“ERCP: It is the same old wine (and vinegar) repackaged in unworkable form”

Interview: Percy S. Mistry

“Mauritius cannot keep wasting time and money talking about restructuring for the future when what it is actually doing is keep pouring money into protecting its past”

“Restructuring the sugar industry under ERCP is a complete and egregious waste of time and resources”                            

Mauritius Times: Finance minister Pravind Jugnauth has come up with 100 policy measures in his ‘Economic Restructuring and Competitiveness Programme’ (ERCP), which he says will help Mauritius “to ride out the global recession, the euro zone and UK crisis as well as seize the opportunities that global rebalancing brings”. How optimistic are you about the success of this Programme?

Percy S. Mistry: The ERCP seems to me to be misguided and misdirected. Why? For the following reasons:

First, it is portrayed as a departure from the Mechanism for Transitional Support to the Private Sector (MTSP), the brainchild of the former Finance Minister that the new Finance Minister asserts was short-term, flawed, misguided and inadequate, whereas his new ERCP is transformational. It is nothing of the sort. It is the same old wine (and vinegar) repackaged in unworkable form under a new acronym.

Second, its perception and analysis of Mauritius’ macro-meso-micro problems is trivial and wrong.

Third, that misperception leads ERCP to focus on solving problems that are not as critical for Mauritius (e.g. the EU-Eurozone crisis) as they are made out to be. Minor problems are being addressed. The more fundamental and deep-rooted problems are ignored.

Fourth, ERCP comprises extraordinarily detailed micro-measures applied through micro-management of a kind that almost never works as intended because it is far too prescriptive at the level of minutiae rather than being broad, sensible and flexible.

Fifth, despite the hundred or so ‘new’ measures suggested, i.e. from enterprise-restructuring and SME refinancing to infrastructure development there is nothing new in ERCP. It is simply a mishmash of many ‘old’ micro-measures that have been suggested previously but many of which have not worked before.

Sixth, it remains focused on restructuring and reviving sunset industries like sugar and textiles/clothing when these are industries that Mauritius should be phasing out as swiftly as possible rather than keep pouring resources into perpetuating them through restructuring.

Seventh, it does not conceptualise a future strategic destination for Mauritius to reach – i.e. as I have argued endlessly, Mauritius should strive to become a Singapore/Monaco hybrid that attracts high-net worth individuals (and their entrepreneurship and enterprise ideas) particularly from Asia (i.e. India and China) to take up residence and tax domicile in Mauritius and by doing so transform its fortunes. The ERCP does nothing to achieve that aim.

Eighth, it fails to address Mauritius’ core structural problem: i.e. to reduce the size and cost of an absurdly bloated government, and cut down the number of resource-draining parastatals, through a rigorous reduction of useless public expenditure and an accelerated programme of privatisation that would: (a) raise resources which government does not have, and (b) at the same time restructure the economy to become more efficient and globally competitive.

Export competitiveness is not just a private sector issue to be dealt with at the firm or industry level. The private sector cannot be export competitive if government remains so large, expensive, wasteful and inefficient and embeds too large a social overhead cost. For Mauritius to be competitive as a country, government and public services must become competitive too. ERCP is totally silent on that. I could list another 20 reasons why I believe ERCP to be inadequate and misguided but that would not add much value.

* Can it be said the policy measures proposed under this Package really differ in substance from those that had been pursued before him?

No. As I said, ERCP seems to be the same old wine, mixed with vinegar as well as a lot of salt and chaff, put in a new bottle and relabelled as an innovative and dynamic new programme when it is nothing of the sort. It is also dangerous. It reminds me of the new Finance Minister’s previous follies in the same job in 2000-05 when he overstretched public resources and led Mauritius toward a potential crisis that was averted just in time when a new government was elected in 2005. ERCP again is too ambitious resource wise.

Despite all the prescriptions provided on how resources for ERCP will be raised and used, I do not believe this quantum of resources for everything under ERCP can or will be raised. Much of what is deployed will be wasted. Public borrowing will again spiral out of control and some of the levies on banks to finance ERCP will prove counterproductive. ERCP may well have unintended consequences that could prove quite damaging.

