Mauritius needs a more performing model, with a greater balance of skills and demography, to overcome a bottleneck which may otherwise keep holding it down
Countries like the United States, European Union, China and India have vast internal markets. This means they can sustain a lot of their economic activities by trading a full range of goods and services within their own frontiers – internal consumption. They have big populations, and their production capacity is substantial. By this process, they have acquired unbeatable comparative advantage over other countries in the production of numerous goods and services, helped by a continuing stream of research and development.
Of course, these countries can add to their domestic activities by selling to outside markets, which is what Germany, the EU’s most dynamic economy, has been doing for a long time and thus recording positive economic growth even as other EU economies went into recession. But Germany is not alone, leaning on this pattern of efficient production for both the internal and external markets.
There was a time, after the Second World War, when the industrialised countries of the West gained an edge over all others in terms of production efficiency. They were thus in a position to advantageously sell much of their production to the other less developed countries, even as they transformed raw materials imported from these very countries into refined export products. They still have a big comparative advantage to continue doing so, whether for exporting goods or services.
We just have to look at the origins of the numerous goods and services we buy to realise that a whole host of other countries have caught up with industrialised countries in this respect. China, for example, is facing the ire of the present American administration for competitively exporting its home-produced goods and services to the US market. At one time, India was seen as one of the global leaders in information technology and in the production of pharmaceuticals. Suddenly, the whole world became a vaster playground on which to play.
Transforming economic production
Former developing economies have caught up, albeit it is still the US, with Apple, that has spearheaded the technology behind the iPhone, for example. Other advanced countries still maintain an edge over a number of sophisticated products which they sell to outside markets. A lot of the former less developed economies however have entered new markets that looked way beyond them some decades ago. China recently embarked onto the market for producing passenger planes, something that for long has been the exclusive preserve of the US Boeing Co. and the EU Airbus Industrie. Singapore has developed very advanced sea dredging equipment. Applied effort to break barriers has paid off.
We are not surprised therefore when we buy a shirt or other garment at Marks & Spencer London with the label made in Sri Lanka, Vietnam, Bangladesh, Indonesia or Mauritius. Our country has been able to join the others in this kind of activity because we went for transforming ourselves into a more complex structure of production than what obtained earlier. It was a risky step to take from sugarcane production to textiles and garments for external markets, but had we not taken this step of expanding our economic scope, we would not have been there. The whole of economic progress is centred on this idea of wanting to break off from a given mould and getting to something better, newer, more sophisticated, which Rostow called ‘The Stages of Economic Growth’.
Just imagine that at one time – not long before and after Independence – the provision of financial services in Mauritius was limited mostly to the urban areas in the Port Louis-Plaines Wilhems geographic belt. How then did we end up with an international financial centre a couple of decades only after 1973 when most of our own domestic rural areas were previously financially under-served? How come we are serving people and places as far off as London, New York and New Delhi, today, and how come our financial service providers get almost half their value added from outside Mauritius? Not only did we make a break from constraining past policies, we also invited new skills from overseas to ourselves and made transformative use of the existing financial skills in the country to be able to successfully tie up with others outside operating at complex levels of sophistication. It is this that has created a critical mass that might help us forge ahead, adapting skilfully to ever-constraining rules made by the more powerful countries.
Breaking off from what has been holding us down
Of course, the platform on which to engage with other countries – especially when we lean on outside markets for growing our economic scope – keeps becoming increasingly difficult to operate upon, at a time when all-round growth is not pulling up reasonably enough at the global level. Moreover, we have rarely lived through globally uncertain times as at present. All this is intimidating. Many might be tempted to give up the fight, so cornered and battered one feels from so many adverse international developments occurring at the same time.
It is in moments as unpromising as the present one that countries like Singapore broke off to chart a successful future course. They battled it out posing as a unique liberal outpost for business of the Western type to confidently and advantageously establish themselves as a centre for so doing in their strategic location. On this nucleus, they built up a highly resilient economy with one of the highest per capita incomes in the world today, trimming up all unnecessary rough edges which could potentially impede progress. Countries which make it successfully are those which change course when it matters most and at the crucial moment.
