Trade Negotiations Insights • Volume 8 • Number 6 • August 2009

The Efficacy of the Stimulus Package

by Ahmed Parker

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The first initiative of Mauritius’ Additional Stimulus Package (ASP) was launched as a response to a request from the private sector through the Joint Economic Council (JEC) and the Mauritius Exporters Association (MEXA).

The reason for this initial approach by the private sector was the urgent need of some major textile firms who were having difficulties accessing working capital. These firms had come to a standstill and the consequences of their closure would have been negative both on an employment side and by the message it would have sent to the country.

Implementation Phase

In December 2008, following the different proposals put forward by the private sector, the government announced the conditions under which it would help and what funding would be available.

The main advantages of this immediate action were as follows:

It created a mechanism through the Mechanism for Transitional Support to the Private Sector (MTSP) to evaluate companies in need of finance to have a response within two working weeks.

Banks that were financing these companies were more willing to temporarily provide more time and funds to these companies. The initiative also included three-way participation: 20 percent shareholder, 40 percent banks, and 40 percent government in new funds.
A buy and lease back of assets scheme was established to allow companies to access working capital through the buildings they owned at market value.
The export sector was significantly buoyed by the initiative. For example, at least 3,000 jobs in the sector have been saved, companies in poor shape that we previously unable to find support through banks were rescued, and a transitional ‘fall-back’ position was created, which prevented a major closure of the export industry at a time of shrinking international demand.

To conclude, the ASP is a major help for Mauritius’ export industry. However it is not a complete solution as it does not address some of the issues that created the weaknesses of the country’s industries. Two of these are the currency competiveness and the level of interest rates in relation to important markets, such as the EU, UK, and US. These points must be addressed for a more durable future to be realised.

Author

Ahmed Parker is Chairman of the Mauritius Export Association and CEO of Star Group of Companies.