* The latest projections indicate GDP growth is likely to be in the 3.5 to 4 percent range against the previous forecast of 4.5% — this due to the uncertainties sparked off by the Euro crisis and a dampening of external demand from our trade partners in the wake of the global recession. Some African countries have been doing better than Mauritius in spite of the crisis. Why is that so? Is there a lesson there for us?

The downdraft in growth projections has less to do with Euro-crisis (which is a convenient whipping boy to blame for many internal failures) than with the possibility of a double-dip recession globally. The Euro-crisis is only a part of that problem and the impact of the currency fluctuation issue, which the preface to the ERCP overplays, can be handled by MRU enterprises resorting to tried and tested currency-risk management instruments. These are easily transacted through hedges that protect the realised value of anticipated future earnings in whatever currency and vice-versa where input costs are concerned. That is not rocket science and ought not to be portrayed as such, simply because Mauritius has been behind the curve in making available in its domestic market the use of standard instruments such as currency futures and options.

Even if these are not available in Mauritius there is nothing to stop enterprises protecting themselves even now by resorting to these hedges in New York, London or Singapore through global banks already present in Mauritius. The problem is that Mauritius has not as yet made its economy as flexible, opportunistic and futuristic as it should have by now. Instead it has been indulging continually in its predilection for putting too many resources into prolonging the existence of sunset industries and not investing enough in the development of sunrise industries. The ERCP repeats that mistake yet again.

African countries have been doing better than Mauritius because they are mainly commodity exporters. Demand for those remains strong (although prices have weakened a bit) especially from Asia which is taking up the slack from economic implosion in the West. The performance of the South African economy, for example, is strongly linked to the increase in the price of gold. Mauritius will never be a commodity exporting country. It has to focus on an ever changing mix of sophisticated service exports of all kinds of services, and permanent income from wealthy Asian individuals for whom it can provide the same services as Monaco does for the wealthy from all over the world.

If there is a lesson for Mauritius it is that it cannot keep wasting time and money talking about adapting itself and restructuring for the future when what it is actually doing (yet again through ERCP) is keep pouring money into protecting its past. It is refusing to restructure its governmental and parastatal structure, which makes it ossified, inflexible and inefficient. It keeps talking about changing that, but does not quite get around to doing it as rapidly as it should. And ERCP is yet another example of that same old approach to deflecting and ignoring the reality of an unfolding future that will be very different from the past.

* Total financial resources required to finance the ERCP and to face the crisis would be around Rs 12 billion, of which some Rs 7 billion would come from Government, from acceleration of projects in the Public Sector Investment Programme, from public sector institutions, including the Bank of Mauritius. The private sector would mobilize Rs 5 billion. The Programme will thus be implemented on a burden-sharing basis. But past experience has shown that the private sector input in such reform programmes had not been forthcoming. How do you react to that?

I think the Finance Minister is leading Mauritius into the same resource and public borrowing trap that he led the country into between 2000 and 2005. He does not seem to have learnt his lesson. He will undo all the good that his predecessor has done in restoring the integrity of public finances with an incoherent, inchoate but over ambitious, detailed, misdirected ERCP programme that will end up wasting resources on the wrong things while eschewing doing the right things.

It’s not just a question of the private sector not doing its bit. For a programme like this one I would be worried if it did. The private sector ought to be too sensible to join the government in an effort to waste resources on this scale for these purposes. The only part of the ERCP that I agree with is its emphasis on rapid infrastructure development. But that should be financed differently using mainly foreign investment on a BOO contractual basis and opening up the country’s land market to support domestic financing.

* In the context of depressed demand facing exporting sectors and the weakening of the Euro against the US Dollar from its previous peak, the exporting sectors were hoping to get some relief by realigning the Rupee-euro exchange rate above the prevailing appreciated exchange rate of the Rupee. This question has been passed on by the Finance minister for the attention of the Bank of Mauritius. Do you sympathize with the exporting sectors’ argument in favour of Rupee depreciation as a solution to greater productivity?

