The CEO of Newton Securities tells Pierrick Pedel  what he expects from the Budget to be presented in Parliament by the Minister of Finance on Friday 4 November 2011.

● What are your thoughts ahead of the budget?

The forthcoming budget, with a new Minister of Finance, remains the suspense of the financial community. Several things indicate that Hon. Xavier Duval will focus on the essentials and facts, a shift from traditional mudslinging of previous governments. People working closely with the Hon. Minister indicate that he is a keen listener and favours a consensual approach while moving forward with his economic agenda.

For the forthcoming budget, we expect a two-fold approach. First, short-term measures should aim at maintaining employment and kickstarting ailing sectors, while paying attention to alleviate the vulnerable groups.

For the long term, we expect strategic moves to enhance the economic growth potential of the country.

● Can you elaborate on the short term measures?

The short-term measures will aim mostly to restore business confidence and to boost foreign investments. The construction sector may be the targeted area, as it can attract a high level of foreign flows and has a multiplier effect on the economy.

Measures could include appropriate fiscal considerations for the setting up of real estate funds, improving access to property acquisition by foreigners, additional incentives for first-time home buyers and potential withholding or reduction of land transfer tax. A “rainy day fund” could also be set up to support strategic sectors, such as tourism, manufacturing and other export-oriented companies, which are currently undergoing some cyclical difficulties.

● And for the long term?

Moreover, we consider that the Minister must focus on the long-term perspective with strategic decisions to boost the GDP growth closer to the double figures. Over the past five years, the main driver behind the economic growth has resulted from capacity building, in terms of increasing hotel capacity, construction of high-end villas under the Integrated Resort Scheme and the Real Estate Scheme, rapid expansion of the commercial and office park and major public infrastructure works mostly in the transportation area. Going forward, we do not expect significant private investments in similar sectors, given relative oversupply of hotel rooms and increased availability of office and retail spaces.

We consider that a prolonged global economic slowdown coupled with soft demand for such spare capacity may put asset prices under pressure. This may lead to a domino effect on the financial system. We are a firm believer of the Mauritian entrepreneurship and pioneering spirit to drive forward the nation’s wealth creation through value-added services and creation of new growth pillars. The global business, seafood hub and the ICT sectors are such examples, but the potential for higher revenues and margins is still present. Closer partnership between the government and the private sector will be the key to focus the nation’s limited resources (financial and man power) to such avenues. The budget may pave the way to encourage such developments.

● What do you expect for the companies?

On a microeconomic point of view, we consider that companies will continue to pursue optimising their resources and rationalising their businesses through mergers and acquisitions (disposals). Corporate restructuring is likely to pursue further across all sectors of the economy as each conglomerate will focus on cash generation and control of core businesses, rather than ownership of a wide array of business units. This has already led and will lead to the consolidation (and breakup) of several companies. Moreover, such restructuring and potential value creation can be enhanced in an environment of lower taxation on property transactions.

Going forward, we can expect companies to lower their business risks by separating the ownership of brick and mortar and business operations. The hotel sector, which is highly geared, is likely to embark on that route, through the Invest Hotel Scheme or the creation of special purpose vehicles. Interesting times lie ahead indeed!