Corporate Governance Chapter 5 per cent of the country’s export earnings. The country’s gross domestic product (GDP) is USD15.36 billion (2008 estimate), at purchasing power parity (PPP), and it has a population of about 1.3 million. Its per capita GDP is approximately USD12,100 (2008 estimate). 635. 636. 637. 238 The country is stable. It is a parliamentary democracy and holds regular elections. Changes in government are peaceful and there is respect for the rule of law. Mauritius has the second-highest per capita income in sub-Saharan Africa. Its Human Development Index (HDI) is also higher than that of most countries in the region. Its 2009 index was 0.804, which ranks the country at 81 out of 182 in the survey. It falls in the ‘high human development’ group and is third in the region after Libya (ranked 55th at 0.847) and the Seychelles (ranked 57th at 0.845). Tourism is the second-largest foreign exchange earner for Mauritius. The government has thus emphasised maintaining the island’s upmarket profile as a tourist destination. This has helped the sector to register a growth of 13.5 per cent since 1998. Mauritius also has a vibrant manufacturing sector, dominated by the export processing zone (EPZ) industries, the largest gross and net foreign exchange earner for Mauritius. The EPZ sector exports mainly clothing and textiles. They account for 73.9 per cent of the country’s total domestic exports. Agriculture, of which sugar is the main product, was once the backbone of the country’s economy. It is now giving way to other sectors, but is still important to the country. Only 20 per cent of all total domestic export earnings now come from sugar exports. The banking sector is equally important to the Mauritian economy. There are 18 banks in the country. The two largest are the Mauritius Commercial Bank (MCB) and the State Bank of Mauritius (SBM). These two control 70 per cent of the market, while the Hong Kong and Shanghai Banking Corporation (HSBC) and Barclays control 22 per cent. The Mauritian banking system is well capitalised and very profitable. The capital adequacy ratio is 13.1 per cent. This exceeds the regulatory minimum of 10 per cent. The return on the assets of this sector has consistently been above 2 per cent, and the return on equity has been 20 per cent for the last five years. The most important risk that the banking system in Mauritius faces is credit risk. Operational risk is also a concern. A substantial fraud of about USD30 million was detected in February 2003 and this justifies the concerns. The fraud went undetected for several years. It exposed weaknesses in the sector’s internal audit and governance systems and its inadequate controls. Chapter 5 Corporate Governance 638. The insurance sector is another important one for the Mauritian economy. It is well developed and there are about 19 companies operating in Mauritius. It has a penetration rate of about 4.1 per cent (premia/GDP). Life insurance contributes 61 per cent to the business of this sector. Generous government tax incentives, together with favourable housing and pension financing, favour the insurance sector. All these sectors are important for Mauritius’s growth and development in a highly competitive global economy. Improving its corporate governance environment will therefore go a long way to attract international investment to the country, increase FDI and improve economic growth and development. 639. The preceding paragraphs give an overview of the corporate governance situation in Mauritius. This report assesses the state of corporate governance in Mauritius. It also looks at the implementation of standards and codes, points out examples of best practice and makes recommendations. 5.2 Standards and codes i. Summary of the CSAR Adoption and ratification of international standards and codes 640. The Country Self-Assessment Report (CSAR) examines corporate governance in Mauritius, particularly how it implements and enforces standards, codes and laws. In doing so, the CSAR emphasises the close collaboration between the World Bank and the International Monetary Fund (IMF) in setting international standards for accounting and auditing and in establishing regular Reports on the Observance of Standards and Codes (ROSCs). 641. The CSAR addresses corporate governance by highlighting some of the reports produced by the Bretton Woods institutions on corporate governance in Mauritius. They group the reports into three themes: (i) corporate governance country assessment; (ii) accounting and auditing; and (iii) insolvency and creditor rights systems. The recommendations from these ROSCs led to Mauritius introducing major initiatives. They include adopting the Financial Reporting Act (FRA) of 2004, and establishing the Financial Reporting Council (FRC) and the National Committee on Corporate Governance (NCCG). The minister of finance and economic empowerment appoints their members. The Country Review Mission (CRM) expresses concern about their independence because of the way they are appointed. 239