Interview Percy S Mistry

Interview: Percy S Mistry, Chairman Oxford International Associates Ltd 

 

Euro Crisis 

“If the worst comes to the worst, then Mauritius will be hit. But, I see the impact as being temporary”  

* Mauritius can become the centre-of-gravity locus for the Indian Ocean Rim and change the trajectory of its destiny by doing so 

* Mauritius still remains much too Eurocentric in its economic and trade orientation, its social outlook, and its rooted pretence at faux cultural and fashion sophistication. What will happen to small, out-of-the-way places like Mauritius if the “European Dark Age” were to happen in the wake of the Euro crisis? Percy S Mistry, Chairman Oxford International Associates Ltd offers, in his usual forthright style, in this week’ interview his views on this question and his comments on how we have been doing so far and proposes a list of measures to beef up the development agenda of this government…  

Mauritius Times: You were speaking last week of an impending “European Dark Age”, that may drag the rest of the world into a trillion-dollar crisis over the next five years. Is it that bad?

 

Yes. It is. Though people think that I indulge in hyperbole, because of my use of adjectives and forthright expression, the fact is I often understate reality. It surprises me that European political leaders do not appear so far to understand how ‘existentially threatening’ this Eurocrisis is becoming for: the Euro, monetary union, the EU’s banking and financial system, and possibly even for the continuation of the EU in its present form; all because it has been handled ineptly by political leaders, especially the German Chancellor Angela Merkel.

 

She is someone whom I once had a very high opinion of as a political heavyweight in an ‘EU-peer universe’ of political pygmies. But I am beginning to realize that, as an ‘Ossie’ chemist, she may be seriously deficient in her understanding of broader regional/global market economics, and of the febrile psycho-dynamics of global financial markets which provide so much funding for the EU. I cannot believe that, if she really understood what was at stake, she would be behaving in this fashion. She is politically astute and is playing to her domestic gallery, watching the opinion polls every day on what Germans think she should do. They seem split down the middle on whether the PIIGS (Portugal, Italy, Ireland, Greece and Spain) should be bailed out or not. But that is not the point.

 

Sadly, Mrs Merkel is not using her weight and influence to overcome domestic constraints and show true European leadership/statesmanship. She is not using her power to do what is right and urgently necessary for Europe, and the rest of the world, to prevent another slide into recession. At this juncture, it does not matter what the average German thinks, based on his/her ingrained biases/prejudices about other EU partners. If she continues on her present course, she will not only do serious damage to Europe, but to the world and Germany as well, on a scale she does not yet seem to realize the dimensions of. And her own electorate will not forgive her for that when they realize that neither she nor they knew what consequences would unfold.

 

Two hours ago the President of the European Commission J. M. Barrosso said precisely that in Brussels; but much less forthrightly than I am doing in the MT, for obvious reasons. He needs his job. I don’t. But, more seriously, European central bank governors, bankers, and people in European capital markets and finance generally, are extremely worried about the disconnect between the apparent lack of understanding of their clueless political class, and the ugly reality that they now see unfolding in their economies, financial markets, and banking systems. It is like they are witnessing a car crash occurring before their eyes in slow-motion; but they seem helpless to do anything about it because their political leaders are reacting like rabbits caught in headlights in the middle of a foggy road on a dark night! The daily blog posts on the Eurocrisis in the Financial Times (London) reflect that.

 

The EU’s political leaders (especially in Germany, Holland and Scandinavia) see this problem in caricature: as one of the over-indebtedness of profligate southern European countries whose indolent populations and governments got into a financial mess because: (a) they created welfare states they could not possibly afford when they joined the EU; (b) they overspent, and financed that by over-borrowing too cheaply because of their access to Euro-finance based on the creditworthiness of Germany; (c) they lied for years about the bankrupt state of their public and private finances; (d) they did not pay (or collect) their taxes; (e) they were inefficient, too loving of sun, sand and hanky-panky frolic, unproductive and corrupt, etc.

 

To an extent, all that is, of course, sadly true; although the origins and nature of the ‘real’ problem in each of the affected PIIGS countries is different. So northern Europeans do not see why these spendthrift southerners should be bailed out. They see that as rewarding bad behaviour and compounding moral hazard. Such simplistic, partial reasoning may explain the past; but it is devastatingly wrong in its consequences where the future is concerned.

