Improving the Potential of the Economy

Let us give the economy its chance to move out of its strait jackets

One of the key factors contributing to Mauritius’ economic development during past decades has been its ambition. We’ve always wanted to rise above our lot, economically, socially and politically. This has paid rich dividends. We’ve been able to raise new and growing sectors of activity from nowhere. Had it not been for ambition to join the ranks of producers of textiles in the Far East in a quest at first to create local employment, it wasn’t evident Mauritius would engage in any such manufacturing activity. We had neither the basic home-produced raw materials to do textiles and garments, nor did we have the know-how. But we learnt and we made it.

How economic evolution played out

The fact that we were able to graduate into manufacturing from nowhere and the fact that people who were unemployed up to a quarter of the total work force of the country in 1968, were by the mid-1980s fully employed, gave us the wings to fly higher. The education factor proved to be the launching pad for us to now launch ourselves into services. Here again we had hardly much indigenous skills at the high end of the services market. But, getting to know about, for example, hotel management and campaigning for customers in Europe, we were able to soon raise a tourism sector that had little to envy the best alternative tourist centres of the world in terms of quality of services.

It was ambition and the drive to go higher in whatever we undertook in those fledgling days of asserting ourselves economically that transformed it all. We were lucky that there were public servants endowed with a vision of the future. They were committed to the grander cause rather than to personal self-seeking; they were methodical and rigorous in whatever they would recommend for action. The country’s chief politicians listened to them carefully when they were making a sound point even if that meant abandoning a pet idea to adopt an alternative and more enduring one. This was the public governance factor that was slowly overtaking the liberties people like to take with facts, often unadvisedly.

It was a combination of all three factors – ambition, moving on from one stage to another, and governance – which were behind the foundation on which Mauritius has extricated itself from the ruts in which it could otherwise have been imprisoned. We have thus grown much beyond our expectations. From an original economy deeply embedded in agriculture allied with some amount of primary manufacturing – production of sugar – we lifted ourselves into manufacturing of a different sort for global markets and into a services sector fed by external markets thanks to our labour force.

Our trade agreement with the European market became the bedrock on which the new-gotten manufacturing prosperity was based. It is the riches generated during this phase that soon showed up the inadequacy of our infrastructure as it existed at that time. So, the supply of electricity had to be increased to match demands from the textile manufacturing sector. Adequate water had to be provided in the various places on the island where industries had gone out to locate themselves to find the labour they needed for carrying on their activities. Factories had to be constructed in far-off places. Roads had to be done again to facilitate movement of people and of goods and services from and to factories and the ports. All of this demand was met. This full-blown movement to scale of production added to our economic growth. What is important to note in this process of economic transformation is the use of various “linkages” to jump on from one stage of development to something of more substance at the next stage.

For example, on the side of the services sector, thanks to some coincidence of fortune – the global market was fast liberalising with capital flows increasing across the planet by the 1980s; India decided to go for faster economic growth by freeing itself from the tangle of impossible bureaucratic controls which prevailed till 1990 – by the late 1980s, we became bold enough to embark on the provision of international financial services. That was adding a bigger dimension onto tourism services we had gone into at an earlier stage. It required quite an amount of sophistication to go for finance and, by the same token, to free ourselves from a financial system that had heretofore been insular in scope being limited to the domestic market.

It looked like “light years” separated us from the high performers at the global level in the field of international finance at the time. Despite this gap, the decision was taken to go ahead diversifying our financial services sector and it was implemented. As in the case of textile manufacturing, we went about to re-invent the “infrastructure” for becoming a financial services provider to any place anywhere in the world. As in the other cases, we employed expertise drawn from across the world to define ourselves as a credible provider of international financial services. At first, we didn’t have the products but soon enough we made up for a lot of the shortcoming in this area. We could have succeeded even more than we’ve been able to do but what we’ve done has opened up decent avenues of employment for so many of our young men and women who had trained themselves professionally but were on the lookout for something more meaningful than a routine job of keeping books or advising legally on civil matters.

The same may be said for the ICT sector which sprung up a decade ago to further enhance the scope of our services sector. Cost-competitiveness was the driving force. There was enough demand at the global level for this service even though we did not operate at the more sophisticated levels of process development in the field. It shows that, having positioned ourselves in an activity, we were able to forge ahead despite so many handicaps as a late-comer on the stage, despite serious monopoly restraints from associated service providers on whom the connectivity of the new sector was based.

