The world economy is beset by all sorts of woes. Several countries have been trying all sorts of remedies to increase their economic performance to levels prevailing before the economic crisis of 2008. Both rich and emerging economies face a period of uncertainty. We cannot claim to be immune from such concerns. We should also learn to “cut our coat according to our cloth”.
The European Central Bank and the Bank of Japan lately introduced negative interest rates on deposits held with them by commercial banks in a bid to ask the banks to employ the funds to promote real sector activities instead. Certain other central banks have let interest rates fall so low that they barely have the space now to play on this factor to stimulate the economy should the need arise very soon. Faced with a declining growth rate, China let its currency fall despite having held out for long against such an action. After having at last hiked the Fed Funds rate in December, the US Federal Reserve Bank (Fed) is no longer as keen to carry on in this direction, fearing that this might accelerate a global downturn. Some Congressmen asked the Fed chairperson whether she had contemplated moving towards negative interest rates. She denied, of course!
The economic question remains on top of governments’ agendas. There is a persistent problem of shortfall in demand in rich countries – the markets to which Mauritius sells its goods and services – which risks keeping their economies in a weak growth situation. To make matters worse, governments are finding it difficult to stimulate the economies by pumping additional funds because of already high amounts of public debt (US: 104% of GDP; euro area: 93% of GDP, Japan: 237% of GDP).
Governments – of both emerging and rich countries — are therefore trying to raise more taxes to balance their budgets. This explains the quest by Americans for more global tax to be collected from its citizens through what we signed up to recently, notably the Foreign Account Tax Compliance Act (FATCA), putting an obligation on our financial institutions to report Americans’ dealings with them.
The OECD, a group of some 28 richest countries of the world, is chasing down multinational companies operating in different countries for additional tax through a new system called Base Erosion and Profit Shifting (BEPS), with an objective identical to that of the US FATCA. They will also knock at our door to seek our compliance. If we agree, that should frighten away multinational companies doing business through our jurisdiction.
Not to be outdone, India is also trying to raise additional tax revenues. After having long resisted watering down our Double Tax Avoidance Treaty by India’s tax authority which, in pursuit of this quest, was aiming to empty the DTAT of its attractiveness for our investors going to India, Mauritius can only hope not to have possibly yielded to such pressure lately, putting under serious threat an important sector of our activity, notably the provision of international financial services.
What all this brings out is that governments everywhere are doing all they can to lift up their economies. We have no reason to do otherwise.
How to go about it?
Experience teaches us that we have raised the scope of our economy each time we have made structural shifts to give it scope for additional productive development.
When textile manufacturing came in, it introduced factories all over the island generating employment for our workforce. Although we did not beef it up with time as much as we should have done, it is here and still producing output and jobs both for our workers and expatriates. With it, there came up a whole set of complementary economic activities. We no longer depended henceforth on a single production base as in the past.
By expanding subsequently to the provision of international financial services, we nudged up the production base a notch higher. It has been put in potential jeopardy recently but it is still here and fighting it out in an increasingly competitive global market for financial services. For it to progress, we need to do all we can not to tarnish its image. We may even identify and work on additional international linkages for it and make it sturdier and deeper in the face of potential adverse global headwinds.
The same goes to explain how we consolidated the economy by adding more substance to it through the development of tourism and information and communication technology services. Our SMEs have grown over the years, as has our ‘Other Manufacturing’ segment.
All this is evidence that we’ve achieved a lot by expanding the economic foundation of our country. We do the repairs as and when necessary but keep building up on the structure.
It is normal for certain economic activities to show signs of fatigue. This may be due to factors outside our control such as loss of external markets to better performing international competitors. Or, they may simply have become uneconomic for us to produce in situations like “selling coal to Newcastle”. If the EU can produce sugar at a lower price than we can, they beat us at it and there’s not much we can do about it. But if we use our sugar now to produce superior foods which are internationally appealing, we will not only be selling the sugar to outside markets; we’ll also be selling the skills we’ve put in producing the superior foods incorporating the sugar in them. This is what economists call “value-adding” and even better, “value-creating”.
Before the EPZ was set up in Mauritius, we had introduced import-substituting industries here. With them, we learnt that we could locally produce certain goods we had been importing so far. How did we do it? We skilled up our labour force and brought here the expertise and equipment necessary to go for those lines of production. Today, we barely import paints, among other things, and this is no coincidence. It required an effort to move upscale from the point at which we otherwise risked to stagnate.
The reset button
So, we can keep progressing in the direction we have by making structural shifts in our production base. This way, ever more performing activities can be set up here to compensate for what economists call “sunset industries” if it has to come to that! We’ve got to keep reinventing the platform on which we do our activities.
More concerned about dealing blows to each other – sometimes mortal ones – we’ve lost track of real things to do. These are usually done at first at the micro enterprise level. Then, catch-on effects are created in the same activity or by inducing other activities leaning on the momentum so created. Ambition is required to move in this direction.
Since it looks so simple, people may ask: why did we not go in this direction? First, because we don’t make the additional efforts required when the going is good with whatever we are doing already. We don’t look out and go for increasing the range until we hit limits and come across another facile way of making money but one not necessarily having the long term perspective of being adapted to outside conditions and being able to uphold jobs and activity sustainably.
“Apple” came out from America and has been flooding markets everywhere because the Americans worked attentively on the technology edge they had been developing over a long time. Then, bang on the market! We may ask ourselves the question as to why we’ve been politicking for so long about the practical orientation of our education – often wasting goodwill, time and energy on petty personal quarrels – while countries which strike it with the markets reskill their workforce relentlessly.
The reskilling challenge is not about semantics e.g., mismatch between jobs and market demand. It’s real. It’s about our much-needed economic structural shift. Reorientation of our education/training has held the answer for a long number of years.
A question arises: if we can’t make it alone, why does it not occur to our decision-makers that we could have combined our real estate-cum-residential-schemes, for instance, with the necessary contribution of those coming to our place to bring along with them the skills needed to do products here in Mauritius for which there are potential markets outside despite the prevailing international not-so-rosy outlook? We have to reckon that the world outside is fiercer than before. Amplifying the inside fighting can only be sterile in such a context: do politicians understand?
* Published in print edition on 26 February 2016