 

What northern Europe (especially Germany) refuses to recognize is that there is an underlying structural dilemma of egregious intra-EU external account imbalances as well. Germany has been running current (trade) account surpluses with the rest of its European neighbours (particularly the southerners) of around 6-7% of its GDP; year in year out for the last 10-15 years. That is unsustainable. It has been hollowing out its neighbours through a ‘relative internal’ euro exchange rate that is favourable to it (because of its productivity, efficiency and export competitiveness) but not to its neighbours.

 

As a result there has been a massive aggregate transfer of resources (since 1995) from its southern neighbours to Germany. It is conceptually the same as what China has been doing to the US, and the rest of the world, by maintaining its exchange rate at a much lower value relative to other currencies than is justified by ‘open economics’ theory. This requires that every micro-price involved in making up the total end-price of a tradable good or service, should be market determined (including the relative prices of currencies, especially of major trading nations). So by manipulating its currency’s price China has accumulated, at the world’s expense, reserves of over US$3.2 trillion and created a counterpart debt-crisis in the US and the rest of the world.

 

It is the accumulated structural intra-EU current account imbalance that is manifesting itself in the current Eurocrisis which must not be lost sight of. Given this fact, there has to be a counter-flow of money from northern to southern Europe on the capital account. That is not happening through either private investment flows from north to south or by way of financing sufficient public debt on a sustainably serviceable basis. The lid has blown in the PIGS. It is about to come off in Italy. And the future debt/GDP ratios of the UK, Belgium and the Netherlands do not look too good either. So this systemic problem could cascade completely out of hand if markets become convinced that even major European countries like Italy might be unable (or unwilling) to repay the full extent of their rapidly accumulating mountain of debts. That would trigger a massive global flight out of European government bonds and the Euro with devastating consequences for European economies and societies.

 

* What will happen to small, out-of-the-way places like Mauritius if that (the European Dark Age) were to happen?

 

That is always the quintessential small island Mauritian concern, is it not? What about moi? Well, let’s look at this carefully. If the worst comes to the worst, then Mauritius will be hit. But, I see the impact as being temporary – perhaps a short sharp shock of a 2-3% GNI loss for 1-2 years. That is because, contrary to my (boring) advice over the past decade or more, Mauritius still remains much too Eurocentric in its economic and trade orientation, its social outlook, and its rooted pretence at faux cultural and fashion sophistication.

 

That is no doubt due to the European heritage of its economic elite, whose place at the top of the island’s economic pyramid, and incestually blinkered outlook, which artificially confines what they think they know about the world outside Mauritius, Madagascar and France, has not changed. It probably never will, considering the way in which successive Mauritian governments behave; regardless of their absurd, meaningless rhetoric about ‘economic democratization’. There is an understanding between Mauritian governments of whichever hue and the Franco-elite that the boat will not be rocked too much.

 

If the EU were to take an economic hit, because the Eurocrisis was mishandled, and Europe went over the cliff as a result, Mauritius would take a hit because of its dependence on EU-Euro-sourced tourism and other service export earnings. If the EU got into that kind of trouble then, even over the medium term, I can foresee Europeans being encouraged to take their holidays in Southern Europe rather than Mauritius. I can see some BPO outsourcing from Europe to Mauritius perhaps being shifted back to Europe if relative prices/wages were to adjust enough.

 

I can also see Mauritius taking a hit on the holding of Euros in its central bank reserves, which – if I were advising the BoM, and I must emphasize that I am not, because they (rightly) think I am not clever enough — I would be inclined to shift more of MRU’s reserves into currencies of the future such as the CNY, INR, SND, SWF, AUD, CND, BRL and away from USD, EUR and JPY. The latter three are passé currencies although they still account for over 80% of the world’s reserves – for all the wrong reasons. The fundamentals of their economies suggest that these currencies are intrinsically unsound and will remain so for a considerable period of time.

 

I would also see remittance earnings from the EU drying up for a while as Mauritians in Europe lost their jobs and had to tighten their belts; and so on.

