and error and consistent market and field intelligence, the Indian business community may start to gather enough information on business opportunities in Africa for it to totally bypass Mauritius. In which case, Mauritius will only be considering bilateral relations with India and not trilateral. The India, Mauritius, Africa axis would be dead.
(This paper has been commissioned by the Friedrich Ebert Foundation)