The Catch-on Effect

The foregoing illustrates amply, if at all that were necessary, that in all the areas we’ve ventured into from the days when agriculture was our sole culture, that the first steps to move into a new field are decisive. Initiative is critical to move the economy forward. Once a sector of activity is implanted in the economy, it goes on to impart the stimulus for others to emerge on its tracks. The important point is to think out clearly, from time to time, where the new potential for growth is to be found. Having identified it, defined its scope, set down a road map for its future growth path, the thing to do is to spot the strong points and move on. It is as if an existing node of growth becomes the spur for new other activities to graft themselves on it.

This is how we have become an economy with a manufacturing and a core services base which were not here in the first stage. History shows however that industrialisation is key to generating economy-wide productivity growth and economic competitiveness at the global level. While we did embark on industrialisation to break off from the narrow base of the late 1960s, we did not intensify the drive into further industrialisation of the economy. The chance today is that, with domestic labour becoming increasingly unavailable for even the textile and garment factories, even the little amount of manufacturing we’ve got into is coming under threat. The risk is that we may reduce ourselves into a mere trading outpost for other countries’ manufacturing. Has it been a serious management deficit or simply the want of sufficient external market space or both that have led to this frail outlook for a sector that made us break away from a narrow economic space in the first place?

Whatever the answer to this question, it is probably not in our best interest to let a sector that launched us into industrial activity on a stand-alone basis to shrink. That will surely not go to enhance our economic potential. Let us not buy the argument that these would be ‘sunset’ industries fit only to be dumped. It is rightly pointed out by Justin Lin, Chief Economist of the World Bank, that “except for a few oil-exporting countries, no countries have ever gotten rich without industrialisation first”. Moreover, apart from a very few tax havens, such as Monaco, there is no country that has attained a high standard of living on the basis of services alone. We need to beef up our manufacturing base. Usually, a model of manufacturing does not last for ever if one does not keep tinkering at the edges to make it adapt to changing circumstances. We should have been busy forging our way up into additional manufacturing.

If we do not have the capacity to go for heavy manufacturing, we ought to be contemplating light manufacturing in our particular situation. It has to be realized that services are inherently more difficult to export than manufactured goods. Most services require that their providers and consumers are in the same location. That is not the case for manufactured goods which can be traded out. Besides, the manufacturing sector has more “linkages” with other sectors and can stimulate more technological progress in other activities than does the services sector. For services to grow, the growth is dependent on the vitality of the manufacturing sector. We can rely on services to bridge the gap in our balance of payments but nothing works better in this respect than production of tradable goods. We need to give all the attention our services sector needs to grow but not at the cost of neglecting industrial growth.

New Markets

The argument is often made, especially in these days of rather low or little growth in our traditional markets that we would not be able to get out of the current low growth unless those markets pick up. Obviously, we had been doing well when demand from those markets for our goods and services was booming. This does not mean we’ll automatically switch back to where we were before the crisis and make it good again just the same. The global trading system is dynamic. Factors which helped us do well in these markets no longer exist.

What do we do in that case? Of course, we need to keep up our links with traditional markets, producing cost-competitively so that we are in again with the prospective uptake in those economies. Our choice in the lookout for new markets is limited however. We may find it difficult to export to emerging markets the very goods for which they have become the “factory shop” of the world. We have nearby Africa as an alternative. We’ve already made some inroads over there in the drive to compensate for falling demand from our traditional markets. The experiment needs to be carried forward and not half-heartedly.

Many see Africa’s 55 states as an overall flourishing spot on the global market. Most African countries have been growing at more than 5% every year since 2003. Average economic growth has been sailing around 6% per annum. Life expectancy has risen by one-tenth during the past decade. The population is expected to double to 2 billion by 2050. Governance has been improving. During the last decade, foreign direct investment into Africa has tripled. It is true that a third of Africa’s GDP growth is coming from commodities. A lot of the current growth depends on agriculture and mining. But technology has also travelled deep enough for big new opportunities to emerge and move the Continent further.

We could focus on Africa. One could think of us going into those very sectors that could make a difference to the future of Africa, notably more manufacturing, more power generation, more well-structured enterprises opening up to external trade and a movement towards greater urbanisation of the population. There is work to be done here. Our enterprises, either in services and manufacturing or both, could branch out to the Continent or serve as outposts for doing part of the work over here. We need to ready ourselves for this adventure in the quest for new markets. We can fruitfully export management and productive skills to man African enterprises of the future. We need to develop an edge and drive out the cooperation chapter to the fullest extent possible. We should throw up ideas, one of which would be to open up a common market from the Mediterranean to the southern tip at the Cape and be part of it as a key motivator of self-reliant change on the Continent.

All of this says one story: we have no choice but to increase our scope and that means increasing the scope from where we stand today, not shrinking it because of short-term factors. Necessity is, they say, the mother of invention. We may have to re-invent ourselves to fit into that new role.

* Published in print edition on 11 October 2013