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Categorized | Financial

Finance chief knows risk of not diversifing

Posted on September 29, 2016

It is more than a decade and a half since Pravind Jugnauth, Mauritius’s finance minister, faced his first career-defining political test.

Mr Jugnauth was agriculture minister in 2000, at a time when the sugar industry expected it would soon lose its preferential access to export markets such as the EU. Sugar was the biggest Mauritian export and many locals relied on the industry for their livelihoods. But job cuts would be inevitable, Mr Jugnauth realised.

    “If we didn’t do anything, it would have been the death of the industry,” he recalls, in his office in Port Louis during an interview with the FT. “But how do you tell people who have been working in that industry their whole lives that they are no longer going to have a job?”

    He worked with the trade unions and industry leaders to draw up an optional redundancy package where workers could receive a plot of land as a pay-off.

    Nowadays Mr Jugnauth is widely seen in Mauritius as the candidate most likely to replace his father, 86-year-old Anerood Jugnauth, as prime minister. The task he presently faces, however, may be tougher than the one he dealt with in the sugar industry 16 years ago.

    A revised tax treaty with India threatens to stem the investment flows that have poured into Mauritius over the past two decades. Though the finance industry — which accounts for over an eighth of the economy — is more than just an offshore tax centre, it will still have to adjust to the changing relationship with India.

    Pravind Jugnauth

    Jugnauth helped ease the impact of job cuts on sugar workers

    Meanwhile, the IMF identified wider challenges in a report this year. It showed public debt in Mauritius increased in 2015, productivity and competitiveness declined and labour costs rose. The population is ageing and investments in education and infrastructure are needed, while the disparity between rich and poor continues to grow.

    The IMF found that the “most problematic factor” for doing business in Mauritius is inefficient government bureaucracy. Yet it is the highest-ranked African country in the World Bank’s ease of doing business index, coming 32nd worldwide.

    Business leaders say that in order for Mauritius to become a global financial centre it needs a charismatic and decisive prime minister to attract more external investment.

    “There isn’t the same long-term vision here as in Singapore,” says Antony Withers, chief executive of Mauritius Commercial Bank, the largest national lender. “It needs to get a much bigger flow of investments and it’s well positioned to do so, but it needs a greater effort on behalf of government and the private sector.”

    Women working on a sugar cane plantation, Mauritius. (Photo by DeAgostini/Getty Images)©Getty

    Jugnauth was agriculture minister in 2000

    Whether Mr Jugnauth will be the strong leader that Mauritius needs remains to be seen, he says. “He’s quietly pragmatic, he listens,” adds Mr Withers. “I think he is someone who will be quietly effective.”

    Some of Mr Jugnauth’s critics are less enthusiastic. “His only claim to be prime minister is because of his father,” says Paul Bérenger, leader of the opposition and a former prime minister.

    Meanwhile, Mr Jugnauth is mired in a scandal of his own. He was convicted last year of having a conflict of interest when he agreed the government’s purchase of Medpoint Clinic, a hospital of which his sister was majority owner. He was sentenced to a year in prison, though the Supreme Court overturned the conviction earlier this year. The director of public prosecutions is challenging that ruling and is asking the privy council to review it.

    Island offers sweetener of lights, cameras and tax cuts

    a scene from 'Kuch Kuch Hota Hai'

    Government hopes foreign movie producers can market scenic Mauritius abroad

    “When I was convicted in the Medpoint case, I stepped down as a minister,” Mr Jugnauth says. “I have kept a low profile.” He says he will fight the case if it is allowed to be heard before the privy council. His father appointed him finance minister in May, hours after the Supreme Court decision was announced.

    The younger Mr Jugnauth was born in 1961, seven years before the country gained independence from Britain. Immediately before his conviction he was technology minister, having previously served as finance minister.

    Mr Jugnauth wants to diversify the economy, reducing its reliance on agriculture, tourism, financial services, manufacturing and construction. To do this, he plans to boost emerging sectors such as the film industry, renewable energy, property, biotechnology, life sciences and bunkering.

    In this year’s budget he proposed initiatives to improve the country’s infrastructure, create a maritime hub, support local entrepreneurs through tax incentives and access to finance, boost digital connectivity through new undersea cables, develop Mauritius as a renminbi clearing centre for Africa, and set up a near-shore mobile oil refinery with onshore storage facilities.

    When I was convicted, I stepped down as a minister. I have kept a low profile

    – Pravind Jugnauth

    He is also hoping that gold refining and precious metals trading takes off. He argues that it is essential for the country to develop an international commodities and derivatives exchange.

    Critics of the budget say most of the ideas are not new but simply reiterate promises that the government has not yet delivered on.

    Mr Jugnauth says the measures are “aimed at ushering in a new era of development for Mauritius by fostering a new economic cycle”.

    “I would wish to make Mauritius in a way like Singapore,” he adds. “They have made a lot of progress. We can learn from them.”