The Government of Mauritius recently reiterated the island nation’s commitment to become a fully-fledged member of the Organisation for Economic Co-operation and Development (OECD). The OECD, – a leading international economic organisation and a key player in multilateralism – currently comprises 38 Member countries, none of which are African. “Mauritius will continue working towards becoming more integrated with the OECD and being the springboard to promote the adoption of OECD standards and values in our part of the world,” the Mauritian Prime Minister said at an international conference on Digital Economy and Digital Banking held in Mauritius on October 31, 2022.
Mauritius has been a member of the OECD Development Centre since 2009 and cooperation with the organisation has focused on investment, taxation, and anti-money laundering and countering the financing of terrorism (AML/CFT). In 2019, a Regional Centre of Excellence (RCE) was launched in Mauritius in collaboration with the OECD. The RCE, which focuses on financial services and on the Eastern and Southern African region, aims to develop capacity building programmes, conduct research, and advise on minimum standards that need to be introduced at regional level.
The OECD accession process consists of a rigorous review which is overseen by the OECD Council, a body that comprises all Member countries. OECD Secretary General, Mathias Cormann, announced during the Digital Economy and Digital Banking conference, that Mauritius has started the process of acceding to the OECD Declaration on International Investment and Multinational Enterprises, an important steppingstone to becoming a fully-fledged OECD member. This Declaration promotes an open and transparent environment for investment and urges multinationals to contribute to economic and social progress. The formal request for opening accession discussions for Mauritius has already been submitted to the Council and it is expected that an Investment Policy Review will be conducted during the first half of 2023 to assess the country’s investment laws, regulations and practice. Following this review, the Council will decide whether to open accession discussions with Mauritius. In the event of an affirmative decision, the OECD will publish an accession roadmap which will set out the targets and goals for Mauritius in its quest for membership. Development of the roadmap involves a series of in-depth legal and regulatory reviews by more than 20 technical committees which assess the country’s alignment with the relevant OECD instruments and policies.
OECD membership presents several benefits to Mauritius’ open economy:
1. Access to expertise: The OECD provides its members with tools for analysing and monitoring economic, social, and environmental policies.
2. Constant monitoring of the regulatory environment: As an OECD member state, the country will have to undergo periodic evaluations of its policies and will also be able to draw on the OECD’s expertise and the research and analysis conducted by the organisation.
3. Increased attractiveness for foreign direct investment (FDI): Formal recognition as an OECD member will therefore reinforce Mauritius’ attractiveness as a foreign investment destination. Foreign Direct Investment (FDI) has been a key driver of the island’s economic development, with real estate and financial services being the popular recipients of FDI. In 2021, gross direct investment flows into the country (excluding the global business sector) amounted to $367 million, 34 percent of which originated from the European Union.
Joining the OECD is also of strategic importance to position the island’s financial centre as a jurisdiction of substance. The global business sector, which contributes to about 8 percent of Mauritius’ gross domestic product (GDP), was identified as a high-risk jurisdiction by both the Financial Action Task Force (Grey List) and the European Union Commission (High-Risk Third Countries List) in 2020. While Mauritius has implemented reforms to successfully exit these lists, OECD accession will help to restore the island’s status as a leading jurisdiction for financial services in addition to opening doors for technical assistance in several areas including global minimum tax and AML/CFT. It is worth highlighting that in June 2017, Mauritius signed the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, a legal instrument to prevent base erosion and profit shifting by multinational enterprises. This instrument impacted several tax treaties that the island had signed.
The foreign policy angle is also important for the small island developing state. As an OECD member, Mauritius will have a voice in shaping global policies by representing the Mauritian government’s position in multilateral discussions. But most importantly, membership will provide the country with access to working relationships not only with OECD member countries but also with non-members and several other networks.
However, obtaining full-fledged OECD membership will not be possible without amendments to national legislation to achieve convergence of Mauritius with OECD standards and best practices. Areas of focus for Mauritius will most likely include:
- Structural reform: The COVID-19 pandemic and global supply chain disruptions due to the war in Ukraine have highlighted the need for the island to re-engineer its long-term growth model. As stated in the World Bank’s Economic Memorandum[1], Mauritius has been faced with structural challenges even prior to the pandemic. These challenges include economic growth driven by consumption with no improvements in capital productivity and reduced investments, persistent losses in export competitiveness, an ageing population coupled with labour market mismatch and sustained fiscal deficits with high levels of public debt. OECD reviews will likely focus on addressing these challenges to ensure strong, sustainable, and inclusive growth.
- Open trade and investment: Government policy in Mauritius has centred on promoting an open and efficient trade and investment environment. Incentive schemes have however biased investments towards real estate and property development, demonstrating lack of coherence with the national development strategy. The roadmap may address the need for a comprehensive investment strategy that also provides for evaluation of investment policies on a regular basis. Reforms to the financial services sector will surely be on the agenda, to improve the AML/CFT framework and to ensure the application of the global minimum tax.
- Governance: As indicated in the 2022 Economic Freedom Index[2], the prevalence of corruption in Mauritius is low by regional standards. However, good governance concerns as well as concerns about the inconsistent application of corruption laws remain. The local Independent Commission Against Corruption is already working with the OECD to address these concerns but further reforms are expected during the accession process. The regulatory and institutional framework for public procurement will also likely be scrutinized following allegations of lack of integrity during COVID-19 emergency procurement.
- Environment and climate: It is important for the small island developing state to have an overarching and predictable regulatory system to manage the sustainable use of natural resources and initiatives for climate change adaptation. The roadmap may include requirements for adoption of public policies in line with Mauritius’ climate goals and with the goals of the Paris Agreement, in particular the goal of achieving global net-zero greenhouse gas emissions by 2050.
- Digitalisation: The pandemic has accelerated the need for digitalisation in the island. The government seeks to develop the digital industry by leveraging on emerging technologies such as blockchain, fintech, artificial intelligence and big data. The regulatory framework for these emerging technologies will likely be analysed and recommendations to advance the industry in an inclusive manner through international cooperation might be proposed in the roadmap.
The timeline for Mauritius’ accession will depend on how fast the country can respond to the OECD’s recommendations for changes to legislation, policies, and practices. Following the completion of the technical reviews and discussions, Mauritius will have to submit a final statement stating that it will assume all obligations as a member of the OECD. The Council will then decide by unanimity whether to invite Mauritius to accede to the Organisation as well as any further terms and conditions attached to the invitation.
International Economics Consulting Ltd (IEC) is an independent consultancy firm working with national and international development partners, governments, and the private sector to create value and promote sustainable growth and development. With extensive experience in policy, research and negotiations, IEC can support organisations to navigate the implications and impact of OECD accession by providing analytical expertise and support.
Authors:
Paul Baker, Chief Executive Officer |+230 263 33 24 | baker@tradeeconomics.com
Pablo Quiles, Manager of Trade Advisory Services |+230 263 33 24 | quiles@tradeeconomics.com
Smita Bheenick, Trade Specialist |+230 263 33 24 | bheenick@tradeeconomics.com
References:
[1] Mauritius: Through the Eye of a Perfect Storm, World Bank Country Economic Memorandum, April 2021
[2] Mauritius 2022 Index of Economic Freedom
This article has also been published on the Mondaq website.
