Let’s Rev up the Economy
— Anil Gujadhur
The pace of the economy has slowed down even more this year. Everybody appears to be concerned that GDP would grow by only around 3% this year (4%+ last year) while unemployment is straddling around 8%. Inflation appears to be also on the uptick going towards 5% by the close of the year. So, everybody concludes that something has to be done: we can’t cross fingers watching private investment hardly progressing from year to year, external markets remaining as depressed as ever, our hotels staying on with a number of empty rooms to fill and SMEs as badly off as ever.
Thank God, the Minister of Finance has something positive to say. He sees FDI higher by 20% over the first 6 months of the year compared with last year’s equivalent period, the budget deficit at a decent 3% of GDP despite the effort that will have to be made by the Treasury to foot the bill of the Pay Research Bureau Report soon coming live on government finances. The Minister has taken care to state that this looks to be an honourable performance against the backdrop of not very reassuring prevailing external market conditions.
The question therefore arises: is that what it is and we cannot do better than the best we’ve been doing already? The answer is No. That will probably come out during the budget decisions due to be announced shortly in early November.
We’ve been too much on the defensive on the economic policy making front. We have constantly been pitching our slow pace of growth on the fact that the traditional external markets on which we depend for the export of our goods and services have been going through a dark patch since 2008 and that we’ll pick up once they turn around. The sad thing is that we don’t know when exactly those places will turn around and how long it will take them to lick up their wounds after that before they give us back, if they do, the place we’ve been occupying on their markets.
That wait might become a long one. It is not in the nature of economies to allow the void to settle in, waiting for better things to happen. The risk of non-doing is to allow other global players to take up the positions we might have occupied had we been more proactive. It will then be worthless to cry over spilt milk. Better therefore to act before it is too late; you can do some mending internally by calling in monetary and exchange rate policies to come to the rescue. But the fundamental re-engineering of the economic apparatus has to come from other decision-makers. They are the fiscal policy makers and private enterprise.
The basic challenge facing the economy is to re-model itself. Look back for a while at what happened in the 1970s and 1980s when the first economic model was given its chance to assert itself. This model consisted of giving an explicit outward thrust to our domestic economic activity through diversification. We had to go beyond the monocrop sugar economy. There was a pool of more or less trainable labour at low cost and there was a favourable treaty giving open access to specific external markets having good scope for export of goods such as textiles and garments, but not limited to these. We could have extended the range but we remained more or less content with this level of manufacturing. The result was that all the surplus labour was fully employed by the late 1980s. Diversification took firm roots. We carried on with sugar on the sidelines, important though it was but gradually shedding the labour force employed by it as it went on mechanising and centralizing itself. Aided by Air Mauritius, tourism emerged in that context of the external opening-up as yet another key contributor to island economics.
After the international economic crisis, the world economy will not steer at the same speed at which it had been going on for decades before. You’ll have to work harder in that environment to get a reasonable piece of the cake. Consider one fact that has recently emerged after a series of crises hit Western financial markets. Of all hallowed places in this sphere, London’s finance industry has lost at least 100,000 jobs between 2007 and now. There are signs that despite the advantages of time zone, language and law, London will keep losing grounds as a financial centre. Where do you think the shift of financial industry focus will go to in that case? Singapore and New York.
Why, Singapore, one may ask? The answer is simple. It’s a forward thinking place. Small it may be geographically but not in terms of assiduity to keep to the highest standards of governance, an area where it ranks among the highest in the world. It targets productivity by all means available; its research centres are one of the most performing globally and certainly not in the control of political minions of low calibre. It has been patiently building up on skills it has dutifully been gathering over the years, not throwing them overboard for political convenience. Technological advance has been skilfully married with a conducive tax environment and a foolproof legal system serving to attract the best brains to that place. Its markets earn their grades by what they do, not by being conferred achiever titles by God-knows-who. Rarely, if ever, can you come across a person who speaks disrespectfully about how well the clock has been set to tick harmoniously in Singapore.
We in Mauritius ought to have kept reforming our economy. We haven’t. We have extended welfare, which is not a bad thing in itself, but rather indiscriminately, knowing quite well that it can be extremely politically damaging to retrieve anyone of those miscalculated welfare measures should the need arise. We’ve not paid attention when domestic saving which is the mainspring to support investment kept scaling down whereas we kept up external borrowing to fund projects when domestic saving could have done a better job. We have not established systems that prevent public spending from being wastefully dilapidated before the deed is done. We remained content to read about it all in the report of the Director of Audit when the misfiring has already taken place.
A place like Singapore has moved on from acting as a physical hub for its immediate hinterland (which it still is imperatively) to becoming a global hub by dint of hard work and no complacency of the sort pointed out in our case by our Director of Audit. Soft skills are a key component supporting this kind of global outreach. It is the direction the Mauritian model should go into. Let’s export our industries together with our skilled workforce to Africa if we can’t also make it in a meaningful manner towards Asia. For this, focus should be on the skills that go with such an all-out external drive. You can imagine the kind of decision-making drivers we should be placing at the top of various path breakers in the local economy to be able to go in this direction. Hunting for talent will become a key preoccupation if you want to go full steam in this direction. A reachout of the sort proceeds by shooting down all mediocrity acting as hindrance to progress.
We need many more drivers than one in the Ministry of Finance, who can contribute to jump-start growth of the economy by pulling in a new phase of coordinated external opening up, not at the margin but at the heart of where the economic drama takes place. Each one of such leaders needs to be specialists in their particular domains not generalists. We need to go out and, like or along with China and the rest, take unimpeachable economic positions in other places to do business with. From there, we need to cull out factors which will go in the direction of multi-layering our domestic economic outfit as a solid base to support the desired outbound economic restructuring. We need to go on defining and broadening this space as we move up the scale. The previous model of surplus labour is rapidly running out; it needs to be replaced by another brimming with wider connectivity, efficiency, brain-power and drive. There should be no hesitation picking up the best resources wherever we can so as to fill the gaps. We must go out to the world.
It must be realized that we will not go too far putting all the blame on depressed global economic market conditions for our present plight. If we really want to become a high income economy in the future, we should avoid getting into the middle income economy trap. People should be empowered to think and battle it out with the best we have on the planet despite prevailing circumstances. Other countries, including some among what have been called ‘emerging economies’ (Turkey, Poland, Czech Republic,Romania, etc.,) are doing it. They are spreading out within and without competitively, backed by domestic reforms targeting growth of productivity, making full use of internal stability as a force to fuel up external expansion. Since Mauritius has broken the ‘sound barrier’ once, it can do so once again by liquidating the deadbeats and the deadwood that have settled in the economy by adopting real economic reforms. Let’s build up the strength that goes out into the future.