Setting the Stage for Further Economic Growth

According to the latest (2013-14) report of the World Economic Forum, Mauritius has improved its ranking in terms of global competitiveness from 54 last year to 45 this year. This ranking is computed by taking into account several broad indicators, including soundness and transparency of public institutions, independence of the judiciary, protection of investment, state of public infrastructure, governance, accountability of public and private institutions, sticking to international norms such as accounting practices, respect for intellectual property, etc. But the ranking also varies depending on how other countries perform. For example, several countries such as Italy, South Africa, Mexico, Portugal, Brazil and others have fallen behind this time, with the result that others like Mauritius have climbed up in the ranking.

We have however been doing well, since quite a number of years now, in this regard according to other global classifications as well, such as the World Bank’s ‘Doing Business’ report. This means that we’ve gained a certain level of international recognition that, as a country, we abide by acceptable norms for facilitating investment and operating a fairly predictable local business environment. Although there still remains some more bureaucratic backlog to clear, it may be safely said that Mauritius enjoys a relatively good international image.

It is doubly important, at a time when capital flows are slowing down across the globe against the backdrop of a possible reversal of the policy of monetary easing announced by the US central bank, that we do not do anything which would risk making us lose places at the top of the global league. We would like to keep capital flowing into the country for reason that our balance of international trade (exports minus imports) has been and keeps remaining in substantial deficit. It is estimated that we will have a trade deficit of Rs 88 billion in 2013.

This gap is usually filled partly by net international capital inflows. The more trust there is in the sound upkeep of the country and the economy, the greater the chance that we will get the external resources to bridge the gap. But we need more foreign capital inflows also for increasing our capacity to raise the level of our total exports which are currently at half only of the level of our total imports. Unless we can successfully orientate the capital to build up our export capacity further, we might hit against severe constraints and economic imbalances. A good local business environment is one of the factors having the potential to attract productive capital as distinct from capital going into real estate. We need to work hard to open up our scope for more production capacity and, in particular, added export avenues through product and market diversifications. The first half of 2013 has seen that more than 70% of our exports still go to Europe and America, both of which appear to be barely coming out of economic recession. Besides, 33% of our total exports are made up of apparel and clothing and 35% are agriculture-based, notably sugar and fish products.

Carefully laying down the future strategy will mean a lot in this context. Something like experiencing recurrent shortages of essentials like energy and water can send immediate wrong signals along with the risk that indices of good performance might go tumbling down all of a sudden. Energy and water supply are not only essential requirements for households; they are also key inputs going into industrial production and in the supply of services such as in the hospitality sector. No risk can be taken when it comes to providing a regular supply of such essential confidence-building inputs into the macroeconomic structure. That is why we have to act in anticipation of demand. It is a good thing that, with the uncertainties that have surrounded the effective date of coming into operation of CT Power with a targeted electricity supply of 100MW, the decision is being taken for the CEB to go ahead and install new turbines with a total capacity of 60MW. That will ensure that we do not have to look for solutions when the problem of short supply will be hitting us already. The same kind of pre-emptive action to ensure a steady supply of water will prove to be yet another confidence-building factor.

It is well known that unexpected shortages of economic goods get reflected in higher prices, the greater the “un-expectation”, the higher the shoot-up of prices. Shortages arise mostly for reasons of under-management and lack of anticipation by policy makers. If we are able, for example, to set down clearly our capacity to produce energy from diverse sources, renewable and non-renewable, we would be able to take decisions as to the combination in which power will be produced from these sources so as to reach minimum pricing of power supply for the country. The lower the pricing, the more competitive we could become helping our enterprises make lasting inroads on export markets. High pricing of a key input of the sort will keep investments away as well as the chance we have to raise our export capacity. Policy makers should therefore focus not so much on which combination of public-private suppliers are engaged in the business of supplying electricity to the country; they should favour only those who can sustainably do so at the least cost and with the least damage to the environment.

Any reasonable person will come to the conclusion that since inflation feeds directly into the price structure of our outputs both for local consumption and exports, the more you manage the inflation efficiently, the more your economy will grow now and in the future. Whether we choose to implement the light railway system, what really matters is how it gets translated into the price of transport compared to alternatives. If it has a dampening effect on transport costs and if it does not become a highly expensive capital equipment to maintain, by all means we should go for that. All we need are the figures to establish that no alternative option will impact more favourably in terms of pricing of transportation and keeping public finances safe from having to incur debts due to recurrent heavy capital costs.

The same kind of reasoning will apply to our international connectivity. Let us go for bandwidth connectivity the cost of which incentivizes new businesses to come and set up in our shores rather than the other way around. In terms of international travel, let us build up a safer operational environment for our national airline so that it becomes strong on its own once again. For, at the end of the day, it is an efficiently managed Air Mauritius that will keep airfares from and to Mauritius reasonably inexpensive and avoid landing us into the hands of predatory foreign carriers that would, on their part, end up making the Mauritius connection prohibitively expensive for local and foreign travellers.

This kind of forward thinking should be the highest consideration underlying our strategy to keep ourselves a preferred destination for investment and exports for both the short and longer terms. The time has come to get rid of the many bottlenecks which are in the process of formation. The answer to the challenge ahead of us is to anticipate and act by pre-empting before damage is done. If economies like those of Europe and America are slowly coming out of the fog, we should, with the rightful amount of forward thinking, be able to do just as well.

* Published in print edition on 6 September 2013