How well will our economy perform?
“If we run the race ahead of others among our economic peers, we stand a chance to make it again. The path to it is by joining supply chains which are global, by sending our schooling system to re-school itself in keeping with the demands of scientific modernisation, by unbundling inefficiencies that have become obstacles to enlargement of our economic horizon and – above everything else – ceasing with this insalubrious habit of entrenching our leadership putting its interests above everything else”
Data show that the economy of Mauritius has been decelerating. Real economic growth has successively come down from 4.2% in 2010 to 3.6% in 2011 and 3.3% in 2012. It is forecast to grow by 3.3% in 2013. All of this is in positive territory still, which is a good thing, but the trend is clearly a decelerating one. Given the structural build-up of the economy, we could not have done much in the relatively short interval of time since the international economic crisis hit the world stage to veer course and perk up growth. What we could have done however was to set afoot new vectors of activity with a view to offsetting the impact of downtrend in classic external demand from our traditional markets.
Forecasts for 2013 show that the growth of 3.3% we hope to realize in 2013 will be generated by the same sectors that have contributed to GDP growth in past years. Thus, Export Oriented Enterprises (formerly EPZ) will grow by 2%, food processing by 2.2%, hotels and tourism by 2.5%, ICT by 8.2%, finance by 5.5% and the sugar sector by 3.2% whereas the construction sector is chalked out for contraction by 7.7% in the footsteps of its last year’s decline by 3%.
In the past, Mauritius has reinforced its growth process by bringing in new sectors of activity to contribute along with those that were implanted at previous stages of development. The example comes from the ICT sector. It was introduced in 2003. While tourism, seafood, finance, EPZ and sugar are contributing their own to the slower current growth momentum, the latest ICT activity is not only growing at a faster rate than all the others; it already accounts for 6.4% value addition to GDP compared with 7.8% for tourism in the 2013 forecast of growth. Besides, it is a provider of jobs to young people coming on the labour market.
It is this kind of reinforcement by introducing new activities having a potential for growth and employment that Mauritius was in need of to nudge up its growth despite our customary activities not doing as well as they’ve done in the past. Nothing is lost yet if only we bear in mind that technology remains a major springboard for redefining our economic future. To join up this wide-spreading world of technology, we will have to focus with precision on what exactly our workforce should study to produce output of a better sort and on how to groom up its capacity to efficiently deliver what will be in sustained demand on markets. The example is that of Japan which, at a time it had few avenues to grow into, applied itself to produce not cheaper shirts for world markets but cheaper and efficient cars. By so doing, it forced long-standing car producers to adopt its model and has been ruling over the global car market ever since for decades now. It did not stop at that: cameras, TV set, capital equipment, ships, electronic games, high technology, you name it, it spread out into all of these backed by a solid and evolving education system. Those who succeed are not easily intimidated.
The reality of global market conditions
Arguments are frequently brought up here in Mauritius to explain why we are not doing as well as we were doing in the past to give full expression to the economic ambition we should be fostering. Typically, it is stated that we are in a down phase because global economic conditions are depressed. This could be interpreted to mean that should global economic conditions improve we should be able to tag on to the bandwagon and do well again.
This linear approach to future economic development is too simplistic to be true. Other countries like Indonesia, Mexico, Turkey, the Philippines, Malaysia, Bangladesh, etc., given their superior existing critical mass compared with us, will simply not wait for us to ready ourselves to take advantage of such opportunities as and when they arose. The tide, when it comes, may lift all boats but it will also show up those who were there without their swimming trunks.
Right now, we do not have a clear idea of when and how exactly the tide will rise. It will be recalled that when the gales of the economic crisis hit the western economies as from 2008 and when stimulus packages of all sorts failed to remedy the situation in the following years, it was being said that the BRICS (Brazil, Russia, India and China) countries would take over and pull up the world economy out of the crisis buffeting America and Europe. Has this happened?
At first, it looked like new actors would actually emerge to pull up the world from the prevailing messy economic downturn. In 2007, China grew at the fantastic rate of 14.2%. India recorded a growth rate of 10.1% in the same year, Russia 8.5% and Brazil 6.1%. Hundreds of millions of people were pulled out of extreme poverty in these countries experiencing unbelievably high growth rates at a time rich countries’ economies were getting more depressed. In 2008, the BRICS went as far as to claim two-thirds of global GDP growth; in 2011, they accounted for half of it; in 2012, their share of global growth went below half of the total. China’s growth rate is optimistically estimated to reach 7.5% in 2013, India 5%, Brazil and Russia 2.5%. Growth – where it was expected to take place the most — has decelerated sharply.