 

But, small out of the way places actually have a structural advantage in avoiding this kind of problem, if they know how to use it. Because they are small they can be lean, mean, flexible adaptable and nimble; if they choose to be! Singapore is good example. Barbados is another. Mauritius has an option not to be too vulnerable to anything that happens in any particular part of the world. It can do so by making more rapid strides toward rebalancing its economy and trade dependency in a way that precludes over-reliance on any one region (particularly tired, old, passé, uncompetitive Europe) and link its economy more to the ‘new high-growth regions’ of Asia (South, North, East, West and Central Asia including Asean and Greater China), Australia, the Middle East and Eastern/Southern Africa. Mauritius can become the centre-of-gravity locus for the Indian Ocean Rim and change the trajectory of its destiny by doing so.

 

If Mauritius fulfils its destiny of becoming the residence of choice for Asian and African billionaires, just as Monaco is the choice for European billionaires, then it will cease to be as vulnerable as it is now to these kinds of vicissitudes. But it has a long way to go in providing the kind of probity and quality in its: overall governance, judiciary, law-and-order, political environment and physical infrastructure, to become such a place. I have no doubt this can be done if the political and social will exists to do it within the next 20-25 years. But, given the bizarre way in which Mauritius is run — by family-dominated politics and fiat that is sustained by the island’s Franco (Euro) elite, rather than being run on the basis of genuine democracy — it may take 50-70 years instead; by which time the opportunity may have passed it by.

 

* Government and most of the stakeholders are no doubt aware of the heavy price the country risks having to pay in case Europe indeed goes bankrupt, but there is not much they can do in the meantime, isn’t it?

 

I think there is actually a great deal that Mauritius can do to make itself much less vulnerable to what happens in Europe regardless of the degree of severity of what may afflict the EU or Euro. But I do not yet see the recognition of that reality in Mauritius itself for the reasons I have stated.

 

There is no ‘natural’ impediment to Mauritius doing much more to protect itself, or to make itself more robust and invulnerable to what happens in the EU, or for that matter in India, China or Africa. It can make itself relatively invulnerable; just as Singapore has. But I do not see that happening anytime soon.

 

What is lacking are the following: (a) enough vision, integrity, wisdom, understanding, imagination and wit of the kind needed in Mauritius’ government political leadership, and across its rather pathetic and mediocre political class as a whole; (b) sufficient flexibility and bureaucratic capability in its civil administration regime; (c) sufficient entrepreneurial and managerial capacity in its domestic, claustrophobic private sector; (d) inclination to reduce dependence on the EU on the part of those who continue to sponsor political leadership through their choke-hold on Mauritius’ purse-strings.

 

* We are not yet there, but would a deteriorating crisis require more stimulus packages to industry and the export-oriented services, further devaluation of the rupee, etc ?

 

That, of course, is the traditional MRU private sector and government response to any adverse development in the external environment. The instinct is always to seek government help, to devalue, to stimulate and subsidize. I would much prefer it if, instead of that perennial knee-jerk reaction, the Mauritian private sector (its parastatals will always be hopeless unless they are privatized and made more efficient) was encouraged to develop the internal capacity and resilience to anticipate, accommodate, and withstand these kinds of external shocks without resort to special assistance every time.

 

I am not sure that if (unlikely as it seems even now) the Euro were to disappear, or the EU slide back into deep recession, what the specific impact on particular industries in Mauritius might be. Sugar exports and prices might be adversely affected briefly; but demand from Asia would offset that. The government should have a task force in the MoF working on possible scenarios.

 

There would certainly be an impact on tourism immediately. Mauritius should, by now, have developed the ‘switching’ capacity to source tourists from so many other markets. It has just not done so as fast as it might have. Its tourism promotion efforts and its air transport connections are still much too Eurocentric.

 

Would there necessarily be an impact on financial services and other key service exports? I don’t know but would not think so. But one would need to look at this issue in some specific detail before coming up with an intelligent response. It would be easy to generalize in broad terms. But it would not be useful and would probably be wrong.

 

The only thing I would emphasize is that I would prefer both government and the Mauritian private sector not to seek immediate knee-jerk resort to special stimulus, devaluation of the MUR, industry support packages and subsidies every time an external shock occurs. They have become much too dependent on that kind of nonsense. It is time to grow up.

 

Most of its key industries, especially its export industries, should by now have developed the internal robustness and resilience to expect and ride out these waves. They should not be like infants continually dependent on government to help them in time of every little bother. That mentality in Mauritius is so deep rooted it is both galling and counterproductive. I just wish most Mauritians could see that too. Mauritian service industries cannot always remain so infantile that they need to be spoon or breast-fed every time there is a strong breeze blowing in from the ocean.