No I don’t at all. I hear this argument in almost every developing country and it is wrong. China’s artificial management of a grotesquely undervalued renminbi exchange rate is doing the rest of the world an enormous amount of harm. It is preventing global current and capital account rebalancing, preventing recovery from taking place in damaged economies through restoration of export-led growth, and adding fuel to the fire of argument in other countries that they must also undervalue their currencies because of that bad example. I do not actually buy the argument of a structural change in the EUR-USD exchange rate happening or hurting Mauritius if it did. I think we will keep seeing wild fluctuations in that critical exchange rate because the fundamental problems of both the US and EU are equally bad. Both these giant economies are over-borrowing. They are printing too much of their own currencies. They are getting away with it because these are two of the three main global reserve currencies.

Financial markets of course will react one way and then another with each bit of news affecting economic prospects in the US and EU. But that should not provide a basis or an excuse for determining Mauritian export competitiveness. If Mauritian companies cannot anticipate and cope with these swings then they have to accept that they are fundamentally inept and inefficient, rather than blame currency fluctuations for their plight. No export business should be left standing if it cannot cope with an adverse 25% shock in currency risk materializing through both operational efficiency and balance sheet strength. Mauritian enterprises should find ways of becoming more adept, efficient and much better managers of currency risk rather than bleating continually for support via an undervalued exchange rate.

* One recurring observation from quite a few economic commentators regarding the management of the Mauritian economy is the timidity with which we have addressed the question of putting in place the deeper structural reforms that would enable the country to forge ahead in the increasingly rule-driven and pitiless global economic environment. Does Mr Jugnauth’s ERCP transcend short-term considerations and therefore address, in your view, the imperative for those deep-seated structural reforms?

In a word, NO. The ERCP does not address core long-term structural problems. It glosses over them or ignores them. I do not think the global environment is pitiless. Value-loaded adjectives are pointless and misleading. One has to accept the world as it is. It is a good thing that it is increasingly rule-driven except for countries that keep avoiding or breaking the rules by using currency manipulation as a way of retaining export competitiveness to the detriment of the world. That is equally true of countries that persistently live beyond their means, borrow more than they can afford to repay from the rest of the world, to support and maintain standards of living and welfare states that they cannot support through their own earnings. By and large Mauritius’ economy has been relatively well managed thanks to the efforts of people like Rama Sithanen and the current and former governors of RBM. The ERCP could undo a lot of the heritage of relatively sound economic management.

* The “right” structural reforms need not result in the poor getting poorer, as has been the case in recent years, lest those reforms get shot down. The goal should be for all Mauritians to enjoy the fruits of growth more fairly, isn’t it? How do we ensure that?

I have never bought the argument of the poor getting poorer being the case in recent years except in a relative rather than absolute sense. This point is always made in India that, in the post-1992 reform era, all that reforms have done is lead the poor to become poorer while the rich have become richer. If that is the case how could the Indian middle class have grown from less than 50 million in 1985 to more than 350 million in 2010? That could not possibly have happened if only the rich got richer but the poor got poorer. Obviously at least 300 million poor people got sufficiently richer in those 25 years to become middle class!

It seems to me that virtually everyone around the world (except in Africa for reasons relating to an inability to govern at all) has become better off since 1990 but to varying degrees. Sadly, the richer segments of the population have become much better off much faster than the poor because the proportionate share of income from 1990-2010 growth that they have captured has been much larger. Had governments stepped in to prevent that through redistribution policies then everyone might well have become poorer. The poor would then have had the relative satisfaction of seeing the rich worse off but at the cost of becoming much poorer themselves. The poor becoming poorer is a nonsense argument which fuels perpetuation of the economics of envy rather than the economics of growth with fairer distribution being achieved through markets than governments.

I agree with MT that all Mauritians should enjoy the fruits of growth. What ‘more fairly’ means is not something I’d like to speculate on. Everyone has a different view about what is ‘fair’. The ‘fairness’ argument has a lot of popular resonance for obvious but wrong reasons. It is an argument that, taken too far, usually results in the unintended impoverishment and unravelling of societies. I believe in governments trying to provide and ensure equality and fairness of access to opportunity. I do not believe that government or anyone else has any business trying to ensure equality and fairness of outcomes. Outcomes depend on what people do with opportunities. Some people exploit them. Others blow them. Not everyone is equally endowed by nature or nurture. That may be inherently unfair. But that is the way it is.

