Harder to grow and improve our international trade

The Road Ahead

Mauritius was able to beat the odds for a number of years as regards its international trade.

From being an exporter of a single product, notably sugar and its byproducts, we moved on to produce apparel and clothing at an unexpected pace. Other value-added and locally produced export commodities came in the wake of this development, increasing the size of our manufacturing sector. From the 1990s onwards, we also made strong inroads into the export of services, which included tourism, financial and ICT services. We appear to have ceased striving as we did at the time.

This strategy of diversifying into the export of more commodities and services paid off. It added a stronger international flavour to our economic activities. The share of apparel and clothing was 18% of our total exports of goods and services in 1980; it rose to a peak of 55% by 1995. It has come down in recent years to only around 15-16% of total goods and services exported. This declining share is explained partly by the fact that the share of export services has increased but also by the fact that our commodity exports have failed to keep pace.

The deceleration of our commodity exports is not simply the result of pressures brought about by the international financial and economic crisis beginning in 2007-08. Progress has been slow. We exported apparel and clothing for Rs 24 billion in 2014, a billion rupees more than in the previous year. It could have been more. We sold sugar for a total value of less than Rs 8 billion in 2014, compared with exports of fish and fish preparations worth Rs 11 billion during the same period, a good part of which was paid for by us as imports so that local value addition would be far less in the latter case.

As a result, looking purely at the commodity exports, we haven’t been faring too well. For example, our total exports (domestic exports + re-exports) are estimated at Rs 95,2 billion for 2014 whereas our total imports (including oil at much lower price) for the same year were Rs172 billion. The difference between exports and imports (called the trade deficit) for 2014 was thus Rs 76.8 billion, which is of about the same order as in 2013 (Rs77.5 billion). The forecast for 2015 is that our imports will again be higher than our exports by Rs 83 billion. This state of affairs has been going on for a decade at least.

The gap between the value of our exports and imports of commodities (the trade deficit) is huge. It could have become unsustainable had it not been for our compensating earnings from exports of the various services, such as financial, tourism and ICT services. Other small-based economies such as ours have worked their way up by becoming more competitive in the services they’ve been offering and by multiplying their economic diversification.

On our part, we have not paid enough attention to factors which could have given us an edge on the export market for commodities and services, like adding to our skill base for production of more sophisticated goods and services. That could have involved our going for goods and services in high demand on international markets, newer lines of production, creating higher relative trade advantages in our favour, finding more external markets for our products, building up a solid no-nonsense image for our financial services sector of undisputed international standing, minding our financial sector competitiveness despite tougher rules being made by other countries for conduct of international business, going for the core ICT domestic value addition in BPO instead of being largely a sheer call centre, making the country an international sports, showbiz, events centre, and matching up to the kind of fashion demand that comes with it, etc.

A country carves its place on the merciless international market when it is perceived by others as a heavyweight at the international scale. We’ve kept complaining about “government not doing enough”, the rupee not depreciating to the liking of some businesses. We’ve shrunk the range and scope and premium quality of Air Mauritius while another airline serving us, helped by huge financing and subsidy from its government, has multiplied its flights and fed into markets that Air Mauritius was serving until its shrinking solidified on the back of airplanes too few and too old to dare go for more open skies. Can we travel the distance we missed on the trade and services front? Yes, but we’ll have a lot of catching up to do.

Another factor we have to cope with is the changing pattern of global trade, now that specific preferential markets have been almost phased out: our EU sugar quota will go by 2017, the AGOA is now due for re-negotiation, but anyway we have not really made much of our existing trade associations especially to penetrate regional and dedicated markets. Our exports to COMESA countries have remained stuck in the 8 to 9% range of our total exports with heavy concentration even there on exports to Madagascar. Our exports to SADC has not crossed the 15 to 16% bound of our total exports and, that too, with a lot of concentration on Madagascar and South Africa. Our exports to ACP countries (mostly Africa and little much outside of Madagascar and South Africa) have not crossed the 16 to 18% share of our total exports. This is why Europe still has a dominant share of about 50% of our total exports. With near-term economic pickup of Europe not guaranteed, we are operating with much risk to our export potential, should that market shrink in the light of upcoming developments.

Meantime, a new pattern is shaping up for international trade at the global level. For a long time, we placed our bets for growing our export trade on freer flowing trade across countries thanks to all the talks that were going on at the level of the World Trade Organization (WTO). The evidence is that with a lot of ongoing bickering at this level, the ideal of free global trade arrangements has floundered. We are seeing instead a balkanizing of world trade due to the proliferation of regional trade deals.

An example is a Trans-Atlantic Trade and Investment Partnership (TTIP) currently under near final discussion between Europe and America. Another one is the Trans-Pacific Partnership (TPP) putting together 12 countries in Asia and the Americas. There are preferential tariffs among the countries forming part of these trade blocs but tariffs are not so important in a world that has seen them slashed almost all over the world. More important is the fact that countries which form part of the regional deals are setting down rules most favourable to themselves and to their companies, not to outsiders. Seeing this, China is carving out its own group, an Asian free-trade pact.

Mauritius could have joined an influential and promising future trade pact of the sort but it does not carry enough clout as a single country or part of a globally significant trading bloc to be invited into the distinct trade mainstreams being created in different parts of the world. Given this state of affairs, we could try to grow up our export trade despite being handicapped by such exclusive trade pacts. Ingenuity and strong imagination, and extraordinary diplomatic negotiating skills are necessary for this to happen. Vision and decisiveness are necessary for this to materialize.

We may have little choice than to look outside of ourselves to construct the sufficient and necessary economic critical mass to survive. This means we should quickly have to give up on our bad and unproductive habit of mutual destruction and look up to our higher potential collectively. We should keep reminding ourselves of Shakespeare’s Hamlet: “There are more things in Heaven and Earth, Horatio, than are dreamt of in your philosophy.”

* Published in print edition on 24 April  2015