This document provides policy recommendations for promoting growth and development in response to the global financial crisis. It recommends that governments divert more resources to education to address skills mismatches, reduce dependence on trade preferences, promote regional economic integration, consider adopting a single currency, diversify economies, encourage local investment and small enterprises, strengthen debt management, and attract foreign direct investment through improved infrastructure and skills development.

1. POLICY RECOMMENDATION TO
PROMOTE GROWTH AND
DEVELOPMENT, GIVEN THE
CURRENT GLOBAL FINANCIAL
CRISIS
Dr. Gerard Adonis

2. Job Opportunities and Expatriate Employment
 Both Seychelles and Mauritius rely greatly on
expatriate labour.
 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.

3.  As a result has led to a serious incidence of skills
mismatch and in consequence rising unemployment.
 Recommendation
 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
institutions.

4. Trade Preference
 In their effort to diversify, Government have to
ensure reduction of dependence on trade
preferences for their product.
 Recent Events
Dismantling of Multi-fibre Agreement
Lower guaranteed sugar prices (39%) from EU –
(Mauritius & ACP countries)

5.  In finding ways to make economy more resilient,
Government should focus on empowering the
private sector to improve their capacity and
competitiveness.
 How?
 Proposed Reform in the Tax System
(Seychelles case)
 Among the reform proposed are;

6.  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

7. 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.

8.  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;
 Trade Barriers
 Tariffs

9.  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
major Bank
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.

10. Adoption of Single Currency
 Time has come for countries in Africa and IOC to
seriously explore eventuality of creation of single
currency
 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.

11. Economic Diversification
 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
affected
 Governments should do their utmost to speed up
process of diversification and modernise their
economies, hence reducing reliance on traditional
sources.

12.  Should explore potential of venturing into service
sector devt s.a financial services.
 Need good infrastructure
 Sound Macroeconomic Policy
Inflationary Target
Stable Exchange Rate
Transparent & non-discriminatory Tax Policy

13. Promote Local Investment
 Governments should take more proactive role to
kick start the economy
 Could be achieved by;
Encouraging more effective public sector
investment.
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.

14. Import Substitution
 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
 Recommendation

15.  Government should encourage more import
substitution by;
 Providing fiscal incentive to local enterprises
 Level playing field
 Make available necessary funding (e.g.
Concessionary Credit Agency Seychelles)
• Concurrently promote export-oriented industries

16. Promotion of Small Enterprises
 Many African countries have large informal
sector
 Botswana’s informal sector estimated to
contribute about 33% towards GDP
 As those activities go unrecorded, could
undermine the country’s future development
prospect.

17.  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)
 Benefits
 formalising the informal sector
 promoting employment creation
 broadening the tax base

18. Debt Management
 Most African countries, including Seychelles have
one thing in common - high unsustainable public
debt.
 Very few countries in Africa have an efficient
debt management system in place, i.e. transparent
and reliable.

19.  Recommendation
 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
bank borrowing.

20. 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
labour.
 Area Governments should improve on by;
guaranteeing adequate funds
encouraging more effective public sector
investment

21.  Recommendation
 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

22.  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.