A (Nice) Short History of the Mauritius Economy

By Kannen Ramsamy

One does not need history to know that a good house can only be built with the assurance of solid foundations. Many would argue that those foundations have been a little shaky of late, so it would perhaps be a good idea to revisit them

The Mauritian economy today is not in its finest state. Like in most of the world, repercussions from the financial crash are still reverberating across the nation and the economy has been facing decline for a number of years. Last month’s budget was met with intense scrutiny, particularly around the government’s decision to tackle the massive public debt by dipping into the accumulated reserves of the Central Bank and through the sale of key public assets. Meanwhile extremely favourable tax conditions continue to be provided to large corporations and land developers, while small businesses, entrepreneurs and citizens feel the pressure of hampered growth.

Many are unhappy, but where do the answers to the problems lie? While various views will shape out of different philosophies, it can sometimes be useful for everyone to take a short detour through historical success to seek out these answers. Indeed it is through such reflections that one can discover timeless insights. After all, as Ralph Waldo Emmerson so aptly said, ‘man is explicable by nothing less than all his history’. In this spirit, let’s take a brief look at the more positive history of the Mauritian economy.

We’ll start from post-independence in 1968, when Mauritius immediately capitalised on its primary export commodity, sugar, by passing the all-important Export Processing Zones (EPZ) Act in 1970. This act provided financial incentives to those who entered the export manufacturing market, and subsequently EPZ exports grew at 31% per annum, and EPZ employment expanded by 38%. An immediate effort was then made to build functioning institutional structures on the back of the export-orientated economy. Revenue gained from high sugar prices and international loans was funnelled into strengthening institutional structures for industry and commerce.

The early 1970s also saw foreign consultants train Mauritians to staff new bureaus of project evaluation, export marketing, investment promotion, and monitoring, and enabled the government to establish an export insurance program and an intensive promotional campaign. Industrial expansion of this type consolidated the economic influence of the EPZ, and it was not long before its symptomatically favourable labour and tax rules began to encourage Foreign Direct Investment by the Chinese to boost the textile and apparel industry.

A multitude of goods and services, namely sugar, textiles, tourism and ICT had infiltrated the market and began to boost the country’s GDP growth, with the critical benefit of foreign investment rather than foreign aid. Mauritius had no doubt begun its economic development with a dependence on a single commodity, but by 1986 the EPZ’s export earnings surpassed in value the earnings from sugar exports, which were by then only 38% of the total. Thus, Mauritius broke away from being dependent on a single crop for foreign exchange earnings, employment, and output growth.

Yet it would be remiss to avoid mentioning here those political institutions that played such a crucial role in this material success. A key factor to securing the fair distribution of economic resources was the establishment of institutional mechanisms which ensured that labour, business and government met periodically to negotiate key economic parameters.

For example, since the early 1970s, the Pay Research Bureau tripartite committee would meet to discuss and advise on wage rate adjustments in accordance with the annual cost of living. The National Remuneration Board, another tripartite committee which has also met since the 1970s, set the minimum wage for most blue-collar work. Other unions such as the Mauritius Labour Congress, General Workers Federation and Mauritius Export Processing Zone Association played a key role in ensuring cohesion across public-private relations.

Through a combination of positive socio-economic policies and effective management of public-private linkages, economic growth by way of GDP growth translated directly into poverty reduction and human development. Perhaps a key historic lesson here is to remember that a better quality of human life is the purpose behind the statistics and numbers of economics, so it follows that those very same humans ought to have skin in the game when setting the rules for the game.

As with most other African countries that had only recently gained independence, however, international loans were a morbid necessity for Mauritius, and by 1979 foreign debt had risen to 226 million US dollars. In response, the World Bank implemented a structural adjustment program to which Mauritius adhered. Unsurprisingly, the austerity measures of the program caused great social unrest, with high rates of inflation and unemployment in the early 1980s.

While the resultant destabilisation provided fertile ground for toxicity in public affairs, the formation of a ‘gatekeeper state’, characterised by a reliance on external support and having political leaders in positions of authority maintain a stronghold over state resources in order to forward their own desired ends, was largely avoided. Ruling parties did not, in any extreme form, engage in the gatekeeping zero-sum political game, and in not doing so they prevented funds and resources from being dwindled away through unproductive channels. Instead internal investment and growth-orientated economic policy took priority.

Even in times of economic crisis, money would not over-accumulate in top level spheres and social expenditure did not see any drastic reduction. In some cases, it was actually intensified. For instance national social services, which were financed by strategic taxes placed on sugar exports, saw a 500% increase in spending during economic downturn, while education was made free at both primary and secondary levels. Subsidies for basic foods, housing loans, old-age security and business capital were ever present and maximum wage levels were maintained at a maximum of 6.5 times the lowest salary levels.

By the early 2000s there was a substantial improvement in housing and living conditions, with increases in household ownership, access to electricity and access to piped water in houses. The benefits of pressing on with augmenting the quality of health and education for a population cannot be overstated. According to Amartya Sen’s famous argument, development in these domains amounts to nothing less than the perpetuation of freedom for a country’s citizens.

The island’s policy approach and determination to hold its ground in the international market has carried on into the 21^st century. For example, the Business Facilitation Act of 2006 further removed obstacles for both foreign and domestic investment by implementing a flat 15% tax rate for companies and individuals. This created a decrease in the budget deficit, and by 2007 the primary deficit was reduced significantly. The past decade however has seen relatively sluggish progress and without a reinvigorated labour force, improved infrastructure and social reform, the desire to gain high-income status will remain elusive.

But what can we derive from our short history of successes? For me it is the importance of keeping the nation’s people centre stage – the very people that should benefit as much as possible from political and economic decision-making. The early drive for market diversification expanded the labour force and gave more people the opportunity to share a piece of the pie, while the institutional mechanisms that set up a dialogue between labour, business and government ensured that all voices were heard amidst vast socio-economic change.

Even in times of distress, the importance of building the health and education systems did not stray from the economic vision and political leaders did not fall victim to the temptations of extreme corruption. But it is true that each person’s reflections on history will reveal differing insights that will steer them towards differing visions of what the future of Mauritian governmental action should look. Some will even look to these apparent successes as failures that paved the way for today’s difficulties, which in itself can of course prove to be very useful information. Whatever one does take away, however, needs to result in positive action.

Sustainability is the talk of the town, and Mauritius has not shied away from planning development strategies for the future. Calls for an upward growth in ICT, the seafood and marine industries as well as the financial, business and biomedical services sectors are ever-present. Developmental frameworks that promote sustainable policies regarding energy production, waste management and physical infrastructural development and that involve harnessing the oceanic resources to strengthen Mauritius’ competitiveness through innovation in areas such as deep-sea water exploitation, bio-pharmacy and renewable energy are also emerging.

These are all lofty and important goals – but one does not need history to know that a good house can only be built with the assurance of solid foundations. Many would argue that those foundations have been a little shaky of late, so it would perhaps be a good idea to revisit them and look at not just the rot, but also at the robust structures preventing the rot from toppling everything over.

* Published in print edition on 9 August 2019