Economy: No alternative than to create a fresh window of opportunities
The answer to a global economy not turning around so soon, as current forecasts seem to indicate, is to re-energize the local structure of production. Remove the dust which has settled down and re-invent the production machine
Mauritius was and remains an open economy, exposed to headwinds from the global economy. It survives on exporting goods and services to the outside world. In the absence of an economic breakthrough last year, several voices accused the government of not doing the so-called “economic miracle”. They questioned its competence, accusing it of not doing enough to induce larger foreign capital inflows and investments into the economy.
Looked at from a broader perspective of the global economic situation, this criticism that the government is not delivering the “economic miracle” appears to be unfair, whether it is the SAJ/Lutchmeenaraidoo team in the saddle or any other. True, the country embarked on an unwarranted confidence-eroding course after the government took power when circumstances dictated all the contrary.
The sanitization exercise carried to an unbalanced excess in this context, undermined our economic potential, no doubt. Nobody who had been in a commanding position of public institutions under the previous regime was apparently competent enough to be maintained. New chaps had to be placed in positions of control. This was supposed to trigger a brighter economic chapter for the country.
Nothing of the sort happened. On the contrary, trust so essential to economic undertaking was fast eroded. This was the self-inflicted harm by those who keep refusing to cash upon our acquired wisdom and experience in the running of the country’s affairs. For those who understand, the economy is not consolidated by putting on fresh layers of paint; it is rather a continuing job of building substance on past realisations. You cannot simply write off protagonists who have contributed to build up the economic architecture. But this is what we did, totally misguidedly.
Beyond this self-inflicted damage, we have to look at a vaster perspective for answers to our economic plight and future prospects.
It is not only Mauritius but countries all over the world which have been overtaken by events outside their control. Lately, economic observers focussed on the potential negative impact of ‘Brexit’ on Britain as well as on global economic prospects. This is but one example of the several uncertainties which have clouded the global economic horizon. It is in this uncertain economic ocean that we as an open economy have to navigate skilfully to pull ourselves out of the seemingly stagnant rate of our economic growth we appear to be moored up to.
The June 2016 edition of ‘Global Economic Prospects’, under the signature of Prof Kaushik Basu, World Bank Chief Economist and Senior Vice President, who was lately on a mission to Mauritius, puts in perspective the continuing subdued rate of global economic growth. He highlights a drop in forecast global economic growth from the earlier 2.9% to 2.4% now for the year. Thus, the expected upturn in the global economic cycle after the downturn which began in 2007 with the financial crisis, is not happening so many years later.
In this context, both advanced and Emerging Market and Developing Economies (EMDEs) are affected by the downside, despite falling oil prices since 2015. Advanced economies are now expected to grow by 1.7% in 2016, lower by 0.5% compared with the previous January forecast. EMDEs are estimated to grow by 3.5%, 0.6% below the previous forecast. The volume of world trade, on which we depend extensively, is set to stagnate in 2016 at its 2015 level, with an identical growth rate of 3.1%. Sub-Saharan Africa will come down to a growth of 2.5% in 2016 from 3.0% last year.
Like the ‘Brexit’, policy uncertainties and geopolitical tensions keep clouding economic prospects for both advanced and less advanced countries. Some like Russia and Brazil are struggling to swim out of recession. Weak international growth prospects and increasing policy uncertainties have contributed to soften current investment opportunities worldwide. Capital inflows to EMDEs, including to its more dynamic economies such as China, dropped from 4.3% of their GDP in 2014 to 1.8% in 2015.
As a result of all these adverse developments, the global economy – let alone Mauritius – is becoming less prepared to successfully confront downside economic risks. The question that arises in such a context is whether a broad enumeration of economic policies will suffice to overhaul an economy such as that of Mauritius in this weakening global environment. Or, should we rather address addressable factors standing in the way of the economy, one by one, and get things going the best we can?
It seems that there is no alternative than to cultivate an edge for ourselves, upon which we can successfully overcome resistance from a global economic condition in which individual countries are tempted to fall back upon themselves rather than opening up for trade, our lifeblood.
So, what can we do to put all the chances on our side? We have to transcend partisan politics for a while, the time we focus on setting things right which have gone in the wrong direction and doing the things which go towards enhancing our scope. Our major pursuit should be to get to a more diversified economic platform. This cannot happen without undertaking the necessary reforms; otherwise, things will keep going into the unmanageable direction.
Infrastructure – our essential trade link to the rest of the world — which is causing us to waste vast amounts of foreign exchange in imported fuel, despite temporarily improved terms of trade, on a daily basis should be attended to urgently. All infrastructure vulnerabilities due to slothful past work should be eliminated without overburdening the budget in the medium term. The results of local elections a fortnight ago in South Africa threatening to unseat the presumably heretofore unbeatable ANC government, shows how important good economic management is.
Another central area calling for economic reform is undoubtedly education. We are not addressing the main issue which is to adapt our production structure to a currently more dynamically producing world. Token reform will not bring the continuously required skills development factor to reposition our apparatus of production being continuously challenged by a fast evolving productivity-enhancing global production system.
The need of the moment is to implement a continuous skills improvement sector of activity, not at the primary school level but at the level of adults who are the ones facing changing global markets. Once this continuous skill adaptation sector will operate effectively, it will give less opportunity to speak ad infinitum about “skills mismatch”. Not many will complain, once we are skilfully in command of our economic base, about imported labour serving to expand our economic base. As a service-oriented economy, we should be targeting intense and well directed local human capital formation in keeping with international market evolution.
Thus, it is not enough to speak about helping SMEs emerge. The SMEs need to be permanently raised from where they stand currently at the production level to a higher point where they can create such innovative products for which there is effective demand. They need not target only small little markets at home. They should be helped to competitively target outside markets as much as possible with products that can be sustained by international demand in a process of lifelong learning. From them will emerge a new seed of modern investments constantly adjusting to newer exigencies on the model of production on which they are actually operating. It goes without saying that SMEs should also be sharpened about their efficient financial management. A shortcoming in this area has been the bane of several past SMEs.
The answer to a global economy not turning around so soon, as current forecasts seem to indicate, is to re-energize the local structure of production. Remove the dust which has settled down and re-invent the production machine. This is do-able. It requires focus on the basic ingredients which need to be put in place in the first instance. If we go this route, we will no doubt create a window of opportunities for ourselves. Otherwise, what is gained if we keep complaining and shooting ourselves in the feet?
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