 

* You have argued that “Europe can no longer afford escalating social overhead expenditures given dismal fiscal situations and rapidly deteriorating demographic profiles”. This also applies to India and China, which should avoid creating the same debilitating social overheads in their fiscal systems. The less fortunate therefore will have to go without the social safety nets which have kept them going so far – to save the banking and non-banking sectors from having their “functioning limbs amputated”. Right?

 

As usual you are being provocative in the phrasing of your question, trying to put me in a defensive posture before answering. That is fine. The Mauritius Times (MT) is adhering to its time-honoured tradition of portraying me as the Mad Mullah of Market Fundamentalism who is viscerally opposed to socialism and welfare states.

 

That is not actually the case. My views on how economies should be run in the interests of all citizens and not just the privileged, what it takes to run societies that are civilised, well-governed, fair and just in their treatment of the disadvantaged, about who should be helped and how, are more complicated and nuanced than the MT likes to portray.

 

But let me not apologize for being right wing in my views on political economies and societies. I am right wing because I started out on the far left. Sadly, I discovered over time that I was wrong about everything when I was a left-wing ideologue, when I joined the McNamara-led World Bank. I have learnt a lot since and am still learning. My motto now is: If you are not (on the) RIGHT; you are almost certainly (in the) WRONG!

 

I am sure that Tony Blair came to the same conclusion. He is more right-wing than I am. Gordon Brown had an unhappy time because he was too ideologically rigid to be capable of learning from experience. He was most successful as UK Chancellor when he was committed to pursuing policies laid down by his Conservative predecessor. He went completely off track and lost the plot when he departed from the safety of that originally successful strategy.

 

The story of post-war Britain is instructive. Every Labour government has eventually ended up bankrupting Britain with its social expenditures running out of control. Inevitably, Conservative governments are then re-elected that have to make savage cutbacks to bring public finances back into shape. For that they are regarded as anti-social Neanderthals. As soon as they have repaired the public finances, people forget to thank them and vote for the cuddly but useless softie-lefties again.

 

And so the merry-go round revolves. That is why countries like Britain keep falling behind (except when a roundhead like Thatcher comes to save them from themselves) and countries like Singapore, that do not indulge in such idiocy, keep forging ahead. People forget that had it not been for the much reviled Mrs Thatcher – who, in my view, did not go half as far as she should have in changing permanently the nature of the welfare state — Britain would now have a per capita income lower than Greece; probably closer to Albania!

 

If the MT understood what I said, and interpreted it more accurately in phrasing its question, it would have become obvious that what I meant was nothing like what it seems to be suggesting. What I meant was the following: (a) well-intended governments usually start out with social safety nets for the genuinely poor and disadvantaged — to ensure sufficient incomes to support a minimally decent lifestyle, decent basic housing, sufficient basic nutrition and provide access to free education, healthcare, disability allowances, etc. – BUT (b) these safety-nets quickly morph into universal entitlements for the lower (and even upper) middle class because of populist inclined political processes especially in viscerally socialist, union-driven political environments.

 

Commitment to ever-rising (and unaffordable) social expenditure becomes in effect a means of vote-buying at elections by populist socialist governments who prefer to pander than lead. Such entitlements then become rigidly embedded ‘rights’ that are non-negotiable and non-reducible even when they are completely unaffordable. That is now the problem with unavoidable fiscal adjustment in all the PIIGS in the EU.

 

Once that happens, the original intent of targeting help for the poorest and most disadvantaged is lost. Worse still, so-called ‘safety-nets’ become steel fish-nets that end up breeding and perpetuating a large underclass of people who are excluded from economic activity because they game the system and make themselves unemployable. So a rigid system of perverse incentives emerges that becomes almost impossible to uproot. These societies then become structurally uncompetitive.

 

I am all for ensuring that no one in society is denied a basic decent level of income, housing, nutrition, education and healthcare. But I believe that should be done exclusively through targeted and means-tested income subsidies alone, administered through the tax system rather than through over-complicated and fragmented benefits systems run by fools.