Governments might be able to do something about nurture. When they try to impede or compensate for the unfairness of nature, they run into all sorts of problems as the experience of the USSR, North Korea, Cuba, etc., have demonstrated. So, trying to ensure ‘fairness’ in terms of the equality of outcomes is a misguided endeavour. Obviously, government policy in any civilised society must ensure that the poor, weak, disabled or disadvantaged, the elderly, the excluded and discriminated against, etc., must have access to a minimum level of resources that ensures a decent standard of living in terms of shelter, food, clothing and access to opportunity for them being maintained and sustained.

But going beyond that to ensure an idealised view of supposedly correct proportionality of returns from market reform and growth is fraught with peril. It is sad but true that market economies (and that is the only economic model that has survived intact after many others have been tried and failed) tend to reward capital and entrepreneurial risk-taking more than they tend to reward what used to be called ‘labour’. High-level human capital usually always manages to capture greater returns than lower level human capital. That reflects the original investment made in developing high-level human capital in the first place. It always amazes me that people do not think risk-taking in business should be egregiously rewarded but that people going around the world kicking footballs, playing tennis or golf, and singing rubbish drowned by a cacophony of painful noise, should. It is true that markets have become skewed and screwed up in that they now seem to reward risk-takers as absurdly for colossal failure as they do for moderate success. That obviously needs to be rectified. But beyond that I fail to see what we can do to ensure ‘fairness’.

* Minister Pravind Jugnauth has reiterated his commitment to make of Mauritius a duty-free island and a shopping paradise for tourists – this, he said, will be “an important innovation to attract more visitors, diversify the sources of our tourists and increase the earnings per tourist”. What are your views on the duty-free island concept? Can Mauritius make it at a time when everybody is running after the timid demand manifesting itself in diverse markets?

I have some sympathy with the duty-free island concept. Having been to Mauritius several times I am always amazed by how expensive things are when it comes to global products that global tourists shop for. I have no doubt that duty-free prices for global goods will make Mauritius more attractive to tourists from abroad. But that alone will not attract more tourists from anywhere. While sun, sand, polite service, the generally clement weather and the Indian Ocean are a major draw for tourists, Mauritius is pretty barren for the global visitor when it comes to other forms of leisure, entertainment, gaming, sporting events, arts, theatre, cinema, literature, music and other cultural or shopping experiences. Other than in the confined hotel environment, Mauritians are not particularly friendly, or welcoming to tourists, often treating them with disdain for depriving natives from their own space. I think Mauritius could do much more by developing its thoroughbred racing and its casino gaming industries to world-class standards rather letting them remain as seedy and unattractive as they are. Similarly it could do more to develop a wider range of sporting activities and hosting a larger number of regional and international sporting events that would capture eyeballs on global television. It could do much more by way of becoming a preferred destination on the regional and global professional conference and corporate retreat circuits. The agenda is vast.

But Mauritius has a lot going for it. Tourism demand may be timid in imploding developed economies like the EU; which I now call ‘submerging’ economies while developing economies are still emerging. Tourism demand is anything but timid – indeed it is robust and growing — in the emerging economies of Asia. Mauritius has to undergo a sea change in its attitudes and preferences for the kind of tourists it wants to attract. Its domestic hotel chains are ‘naturally’ Euro-centric. Not surprising considering who owns and runs them. Mauritians tend to see Europeans as cultured preferred tourists to Asians or Africans whom they perceive as less attractive visitors to have. That insufferable innate snobbery will have to cede to reality. More room should be made for hotel and resort chains from Asia to market to their clientele in their own cachement areas and diversify the sources of Mauritian tourism income.

* The Minister also said that “there is a genuine need to support the sugar cane industry, the planters and the workers through this challenging time. Government shares the confidence of other stakeholders that the industry has a viable future.” There is still hope in the viability of what you had earlier termed as a “sunset industry”?

