The Year That Has Been
Still plying in uncharted waters
World events have a major impact on conditions in Mauritius by the mere fact that we are an open economy. As one looks back at global events which marked 2010, one has the feeling that key decision-makers across the world did not always have a firm grip on important factors affecting the world currently. However, some strategic shift of direction has taken place in the distribution of global power and it is important that we pay attention to it. This factor contains elements on which to re-position Mauritius by adopting deliberate policies and making new openings. We may abstract to some extent from catastrophic factors which do not affect us directly, such as the BP oil spill in the Gulf of Mexico which took from April to September 2010 to be successfully plugged in; the Icelandic volcanic ash clouds which disrupted transportation by air over days (just like the current heavy snowfall affecting Europe); the large scale flooding in Pakistan that made 20 million refugees and the earthquake which hit Haiti killing 230,000 and making a million homeless in that already impoverished nation. We may even overlook the WikiLeaks phenomenon although its revelations and the political contortions we are seeing in its wake have deep implications about corporate political dominance and freedom of information. There are also potential sources of global strain. Foyers of tension in specific parts of the world, such as Iran, North Korea, Afghanistan, Israel and Palestine, added on to global uncertainties, capable of disrupting whatever small dose of any fresh self-sustaining economic equilibrium the world could otherwise manage to achieve.
However, other factors such as the fortunes of the Euro zone are of direct concern to us because our principal export markets are situated there. The gradual shift taking place in the global balance of economic power from the West to the East is of equal direct relevance to us.
Excessive levels of public debt in individual Euro zone countries shook the Euro to its very foundation, casting serious doubt on the wisdom of those who decided to make a European monetary union without simultaneously putting in place a fiscal union. The Euro tumbled by over 8% from the beginning of this year, putting in jeopardy both our export earnings and our export prospects. On the other hand, China forged ahead as a high-growth economy even as the West has been finding it very hard to extricate itself from its economic crisis. China has now become the world’s biggest exporter, overtaking Germany. This shift, coming alongside the international economic crisis, has not been without tension mounting in the international economy over individual countries’ currency policy. In parallel, stock markets have had a bumpy ride throughout the year, a mirror, as it were, of the absence of confidence in the markets in general.
We are not a player of any significance at that level but an open economy like ours needed to take some actions to move away from its excessive economic polarisation on the West in the circumstances. Unfortunately, we have nothing on our hands to show in this regard. We are consequently still navigating in uncharted waters in this matter. A small economy like Mauritius which does not have a say in any chapter of global supply and demand, has a harder task to adapt to any potential deepening of global economic tensions especially if the spectre of protectionism manages to raise its ugly head in parts of the world that matter to us.
We in Mauritius do not have the market clout to secure the kinds of bilateral business deals in the billions of dollars that visiting heads of state and governments such as the French President, the British Prime Minister, the Chinese Chairman and the American President, have been securing with individual countries for their businessmen during their “business” travels to specific countries. They are trying to unlock opportunities to be able to break away from their current slothful growth or limited scope thereof. We do not even have the technological capacity to meet the pent-up demands that those countries signing up the bilateral deals have for things like nuclear technology, strategic military and precision engineering devices, etc. But if the world economy were able to liberate itself from the jam it is locked in through these deals, there will be opportunities for us as well. The events of the past year at the international level point out the urgent need for individual countries to re-invent themselves to be able to withstand the storm. Mauritius will need to rise to the occasion and nothing short of preparedness will take us to the new goals we should be setting for ourselves.
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It can however be said that Mauritius weathered reasonably well the storm which has hit the world economy. This has been achieved on the back of our traditional production activities, notably, manufacturing, tourism, sugar and services including BPO services.
We remained immune from the unstable international financial market conditions because we had no hands in those toxic assets called derivatives which, in the first place, had sent global financial markets tumbling in 2007. Unlike the advanced countries, we did not have to spend huge resources to stabilise financial institutions from the mess they had got themselves into in overseas markets for having indulged excessively in these toxic products. As a result, there was no home-grown instability imparted to the productive sectors of domestic activity from having to cure the ills inflicted by a misgoverned financial sector. Our financial markets have been groomed up to toe a conservative line since a long number of years. This has paid off.
However, maintaining internal discipline was not sufficient to ward off the dangers from weak international demand for our products during the year. Industries which kept up our exports despite the vicissitudes of the international market did not lean on rescue packages or fiscal stimulus to maintain themselves on an even keel. They leaned rather on good management, taking in some loss of revenue if necessary, to maintain demand for their products. They also invested as necessary. They coped flexibly and nimble-footedly with a capricious state of international demand. Some of them moved up to less vulnerable lines of production as global competition intensified in the low-end markets.
A few of them kept calling however for currency depreciation and lower interest rates in a bid, they said, to keep costs of production down but the real performers, although hit by the euro crisis, were more resourceful than having recourse to such devices merely. The recent financial policies of the government, in terms of keeping wages on a tight rein, while remaining alive to salvage industry from any unexpected downturn, indicates that keeping cost of production down is seen as the way forward on continuing difficult international markets.
Our export units are still operating along a tight line internationally but they are holding on and this matters very much to a country that has a structural current account deficit. If there was one important factor that kept business flowing from the international arena, it was services. Financial and BPO services have risen to the challenge and it is important that they should continue being empowered to get on with difficult international financial market conditions. Similarly, despite dire predictions and change of Minister, our tourism sector did well in 2010. It has also helped mitigate the current account deficit. If we were to embark on a further opening up of the skies, without unsettling the national airline which has been bedevilled by a series of managerial failures, the potential for this sector to contribute further may be enhanced. Of course this cannot be achieved if the domestic law and order situation is not tightened further.
In the past, several ministers have emphasized the need for excessive bureaucracy to be eliminated as a measure of raising the predictability of undertaking sound business from Mauritius. One cannot stop putting more stress upon this aspect of doing business if we want to extend our production horizon further. Non-linear complications from fiscal and administrative set-ups drive out potential investments to other places which are more straightforward. This means that administration cannot be left in the hands of amateurs or political protégés in the public sector; there is little or no point at all to move one step up in the right direction only to move two back in the opposite direction for the sake of accommodating incompetents in the key positions of public administration.
What 2010 has not achieved however is establishing additional new frontiers of production. It is necessary to remove obstacles. But it is essential however to introduce new areas of work and entrepreneurial endeavour. We have not been quite productive on this front. It is not only important to bring up small and medium enterprises to operate efficiently; it is much more important to bring up a new generation of those which can tackle technology and changing global market conditions to maintain gainful employment for our labour resources. We have not concentrated sufficiently on right skilling of the workforce for this kind of adventure and of identifying and putting together joint ventures for ourselves with international operators of high standing. It is clear that a multi-pronged coordination of policy and focus to bring about this right sort of investment to sustain the economy will be the correct ingredient to further our economic purpose. Unfortunately, public policies have remained silent on this important strategic factor. Work needs to be done in that direction.