1. The World Bank Who are we?

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1 THE WORLD BANK S COUNTRY PARTNERSHIP STRATEGY FOR MAURITIUS 1. The World Bank Who are we? NOTE FOR IN-COUNTRY CONSULTATIONS Founded in 1944, the World Bank Group is the world's largest source of development assistance. It now works in more than 100 developing countries providing an average of US$20 billion per year in loans and grants with the aim to improve living standards and reduce poverty. The World Bank is owned by more than 180 member countries whose views and interests are represented by a Board of Governors and the Board of Directors. Member countries are shareholders who hold the decision-making power in the World Bank. There are three main World Bank Group institutions which can work in Mauritius: The International Bank for Reconstruction and Development (IBRD) provides market based loans to middle income countries, as well as advisory services. All IBRD loans are provided to the Government, or to State Owned Enterprises or the Private Sector with a Government guarantee. The IBRD can also offer clients loan guarantees, enabling them to borrow funds more easily on the market. Advisory services often involve the preparation of policy notes (public expenditure reviews, sector-specific reviews, poverty assessments), which are normally disseminated widely, or visits from technical experts. IBRD also has a learning arm, the World Bank Institute, which arranges courses, seminars, and other methods of disseminating knowledge. The International Finance Corporation (IFC) promotes private sector investment, both foreign and domestic, in developing member countries through investment and advisory activities in an environmentally and socially responsible manner. IFC loans or equity investments are made directly to the private sector without a Government guarantee. The Multilateral Investment Guarantee Agency (MIGA) promotes foreign direct investment by offering political risk insurance (guarantees) to investors and lenders, and by providing resources to help emerging economies attract this investment. 2. The Current Status of the World Bank in Mauritius World Bank Projects: Since 1963, the Bank has provided 40 loans and credits to Mauritius worth a total of about US$ 480 million. The World Bank's role in Mauritius is evolving, reflecting the country's past success in gaining access to capital markets. Because of its relatively high income, Mauritius is one of only a few African countries eligible for IBRD loans (most African countries borrow from the International Development Association, the World Bank's soft-lending arm for the poorest countries).

2 The World Bank currently has one active project totaling $12.4 million in the environment sewerage and sanitation sectors. The Bank also supports the government of Mauritius through analytical and advisory assistance. The Bank has carried out a Country Procurement Assessment Review, a Public Expenditure Review to assess the sustainability of the new economic agenda, a Transport Action Plan, and a report on modernization of the pension system. The Bank has also been supporting the government with a medium term economic framework (MTEF), and a labor market study. An Investment Climate Assessment and Country Economic Memorandum are underway. IFC Activities: IFC s main focus for future activity in Mauritius is support for deepening and developing the financial market, and advisory work and investments in private infrastructure. IFC is also actively seeking projects with Mauritian sponsors investing elsewhere in Africa. IFC began in 2003 an advisory mandate for structuring private participation in the water and sewer utility, but this project is currently on hold, awaiting a decision from the government. IFC has committed no new investments since 1996; the portfolio has steadily decreased as investments have been repaid and/or exited, and now consists of two equity positions for US$1 million total. IFC is currently discussing the provision of a US$75 million line of credit to a local bank. IFC is also exploring ways to provide technical assistance support to the textile industry, following the end of the multifiber agreement. MIGA Activities: MIGA has been actively supporting Mauritian investors venturing abroad, particularly into sub-saharan Africa. The agency is working to further strengthen relations with the local business community, creating synergies that will continue to support development into the SADC region and other regions of Africa. The Board of Investment office has supported and facilitated MIGA s missions to Mauritius and helped to identify more than 30 investors with the potential of using MIGA services. Mauritian investors have benefited in recent years from MIGA guarantees for their investments in continental Africa and elsewhere, with total gross exposure currently at US$53.1 million, and net exposure at US$48.1 million, for projects in Burundi, Mozambique, and Pakistan. Mauritius has discussed with the World Bank Institute initiatives to position the country as a global knowledge hub, but there are no active programs at this time. Additional information on current World Bank Group activities in Mauritius can be found on the web at 3. Purpose of the Country Partnership Strategy (CPS) Every four years or so, the World Bank designs a work plan to guide its operations in a client country. This work plan is detailed in a Country Strategy. The CPS is expected to be fully aligned with the country s development priorities and allow for changes that can arise from rapidly changing economic circumstances. The CPS also is expected to be aligned with the Government s own fiscal year cycle, development agenda, and mediumterm framework. Detailed advisory services and lending are then expected to be agreed

