“It’s not adapt or perish, but probably adapt or decline.”

Dr. Rama Krishna Sithanen, Governor of the Bank of Mauritius and Chairman of the Financial Services Commission

• “We cannot afford to get it wrong for the simple reason that this is the most critical sector in our economic landscape”
• “It is not just a scarcity of talent; labour costs have become prohibitive”
• “We need global banks, family offices, international law firms, and investment managers to deepen and broaden our financial landscape”

The Governor of the Bank of Mauritius and Chairman of the Financial Services Commission issued a strong warning at the consultative workshop on rethinking the financial services industry: “We did not anticipate the decline of the sugar protocol or the impact of changes in the multi-fibre agreement. We must not make the same mistakes with financial services.” Emphasizing the sector’s critical role in the economy, he underscored the urgency of making informed and timely decisions to ensure its long-term viability. While differing perspectives are inevitable, he stressed that policy choices must rise above individual interests and align with national priorities. “There will be conflicting views. Some people will be unhappy; some will be happy. But policies must be made in the national interest,” stated Dr. Rama Krishna Sithanen.

Rudy Veeramudar

The Mauritian financial services sector stands at a crucial juncture, with the government and industry stakeholders coming together to assess its future trajectory. The Ministry of Financial Services and Economic Planning, under the leadership of its minister, Dr. Jyoti Jeetun, convened a high-level consultative workshop at the Hennessy Park Hotel in Ébène last Monday. The event brought together key players from the public and private sectors to devise a roadmap for strengthening the competitiveness and sustainability of Mauritius as an International Financial Centre (IFC). Among the distinguished speakers was Dr. Rama Krishna Sithanen, Governor of the Bank of Mauritius, who provided a candid and strategic overview of the sector’s status and future direction.

Dr. Sithanen underscored the importance of the consultative workshop as an opportunity to reassess Mauritius’ financial sector at a critical time. “It is always easier to reimagine a sector when you have a new government, a new team, and new policymakers who can make bold decisions without entrenched positions obstructing progress,” he noted. He highlighted that this forum was particularly relevant, given that many of the challenges discussed had persisted over the past decades, despite multiple attempts at reform.

In a light-hearted moment, he recalled attending similar workshops since 1991, joking that it must be the 10^th or 11^th such event. However, he stressed that while some issues remained unresolved, new challenges had emerged, requiring urgent action. He cited two pressing concerns: the reputation and branding of Mauritius as an IFC, and the severe talent shortage, which had worsened over time, leading to escalating labour costs and affecting the sector’s competitiveness.

The financial services sector plays a pivotal role in Mauritius’ economic landscape, accounting for approximately 14% of GDP. It is a major contributor to economic growth, employment, tax revenue, and foreign exchange earnings. Dr. Sithanen emphasized its multiplier effect, noting that its contribution to economic prosperity far exceeds that of many other sectors.

“The financial services sector supports the rupee, strengthens the balance of payments, and is a vital source of revenue for the government,” he stated.

The Chairman of the FSC highlighted several challenges that Mauritius faces as a financial hub:

1. Reputation and Branding Issues: Mauritius’ image as a financial jurisdiction remains a concern. “I have not been to Bombay recently, so I cannot ask my taxi driver what he thinks about the Mauritius International Financial Centre,” he joked, emphasizing the longstanding need to strengthen the country’s reputation internationally.
2. Talent Shortages and Rising Costs: The availability of skilled professionals has significantly declined, while the cost of hiring has surged. “It is not just a scarcity of talent; labour costs have become prohibitive,” he said, warning that this trend could threaten the sector’s competitiveness.
3. Declining Competitiveness and Cost of Doing Business: The overall cost of doing business in Mauritius has increased considerably, not just in terms of labour, but across various operational inputs.
4. Changes in the Global Tax Environment: The evolving international tax landscape poses challenges for Mauritius. “It has become much tougher to convince other countries to sign double taxation treaties with Mauritius because they fear tax-based erosion. That’s tough!” he acknowledged.
5. Narrow Business Model and Lack of Diversification: Despite its long-standing status as an IFC, Mauritius’ financial sector remains heavily reliant on a few core activities. “The composition of our business model has not changed since 1991,” he noted. “We continue to depend on cross-border investment, banking, and a few elements of private banking and wealth management. That is a problem.”
6. Attracting High-Calibre International Players: The absence of top-tier international financial institutions has limited the sector’s growth. “We need global banks, family offices, international law firms, and investment managers to deepen and broaden our financial landscape,” he insisted.
7. Regulatory Issues and Bureaucratic Bottlenecks: Dr. Sithanen acknowledged the persistent complaints from industry players about regulatory inefficiencies. “Ministers, you are going to hear the industry lash out at the FSC for being too slow, and the MRA for being too aggressive. That’s a tradition,” he said wryly, pointing to the need for regulatory streamlining and digitalization.

