Moving The Goalposts

When an economic model fails and no longer works, it is time to change tack. We have already waited for too long. We now have to act

By Mrinal Roy

There is since last month an unnecessary hullaballoo about growth rates in the country. The government seemed desperate to defend its growth rate predictions for the year despite the patent evidence to the contrary through a blitzkrieg on national TV with the support of various institutions which rashly put their credibility on the line. Does this kneejerk reaction by government stem from the realization that GDP growth rate is a yardstick of its performance at the helm of the country?

Despite the government rhetoric and hype about the range of measures taken to boost growth, the independent verdict of Statistics Mauritius made public last week has settled the issue. Statistics Mauritius which is generally held in high regard for its expertise and professional acumen in the field of statistics and statistical analysis has lowered its estimate of GDP growth to 3.8% from the 3.9% growth rate forecast in September 2018, on the basis of ‘new information gathered on key sectors of the economy and performance observed in the first nine months of 2018’. Propaganda cannot mask the stark reality of official figures.

Instead of rationally analysing the root causes of this subpar growth performance, it is reported that government has sought technical assistance from the International Monetary Fund to overhaul as from mid January the methodology used to compute growth rates and economic forecasting in general. Is government changing the rules and moving the goalposts? To what end? It must however be flagged that any new methodology must strictly adhere to standardized international norms used by national statistical institutions like the Statistics Mauritius across the world. There cannot be an ad hoc or stand alone methodology.

Subpar

We must remember that grow rates have been below an elusive 4% since 2012 and have since fluctuated in a range of 3.4%-3.8%. Such subpar growth rates cannot convert Mauritius into a high income economy. Despite the tom-tomming about a second economic miracle, this has not happened during the government’s four years in power. Private sector investment has stagnated at 13.3% of GDP since last year whereas public sector investment has increased to nearly twice the private sector investment to 26.3% of GDP in 2018. It is clear that in the absence of such a quantum rise in public sector investment (propped in part by substantial grants from friendly countries) into major infrastructural projects and the Metro Express, the growth rate would have been significantly lower.

Instead of the government current fixation about growth rate, is it not therefore time to overhaul the economic model and policies which has failed the country over the last seven years. It must be highlighted that this economic model puts the onus of entrepreneurship and innovative investments in the diverse pillars of the economy and new ventures to boost growth and create employment squarely on the private sector. This is the more so as more than 75% of people employed work in the private sector which employs three times the number of people employed in the public sector.

However, this model of development has also significantly increased inequality in the country. Thus, in 2018, 249,400 employees of the private sector or some 54% of the total workforce of 462,860 and 9,200 employees of the public sector earn less than Rs 14,000 per month in a context when the household basket of goods cost Rs 29,800. We cannot speak of inclusiveness and bridging inequalities if such glaring inequity is not urgently addressed. The private sector therefore also bears a major responsibility in the poor growth performance of the country over the last seven years.

With the sugar and manufacturing sectors in decline, the focus of private sector investment has shifted in a cherry picking mode to lucrative property development and smart city projects.  Some 50% of Foreign Direct Investment (FDI) has thus gone into real estate activities with 33% of FDI being invested in RS/RES/IHS/PDS/SC schemes. In parallel investment in manufacturing has fallen significantly. Such lopsided investment has very limited positive economic fallouts on the economy in terms of productive employment for the young, rising standards of living or in helping bridge inequalities.

New ball game

This situation also begs so many key questions. Does the traditional private sector have the capability and expertise to exploit the full potential of the new economic sectors of the economy opened by the government such as the Information and Communications Technology/Business process outsourcing (ICT/BPO), the financial services, healthcare, education, aqua culture and ocean economy or media and creative industries? Is the private sector capable of assuming this role in a liberalized and extremely competitive market place?  How does the private sector fare out of the comfort zone of preferential agreements as operating without safety nets is a totally new ball game?

In the light of the paltry performance of the country during the past seven years, it is evident that the present model of public-private sector mixed economy which has been the cornerstone of socio-economic development and growth for decades after independence has outlived its life cycle. It is also evident to everyone that growth is not taking off since 2012 despite the government bending over backwards in terms of business facilitation measures and billions of Rupees of tax waivers granted to the private sector and revenue forfeited by government in the context of the smart city scheme, in a desperate bid to spur investment and growth. The scale of these generous incentives granted to the private sector is unprecedented.   They have been of no avail.

Paltry performance

Furthermore a below 4% growth rate over such a long period is a paltry performance when the ten highest growth rates in Africa (which include countries such as Tanzania, Senegal and Ivory Coast) range between 6% (Sierra Leone) and 8.5% (Ethiopia). It is clear that the successive governments in power in Mauritius since 2012 and the private sector know no better. They are out of their depths as to how to significantly boost the growth rate to 6-7%.

There is therefore an urgent need for a totally new strategy if we are as a country to deliver on the ambition of making Mauritius become a high income economy in the foreseeable future. This would mean substantially increasing the weight of the services sector and its wide spectrum of economic activities, in the national economy. This can only be achieved by prospecting and inducting the required strategic foreign business partners, trusted operators, top executives and skilled cadres needed to reposition the activities in the new services based pillars of the economy such as the ICT/BPO sector, the financial services sector, healthcare, education, aqua culture and ocean economy or media and creative industries up the value chain to much higher levels of high value addition and income generation.

All these productive sectors have a broader impact on the economy and provide a more significant and much needed impetus to growth. It would therefore be equally important to fundamentally reform the economic landscape in the country in terms, for example, of access to land resources to facilitate this game changing process. The induction of new strategic foreign partners and expertise in the country will also enable local cadres hone their skills as well as acquire more pointed proficiency and competence in cutting edge fields for the larger benefit of the country.

New dawn

The country has been in limbo for too long. When an economic model fails and no longer works, it is time to change tack. We have already waited for too long. This has adversely affected the standard of living of people and deteriorated the economic fundamentals of the country. The current situation is untenable. We now have to act.

As the country prepares for the New Year with hope and impatient determination, it is time to kick start a new dawn based on new strategies and a new economic model driven by savvy and competent new economic actors and strategic foreign partners who enable the country swiftly realize its loftiest ambitions for the benefit of the multitude.

* Published in print edition on 28 December 2018