It is not difficult to see that Mauritius needs a more performing model, with a greater balance of skills and demography, to overcome a bottleneck which may otherwise keep holding it down. Many observers have kept remarking that our exports are not performing well enough to sustain the economy reasonably well. Others have also noted that it is quite a number of years now that our imports have been exceeding our exports by much, and that “something needs to be done” about this situation. Were the international price of oil to soar again, that would not only worsen our international trade gap, our cost competitiveness would itself be eroded internationally putting at risk our production potential. Besides, the rate of economic growth has not pulled up beyond the 3-4% for a number of years now. We need to do something new to overcome all this.
What earnings data show
Statistics Mauritius classifies the economy into 18 sectors of activity from ‘Agriculture’ to ‘Other Services’. Data published by it show that, between March 2010 and March 2016, certain sectors have kept occupying the top ranks in terms of average monthly earnings over this entire period. Likewise, some other sectors of activity have remained at the bottom of the pay hierarchy.
The sector with the highest average monthly earning was ‘Electricity, Gas, etc’ with a figure of Rs 33,345 in March 2010, maintaining its first rank as at March 2016 with an average monthly pay of Rs 56,465. Numbers 2 to 6 were, respectively, ‘Finance and Insurance’, ‘Professional, Scientific’, ‘Real Estate’, ‘Health’ and ‘Information & Communications’. The 2016 respective monthly average pay for Numbers 2 to 6 were: Rs 44,419, Rs 43,496, Rs 40,509, Rs 35,851 and Rs 35,241, up from 2010: Rs 33,797, Rs 31,672, Rs 29,471, Rs 24,108 and Rs 25,771.
By contrast, the monthly average pay was lowest in both March 2010 and 2016 in the ‘Manufacturing’ sector: Rs 10,948 and Rs 16,786, respectively. The lowest monthly pay of all 18 sectors was in the ‘Export Oriented Enterprises’ sector, mostly the former EPZ, Rs 9,408 in March 2010 and Rs 15,414 in March 2016.
A cursory analytical glance at the above data shows that it is price-dictating economic activities directed to the internal market of the country that pays the highest to workers whereas the least pay is where we export goods, notably export manufacturing. We paid in 2015 (latest data available) an average hourly compensation of only US$ 2.53 in our manufacturing sector. In contrast, the hourly pay in manufacturing is over three times as much in the case of Taiwan’s US$9.51 (one of the lowest at global level), much lower than Singapore’s US$ 25.41 and US$ 42.42 in the case of Germany (the world’s highest average pay in manufacturing).
This means that our manufacturing exports are not diversified and sophisticated enough to be able to pay the higher rates other exporting countries are able to afford. We have not graduated and here lies the scope for future progress. Obviously, it comes with risks. We needed capital owners and business managers who know how to take those risks and grow the activities competitively for external markets. We can still catch up if we have the will to do so. A targeted futuristic policy orientation is necessary.
By contrast, sectors which pay the highest are mostly internally driven and involve typical monopoly-type producers: electricity, financial services, professional services, real estate, private health care and telephony. Consumers, mostly local, have no bargaining powers against these providers who operate on a captive market. Within this, there are enormous income disparities among employees in these sectors of activity, which means that those at the bottom of the hierarchy get much less than the monthly averages for the respective sectors. The problem is that all these monopoly supply-siders will eventually face serious limits to growth unless the scope of the overall economy is simultaneously raised by increasing our external market reach. But that has not been happening for quite some time and this is what the almost invariant 3-4% annual GDP growth rates are showing for quite some time now.
Mauritius can grow its scope if it successfully breaks away from this pattern in which capital is drawing to itself a larger share of national output without helping to grow the cake itself. This will come if we manage to: better allocate resources for future economic growth, do all we can to become increasingly internationally competitive for as many strategic exports of goods and services as possible, improve the structure of our production sustainably, dilute numerous price-dictating concentrations of economic activity which have set in for long and, most importantly, get into the country that higher quality of management, in both public and private sectors, which will identify hurdles to economic growth before it is too late, and tackle them efficiently.
- Published in print edition on 25 August 2017