To ensure the continued growth and relevance of Mauritius as a financial hub, he proposed several strategic imperatives:

• Embracing Disruptive Technologies:Mauritius must integrate artificial intelligence, blockchain, and fintech solutions to enhance efficiency and drive innovation. He cited Abu Dhabi as an example of a jurisdiction that had successfully leveraged technology to strengthen its financial sector.
• Reinforcing Mauritius’ Position as a Gateway to Africa:With Africa experiencing rapid economic growth, Mauritius must capitalize on its strategic location to attract investors targeting the continent.
• Diversifying the Financial Services Offerings:Expanding into areas such as sustainable finance, digital banking, and asset management can create new avenues for growth.
• Strengthening International Perception and Reputation: Sithanen noted that Mauritius missed a crucial opportunity to reposition itself after exiting the Financial Action Task Force (FATF) grey list. “We should have used that moment to rebrand and communicate our compliance with international standards,” he lamented.

A recurring theme in his speech was the gap between strategy and execution. “The big nightmare is what we say on Sunday evening and what we do on Monday morning,” he remarked, highlighting Mauritius’ struggle with policy implementation.

“It is always easier to reimagine a sector when you have new policymakers who can make bold decisions without entrenched positions obstructing progress”

The chairman of the FSC drew parallels between the financial sector and past economic shifts in Mauritius. He recalled how the sugar industry once dominated GDP, but declined due to a lack of foresight. Similarly, the textile industry’s contribution to GDP fell sharply due to policy miscalculations in the 1990s.

“We did not anticipate the decline of the sugar protocol or the impact of changes in the multi-fibre agreement. We must not make the same mistakes with financial services. We cannot afford to get it wrong for the simple reason that this is the most critical sector in our economic landscape,” Dr Sithanen said.  

Stressing the need for proactive decision-making, he warned that while conflicting views are inevitable, they must not lead to policy paralysis. “Some people will be unhappy; some will be happy. But policies must be made in the national interest,” he stated.

Pointing to global competition, he highlighted Abu Dhabi’s aggressive push into Africa as a case study for Mauritius. “I was looking at what Abu Dhabi is doing to compete against Mauritius in order to attract business into Africa. And they’re doing quite well, especially in the technology space,” he said, stressing the urgency for Mauritius to redefine its competitive strategy.

Technology, Dr. Sithanen stated, will be a decisive factor in shaping the financial services sector. “Can we emulate Abu Dhabi, which has done tremendously well in the last four years?” he asked. He went on to stress that Mauritius must fully embrace technological advancements, including artificial intelligence, blockchain, and digital financial solutions, to remain relevant in an evolving global marketplace.

Mauritius, Dr Sithanen argued, must urgently address fundamental questions about its future growth trajectory: “Where will the future growth come from? Is it from a consolidation of what we have? Is it from diversification, or is it from transformation? Or is it a combination of the three?” Expanding on these points, he asked whether Mauritius should concentrate on strengthening its existing presence in Africa or extend its footprint further. Additionally, he raised concerns about whether the country’s range of services is broad enough to remain competitive, emphasizing the importance of articulating a strong value proposition: “What is our unique value proposition? What do we tell people outside Mauritius to convince them to come and do business with us in terms of attractiveness and competitiveness?”

The role of international players in Mauritius’ IFC also came under scrutiny. “How do we get debts and grants in our IFC? I think we need to attract international banks. We need to attract these global players. We need to attract some fund managers also,” the Governor of the Bank of Mauritius stated.

Dr Sithanen also challenged the validity of previous growth metrics, questioning whether the targets outlined by McKinsey for the sector still apply. “McKinsey gave us three deliverables. I’m not sure they’re still relevant,” he explained, proposing instead a set of alternative benchmarks, including contribution to GDP, and urging policymakers to focus on concrete economic contributions. 

Addressing revenue generation, he also stressed the importance of sustainable financial growth, stating that “contribution to revenue is going to be very important.”

The financial sector’s narrow base, he argued, poses a structural risk, necessitating urgent diversification. “How diversified should the sector be? Maybe another metric should be the diversification of the sector. How do we move away from the very narrow base that we have and dependence on a few products,” he asked. 

Rama Sithanen also raised concerns about employment in the sector’s future: “I’m not sure contribution to employment should remain a key objective, for the simple reason that we are a declining labour force. So I would put emphasis on quality employment. I think that’s very important.” 

Acknowledging the complexity of policy reform, the chairman of the FSC anticipated robust debates, but reiterated the need for decisive action. “There will be conflicting views. You will hear them during the day (Editor’s note: the workshop was held last Monday). And the challenge is that because of conflicting views in the past, there has been policy paralysis. Some people will be unhappy. Some people will be happy. But I think we have to make policies in the best interest of the country. I think we have a new team, and we can make progress, but policies will matter. I was listening to the speeches of the Prime Minister and the Deputy Prime Minister in parliament, and they were so right when they said that easy decisions are very easy to make, and difficult decisions are very difficult to make. I’m not sure whether it’s adapt or perish. I would call it probably adapt or decline. We cannot afford to get it wrong for the simple reason that this is the most critical sector in our economic landscape. We need to take the right decisions at the right time to ensure financial services remain a high contributor to our economy, and a driver of economic prosperity,” he urged.