The SME Policy Framework in Mauritius
Jairaz Pochun

• Introduction
  • Some Early Measures
• SME Development Policy
  • Definition of SMEs
  • Registration and Duty Exemption
  • Disposal of Production Equipment
• Goals and Objectives
• Sub-sectoral Policy Measures
• The Role of Government
• Co-ordination and Sharing
• Permits and Security on Loans
• Sustainability of Programs
• Conclusion

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The SME Policy Framework
in Mauritius
Jairaz Pochun

Introduction

The four pillars of the Mauritian Economy consist of

1. the Export Processing Zone (EPZ) sector - The EPZ comprises 460 enterprises manufacturing for exports estimated at more than US$ 1.0 billion, and employing about 80,000 persons;
2. the agricultural sector - comprising mainly the cane sugar production and exports of some 600,000 metric tons, valued at about US$ 400 million, and providing employment to about 46,000 persons;
3. the tourism sector - with an annual tourist traffic of more than 500,000 arrivals, generating earnings of about US$ 350 million, and employing about 25,000 persons;
4. the financial services sector - comprising mainly the Stock Exchange of Mauritius, the Mauritius Offshore Business Authority and the Mauritius Freeport Authority.

Government embarked on a major economic diversification programme from the mono-crop sugar economy to manufacturing in the mid-seventies with the introduction of an industrial strategy/policy with emphasis on manufacturing for exports on the one hand, and manufacturing for the domestic market as an import substitution strategy,

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on the other, to cope with the increasing imports and adverse balance of payments.

A number of legislations were enacted for creating the necessary conducive and enabling environment that would attract direct foreign investments in the Export Processing Zone, promote indigenous entrepreneurship and creation of local manufacturing companies to supply the domestic market, encourage development of companies to provide expertise in hotel management, housing and agricultural diversification programmes.

The promotion of companies by local entrepreneurs to meet the demand for import-substitution goods is as a matter of fact the first step towards creating a formal SMEs sector in the Mauritian economy, coupled by the setting up of the Small Scale Industries Unit at the Ministry of Industry and Commerce.

Some Early Measures

After a number of successive workshops and seminars for creating national awareness for small enterprises development in the country, the time was ripe for Government to declare its intention in this regard. While the Export Processing Zone sector was about to enter a phase of rapid growth in the mid-eighties, Government introduced three important measures providing a boost to the small enterprises sector as a whole.

The first of these consisted of declaring and including the small scale sector in the priority list of sectors for rapid development, which meant access to loans and other financial assistance facilities at preferential rates of interest. The second measure related to the commissioning of an in-depth study of the small scale sector by a senior consultant of UNIDO with a view to making recommendations for re-dynamizing the sector. And thirdly, perhaps more importantly, came the provision of the legal framework in the form of the Small Scale Industries Act, 1988. This Act was indeed a milestone in the process of consolidating the incentive framework and other legislations for industrial development.

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The Industrial Expansion Act of 1993 was enacted in the spirit of consolidation and strengthening of the existing institutional framework and support to industrial development in the country. Finally, the Small and Medium Industries Development Organization (SMIDO) Act was adopted which established the organization as a parastatal body.

SME Development Policy

Under the Industrial Expansion Act, a number of provisions have been made:

Definition of SMEs

SMEs have been defined as enterprises

1. engaged in manufacturing
2. using production equipment, the aggregate CIF value of which does not exceed US$ 300,000.

Manufacturing means

1. the transformation, for commercial purposes, of raw materials or semi-processed materials into finished or semi-finished goods,
2. and includes the repair, packing and assembly of inputs into finished or semi-finished goods

Registration and Duty Exemption

SMEs may be registered with SMIDO and a Certificate of Registration be issued by the Minister of Industry, which will then qualify such registered SMEs for incentives in terms of duty exemption on imported production equipment up to the prescribed CIF value, and reduced corporate tax of 15% (instead of the 35%). Other facilities are available such as concessional/preferential terms and conditions on borrowing from banks.

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Disposal of Production Equipment

Permission may be granted for the disposal of the production equipment upon written notice to the Director of SMIDO subject to payment of any pro-rated duty, if any, as decided by the concerned authorities. This provision allows SMEs to replace and modernize their production systems when necessary.

Under the sub-sectoral policy measures, special provisions are also made for the printing and publishing, jewellery making and the leather-based goods industries. Incentives would include duty exemption on the equipment as well as on raw materials and other components. That is, gold and precious stones are exempted from all duties.