 

Income support needs to be carefully monitored in real time, and withdrawn when individual circumstances change, rather than become embedded and enshrined in perpetuity in the structure of the fiscus. In a society the size of Mauritius that should be possible to do. The worst way of caring for the poorest and most disadvantaged is through a plethora of unmanageable and un-means-tested separate benefits and price subsidies for housing, food, fuel, energy, transport, etc. These types of ‘benefits’ only result in distorting demand and markets not permitting to adjust as they should to changing conditions.

 

Mauritius has an enviable record of moderately successful social inclusion in its fiscal policies. But, my concern is that it is attempting to ape the European model too much, at an insufficiently high level of per capita income, without quite realising where that leads. Mauritius is a tiny micro-dot of a country that perforce has to be lean, mean, nimble, flexible, adaptable, efficient, productive and competitive to survive and earn its way in the world. Embedding into its fiscus a system of social expenditures that: creates perverse incentives, reduces fiscal flexibility in tough times when adjustment is unavoidable, and that becomes so non-negotiable and non-reducible that no government can afford to touch them, without inciting social explosion; is a recipe for disaster. At the same time I would agree that it must have sufficient provision for social expenditure to ensure that it protects and develops its human capital. It is a matter of balance.

 

The high level and cost of social overhead in Europe is what makes southern Europe so uncompetitive; which is why it is in such an irretrievable mess. For anyone who wants the same in Mauritius, that is their prerogative. It is not my country. It is yours. But I love it dearly and would hate to see it sink because of fiscal profligacy and unaffordable idiocy. By all means have an affordable level of social overhead to maintain equity, social justice and a fair and decent society for all. But to do that Mauritius needs to grow at 8-10% per annum not 4%. It needs to run primary budget surpluses now and then, rather than continually running growing fiscal deficits. It needs to run down its public (and private) debt over time rather than having a trajectory where public debt keeps rising to finance public deficits. It needs to run current account surpluses and have much higher inward flows of foreign investment than it has now.

 

But, because of a mediocre, unimpressive government, pursuing wishy-washy economic and financial policies, without any clear sense of content, direction, ambition or vision, Mauritius has none of these attributes. Therefore it has to be careful and measured about how much social overhead it can continue to afford without tipping the balance into economic penury.

 

And all this has nothing to do with saving the banking system where you conflate two entirely different issues.  

 

“Mauritians, like Indians, are good at words – in at least two languages. It used to be the case till the 1990s…”

 

 

* You know that the main thrusts of the present government’s first Budget is rebalancing growth by reducing our economy’s heavy dependence on Europe, by making greater use of economic diplomacy to open new markets, etc.), making a great leap forward on productivity, and consolidating social justice. Isn’t that the massive overhaul and re-orientation (instead of the routine tinkering at the edges) which this country requires at this juncture?

 

I prefer to judge governments by their actions, and the outcomes of their governance, not by their budget statements, manifestos, policy papers and speeches. Mauritians, like Indians, are good at words – in at least two languages. It used to be the case till the 1990s that they were better than Indians at deeds. But since 2000 that has certainly not been the case in terms of growth outcomes, export outcomes, income growth outcomes, social mobility outcomes, etc.

 

I have read the words. But I have yet to see real meaningful outcomes on:

 

(a) Reducing the Mauritian economy’s heavy dependence on Europe – which MT may remember Nikhil Treebhohun and I advocated in NPCC’s landmark Competitiveness Foresight document in November 2004. That eventually became the policy document adopted by the Labour government elected in 2005 and pursued successfully till the crisis hit in 2008. But Mauritius still remains too dependent on what happens in the EU.

 

(b) Economic diplomacy for diversification: Again I can see that missions are going out, people are travelling, BoI is conferencing like crazy, inviting almost everyone on all-expenses-paid visits, except people who really know Mauritius and what they are talking about. But which new markets have actually been opened? The excuse will be it is too early to tell. So let’s wait till next year to see how many new markets have been opened and for which service exports.

 

(c) Making a great leap forward on productivity: Wish you luck. But I don’t see it happening simply because you repeat a mantra and wave a magic wand. How much is labour productivity, capital productivity, knowledge productivity, and multi-factor productivity increasing in every industry particularly in export industries? Who is measuring it? What are the metrics? Who is monitoring this in real time? What are the incentives for achieving higher productivity goals and targets? What are the penalties for not doing so? Do let me know.