The focus on restructuring and supporting the sugar industry and especially the small planters in it is one of the aspects of ERCP that is misplaced and resource-wasteful. I am opposed to that dimension of the proposed programme. What Mauritius needs now is a five-year plan for the complete phase-out of the sugar industry. Some argue that sugar should be kept going for the production of ethanol as a fuel source. But that would be a comparatively poor use of land. What Mauritian policy-makers have to recognise, and come to terms with, is that the scarcest and most precious resource that Mauritius has is its land. By global standards that land is totally mispriced and therefore misused. If Mauritius threw open to the world its tiny market for land (not indiscriminately but in the measured, calibrated way I have expatiated on in the past, with government and society getting a fair share of the massive capital gains to be derived by doing so) it would become seriously rich almost overnight. But that has its own dangers. Its future strategy should be based on a phased opening up, with appropriate safeguards in place, so as to maximise and continually increase the value of that land, as well as the capital and income the country derives from it annually.

To keep using that land for sugar production, even for ethanol, is absurd. Taxation policy and future strategy should focus on transforming the use of available land for Mauritius to transform itself into one of the most attractive and desirable garden cities to live in on earth. It should become the kind of place where, apart from its own citizens, who should be taken care of first in terms of affordable housing, every respectable billionaire in the world would like to have a home there. Attracting those kinds of global citizens and the collateral advantages they bring with them in terms of spending power, and using their Mauritian base also as a place for doing business, seems to me to be the most useful thing that Mauritius could do to secure its future.

Everything it does, its governance, its hard and soft infrastructure, human capital development, etc., should be geared to that objective because it is the only way Mauritius can guarantee a bullet-proof existence at very high levels of per capita income for itself into the indefinite future. So, to answer your question directly, YES, I think that restructuring the sugar industry under ERCP is a complete and egregious waste of time and resources.

* Don’t we sometimes overestimate the capacity of Finance Ministers, especially in small, open island-economies like ours, in terms of their capacity to produce the desirable economic outcomes, given the constraints under which such economies are bound to operate? What can he do in the circumstances to improve matters?

I do not think we can or should ever overestimate the capacity or need for good Finance Ministers especially in small, open island economies that do not have large domestic economies to fall back on or cushion them and have to make a living from the world at large. It is especially in such economies, with their domestic limitations but also their opportunities — because they can make a handsome living from capturing only an infinitesimal fraction of global market share in whatever they do — that astute Finance Ministers can make all the difference between success and failure. In some respects having a really good Finance Minister who is respected and listened to by his Cabinet colleagues might even compensate for having a relatively poor, self-absorbed and self-promoting Prime Minister, more interested in securing longevity than leaving an enduring legacy of public service.

What should one expect the Finance Minister to do? What one expects is not the kind of tinkering and absurd minute micro-management of irrelevant detail that the ERCP comprises. What one would expect is not to point to the use of false crises and misdiagnosis of the global situation to trigger relatively meaningless restorative action at home. Instead the FM should outline a broader vision of where he thinks Mauritius should go, which direction it should take, and what route it should chart to get there. He then ought to outline what is needed by way of hard and soft infrastructure, human capital and business culture, work ethic, union re-education and cooperation, openness to external capital and entrepreneurial talent, as well as the development of world class governance and public as well as private institutional capability (in the broadest sense) to get there. Having done that, he then needs to reconfigure public finance policy on revenues and expenditures to achieve those objectives as efficaciously as possible.

In my view there is a huge amount he ought to be doing and could be if he were looking in the right place, identifying the right problems, and coming up with the right solutions and answers, instead of the wrong ones in most cases. I know of no instance anywhere in the world where a Finance Minister, who was an acknowledged disaster in that job before, became a success when given a second chance. But who knows? The new Finance Minister might surprise us by breaking the mould and defying the odds. As a betting man I would doubt it and be prepared to lay a few large bets against that outcome.