3 on an annual basis. The upcoming Strategy is expected to be a public document, with the agreement of the Government of Mauritius. 4. CPS Consultations and Completion The CPS is a World Bank document but is expected to be designed in a participatory manner, and its key elements discussed with the Government, civil society (Communities, NGOs, media, local experts etc.), the private sector and other donors prior to its completion. The World Bank is planning to organize a series of meetings with civil society representatives. During the meetings, members of the Bank s team will brief those present on proposed strategies, on-going programs, and instruments for their implementation. The floor will then be open for discussion to receive feedback and information on various stakeholders priorities for development and on ways in which the Bank can help address them. As the CPS will include annual discussions on the Bank s program in Mauritius, the consultation process is expected to be continuous. In order to have a fuller picture of the current situation in Mauritius, as well as the clear vision for World Bank s involvement, the World Bank is conducting a public opinion poll as it develops the Country Partnership Strategy. This on line survey can be found at The Bank s team will record and compile feedback provided during the consultations and will use it in designing the CPS. For example, the Bank, in consultation with the Government, may decide to place greater emphasis on a particular sector or give greater recognition of key constraints identified. But the consultative process is not binding. Consultations are also expected to serve as the basis for dialogue between the World Bank and Mauritius beyond the CPS framework. Before the CPS can be implemented, it needs to be discussed by the World Bank s Board. This is because the World Bank is owned by more than 180 member countries whose views and interests are represented by a Board of Directors, including those of Mauritius. The CPS is only finalized after the Board discussion. The CPS is expected to be disclosed to the public with the agreement of the Government. In addition, the Bank prepares a CPS Public Information Notice which summarizes the main issues in the CPS. 5. Proposed Strategy The starting point of the strategy is Mauritius very particular economic context. Mauritius has achieved spectacular success since independence in 1968, when its per capita income was about US$260 rose to reach about US$4,640 in 2004, accompanied by high social indicators. In no small measure, Mauritius economic success is attributable to trade preferences in sugar (under the EU sugar protocol) and textiles and clothing (under MFA and later AGOA). But the country s ability to profit from these opportunities Mauritius Per Capita Income 2004: US $ : US $ : US $ : US $320

4 and successfully diversify their economy to broaden their base testifies to institutional strengths stable democracy and rule of law, high intensity of reforms in manufacturing, macro-economic stability, equitable social progress, and reliance on private incentives. Today Mauritius is facing significant challenges including a slowdown of growth from around 4.2 percent in 2004 to around 3 percent in 2005, weak investment and rising unemployment. Mauritius is highly vulnerable to changes now taking place in the world trade regime. On one estimate, the ending of MFA in January 2005 and the phasing out of sugar preferences by 2008 could cost Mauritius as much as 8-9 percent of GDP, 20 percent of exports and 40 percent of government revenue. But while these developments add some urgency, Mauritius very success in raising wages and living standards would in any case be undermining competitiveness in low skill, labor intensive sectors such as sugar and mass produced garments. Over the past decade, the groundwork has been laid to move the economy toward more knowledge and skill-intensive activities, and higher value-added financial and business services. Successive governments have been implementing Mauritius vision for its future, restructuring and downsizing sugar and textiles, putting in place enabling legislation for offshore financial services, and drawing foreign direct investment into the IT sector with a state-of-the-art, fiber optic-wired Cyber Tower. Major investments have been undertaken in education, transport, and environmental infrastructure. Despite the steps which have been taken, many challenges remain. Education must be further expanded to bring human capital up to the best practice standards of Singapore or Korea. Stronger university business ties are needed along with a more entrepreneurial, innovative culture. In light of limited research and development capacity, substantially more FDI must be attracted to gain access to cutting edge technology and marketing skills. Finally, greater public sector efficiency is needed if the public investment program is not to drive fiscal deficits and debt to unsustainable levels. In order to overcome these challenges, Mauritius will need to become more competitive, and protect the population in the process. The challenge for the authorities is to build the appropriate institutions and capacities (both in the public and private sectors) to be able to provide a conducive environment for continued growth and the right skills set for the new economy. To generate employment and enhance the welfare for the majority of the population, efforts are being made to continue to diversify the economy. The World Bank s strategy will be to support the Government of Mauritius in meeting these challenges, and will be based upon the authorities strategic objectives of increasing its competitiveness, generating employment, continuing economic growth, and investing in human capital and infrastructure. The mode of involvement by the World Bank will need to be adjusted to the fact that Mauritius is a Middle Income country. The World Bank will need to respond quickly in a flexible manner to emerging priorities. The proposed strategy provides a broad framework within which the World Bank will operate, supplemented by a rolling Annual