Goals and Objectives

The Industrial Expansion Act aims at:-

• considering existing legislation relating to the development of the industrial sector,
• providing a new legal framework for industrial modernization and transfer of technology,
• upgrading of small and medium enterprises,
• integrating non-EPZ sub-sectors into the EPZ sector,
• protecting the environment.

The SMIDO Act provides for the establishment and management of the Small and Medium Industries Development Organization to foster development of SMEs. More specifically, the objects of the organization shall, in relation to SMEs, be to:-

• modernize and integrate them into the industrial sector,
• promote linkages with other enterprises, especially by way of sub-contracting activities,
• promote their development generally,
• organize training programmes,
• provide an information and documentation service,

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• assist in marketing and organization of production systems,
• provide extension services,
• provide common facilities for such enterprises,
• advise the Minister on matters relating to such enterprises.

Common facilities would include:-

• fabrication and heat treatment of parts,
• use, repair and maintenance of tools, equipment and spare parts, and
• supply of materials and documentation services to industries.

Sub-sectoral Policy Measures

Such measures have, as a matter of fact, been introduced in view of the rapid developments taking place in the tourism sector, the need to foster regional co-operation and to build on the existing comparative advantages as well as to enhance the competitive edge of the manufacturing sector. Mauritius aspires to turn into a financial and economic hub in this part of the region, as a major tourist destination, an exporter of high value added jewellery and fashion articles to the developed countries and printing and publishing centre for Africa. In this regard, special measures are designed to cater for the above objectives, such as duty free importation of equipment and raw materials and accessories.

The Role of Government

The Government takes on the role of a facilitator. It is engaged in regular and constant dialogue with the private sector at the highest level - in the Joint Economic Council - on issues of national interest and for creating an enabling environment for the development of the private sector. Joint private and public sector missions, presence at international fairs and conferences, contact business meetings and government-to-government negotiations are regularly organized. NGOs are equally encouraged to engage in a variety of activities with government providing in a number

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of cases financial support. Government participation in enterprises is kept to the minimum and with the privatization wind blowing in the country, this is expected to be reduced further.

Co-ordination and Sharing

There are four parastatal organizations operating under the aegis of the Ministry of Industry and Commerce. The respective Boards of Management of all the organizations have as president well-known industrialists and professionals in their own rights to ensure that the business of these organizations are conducted on private sector lines. Besides, the Boards are composed in a way that the private and public sectors are equally represented. Moreover, the directors of the organizations are invariably represented on other Boards to ensure co-ordination and effective utilization of resources in terms of activities, programmes and services provided.

The SMIDO Board, for example, is made up of:-

• the Chairman, an industrialist and Mg Director of a printing business,
• the Permanent Secretary of the Ministry of Industry and Commerce,
• the Director of the Export Processing Zone Development Authority,
• the Director of Mauritius Export Development and Investment Authority,
• the Mg Director of Development Bank of Mauritius Ltd.,
• the Secretary General of the Mauritius Chamber of Commerce and Industry,
• the Director of the Mauritius Export Processing Zone Association,
• two representatives of the SMEs appointed by the Minister.

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Permits and Security on Loans

SMEs, however, continue to face the problems of administrative delays and cumbersome procedures, particularly for obtaining operational/ development permits and other authorizations prior to/post operation. Long delays are common especially because of the many authorities concerned in the final approval and issue of such permits. Despite the establishment of the one-stop shop at the Ministry of Industry and Commerce, delays continue to be an issue. On the banking side, too, SMEs continue to face the same problems of accessibility and high cost of finance, not to speak of the long delays in processing of applications, approvals and disbursements as well as the unresolved issue of collateral security on loans.

Sustainability of Programs

So far SMIDO's annual operating budget is entirely financed from the national budget to the tune of Rs 10 million (US$ 500,000). Nominal charges are made on certain training programmes, for workshop services relating to repairs and maintenance, and for the provision of publications and teaching materials, etc. A number of publications of SMIDO are sponsored so that they are undertaken with the least cost and distributed at nominal prices. It may be noted that the "service philosophy" dominates SMIDO's policy when it comes to making charges for its services.

Conclusion

In conclusion, while the development of the SMEs has not followed a set of planned actions emanating from a well-formulated policy paper, Government has nonetheless provided the support whenever there has been consensus and the need has been strong enough and called from the roof tops. As the belief and conviction in the prospects of the SMEs grow, policy makers have become increasingly conscious of the need to provide the level playing field and the enabling environment in the interest of SME growth and development. The stage looks set for more

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frequent revision of the SMEs policy framework and for adopting the right direction.