Rekindling growth in sunset industries

Traditional growth trajectory theories propose a transition and growth that starts from agriculture, then moves to manufacturing and finally to the services sector. This is largely what Mauritius has been doing over the past four decades although now with a higher accent being placed on development of services, in particular the real estate sector with new mega projects. Much has been reported on these projects, so I shall not dwell on their merits and demerits. Suffice to say that the Mauritian strategy has been pro-unproductive financialized wealth transfers, rather than productive capital investment in the primary and secondary sectors.

Real estate creates jobs at construction phase and will require servicing over its lifetime. But although the Mauritian economy is expanding with money going into construction, with an investment in real estate, there is solely a change in ownership of existing wealth, and it does not produce new wealth/output per se. Even if properties are sold at high cost to foreign entities, generating high amounts of foreign currency, wealth is transferred, and a one-time revenue is generated. In comparison, if investment is in building a factory, machinery is purchased, labour is hired and a good is produced at the end of the chain, then we can say that there is a tangible output from this investment. This productive output may be sold or exported to generate revenue over a period of time.

In this article, I will focus on the former two ‘sunset sectors’, agriculture and manufacturing. Some economies have successfully helped sunset industries become more innovative and value producing. As a result, even if transition has not been very easy, there has been a continuum where knowledge and capabilities are expanded upon.

Our approach has been one of stop and jump to something new and often taking a new trajectory. This strategy has a disadvantage, that of Mauritius abandoning existing knowhow. Instead we should be building on these knowledge and capabilities to create new and innovative goods. We have leapfrogged from tangible to intangible sectors without considering an expansion of the offering on agriculture and industrial sectors. This is an opportunity loss. Our sector movement has followed opportunities of preferential access and wound around wage arbitrage. And once arbitrage differential shrunk and cost of production outweighed benefits of access, industries shut down and moved to more favourable arbitrage locations.

Mauritius has currently 43,500 people unemployed while vacancies stand at only 3,400 (8 per cent of total unemployed). Existing talent finds it very difficult to find a job. It is therefore crucial for us to think beyond the norm and explore new avenues and opportunities of industrial growth where our capabilities can be put into play. By bringing together sets of capabilities in the island and developing new items, we shall be expanding our opportunities of growth and get out of our current low product trap position.

With this in mind, I will argue in favour of rejuvenating the industrial base of Mauritius. I believe that for the strength and stability of a country, having a strong industrial base is very important. One may say that, Mauritius is far, manpower is expensive, and people do not want to work in factories. But then such is the case in France and Germany. Yet both countries have an industrial force that is not negligible. Their industries tend to be using innovative technologies, higher cost produce, precision goods, strategic goods for safety and security, specialized and higher end goods. These goods are manufactured even if costs of production in such locations are high. Those are the types of product that we could aim for.

Bringing back the idea of capabilities

A capability is a set of transferable skills across business sectors. Therefore, if a worker is able to manufacture, repair or maintain one type of machinery, with a little re-skilling, that same worker can do the same in other industries. Product space, a concept developed by Cesar Hidalgo and Ricardo Haussmann, further helps us understand how we can leverage on our productive capacity to expand our industrial offering.

Within every industry group, there are sets of capabilities that are created. Let us take sugar for example: not only do we have workers who know how to cut and grow cane, but within factories you also have workers who are capable of repairing, maintaining and manufacturing machinery. These are known as capabilities. If we want to expand our industrial offering, we need to identify available set of knowledge and skills, and consider what new items may be produced using this knowledge. The product space on allows us to consider which businesses we could move into radically given our capabilities, and it thus enables us to consider higher value and innovative sector.

In concrete terms, here is an example of how we could expand our industrial offering. We already have a well-established textiles sector. There is a local production for boats used for leisure activities, although a large amount of such boats are imported. Marine hardware is an area that can be further developed. Already fish tackle is produced and exported mostly to United Kingdom. Various other fishing and boating equipment can also be produced. In that respect, we can also mix textiles capability to produce a range of textiles products required in boats such as ropes and specialized sail cloth.

Nowadays sailcloth is made from synthetic fibres like nylon and polyester to expensive products including carbon fibres or aramids (Kevlar). If we combine capabilities of our textiles sector and that of the sail boat industry, we could develop synergies that lead to manufacturing of a range of new products. Once capabilities for sail cloth production is established, we can expand to producing a range of more technical products including kite surfs, surf sails, or para sailing. For these, there is already a ready market with High Net Worth Individuals locally and those who have been attracted to come and reside in Mauritius through various residency schemes. If we start producing Kevlar type of sail materials, then it also opens the door for us to expand into military and aerospace products where such materials are mostly used.

It should be highlighted that Mauritius has the capability of producing chemical products, and with this fertilisers, paints or glue. Chemical products cluster is another area where we can explore further areas of development. Similarly, we produce some precision products, for example medical instruments, watches, and jewelry. Matching watches and jewelry together, we could also produce jeweled watches and explore the higher end African and Middle Eastern markets for such products.

It is also interesting to consider all the advantages that Mauritius has. We have a fairly educated workforce, and I often feel that some people are under employed given that they have far higher qualifications than what is required for their work. Often it is because there is no opening in their field of training. We may, however, need to reinforce the connection between industry and the tertiary and vocational education system.

Moreover, there is a good purchasing power between local population who buys a range of imported good, international residents or visitors as well as the service industry, mostly hotels, which also purchases a range of agriculture and agribusiness related goods that, if produced locally, could find a ready market opportunity. Mauritius still has preferential access to a range of international markets including Europe, the United States (through AGOA), COMESA and SADC regions. We are a coastal country, therefore we can export by sea freight, which is much less expensive than if the country was landlocked. Finally, we have a relatively good business climate, good supply of electricity and water and functioning systems.

Local brands and products have good notoriety around the world. I have found products made in Mauritius such as instant noodles in varied locations such as Benin, Burundi and France. An item focused primarily on the local market has now found a very varied international market. Hence, there is potential for an innovative Mauritian food industry to find other avenues of export.

We therefore need to attract industries seeking for a safe and easy place to do business. Ideally their output should be higher end, high tech, likely to be expensive, products that may be flown out or shipped. Ideally the company being attracted should already have a market. Too often we have followed models of development, we perhaps now need to set out our own trend. To be successful, however, we need to expand our research and development capability and reinforce linkages with industry for innovation and product creation to happen in practice. We have had successful model of such practice erstwhile with the close interaction between MSIRI and the sugar industry. We now need to develop new such models that can permeate across different sectors to enable diversification of our product space offering and rekindle growth of our agribusiness and manufacturing sectors.

Manisha Dookhony is a Private Sector Development Expert and Investment Advisor working with Governments and Investors on the African continent