[10 February 2007]
(Extract from Business Year Book 2006 – The Year in Review)
Bold industry reform to begin
By Jocelyn Kwok
Mauritius Chamber of Agriculture
The 2006 highlight was the presentation of the Sugar Sector Multi Annual Adaptation Strategy (Action Plan) 2006-2015 in April to the European Union. Largely cited as an example for the whole ACP group, the Mauritian Action Plan is one among the few which have drawn wide support from the EU, the World Bank and our other international partners, including financial institutions.
It is to be noted that five ACP countries have not been in a position to submit their proposed action plans in time, and an additional one has been requested to rework its plans throughout. In all six cases, each country will draw a mere token support of Euros 300 000 from the accompanying measures budget of 2006/07 in view of fresh submissions of acceptable action plans. Furthermore, St Kitts & Nevis has ceased sugar production whilst Trinidad and Tobago is elaborating an exit strategy for this year.
Our proposed reform in Mauritius is bold. It contains drastic cost reduction measures, deep-reaching productivity improvement strategies, and a strong market-oriented production rationale. In addition, through the optimal transformation of the sugar cane plant into both raw and consumption sugars, ethanol, and electricity, the industry will henceforth propose a wider product portfolio with adequately shared risk and an acceptable return potential. The integration of renewable energy use into the new industrial processes involved provides for a unique combination of economically attractive production within an environmentally sustainable framework.
The proposed Action Plan also recognises the sensitive issue of workforce rightsizing within the industry. Accompanying strategies towards empowerment, newer occupations and maintained livelihoods have been proposed and past experience has been used in the determination of improved compensation packages for workers opting out. Such packages compare more favourably than compensation payable in other productive sectors of the economy.
Early in 2007, the EU and Mauritius should be in a position to finalise formal financing agreements. Two agreements are actually envisaged; a first one of Euros 6.5 million coming from the 2006/07 accompanying measures, known as the fixed tranche, and a second, variable one of Euros 4.5 million coming from unutilised funds of the former 9th EDF. Disbursement of funds will be, generally speaking, conditional upon the country’s commitment to sound macroeconomic policies and good governance regarding public finance management. Additionally, the country is expected to develop and support a coherent energy policy, integrating the contribution of bagasse-coal power plants and the viable promotion of ethanol.
The presentation and circulation of the Country Strategy Paper for Mauritius in October is a landmark achievement with respect to the national commitment towards the objectives quoted earlier. The Public Procurement Bill, in replacement of the Central Tender Board Act, was introduced and passed in December last and Cabinet examined the Ethanol Development Strategy 2006-2015 earlier in November. Amendments to the Sugar Industry Efficiency Act, already approved by Cabinet on 27 October and initially expected to pass in National Assembly in November, will now be introduced later this month. It is also expected that the High Powered Committee on Energy will submit its recommendations shortly.
Disbursement of funds specifically from the second variable tranche will be conditional upon a series of reform indicators being matched in respect of the industry’s action plan. These include the number of factories to close and centralise on the remaining ones, the number of workers retrenched with benefits from an adequate social package, the number of workers enrolled in skills upgrading and empowerment programmes, and the surface area of derocked sugar cane lands belonging to regrouped small planters. Under-achievement in respect of these indicators, whether in their scope or on their timeliness, will reduce the amount of funding available from this second variable tranche.
Globally, the amount of accompanying measures expected from the EU, on the basis of current commitments and indications given for 2007/08, will not exceed a third of the cost of reform for the industry, estimated at Rs. 25 billion. The rest will therefore have to be mobilised by private operators with support from Government, where appropriate. One further possibility of acquiring more funds from the accompanying measures is our absorption capacity of disbursements by the EU; the faster we invest funds and implement our Action Plan, the better will be our propensity to attract early funds that remain unused from the committed yearly budgets of EU countries under the accompanying measures heading. It is to be recalled that 87% of the investment required for the reform will need to be funded prior to 2010.
Commitments of Mauritius towards the EU under the Sugar Protocol were fully met in 2005/2006. 2007 is also the final year of negotiations prior to the entry in force on January 1, 2008 of the Economic Partnership Agreements which will dictate new trade and development terms between the EU and ACP countries. In the context of these EPA negotiations, the Sugar Protocol will be reviewed and benefits derived from the Protocol will have to be safeguarded under all circumstances as required under Article 36(4) of the Cotonou Agreement. Mauritius as part of the ESA bloc is keen to safeguard these benefits, namely guaranteed access and price for determined quantities and for an indefinite period.
With regard to the US market, sugar export commitments were partially met for 2005/2006. It is to be noted that under the new CECPA with India, we now benefit from a Tariff Rate Quota of 15 000 tonnes of export sugar without any customs duty. We also have since 2006 a minimum sugar quota of 1 500 tonnes to export to the SADC market.
10 February 2007