International trade plays a pivotal role in the economy of Mauritius. Since our exports of goods amounts to about half what we import from other countries, we make good the shortfall in foreign exchange to pay for our imports by exporting services such as tourism, ICT and financial services. When even the latter don’t bridge the gap, we pay up the balance with the help of inflows of foreign direct investment (FDI).
The last quarter export data show that we have somewhat fallen behind in our exports compared with the preceding quarter or the corresponding quarter last year. This is because external export markets are proving even more difficult to export to. In a free for all international trade market, lower cost producers capture markets from others with higher costs of production.
But there is another reason why trade is proving difficult for a country such as ours. The global economy has not picked up enough after the crisis of 2008. This situation is not only reducing international capital flows with the result that FDI coming to Mauritius has come down in 2015 and 2016 so far compared with what it was in previous years, given pressure from the looming global economic uncertainty. It has also brought about a general slowdown in international trade.
Trade of Sub-Saharan Africa (of which we are part) grew at the average rate of 17.9% over the period 2003-08; over the last three years to 2014, the average rate of growth of its trade plummeted to close to zero, a mere 0.1%. The same pattern is seen for other groups. Thus, Developed Countries’ trade sank from an average rate of growth of 11.2% in the earlier period to only 0.7% in the three years to 2014. It was more dramatic in the case of Transition Economies (China, India, Brazil, Russia, South Africa…) from an average rate of 21.1% earlier to minus 0.5% in the three-year to 2014. World trade further slowed down during 2015, most of whatever growth there was being in trade in services. South-South trade was anaemic during the year.
Any chance of picking up from the stagnant current international economic conditions is viewed as a positive development in a world that has become intensely interdependent during past decades. The fear is that domestic pressures may force major countries to fall back on themselves, close themselves to the outside world if protectionism were to gain ground and thus start a process of de-globalisation. That would hurt an open economy such as ours.
Unless the right decisions are taken to reverse a decelerating trend of global growth with shrinking prospects, there is a risk that the globalised economic engine, which had created and spread wealth around the globe over previous decades, could stall. It is the background against which the G20 meeting, grouping leaders from the world’s most powerful economies, was held on 4th and 5th September 2016 in Hangzhou, China.
As a prelude to the meeting, the IMF had noted that, at the global level, “despite record-low interest rates, investment continues to disappoint, reflecting demand conditions as well as high corporate sector debt and weak financial sector balance sheets in many countries.”
It was hoped that, keeping in mind a gridlock from which the world economy needed to find a way out, the G20 leaders would rise to the challenge. It was necessary to send a signal that disrupters of all sorts – religious, racial, political and climatic – would not keep having the upper hand. And that a collective pragmatic program to re-launch a new concerted phase of a more balanced positive global economic performance was to be the priority henceforth. That the pressure exerted on politicians by dominant business lobbies and by geopolitical interests would not maintain its terrible grip on international economic policies which had made blocs of countries hostile towards each other, urging them to pursue standalone isolationist exclusive objectives of their own.
Unfortunately, many observers believe that not much was achieved in the G20 meeting by way of assuring the world that better economic stimulus was on its way to prevent economies from flagging down, or by way of undertaking required structural reforms or a clear commitment to upholding free trade or committing to commonly shared policies providing for a more equitable division of the proceeds of economic growth.
Some crying issues such as tackling oversupply of steel in the global market were dealt with in principle. An orderly ‘Brexit’ such as to minimize its adverse consequences on the world economy was also discussed on the side lines of the G20. Reassuring, but not enough to deal with the global situation in which small countries like Mauritius feel squeezed by international competitive pressure and distanced by a rapidly changing international technological production platform.
The G20 was an opportunity to find a more cohesive and productive way forward for all to act together to remove structural economic flaws in the global system. To avert a long term slowing down of economies across the world, a new concerted strategy to overcome the hurdles which hinder global economic performance was needed.
Like us in Mauritius, global leaders appeared to have put their sights instead on short-term bickerings and regional power games which increase the distance between what needs to be done and what so-called leaders prioritize on their agenda. They forgot that it is the economic factor which has brought the world closer together in the past decades of global liberalisation and economic uplift across the board, helping millions in diverse economies of the world out of poverty and deprivation.
It seemed the fight for political supremacy, if not between individual countries, then between distinct blocs of them, was more important than the vast integration of the world the economic factor had achieved. New phenomena – like ‘Brexit’ and Donald Trump, the rise of right-wing parties, global proliferation of religious factionalism from the Middle East, the annexation of Crimea by Russia, China’s exclusive claims on the South China Sea along with American assertiveness to the exclusion of China in the Asia-Pacific region – are in the process of producing the opposite of the global integration which a liberal economic setting has achieved so far.
By concentrating too much on the political factionalism and less so on the economics of global integration, groups like G20 or G7 or the UN Security Council may be setting aside the prospects of an economically more prosperous world holding out hope for the uplift of populations which have been deprived of basics from generation to generation. The only solace from this situation is that Mauritius does not appear to be the only place which has chosen to emphasize the wrong priorities.