Facing Economic Realities
It was announced early this week that the Prime Minister who is coming back to the country after three weeks’ private visit overseas, will himself chair a body which will present the government’s Economic Mission Statement in a bid to beef up the economy. It was about time to do so.
In the past several years, Mauritius has appeared to have lost its creative genius. No new path breaking policies were introduced. No real action appeared to be initiated to free us from the limits to growth to which sectors of economic activity were heading left to themselves on auto-pilot.
We are living at a time when doubts have recently been cast that our Double Tax Avoidance Agreement with India may have been lately emptied of its essence, possibly throwing a whole sector of economic activity in jeopardy. The cleaning up exercise of the BAI group has already entailed huge injections of public money while the end in view is not clear at all. All this work of de-construction is adding to apprehensions investors may already be having about the future.
The reason for this want of economic combativeness over an extended period was an excessive concentration on politics. And also perhaps a sense of complacency with what had been achieved in the past. A general feeling was created that it was all for good. After all, were we not beating so many other countries in terms of indices of business friendliness, competitiveness, etc.?
We were often told about the ever-increasing amounts of Foreign Direct Investments (FDI) making their way into the country. We were not advised whether and the extent to which the FDI was diversified enough to help set the stage for our future economic potential in an ever changing and closely integrated global economy.
We worked under the impression that if an increasing number of Mauritians were having access to tertiary education, it implied that they were being fitted into matching jobs. That was, of course, not the correct assumption. More and more graduates were finding themselves without a job.
Even some who had secured professional qualifications, such as becoming doctors of medicine, found out that they did not meet the required standards to be allowed to practise. All these were signals that everything was not working out smoothly in the free-for-all system. It looked like a situation in which more roads were being constructed, no doubt, but the problem of daily traffic congestion kept coming back after a short reprieve as the number of vehicles on the roads kept multiplying and perpetuating a faulty public transport system.
While the market system on which economies like ours are based is, to a large extent, self-correcting, policy guidance is a must for us not to accumulate too many shortcomings in terms of economic management. The situation warranted putting in place an overseeing institution that channelled resources and made optimal applied usage of such resources, given constraints. That did not have to be a dirigiste system but one that was respected for its effectiveness across the board.
Had that been our main preoccupation rather than fighting legal battles left and right to keep cleaning up the stage for some unknown puritanical pursuits, we would have suitably modified our economic model and adapted it to the exigencies of evolving markets. However, we are in the poor habit of tackling problems when they are already upon us, last-minute decision-makers seeking to rectify whatever has not gone in the right direction. The result is haphazard patchwork.
It is this system that has caused thousands of erstwhile small sugarcane planters to abandon their agricultural avocations when it suddenly became uneconomic for them to carry on. Not having foreseen the oncoming difficulties, policy-makers did not reinvent this sector of activity to adapt it to new circumstances. Then, suddenly, the new reality of the markets started looking for the sacrificial goats. Despite so many public institutions professing to be specialising in favour of this more or less “unincorporated” area of activity, none came to their rescue before it was too late.
Yet the system of government we have presupposes that while the private sector is free to thrive on its own, it is the duty of governments to make economic transitions less painful for those who do not have the strong sinews of corporate structures. The prior guidance and show of equitableness towards those who are more vulnerable has been more or less absent, unfortunately.
That has been the case despite the plethora of public institutions supposedly dedicated to look after the interests of smaller units which are more economically vulnerable. Was it a lack of interest into the plight of the numerous too-small-to-fend-for-themselves? Was it the absence of a timely feedback on actions to take from the concerned public institutions to policy-makers at the top? Was it the incompetence of those who were politically appointed to preside over the works of the public institutions?
It may be a combination of all these factors which abruptly places entire sectors of economic activity facing situations of no return, due to lack of preparedness for evolving market situations. It may be too easy to lay the blame on one or other of those in charge ranging from the public institutions to politicians themselves.
The repercussions of this situation are however more pervasive than one would think. When economic activities shrink due to lack of application of the correct foresights to set them on course before they hit the limits, it is not they alone who pay the price. The bad effects are felt across the board.
Consider the current example of excess liquidity prevailing in our financial system. According to the central bank, more than Rs 20 billion of unutilized liquidity would be floating around in the local financial system. It means the funds are here. But the demand for credit is not strong enough to use up the surplus liquidity. At the bottom of it all, it means various sectors of the economy have not been growing fast enough to absorb the amount of liquidity that the system is generating.
In turn, this means that unemployment might accentuate. Several sectors would have reached their limits under the given economic conditions so that they are not taking advantage of the available liquidity with our financial system.
We could have reinvented our aviation and tourism sector in tandem, keeping in view emerging new competitions at the global level, employing the excess liquidity on a well-integrated and thought-out plan. But we kept complaining that each of the two sectors was bent on looking in isolation at its own interest so that we ended up failing to cash upon our natural advantages. Not only we shed away our market shares in the process. We ended up with a lot of idle capacity in both the national airline and in our hotels.
Financial institutions which are used to making big displays of their large annual profits will want to continue showing the same kind of results to their shareholders and to the public. Given the slackening of demand for their credit, how will they achieve the same levels of profits as before? They will press down on their customers the more, increasing fees and commissions or introducing new classes of charges. Practices such as these will depress the more vulnerable sectors ever the more.
Will SMEs thrive in such an environment? Not sure. Will the government boost them by giving additional subsidies? Perhaps. But that will eventually strain the public finances. Countries which have travelled down this road have had to reverse course, with great pain inflicted on beneficiaries of welfare spending.
All the above shows that the economy has been in need of serious reorientation since a long time. This has not been coming. Perhaps administrators were too busy fighting their own turf battles. They had little time to look into the structural imperfections of the economy and to attend to these, preferring to do politicians’ bidding instead, to no real purpose as far as righting the economy was concerned.
We have addressed so far the internal lack of initiative to give muscles to the economy when time was on our side. However, there are also dynamic changes taking place all the time at the global level. We have to respond to them continuously. It is not a joke when we see emerging on the public stage stories about the bigger countries spying on each other’s industrial advances. There is a fierce competition out there. We don’t belong to that league but, like them, we need to anticipate and act in consequence if we want to protect our jobs and our economic scope. We have been too passive on that stage.
These realities tell us that we have to undertake various structural arrangements to re-direct our economic activities. We cannot wait for things to fall in place. It will be too late if we are not late already. We have to scout for new opportunities as did the pioneers of our export manufacturing sector to grow economic scope. Sorry to remind those concerned: battles at this level are not fought in legal chambers or in courts or by perpetually decimating political rivals. They are won if we can marshal our collective drive towards well-defined future goals based on the market reality.
- Published in print edition on 7 August 2015
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