The Economic Restructuring Game Should Be Worth The Candle

The path is as important as reaching the goal 

By Anil Gujadhur 

One of the most difficult tasks is to manage an economy efficiently. Had it been otherwise, Europe, America and their economic satellites would still have been riding the crest of the wave. In last week’s interview in Mauritius Times, Percy Mistry (PM) qualifies those economies as ‘submerging’ economies now. In contrast, countries like China and India which did not figure out in the top league two decades earlier are currently thought to be even able to propel themselves to the front stage and possibly also give the lead to the world economy for a long enough time to come. There is a new international context. According to PM, Mauritius should transform itself into an exporter of a changing mix of all kinds of sophisticated services, providing services to wealthy individuals from all over the world, as Monaco and Singapore do. His central recommendation is to make optimum use of the scarce land resource of the country (pricing it appropriately and securing for government and society a fair share of the ensuing capital appreciation) and transform Mauritius into one of the most attractive garden cities of the world in which the richest individuals from different parts of the world or High Net worth Individuals (HNIs), as they are called, feel drawn to set up their base and do business from over here. For this to happen, he points out rightly that Mauritius should clearly set out its vision of where it wants to go, outlining the hard and soft infrastructure it will put in place in terms of human capital and business culture, work ethic, union education and openness to external capital and entrepreneurial talent. He states that all this should give Mauritius the necessary momentum to face “an unfolding future that will be different from the past”. This can only be done, in his view, by breaking away from the salvaging of what he calls ‘sunset industries’, the like of sugar and textiles, which keep asking for government support each time they are buffeted by some untoward external events.

He goes on to state that we should be encouraging the setting up of ‘sunrise industries’, through appropriate tax and revenue policies, privatisation, etc., considerably overhauling in the process the overall governance structure of the country. He considers that this cannot happen if we carry on with the existing “ossified, inflexible and inefficient” governmental and parastatal structure or with the domestic private sector which is “too limited in scope, vision and capacity to properly exploit global opportunities available to Mauritius”. If all else has to operate on a platform of global competitiveness, he says, government and public services cannot continue to be so large, expensive, wasteful, inefficient and uncompetitive as they are. The domestic private sector, on its part, has to be “augmented by a much larger foreign private sector business presence that is made to feel welcome and is absorbed seamlessly into the island’s society”.

Regarding the recent Economic Restructuring and Competitiveness Package (ERCP) of the government, Percy Mistry considers it to be misguided and misdirected, ignoring “fundamental and deep-rooted problems” and dealing rather with “the kind of tinkering and absurd micro-management of irrelevant detail”. He has criticized domestic politics for being “pretty ropey, byzantine, increasingly corrupt and cacophonic”. He thinks that the judicial and legal system “leaves much to be desired by way of quality, capacity and efficiency”. He qualifies the media as “relatively undeveloped, thus limiting the capacity of society to ensure and enforce transparency and accountability”.

We should show our maturity by taking in some elements of fair criticism from all that Percy Mistry has to say when identifying the gap between where we are and where we could possibly rise to. We do not have to be complacent with what we have achieved so far. There is a lot more work to do as international economic conditions keep evolving. But surely, we must be having some merits for being where we are today. Because we are not that good-for-nothing place that has persistently allowed opportunities to do business slip through our fingers.

Before 1970, there was no textile production in Mauritius. We have a textile sector for 40 years now. It is limping no doubt against the gales of the international economic storm but it is here, earning foreign exchange and employing tens of thousands. We are still producing 500,000 tonnes of sugar from a reduced planted area but the sector is barely employing 5000 today compared to 55000 in the 1970s thanks to mechanisation and rationalisation of production. Before 2003, the ICT sector, BPO, KPO, and allied services were altogether absent from the scene in the scale in which we know them today. It is not huge but this has given jobs to at least 9000 young men and women in the thick of the economic and financial crisis of 2007-09.

Before 1989, we had no offshore or Freeport sector. Offshore financial activities have been here for two decades at least and so firmly rooted in the system that they have helped edge up the financial sector’s contribution to GDP from a stagnating <5% level to >11% even at the height of the recent international financial crisis. Offshore, Freeport, etc., employ some 7000 persons. They could have done better, surely. We have introduced attractive tax regimes, made new laws and changed rules and regulations over the years to attract company headquarters, wealth management, financial structuring and trust formation centred on Mauritius in the last decade and a half. These initiatives have eked out new business. Despite such constant efforts at improving our scope, we have not entrenched ourselves as deeply as one would have wished into the provision of international services to take us to higher levels of prosperity.

What could be the reasons for this situation? We did not catch the boat when others like Singapore, Hong Kong, Dubai and so forth were embarking. It is difficult at this stage to tip the scales in our favour against them, given the competitive edge they have cultivated in the meantime and the larger network of skilled experts able to deliver a vaster array of services they have attracted to their shores compared with us. This does not mean we do not have to persevere. In this, Percy Mistry is right; we have to double our efforts to tinker at the edges and get the business to flow more fully in our direction because it is a difficult market to penetrate. So as not to end up with another slack, we obviously need top quality leadership in all areas that will thrust us forward and that is not necessarily an auxiliary of political affiliation, as it is frequently made out to be over here.

Our country has certain positive specificities and it would be preferable to preserve them against any form of economic dictatorship. We do not have to find fault with everything but we can go on improving wherever possible at a faster pace than it has been the case in the past years. We have to reckon with hard facts, however. We saw some time back when, due to adverse climatic factors, we had to import fresh vegetables how much higher above the local prices those vegetables were priced. They were simply out of reach of the middle class and the less well off. Our GDP per capita is not high enough to permit dependence on such imports by giving away the land for alternative non-agricultural purposes. New areas of activity will grow no doubt and claim resources devoted to other purposes, as they have done, but we have to manage carefully the transition. It is highly questionable however as to how much of a bet we can take with our food security. Much as we may want to jumpstart the development process to make for a more sustainable scope of other activities, our baseline needs to be protected. We have learnt in the past how misleading it is to follow World Bank advice on leaving it all to the markets to set matters right.

No one is against further opening up. No one would be unhappy if the various logistic, infrastructure and human resource failings were firmly addressed once and for all to enhance our competitive edge and take away a lot of unnecessary slack. But we cannot throw the baby away with the bathwater: alternative new lines of activity should firmly crystallise into the economic landscape by displacing and substituting more effectively those so-called ‘sunset industries’. Many a public policy has failed for not having taken the right path to its implementation in different countries. In that sense, the ERCP which is responding to the immediate difficulties facing the sugar, textile and tourism sectors does not prevent the government from taking the plunge for a subsequent more focussed and integrated policy to deepen the outward orientedness of the economy.

While continuing to nudge up business opportunities to the maximum, the government cannot overlook its essential function, i.e., serving to protect the vulnerable under all circumstances even if that means overthrowing accepted doctrines of efficient economic management. We need not despair or have to overturn the applecart unless we have assured ourselves that the long term gains from policy upgrade and implementation will more than offset the immediate pains. It should not leave so many casualties on the wayside that we start considering the game as not worth the candle. Very many policies have failed and governments tumbled for not having correctly identified and walked efficiently on the path of transition from a given set of parameters to another. A lot of pragmatism has to go into the equation. 

* Published in print edition on 27 August 2010