A Time For Decisions and Direction 

Editorial

A new government is in power since May 2010. There is a new coalition in place and a Cabinet which is different from what we had before the elections. The government’s programme for the next five years has been read out by the President. While this programme sets out the broader landmarks of government action over the next five years, it is the day-to-day management of the country’s affairs that has been beckoning the government to act. It will be recalled that the new Minister of Finance announced, against the background of the crisis in the Euro zone and the rather tepid signs of pick-up of markets of our traditional economic partners that he will be coming up with a series of measures to cope with the situation. There is no sign that the uncertainty of the economic situation in our customary export markets is disappearing soon. This situation should have urged the government to come out with its immediate proposals on how to tackle the most pressing issues. Nothing has come out in this regard so far.

What are the immediate issues requiring policy attention in the circumstances?

The most important is that our export capacity should have been strengthened. Except for sugar and its by-products, the manufacturing export model of Mauritius is based on the transformation of imported inputs into export outputs. Most of this kind of activity is centred on textiles and garments. Mauritius does not serve the luxury end of this market (haute couture, etc.,) which has remained relatively insulated from the harsher effects of the economic stress prevailing in our export markets. It seems that those at the top rungs of the economic ladder even in the affected countries or those emerging like China which are not so affected by the crisis, still have an appetite for luxuries and status symbols. One step would have been to encourage development of activity in this direction but not limiting it to garments, if need be, by bringing in the necessary expertise from abroad. Bringing in and employing fully such marketable expertise into Mauritius is real FDI as it will sustain employment and activity even during times of stress.

It is not too late to embark as a supplier to this more sophisticated part of the market. We do not have to give up the existing type of textile activity if we go upmarket in this activity. Our textile enterprises should be attuned to receive this sort of upgrade. They need to go up several notches higher. Those who are going for the upgrade need to be explicitly encouraged and one does not have to wait for budget time to take this matter up. This approach should be applicable to any new potentially higher value-added line of activity that we can undertake from over here. Indeed, the focus has to be on putting all efforts to broaden the export base, going beyond textiles and garments. Generalise the system of incentives and development support to widen the local base of production: that is the answer.

It will take time to cull out the required pool of local skills and expertise to achieve this kind of policy shift across the entire range of production possibilities and to strike the necessary critical mass. We will however need to give the signal by starting a new line (or as many new lines) as soon as possible. One needs to signal a departure from the set model that has stagnated for years, being unable to breach the established boundaries of production. If it is electronics or bio-medicine or any other similar high-tech activity, we need to create the substantial incentive for all first developers in the relevant areas to such a point that foreign firms will find it attractive to locate by sub-contracting some part of their activity in Mauritius based on comparative advantage. If we have proved ourselves capable of attracting high-tech medicine in Mauritius in a period of generally depressed demand, as it happened this year with Appolo-Bramwell and Fortis-Darné, it is just a marker showing that further such opening-up to the rest of the world is within our reach if we were to make the necessary efforts.

There are plenty of other manufacturing and non-manufacturing areas to go into. This can be achieved by a notion similar to the notion of duty-free island; those who will come to us will find high quality goods and a good range of products to choose from at globally competitive prices no less good than anywhere else, whether they buy them up from over here or they produce them here for sale to the world. Every inch of the new terrain should be fought for; this factor only points to the scale of support needed to get this ambitious project going. No effort should be spared to prepare that generation of entrepreneurs and maintain the pool of high skills that this ambitious new dimension of economic development is calling for.

Money will be better invested here than in the provision of abusive free transportation to line the pockets of bus owners. One needs to shift resources to better uses impacting more directly on raising sustainable productive capacity of the country. Incentives, the right regulatory environment and knowing how exactly one should proceed from where we stand today to reach the targeted goal are the basic ingredients of this model. We need to re-invent our way of doing business. Emphasis should shift from bringing most of the FDI into real estate, as it is the case, towards a bigger share going into import of exportable technologies that will make the new productions for global markets possible in Mauritius. We need to demonstrate to our future technology partners that we can help them drive into newer markets and that we have the necessary skilled manpower and other resources to back them up competitively. Our economic networking with potential partners in this venture should be perfect, with the amount of commitment that it calls for to support their growth and development as well. Japanese, European and American high tech producers crowded the economic space of China once the advantages of basing their production in China became clear to them.

Better lines of local production of a wider range of exportables (cellphones, electronic goods, electrical components, microchips, domestic appliances, light engineering equipments, high-yielding seeds, chemicals, pharmaceutical products, etc.,) will be beneficial to the country in another way. We have seen how our ever widening trade deficit risks landing us into a deeper structural problem if other sources of financing the deficit were to dry up or get reduced. To avert this situation, some of high quality goods produced locally for export markets should be able to satisfy local demand if the goods are in the league of the best known global brands. Inasmuch as this demand will cut down on our imports, some effective import substitution will take place. That will go towards correcting what threatens to become an unsustainable trade deficit in future. Everything points towards the urgent need to expand the narrow production space we have actually.

Local financial institutions will, in such a context, have to make an extra effort in risk-taking by lending money to the new ventures that will be groomed up as part of the new economic diversification drive. Our financial institutions will in fact help themselves to grow by financing fully the enterprises that will set up in the new context. That will not happen if they chose instead to stay aside due to risk considerations as that attitude will simply push the enterprises that will set up here into the hands of more competitive foreign financiers. This means that the rent-seeking attitude of our local financial institutions in the limited contours of a relatively narrow economic base as at present will have to evolve towards better market manners. They will need to match the softest and most sophisticated terms of financing techniques that those newer enterprises would otherwise be able to secure from global financial markets. It is this combination of bigger production and skilled financing that will redefine Mauritius not only as a new highly competitive hub for manufacturing and non-manufacturing; it will also give sufficient substance to turn our financial system into a real financing hub.

Another immediate issue requiring attention in this context will be the deeper education of our political, administrative and private sector leaders, not excluding a surer nimble-footedness of our judicial system. If one wants to go truly global, our standards of administration cannot be inferior to those of any other competitor. Where quick decisions are required, this is what the economic stakeholders will reach out for, nothing less. This is called administrative efficiency. Investors will go to places that will give them the highest efficiency. If one part of the superstructure were to underperform because those who administer it are not suitably equipped for whatever reasons there may be, the other parts will be perceived as non-performing as well. This basic flaw in the system has to be removed to keep up the good image of the country as a whole. It requires a lot of courage to depart in this respect from a mould that has been of great disservice to us in our development effort.

All this may look a little remote for the Mauritius that we know and have known. In the early 1970s, it was equally as remote to think that we could produce even textiles for global markets; it seemed we were condemned to heaping up unemployment and working the fields. Things have moved to where we are on the basis of a set of decisions that imperfectly fit into what should be right for our country today. The time has now come to move on at the risk of being condemned to stagnate. Can we afford to wait? What for? 

* Published in print edition on 12 August 2010