A declining trend showing that BRICS are reaching the limits as well. Based on an analysis of fundamentals, forecasters are now stating that the BRICS’ share of global GDP growth will decline further over the longer term whereas other upcoming developing countries will not have scope enough to prevent further easing of world economic growth in time to come. The assumption that BRICS would make up for the slack left behind by tottering western economies was arrived at without taking into consideration global financial imbalances acting to disrupt coherent global dynamics. Can we count upon that then to tow us along? Do we know when exactly that would happen, if at all it would happen the way it was conceived?
The World will recover some time but will we be where we need to be before that time?
The booming and confident tones of yesteryears are now fading. Gone are the tumbling costs of shipping which popped up the commodity boom as well as the euphoria of a yesterday which spoke with ever increasing conviction about the shifting poles of global economic activity. Africa and our chances to work with Africa will no doubt suffer if and until global demand for goods and services does not reach the levels of the pre-economic crisis days and the commodity boom which has lifted our continent comes back to the fore. Even as the grand optimism of the recent past is not as sanguine as it used to be, breaches have doubtless been made in the world economic order. New configurations will show up. But what matters from the point of view of Mauritius is how much we would by then have adapted to emerging global economic patterns.
America is trying to become energy self-sufficient. That might end up with an American economy landing finally into some sort of autarky; even if that were less pronounced, a cross-Atlantic trade preference regime is already profiling itself to insulate both Europe and America from the gales of the global economic storm. Europe itself is tempted – but for its export-dependent members like Germany – to become fortress Europe. Note how it first reduced the price of our sugar exported to it over three years and how it has gone out next to unilaterally shut down preferential ACP sugar quota access to its market. Likewise, many markets will profile themselves to their own benefit unless and until a new phase of all-round and all-embracing global economic growth resumes. By the way, it’s a long time we haven’t heard about global trade talks. We keep hearing of bilateral and regional trade agreements with all the risk it carries for fractionalising the global economy.
With the BRICS fading out of the prominence they once had as the locomotives that will pull up the global economy, the future for small countries like Mauritius is riskier. With growth well supported by this process, we had a chance to have a go at markets. The sooner the better. With overall global growth decelerating, however, we will have to fight it up to secure a slice of the shrinking pie.
It is a big challenge to get to a new model for the Mauritian economy in which we could scientifically combine resources from both Mauritius and anywhere else in the world to cost-effectively supply to the world goods and services for which we should – like Japan when it made abrasive incursions on the global market for cheaper but efficient cars – have a sustainable cutting edge. Do not forget that a technologically mature Britain salvaged its famed Jaguar cars from potential liquidation by getting management and investment support from the Indian firm Tata. Today, Jaguars are successfully exporting themselves out of Britain. We should in Mauritius make choices like this for a more sustainable economic future. We cannot go on depending on the bulk of our investment going into real estate and shopping centres. We cannot leave our communications sector for sheer economic rent to be driven out of it by foreign investors if we really want to join a global league of technology-savvy ambitious countries looking out for markets, new and improved products, jobs for the younger generation, plugging the loopholes of inefficiency in countries which choose to lag behind.
In 1960, when Professors Titmuss and Meade saw the parlous state of the Mauritian economy, it was unthinkable even for them in the world of those days, that we might get over the numerous hurdles to get the large mass of our increasingly unemployed labour force employed. Yet, it is, based on their own simulation model when arriving at this conclusion, that we later got over the numerous obstacles to our economic development. In 2003, there were so many ICT giants in both developed and developing countries that it would have been prohibitive for us even to think of daring to jump into the same ring, given that we had no past track record in this field. The irony is that this is today the fastest growing sector of our economy despite the all-round gloom elsewhere. We need to keep giving shocks of the same sort to get the economy out of the ruts and to breathe new life into it from time to time. Yesterday was and today is the occasion for so doing.
If we run the race ahead of others among our economic peers, we stand a chance to make it again. The path to it is by joining supply chains which are global, by sending our schooling system to re-school itself in keeping with the demands of scientific modernisation, by unbundling inefficiencies that have become obstacles to enlargement of our economic horizon and – above everything else – ceasing with this insalubrious habit of entrenching our leadership putting its interests above everything else. Economic success, if achieved, will demonstrate to it the futility of such sterile pursuits. Let us keep our fingers crossed that such a day will finally dawn upon us.