5 Business Plan which would both establish the specific activities in the year ahead, while outlining a menu of interventions for a longer horizon. Three key instruments will be used. World Bank Instruments 1. First, the World Bank can deliver loans. Projects provide a mechanism for the Bank to transfer knowledge and skills in a very practical manner over an extended period of time. In order to enable Mauritius to make the best use of the World Bank, it would be expected that the Bank would design some projects over the period covered by the Country Partnership Strategy. Project preparation will be kept at maximum of 12 months where feasible. The Bank has two basic types of lending instruments: investment loans and development policy loans. Investment Lending: Investment loans have a long-term focus (5 to 10 years), and finance goods, works, and services in support of economic and social development projects in a broad range of sectors aimed at creating the physical and social infrastructure necessary for poverty alleviation and sustainable development. Investment lending can focus on hardware, engineering services, and bricks and mortar, as well as institution building, social development, and building the public policy infrastructure needed to facilitate private sector activity. Projects range from urban poverty reduction (involving private contractors in new housing construction, for example) to transportation; water and sanitation; natural resource management; education; and health. Ongoing and Potential World Bank Investment Lending to Mauritius Environmental Sewerage and Sanitation Project: US$12.4 million (ongoing) An Environmental Urban Transport Program: to help alleviate the traffic congestion in Port Louis, is under preparation. There may also be scope for the World Bank to finance airport rehabilitation or land management and housing. Development Policy loans have a short-term focus (1 to 3 years), and provide quick-disbursing external financing to countries with external financing needs, to support structural reforms in a sector or the economy as a whole. They support the policy and institutional changes needed to create an environment conducive to sustained and equitable growth. Development Policy loans were originally designed to provide support for macroeconomic policy reforms, such as in trade policy and agriculture. Over time, they have evolved to focus more on structural, financial sector, and social policy reform, and on improving public sector resource

6 management. Development Policy operations now generally aim to promote competitive market structures (for example, legal and regulatory reform), correct distortions in incentive regimes (taxation and trade reform), establish appropriate monitoring and safeguards (financial sector reform), create an environment conducive to private sector investment (judicial reform, adoption of a modern investment code), encourage private sector activity (privatization and public-private partnerships), promote good governance (civil service reform), and mitigate short-term adverse effects of development policy (establishment of social protection funds). Proposed World Bank Adjustment Lending to Mauritius The Government has recently begun exploring the possibility of World Bank financed development policy loans to assist the country in managing its terms of trade shocks and providing a safety net for those adversely affected by economic transition caused by the loss in sugar and textiles trade preferences. 2. Analytical and Advisory Assistance: Analytical and advisory assistance will also be an important part of the Bank s program in Mauritius to help provide the analytical background to help support the government priorities and provide a basis to underpin lending operations. In this context, the World Bank can bring international experiences on the new economic sectors, and help authorities to develop key institutions. Analytical work could involve: Knowledge Sharing (non-lending): (1) bringing international experience to the Government; and (2) highlighting and disseminating achievements of Mauritius to the rest of the world. Policy advice (non-lending) and Technical Assistance under a framework developed jointly by the Government of Mauritius and the Bank targeted toward strategic issues, such as Mauritius competitiveness and diversification. This could consist of reports, short notes, analyses or technical assistance. The Government and the Bank have been discussing how to better organize the economic Analytical and Advisory Assistance that the Bank carries out for Mauritius. To this end, the Government and the Bank have been discussing a joint program of economic analytical and advisory assistance. The areas of concentration and scope of the analytical and advisory services would be determined by the Government in consultation with the Bank on an annual basis. The Program provides a transparent mechanism for ensuring that all ministries and agencies are given equal opportunity to propose issues to be studied, and for the selection of these to be done on the basis of fundamental policy priorities. The Bank will make a deliberate effort to mobilize cutting edge knowledge in

7 the areas being analyzed, as well as supporting capacity building and training to ensure that knowledge transfer is sustained. 3. Third, the World Bank Group would be available to support private sector entities either directly or through the banking system through the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA). 6. More Information More information on the CAS process, or more generally about World Bank programs in Mauritius, from the website or from: Mr. James Bond Country Director for Mauritius World Bank Antananarivo, Madagascar Tel: (261-20) / Fax: (261-20) Ms. Lilia Burunciuc Country Program Coordinator 1818 H Street NW Washington, DC USA Tel: (202) Fax: (202) lburunciuc@worldbank.org Mr. Robert Keyfitz Country Economist 1818 H Street NW Washington, DC USA Tel: (202) Fax: (202) rkeyfitz@worldbank.org Ms. Janet Dooley Country Officer 1818 H Street NW Washington, DC USA Tel: (202) Fax: (202) jdooley1@worldbank.org ON LINE SURVEY ON MAURITIUS AT