 

(d) Consolidating social justice: What precisely does the government mean by social justice? Like motherhood it is a nice warm cuddly phrase with a feel-good tone. Everyone thinks they know what it means, when they haven’t a clue. How do you define it? How do you measure it? How do you attain it? How do you consolidate something that you may not yet have achieved?

 

Phrases like social justice and economic democratisation are political rhetorical claptrap that every Mauritian government and political demagogue indulges in, without any idea of what such language means, or how to measure or deliver on the concept conveyed. The earlier 2005-10 government went on and on about ‘economic democratisation’ – a meaningless phrase if ever there was one. Well? Has it happened? To what extent? How are you measuring it?

 

So, forgive me for being sceptical. But this kind of stuff does not mean a thing when you don’t have the kind of finance minister, the kind of cabinet, or the kind of top leadership in government that really knows and understands the meaning and implications of what they are saying, knows how to make things happen, and has a proven track record. Mauritius removed from this government – for the most absurd reasons — the only Finance Minister who actually had regional and global credibility and a proven track record. So? Let’s wait and see.

 

Therefore I am not holding my breath to see this ambitious and laudatory agenda actually materialise in practice. I don’t see it in the growth rate. I don’t see it in exports. I don’t see it in diversification. I don’t see it in the sound management of public finances. So perhaps you can tell me where it is, so I can find it and not keep groping blindly for good news that isn’t there yet.

 

* It is easier to talk about moving on to other markets, notably in Africa and in Asia, but the ground reality is that we remain very much stuck to Europe for our exports, whether it is for goods or services like tourism. One could argue that rebalancing growth by reducing our dependence on euro-zone countries and promoting investment from and exports to BRIC countries looks like a long shot. How do you react to that?

 

I would not agree that it is necessarily difficult for Mauritius to become less dependent on the EU. That dependency is a historical, colonial legacy that has been carried on by independent Mauritian governments – and by its entrenched Franco business elite — for far too long in contradiction of geographical reality. It is not a long shot at all to develop a stronger profile in geographically more proximate markets if one had the right attitude with which to do that. In fact, it is extremely short-sighted not to have done much of that already, 43 years after independence.

 

I also do not subscribe to BRICS being the future market for Mauritius. Brazil and Russia are too far away although Russians do seem to enjoy Mauritian tourist facilities. I doubt the Russian linkage can provide anything useful. It is possible that Brazil and Mauritius could cooperate to bring about change for the better in Mozambique and Angola. Mauritius would be a far better place for Brazilian companies wishing to operate in Africa to locate than anywhere else. But that may be too much to hope for from GoM. South Africa has already taken the lead in that respect.

 

I think the more appropriate future economic linkages for Mauritius are Eastern and Southern Africa, the Indian Ocean Rim, the Middle East, South Asia, Asean, Greater China, and Australia. These are the immediate ‘neighbourhood’ countries that Mauritius should be focusing on. But that is difficult to do when Mauritius thinks of itself viscerally, more as being French and European (like Reunion) than as being Asian or African.

 

Also its adherence to speaking in Creole patois, or in broken English with a French accent, is a distinct disadvantage in penetrating new, more proximate, more promising markets.

 

If Mauritius genuinely opens itself up to inward physical and social investment, if it develops a wider mix of Indian, Chinese, Middle Eastern, South/East African, Malaysian and Singaporean businesses and financial institutions in its midst, rather than keeping itself closed to ensure that established, entrenched dominant economic ownership influences — determined not to cede their territorial enclave to ‘foreigners’ (especially Asians) – retain their monopoly rights over business in Mauritius, then I think everything is more possible and doable in real time than the MT seems to be suggesting. But now I am sounding like a broken record that keeps revolving on the ancient gramophone turntable because no one will shut it down.

 

* One could argue that the issue is not really about the need to reduce dependence on euro-zone countries and diversifying into other markets for our products and services but instead to focus on niche markets (whether for tourism and manufacturing) be they in China or France. Do you agree?

 

No, I do not. The problem is that today’s niche may (almost certainly will) become tomorrow’s historical curiosity. The kind of tourism that Mauritius has to offer is not niche. It may be high-value rather than mass market. No one would like to see Mauritius become Benidorm. But even as a high-value market there is no reason for it to be as dependent on visitors from the EU as it presently is. It needs to adapt and offer more to people with even more money from Asia, the Middle East and Australia. That is a question of directing marketing efforts and developing the right linkages in the global tourism industry.