* “Mauritius must break away from the dictates of history that have made its development euro-centric and adapt to the forces that are giving a new shape to the world economy,” The Minister was referring to the BRIC countries, but there is also Africa that’s coming up. The PM is working on a Mauritius-Singapore-Congo partnership with a view to making this island the shipping hub of the Indian Ocean, and Prof Paul Romer of the University of Stanford has suggested that Mauritius could play a leading role to help set up “Charter Cities” – economic zones managed by specific regulations — in Africa, thereby enhancing its role as a service platform between Asia and Africa. There are therefore tremendous opportunities to be seized?

I agree that there are tremendous global opportunities to be seized by Mauritius. It has more opportunities than it has constraints. But it always seems more preoccupied with obsessing about its constraints rather than gearing itself up to capture the opportunities. All of the above are laudable statements of intent. They aim at the right objectives. I also agree that Mauritius could become a critical intermediary for two-way flows of trade and investment as well as cultural, scientific, professional and educational trade/exchange between Asia and Africa. That was the whole focus of the symposia we held in 2008. So the ERCP is repeating what I said in the first place! But having set the right scene it goes and writes the wrong play.

Obviously I have to agree with what is said above. But my concerns are that Mauritius might not capture these opportunities for the following reasons. It does not have the quality and capacity for world-class governance that it would need to capture such space. Its domestic politics are pretty ropey, byzantine, increasingly corrupt and cacophonic. Its judicial and legal system leaves much to be desired by way of quality, capacity and efficiency. Its media industry is relatively undeveloped thus limiting the capacity of its society to ensure and enforce transparency and accountability. Its indigenous human capital base is relatively small in quantity and underdeveloped in quality to maximise these opportunities. Yet its high level of unemployment reflects the failure of public policy to match its human capital resources with its needs. Its domestic private sector is too limited in its scope, vision and capacity to exploit the global opportunities available to Mauritius properly. That limited indigenous capacity to make things happen needs to be augmented with a much larger foreign private sector business presence that is made to feel welcome and is absorbed seamlessly into the island’s society. Physically Mauritius is not as well connected to either Africa or Asia by way of transport or communications facilities that are not only world class but cutting edge.

Just reiterating those constraints shows how large the challenge and agenda is for the FM to visualise and manage. One has to be extraordinarily capable to do that. The question Mauritius needs to ask is: Does it have the right man for the job?

* What’s your reading of the economic situation on the global scene? The Minister said that “the serious problems of the European economies are likely to persist for several more years with scope for significant downside risk. Moreover, the world economy, whilst recovering, is fraught with uncertainty and may also be a source of shocks that may yet rock our economy”. Would you say that we in Mauritius can contemplate our future with greater serenity a year or two down the road because everything would have been put back in place by then?

I would not agree that Mauritius can contemplate its future with greater serenity a year or two from now because things will be back to normal by then. Why?

To begin with, on the global front we are at an interesting but worrying inflexion point. The massive fiscal and monetary stimulus of US$7-8 trillion administered to the global economy since 2008 is petering out. Yet the submerging economies of the EU, Japan and the US have not been restored to a self-sustaining growth path. In theory further stimulus is needed. In practice such stimulus is unaffordable. All the ammunition that the submerging economies had is now exhausted. Resorting to further stimulus would delay the inevitable adjustment that has to occur. To stave off a possible mild double-dip recession now with further stimulus would only lead to stagnation and deflation in these three economies for two decades or more. It would lead to unmanageable levels of sovereign debt. Printing large amounts of reserve currencies to provide compensating monetary stimulus in the face of fading fiscal stimulus would result in the world losing faith in reserve currencies as a store of value. The EU and the US would thus enter the same twilight zone that Japan has been in since 1990.

The picture is different for emerging markets. China realizes it has overdone fiscal and monetary stimulus and is slamming on the brakes if perhaps a little late. It has built up a problem in its banking system with a huge balloon of debt incurred by local authorities amounting to about US$1.5 trillion that these authorities cannot repay. In addition there is a commercial property bubble blowing up in China that will also affect the banking system as prices deflate. So China will slow down in the coming year but that may mean a growth rate of 8-9% instead of 11-12%. India is in more robust shape although levels of public debt are approaching disconcerting levels and the reform process is constipated. Yet, despite its awful non-functioning government (referred to by a local wag recently as a ‘circus being run by clowns’) resulting in a massive governance deficit being accompanied by an ever-enlarging infrastructure deficit, the Indian private corporate sector buoyed by strong domestic demand (which would not exist if the poor were really getting poorer) will probably put in a prodigious effort and maintain India’s growth rate at around 8% for the next 2-4 years. Brazil and Russia will probably grow at around 5% although Russia’s growth is entirely dependent on how much gas it sells to Europe and China.

