Unlocking the economy’s potential

We may become once again a model to emulate by others who find themselves in our current condition

There is a general feeling that the economy has not received the attention it deserves over the past few years. The overall rate of growth remains positive but prospects do not look bright. Many attribute our lack of success on this front to politicians.This is incorrect, inasmuch as when growth is buoyant, it is not necessarily politicians who always make it happen.

Economic growth depends on several factors, internal and external. It is when our companies started venturing out into new untested territories that the economy gained in scope. Companies are at the source of economic growth. If they change and adapt to new circumstances from time to time, it is they which become the springhead for new spurts of economic growth.

The entrepreneurs who formed those textile companies, for example, adapted to prevailing conditions and identified vantage points from which to make breakthroughs in external markets. The same can be said about our financial companies which put together the skills and talents of those they employed to venture out into providing international financial services. Idem for companies in the tourism, construction and ICT sectors. They took initiatives which paid off and benefited the economy as a whole. As usual, success bred upon success.

Considering the limits to growth even newer companies face some day or other, as it had happened earlier in the case of companies operating in the sugar sector, it was contemplated to venture out into ever newer activities. In this perspective, the intention was to make Mauritius a centre point from which specialised activities, based on cost efficiency and quality considerations, would be undertaken to attract more business to Mauritius. It was the right strategy to increase our economic scope, giving ourselves the cutting edge, compared with others.

Thus, we contemplated attracting internationally reputed institutions of higher learning to Mauritius, acting as a nucleus to attract students from nearby Africa and creating our reputation as a centre of learning thanks to world class research and its practical application. Other activities would have grafted on to this initiative, had we succeeded. It was also contemplated that we could combine tourism with cheaper but also high-tech medicine in Mauritius and become some sort of an affordable medical hub for the region. We also thought that, instead of being an importer of most marine products – which we are – we could take advantage of our vast exclusive marine economic zone and set about to produce and export all of these ourselves.

Strategic coordinator

While some educational and healthcare private companies have been created in the interval, we are nowhere near the objective of becoming the contemplated global educational and medical hubs radiating out from our central position in the Indian Ocean. We did not take advantage of an offer to set up here the first branching out of the world famous Indian Institute of Technology (IITs) some years back, which should have given a fillip to the educational hub concept. Some private companies have set up clinics but their outreach to external markets hasn’t been on the scale contemplated. Something has prevented even a Land-Based Oceanic Industry that was contemplated as far back as 2009 from coming to life to date. The strategic coordinator to make all this happen all at once has been absent from the scene. Years have been lost in vain.

There must be a reason why more companies have not established themselves on the necessary scale and with conviction enough to undertake such lines of identified activities and others not yet identified, to grow the economy. It cannot be a matter of insufficient incentives: any government would in the prevailing economic circumstances (unemployment, slow growth, need for multiplier effects,…) have gone out of its way to eliminate obstacles and see the projects materialized.

Would it be due to a funding constraint? Not so. Figures show that our financial institutions have been struggling to put to more efficient use (e.g., by lending out) the surplus funds lying with them.

For example, as at March 2016, banks collectively had raised from residents Rs 349.3 billion of deposits but the amount of their advances to the private sector amounted to only Rs 283.9 billion; they had to bid hard against each other to usefully employ the balance of their surplus funds arising from deposits collected, into investments in Bank of Mauritius Bills and Government Securities (Rs110 billion altogether). In fact, their advances to the private sector have kept falling successively, as a ratio of their total rupee deposits, from 91.4% end-December 2014 to 88.4% end-December 2015 and now down to 73.8% as at end March 2016. So, it’s not a funding problem. In other words, our financial system has the means to support additional investment for expanding our economic scope.

Banks are not lending more to private companies either because there’s not enough demand for advances for viable projects from the traditional big public companies. Or, the big public companies are, for reasons known to themselves, not venturing out into additional newer economic activities. The bigger public companies usually expand their activities in a linear fashion, building up on what exists already, and may not be nimble enough to change tack quickly matching the disruptive new ways of doing business in the global economy as it is happening, thanks to transformative support from new technology. 

Empowering clever new entrepreneurs

Is there then another channel to push up our economic growth?

One would be to empower clever new entrepreneurs. These can be in the form of start-ups based on modern technology. Start-ups have the advantage of knowing and constantly repairing their little businesses from very close, unlike the bigger public companies. The founders are often closely associated sharp-eyed adventurers in business with a culture of hard work and camaraderie.

The aim is to quickly transform a concept into a working outfit. Ownership of the company lies within the founders and workers of the company, all capitalists among themselves. This close tie-up makes for a far greater element of cooperation, personal drive and commitment to hit the company’s target markets, within and outside the local economy. The business is tracked from very close so that any adverse circumstances are fairly quickly addressed, unlike in the big public company.

Start-ups can go into any number of varied businesses from producing spectacles to providing finance. Today’s big companies, Google and Facebook, were initially led by their few founders; so was Infosys of India. Other successful start-ups are companies like Uber taxis which drive millions daily in their taxis in different cities of the world or Airbnb which booked 17 million guests for hotels last summer. There are others which provide the small accommodations the start-ups need to do business from. Still others, having succeeded in their line of business, now hold sufficient surplus funds to invest in upcoming start-ups.

The start-up category is idea-based, not needing huge amounts of capital to acquire lumpy assets for doing business. It exploits new technology to link up with others for its core business requirements at least cost and with greater efficiency: it will hire programmers, rent computer processing from others, find or be assisted by other start-ups to access manufacturers and markets globally online. It will typically optimize the resources it owns. It pools together resources from different outside sources to efficiently deliver its own products, multiplying jobs.

We have not gone far enough to develop nimble businesses of this sort because we hardly took advantage of the transforming technology of the modern age. We could choose to add value of this type. For this, we need to employ expertise to set up and get on with start-ups in fields which suit our condition. There are companies outside which give this kind of support and even tie up local start-ups with others.

Integrating this new way of doing global business will transform and add to the potential even of our existing industries by transforming them. We will thus lift up our overall production scope, embracing more fully the technological transformation impacting the smooth delivery by smart start-up businesses of the modern age.

Once we successfully embark on transformation of this type and gather the scope that has long been eluding us in this respect, we will add another layer of efficient production to our economy. We will have to keep going in this fashion. If it succeeds, we will stop blaming politicians or whosoever for our current lack of success and economic consolidation. We may even become once again a model to emulate by others who find themselves in our current condition.

* Published in print edition on 3 June 2016