 

I am not going to get into the niche manufacturing argument because that will be confined to few and rare cases. Mauritius’ future does not lie in niche manufacturing as such; though a handful of uniquely endowed firms may well succeed because of their established connections and innovative brilliance. My friend Arif Currimjee comes to mind in that connection. But talents like Arif’s are not exactly abundant in Mauritius.

 

In my view the future of Mauritius lies in becoming: (a) the world’s most attractive and pleasant island city-state that is a globally tax-efficient home to Asia’s, Africa’s and Australia’s billionaires with infrastructure and governance to match; (b) a centre for rapidly evolving high-value added export services across the board of the kind that Nikhil Treebhohun and I elaborated in our recent book on The Export of Tradable Services in Mauritius that was published by the Commonwealth Secretariat; and (c) a financial entrepot hub and a centre for the regional and global headquarters of transnational companies dealing in Africa-Asia trade and investment, at the centre of the wheel that connects Africa to the Gulf, to all of Asia, and to Australia.

 

* Moreover, opening up the market to foreign talent does not seem to have made much of a difference here. In the first place, we do not seem to be attracting them into key sectors of the economy – in ICT, the BPOs, etc. What’s keeping them away from Mauritius?

 

Mauritians and GoM’s behaviour are keeping them away from Mauritius. The locals still want the island to themselves and are not particularly welcoming – in a substantive meaningful sense – to foreigners who wish to come and live in Mauritius and possibly even become Mauritians themselves. Natives are incredibly gracious and sweet to short-term visitors and tourists (sometimes overwhelmingly so, for pecuniary advantage). But Mauritius is still much too closed and in-bred a society. Even within Mauritian society you do not miscegenate or mix enough. After 200 years Mauritius remains a salad bowl where the ethnic identity of each ingredient is distinct, separate and visible, rather than a melting pot in which all these separate identities become fused into a single ethnic and national identity which would probably be much more attractive to Mauritians and the outside world. You have opened up the market to foreign talent only in a strictly legalistic sense. Not in any other substantive or meaningful way.

 

Also, the infrastructure of Mauritius is creaking and user-unfriendly to foreigners. No one likes sitting in two hour traffic jams to travel 10 kilometres. Your public transport is lousy. You don’t have an efficient urban metro-rail system or efficient coastal transport. Telecommunications are still relatively undeveloped and far too expensive by global standards. Your real estate market is neither open nor accessible enough to foreigners. The abominable IRS has cleaved the market into two distinct and separate enclaves for locals vs. foreigners. Nothing could be more inimical to social intercourse between foreigner and native; and nothing more likely to keep making the foreigner feel (and remain) foreign. Need I say more?

 

And, though you are loathe to accept it, English – the world’s universal language – is not your day-to-day lingua franca. Most of the population barely speaks it at all. You don’t have a decent English language daily or weekend newspaper except the MT; even that is more than half-and-half. Eventually I am convinced that Mauritius will not fulfil its destiny until it embraces English fully as its main language not just of law and business but of daily discourse and patois.

 

* You have yourself proposed in the columns of this paper that the new opportunities Mauritius needs to attract to its shores lie in the new emerging global services industries. There has been a start but the transition from manufacturing to the services industry seems to be rather slow. Why is that so?

 

Yes. I have said that and still stand by it because it is the only option that makes sense to me. Transitions from export manufacturing to export services will always be difficult because entirely different ingredients and skill-sets are needed. Service exports require different knowledge of rapidly changing market and client requirements. They need much higher level human skills to deal with. They need less initial physical capital but they require world class connectivity at lower than world prices.

 

In my view this engine won’t really tart kicking and growing until Mauritius finds a way to ensure that India’s four largest firms in this business – i.e. TCS, Infosys, Wipro and Tech Mahindra, as well as other global firms like Oracle, SAP, IBM and EDS, are firmly located here and are firmly committed to developing the Mauritian service exports industry in all its dimensions as an adjunct to what they are doing in India. One has to explore in depth the reasons that is not happening with the heads of these kinds of companies. Perhaps the government should consider bringing on board Narayanan Murthy, the founder and Chairman Emeritus of Infosys as its major advisor on this initiative and give him free reign. Like me he will probably get quite disillusioned quite quickly with whether Mauritius is really committed to doing what it says. But who knows? He may be more patient and tolerant.

