Monetary&Fiscal Policy Responses Indian Ocean&Africa Seychelles
POLICY RECOMMENDATION TO
PROMOTE GROWTH AND
DEVELOPMENT, GIVEN THE
CURRENT GLOBAL FINANCIAL
Dr. Gerard Adonis
Job Opportunities and Expatriate Employment
Both Seychelles and Mauritius rely greatly on
Number of foreign labour employed in Mauritius is
estimated over 30,000 while Seychelles about 8,000
Despite rapid transformation in the socio-economic
development of the country, such gain has not been
accompanied by a revision of the education system.
As a result has led to a serious incidence of skills
mismatch and in consequence rising unemployment.
Government divert more resources into education if
want to attain objective of replacing expatriate
workers and avoid skill bottleneck.
Need to ensure quality education in all the
In their effort to diversify, Government have to
ensure reduction of dependence on trade
preferences for their product.
Dismantling of Multi-fibre Agreement
Lower guaranteed sugar prices (39%) from EU –
(Mauritius & ACP countries)
In finding ways to make economy more resilient,
Government should focus on empowering the
private sector to improve their capacity and
Proposed Reform in the Tax System
Among the reform proposed are;
Review of tax concessions and exemptions.
New tax code to be introduced in January 2010.
Existing tax rate of 40% (above SR 250,000) on
businesses will be reduced as of January 2010.
Companies operating in the import zone under
special import licences must operate on the same
terms and conditions as domestic importers
Retail mark up (30%) in calculating GST will be
eliminated as of January 2010.
Introduction of the personal income tax to replace the
existing Social Security contribution January 2010.
Replacement of GST by VAT
Creation of Regional Integration
Being small is disadvantageous
To overcome their inherent development
constraints and benefit from economies of scale
some African countries (incl Mauritius and
Seychelles) actively promoting and participating
in regional cooperation and economic integration.
Seen over the years creation of regional groupings
e.g. SADC, COMESA and IOC
Despite existence of those regional groupings,
trade cooperation among members limited.
E.g. Trade among IOC members less than 10%
Need greater economic integration by addressing
issues relating to;
Creation of Regional Banks
In-depth study should be undertaken to explore
possibility of setting up Regional Banks.
Unfortunate that continent of Africa has only one
With FC at its peak and Governments’ inability to
bailout their local institutions, many have no
recourse but banging on the door of AfDB.
• Consider scenario of having many more of the other
African countries queuing at the door of AfDB!
• Having Regional or Sub-Regional Banks therefore
would definitely be advantageous.
Adoption of Single Currency
Time has come for countries in Africa and IOC to
seriously explore eventuality of creation of single
Can start at regional level
Often small economies do not have luxury of
large reserves to defend their local currency.
Having single currency may help cushion the
economies from adversities like the one the world
is currently experiencing.
Many African countries depend too much on
traditional sources and on only 1 or 2 sectors for
their economic development.
When crisis strikes they are the first ones to be
Governments should do their utmost to speed up
process of diversification and modernise their
economies, hence reducing reliance on traditional
Should explore potential of venturing into service
sector devt s.a financial services.
Need good infrastructure
Sound Macroeconomic Policy
Stable Exchange Rate
Transparent & non-discriminatory Tax Policy
Promote Local Investment
Governments should take more proactive role to
kick start the economy
Could be achieved by;
Encouraging more effective public sector
Encourage local businessmen to undertake
investment activities in the local economies.
Facilitate the availability of funds
Negotiate and establish line of credit facilities with
overseas institutions through local Devt Banks.
Small economies are often at a disadvantage when
comes to global trade.
Difficult to negotiate fairer price and cannot
benefit from economies of scale
Are heavily dependent on import
Government should encourage more import
Providing fiscal incentive to local enterprises
Level playing field
Make available necessary funding (e.g.
Concessionary Credit Agency Seychelles)
• Concurrently promote export-oriented industries
Promotion of Small Enterprises
Many African countries have large informal
Botswana’s informal sector estimated to
contribute about 33% towards GDP
As those activities go unrecorded, could
undermine the country’s future development
Seychelles and Mauritius been very successful
in promoting small enterprises because
governments provided fiscal incentives.
loans at favourable rate
easy access to financial resources
tax exemption (business tax)
formalising the informal sector
promoting employment creation
broadening the tax base
Most African countries, including Seychelles have
one thing in common - high unsustainable public
Very few countries in Africa have an efficient
debt management system in place, i.e. transparent
Establishment of a Public Debt Law to strengthen
transparency and management of public debt
Creation of a Public Debt Service Fund – purpose
will be to help the Government service its domestic
public debt hence reduce reliance on commercial
Foreign Direct Investment
Despite Africa’s vast resource base, the continent
has been unable to attract large FDI.
One aspect often criticised by foreign investors is
infrastructural bottlenecks, and lack of skilled
Area Governments should improve on by;
guaranteeing adequate funds
encouraging more effective public sector
Inflationary Target Lite
If Government seriously want to attract further
investment, need to;
restore the shattered business confidence
address the issue of cost of borrowing
To achieve that;
Consider adopting new monetary policy regime
to control inflation
Exchange Rate Policy
Strongly recommended that Government set long-
term target for the exchange rate.
This will help;
restore confidence in the currency,
cushion it from external shocks.