That picture makes it more imperative than ever that Mauritius shifts its orientation and Euro-centricity dramatically. It must become Asia-centric instead, using its indigenous Indian and Chinese populations to maximum advantage in making that shift, if it can. Mauritians posturing, behaving, speaking and acting as Bihari-Tamil-Maharashtrian Frenchmen is an unattractive proposition to Indians; so those pretensions may need to be modified if Mauritius is to make an impact in India. The same probably holds for China as well. But Mauritius faces intense competition from South Africa in becoming Asia’s gateway to continental Africa. Right now Mauritius is losing that race. It needs to pull its socks up to get back in the game and win it. And it will need an enormous amount of help from Indians and Chinese relocating to Mauritius to achieve that aim.

Putting all that together, what does it mean for Mauritius? It means that Mauritius can probably secure growth of 6-9% per year for the next 2-3 decades if it conceptualizes its opportunities correctly and restructures itself as a whole. It must take the Singaporean approach in doing that. It simply will not manage it if it keeps being quintessentially Mauritian. It is not just SMEs that need restructuring but large enterprises, the major business groupings and government need to restructure, rethink and act differently as well. Will Mauritius be able to do that? With the present government in place under a political alliance of convenience that places expediency above competence, I seriously doubt it. I would give the government less than a 30% chance of succeeding. So, in all likelihood, Mauritius will execute ERCP and limp along at 2-3 growth instead for the next 1-4 years and then have to reassess whether it can do better if the submerging economies establish themselves on a self-sustaining growth path once again. But that may be longer in coming than most people think.  

Let me conclude this interview with a few personal observations that MT’s readership may find of interest. The expedient political alliance just before the last election was a bit of a shock. It changed the face of government. But is it for the better? The alliance with MSM was an ingenuous political manoeuvre by the Labour Party. It triggered the disintegration and marginalisation of the Opposition. That manoeuvre made the 2010 election a cakewalk for Labour and its leadership. It put the MMM in disarray; making it look unrepresentative, old, tired, and bereft of ideas for the future. But, whilst Labour’s rapprochement with the MSM was politically astute, it was also cold, calculating, and ruthless.

For Mauritius I fear it may prove detrimental for two reasons. My immediate concern is that the repainting of the Mauritian political landscape required ditching a proven, competent, and successful Finance Minister – the best that Africa and the Indian Ocean had. He was the architect behind Mauritius’ economic turnaround and recovery in 2005; with a little help from his friends backstage. Rama Sithanen’s removal for reasons of political expediency at a difficult juncture seems inexplicable in rational terms. Is the Labour leadership becoming intolerant of any Cabinet member whose performance shines too bright for comfort, relative to his peers? If so that will be damaging for Mauritius as time unfolds.

Rama’s departure is worrisome because Mauritius is going through an unprecedented period of global economic and financial turbulence/instability. Right now it needs the most astute economic leadership it can find to steer its way through rough seas with unpredictable storms and swiftly changing currents. With his sharp edges and unpolished surfaces, Rama was a rough uncut diamond. Substantively, as a technocrat, he was brighter, more visionary and more capable than any other member of the previous Cabinet, including the PM. In political acumen however he was a naive novice compared to Labour’s cunning leader.

More worryingly, however, the new ‘alliance’ between the two self-styled royal families of Mauritian politics — i.e. the Ramgoolams and Jugnauths – now solidifies and embeds the danger of dynasty becoming a permanent feature of Mauritian ‘democracy’. In that sense Mauritius is mimicking India in some respects and Africa in others. When leadership space in what was quite a vibrant democracy, that was an example to Africa and the developing world, is dominated by something as dysfunctional as reversion to virtual monarchic rule, the seeds are sown for an apocalypse ahead. It would be a pity if Mauritius were to succumb to the combined debilitating effects of: (a) the African disease of ‘big-man’ leadership that has so impoverished and damaged the continent; and (b) have it exacerbated by the entrenchment of dynastic Bihari politics of a kind that has stunted democratic politics in India, resulting in deep corruption, parliamentary disorder and government ineffectuality becoming the norm.