 

* Some Indian bureaucrats have been adding to the usual uncertainties they breathe down the necks of the international markets from time to time by bringing into question the enduring character of our double tax avoidance treaty with India. Rumours spreading out some time back in India suggested a possible abrogation of the treaty. What can we do about it?

 

I am saddened by this unfortunate reality. Neither Indian officialdom nor its Mauritian counterpart is handling this issue particularly well. It has become a political football in India where the issue of black money repatriation is being dramatically played out in public fora – when everyone realises and knows that all of this is pure theatre with no substance. Everyone in India believes (in my view quite wrongly) that the treaty with Mauritius simply provides a convenient escape hatch for black money to be round-tripped by India’s political class.

 

Mauritius may deny that as effusively and hotly as it wishes; but no one in India believes that. No one in India really wants to do anything meaningful about corruption or black money because it has become such an embedded way of conducting political and business life (something that Mauritians might know quite a lot about too!). No one would know what to do if both were excised overnight from the Indian system and how economic transactions might be conducted or lubricated in their absence.

 

That has been exacerbated by India now joining the Financial Action Task Force (FATF) which is exerting its own pressures on India to reduce the advantages in terms of tax avoidance that the Indo-Mauritian Treaty provides – in my view quite sensibly and to the mutual benefit of both.

 

Eventually I think Mauritius must agree to the same changes that the Indian treaty with Singapore has incorporated. A degree of uniformity and consistency in all of these treaties is an inevitability in the kind of world we live in. Singapore, Cyprus, Gibraltar, and the Gulf states would not like to feel inferior to Mauritius in their treatment under similar treaties.

 

Also, we must not forget that the Indo-Mauritian Treaty came about at the time of Bofors. Opposition parties in India are still convinced it was brought into play simply in order to route the payments from Bofors to recipients in India via intermediaries using the Mauritius route. That may or may not be a complete canard but it is a belief that has taken hold.

 

Mauritius (at least the MoF and government) is not handling the negotiations as astutely or adroitly as it might. It is fighting a pathetic rearguard action which may cause it to lose the battle. GoM is not using internal business lobby power in India and abroad as in intelligently as it might to make its case and exert enough counter-pressure on the Indian tax authorities from these sources to relent. These business lobbies have much to gain from the treaty remaining the way it is without too many more amendments and much to lose from its being amended to their disadvantage.

 

But let me not say more than that. I am not an advisor to either GoI or GoM on this issue and would not wish to be.

 

* Given the context both locally and internationally and the resources and means available, what are the measures you would have proposed to beef up the development agenda of this government?

 

I have been disconnected from the Mauritian scene since 2008. Therefore, it would be presumptuous of me to make proposals on what GoM might do in current circumstances. I would need to be much closer to the scene, brought up-to-date, and made more au fait with the current state of play before I could say anything sensible about what might be done.

 

All one can say is that the macro-groundwork for the direction in which Mauritius should be heading was done at the time of the Competitiveness Foresight exercise in 2004-05. That was bolstered by a lot of useful meso-work on strengthening the export services sector on a segment by segment basis. What remains to be done is the micro-work to see how, at the level of the individual firm and worker, all the resources that Mauritius needs to succeed can be brought into play and implemented at the firm and industry level so that Mauritius as a country can be as efficient, productive, dynamic and competitive as it needs to be.

 

There remains a massive agenda of uncompleted work that needs to be done on renewing and revamping Mauritius’ rapidly deteriorating infrastructure – for power, water, communications and transport. There is a huge agenda to be undertaken on privatisation of extremely inefficient parastatals that are a drain on the budget in either actual or opportunity cost terms.

 

There is a great deal of work that needs to be done on repairing and reinvigorating public finances and putting them in the kind of shape where Mauritius can begin to run budget surpluses instead of deficits and can reduce rather than keep increasing its public debt. There remains a massive unfinished agenda on improving productivity and efficiency throughout the economy at the levels of the individual, firm, industry and, most-of-all, in what is still an inefficient, self-serving and slothful government that insists on feudal patronage throughout the system as its main source of power and longevity. Now government recognises all these challenges rhetorically. It is aware of the gaps and the holes. But it still appears to me to be clueless about how to go about filling them.

 

Isn’t that enough of an agenda to be proceeding with?  

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