Will the Budget launch Mauritius into higher orbit?

The Minister of Finance stated in his Budget Speech last Monday that Mauritius found itself at the crossroads. It was necessary therefore to make the right decisions to set free new energies that could take us to higher realizations.

He diagnosed four hurdles which needed to be crossed: 1. Getting over the state of low investment and employment generation; 2. Securing shared and sustained economic development; 3. Providing better equitableness and social justice; 4. Obtaining more transparency and good governance in public affairs.

While all four hurdles are important to address, it is the first of these that calls our immediate attention as far as economic management is concerned. From 2010 to 2015, at least three different Ministers of Finance have tried to address this issue of low domestic investment and its impending threat over employment. Notwithstanding, domestic investment has not progressed steadfastly and unemployment has continued to hover around 8%.

The solution the Minister has offered for dealing with this issue is the construction of 13 what he has called ‘mega-projects’ more or less self-contained units located in different parts of the country, involving “smart cities” and “techno poles”. They will involve constructions over about 7,000 acres of land and around Rs.120 billion of investments from domestic and international investors.

Another central proposal of the budget’s economic plan is the setup of a comprehensive ‘one-stop-shop’ nucleus for making the SME sector an important pole of economic growth and employment. By providing all services from one place, including an SME bank with a capital of Rs 200 million and a line of credit of Rs 2 billion from the government in the first year, this project is expected, with the help of technical and financial backups and tax breaks, to raise what the Minister has called a ‘nation des entrepreneurs’.

He has also mentioned a plan to transform Port Louis harbour with the aim to attract more ocean traffic to us by changing the vocation of the harbour from a ‘destination port’ to a ‘regional hub’, thereby increasing its capacity to contribute to GDP in ‘double digits’ (from 2% at present). Education and vocational training will also be enhanced with specific attention given to training up people in ICT, tourism and healthcare sectors.

As in the case of previous budgets, the budget exercise is made as comprehensive as possible by making references to a whole host of additional specific sectors. This includes giving a push to bio-farming in agriculture, assistance to manufacturing and adopting a directed Marshall plan to deal with pockets of poverty which have sprung up in different parts of the country.

It would therefore appear that the main axis on which the budget wants to make a differential impact, compared with its predecessors, on the country’s economic condition is by working the concept of ‘mega projects’ and additional SME space. The others are extensions of existing projects. A new dynamism is sought to be injected, by so doing, into an economy that has appeared to be reaching the end of its tether in past years.

Questions arise as to whether the intended scheme of things will work out as assumed in the budget and, if so, over what frame of time?

First, one has to concede that since a long number of years, the economy of Mauritius has been crying out for its re-engineering from a neo-liberal model that has not only been growing at a slackening pace but it has equally been throwing up growing inequalities of income and wealth, making more precarious the lives of many who are living at the middle or lowest rungs of the economic ladder. This budget brings new insights into how to make a breakthrough that ought to have happened a number of years before. It has to be welcomed from such a perspective.

Second, we have seen that constructing up the country has happened in past years but this has failed to lift up growth and bring about the required dynamism for sustainable jobs in the economy. In fact, some of the shopping malls that have sprung up in the previous construction wave may be slowly turning out to become un-economic. There are redundant spaces already in Port Louis and elsewhere. Shifting away activity from existing places to new ones, apparently better integrated, may create a problem of increasing unoccupied built-up space in the country.

Third, an SME sector, however well bureaucratically and fiscally docketed it might be, will not surge until it is bursting at the edges with talents translating themselves into a whole range of productions for targeted markets. We need no doubt try the SME route harder but it cannot be taken for granted that merely providing finance and technical backup will take the sector to new heights. Talent and a growing pool of knowledge on which to base the activity – and markets to supply to –, is needed on the way forward.

Fourth, however glorious plans may sound, the trick is get things implemented. Aware perhaps of this shortcoming behind the budget proposals, the Minister has recently announced that he has set up 25 action groups in the Ministry to ensure implementation of proposals. For the good of the country, we cannot but want the implementation to be well coordinated and driven with an ambition to climb higher reaches of economic production. We will wait to see this happen to be reassured that the budget proposals will actually translate out into facts.

Finally, in economics, we have the twin sides of the equation – demand and supply. One of the reasons the economy has not been performing well is because we have lost steam in past years on both these counts.

On the supply side, our supply of goods and services has barely improved in terms of quality and range of additional products. Our export manufacturing has kept complaining about how difficult it is to access depressed external markets with its existing catalogue of production. The sugar sector has been beset by falling uneconomic prices. Time and again, the export manufacturing sector has lobbied to have the rupee depreciated – one of the worst forms of invisible taxation on the population – to remain profitable.

Time and again, Ministers have conceded to such fundamentally flawed demands. We have not reconstructed our comparative advantages to supply even our internal demand with the required efficiency. We should be doing that for both our goods and services and that calls for fundamental production engineering, not fiscal incentives. Our SME sector has stalled and left behind huge bad debts that killed the Development Bank of Mauritius and has seriously affected at least one other bank. We haven’t gone deeper on the supply side, despite the signals we’ve been getting for long.

What about demand for our goods and services? The internal market cannot absorb all that we can produce with an enlarged SME sector. Our port cannot beat others at hubbing out services if others are already there more cost effectively. In the tourism sector, it is barely some months ago when our hotels were passing the buck for their under-performance on Air Mauritius’ international connectivities, not themselves for failing to compete up against rival destinations.

As the level of global trade, China alone accounts for the major part of upcoming trades; for instance, it produces 80% of the world’s air-conditioners, 70% of its mobile phones and 60% of its shoes. Whatever it is finding it difficult to produce at home for global markets due to wage escalation, it is making good by achieving lower costs through robotization of production processes or shifting over part of the production chain to Factory Asia – a growing production base centred upon South East Asia (Malaysia, Singapore, Taiwan, Vietnam, etc.). We have barely established any contacts to meet any demand from this globally dominant market for goods. We risk staying out of this mainstream and constrain our economic growth potential.

Our chance of getting out of the goods stranglehold – as imposed by China and the Far East — was to go for production of services like India has done for IT services. We could have gone to Africa in this respect to overcome the already-occupied Asian market. We will make it hopefully once the reality of the global market brings out the hard facts facing countries like ours on the economic side in the evolving global situation.

* Published in print edition on 27 March  2015