So, I do not expect any new or intelligent impetus from the new Cabinet which is more a ragbag of unaccomplished prima donnas that might never make it as a ‘team’. There is no question that the present turbulent global environment that Mauritius finds itself in, through no fault of its own, calls for continual real-time rethinking and changing of course to accommodate rapidly changing economic tsunamis around the world. Much of the seminal thinking of where Mauritius should go, and which destination it should set course for, has actually been done in a series of related events sponsored by the Commonwealth Secretariat. What is needed is not a rethinking of that, but a dedicated relentless focus on implementation and execution – i.e. to put together and pursue a sensible, viable action plan (complete with strategy and tactics) that details specifically how Mauritius should get to where it wants to go.

I thought it might be a pleasant surprise to hear from the new FM what his priorities were. Having seen the ERCP and the reasoning behind it the surprise is decidedly unpleasant. What he proposes raises serious questions about whether he has the basic economic/financial knowledge to differentiate between good advice/ideas and bad. If he is pushing the Duty-Free agenda, then that is laudable, providing he also has ideas about how to increase tourism dramatically. More tourists need to buy much more in Mauritius in order to maximise the net revenue benefits to be derived from doing so. If the only effect is to lower prices (and taxes) for domestic consumers then going duty-free is likely to have a net cost to the exchequer and not achieve much. Rolling back the unpopular and bad residential property tax is also laudable; providing of course that the FM has a plan on how to make that measure revenue-neutral. In other hands he has to make up the lost revenue from somewhere else.

At a time like this the FM is faced with unusual challenges. He has to look at the entire tax system and tax structure, as well as at all public expenditure, and the structure of public assets and liabilities, to see whether by changing parameters and variables on both sides of the revenue –expenditure and asset-liability equations, the Mauritian corporate sector and government can increase the flexibility, capability and incentives they both need to adapt swiftly, efficiently and beneficially to maximise gains from changing global circumstances. It is imperative that he presses ahead with a bold privatisation programme.

Of course it would help the process of performing that difficult and challenging task if the FM had a clear idea of where Mauritius ought to go and what kind of small island economy it must become to secure its future. In all my writings for MT, and the various seminars held by NPCC and BoI that I have been involved with, I have left no doubt about what my ideas on those issues are. As I said above, Mauritius has to aspire to become a hybrid between Singapore and Monaco. It must reorient and reinvent itself as: (a) the residence of choice for high-net-worth individuals (HNWIs) from around the world, but particularly from Asia (West, Central, South, East and North) and (b) a prime location for the regional or corporate headquarters and treasuries of Asian and Gulf companies and entrepreneurs wishing to do business with Africa.

But not everyone subscribes to or buys that view because it requires fundamental changes in the way the indigenous population perceives itself in interacting with people from other parts of the world in their own domestic space. If that vision of Mauritian manifest destiny is not acceptable, then it becomes incumbent on those who do not buy it to come up with an alternative. The option of doing nothing, having no sense of direction or destination, and simply drifting along, is not an option in the kind of global economy that will evolve over the next 10-50 years. It is instead a profound dereliction of public responsibility on the part of the legislature and government to the next generation of Mauritians.

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* Published in print edition on 20 August 2010

Tags:Bank of Mauritius, BOI, BRIC, Commonwealth Secretariat, ERCP, EUR-USD, GDP, Interview Percy S Mistry, Labour Party, Mauritius Times, Mauritius-Singapore-Congo, Mechanism for Transitional Support to the Private Sector, MMM, MRU, MSM, NPCC, Pravind Jugnauth, Prof Paul Romer, Rama Sithanen, Ramgoolams and Jugnauths, RBM, Restructuring the sugar industry, SME