Structure of Business in Mauritius
By Murli Dhar
There are two cement operators supplying the local market currently, Holcim and Lafarge. The rest of the supply to the domestic market (about 50% of the total) has usually been met by the State Trading Corporation (STC). The latter has informed that it is now pulling out of the local cement market. That would have left two suppliers. This number is to increase to three however with the coming on of Binani, a cement trader from India. In other words, we will still have three major suppliers on the local market. The director of Binani has stated that his company will focus on the ‘quality’ of cement supplied to the market; if one were to paraphrase this insistence on quality, it could imply that consumers would have to face almost the same price structure across the board whereas, from the point of view of consumers, the price factor would have been most important without sacrificing on quality – as a consequence of the coming into operation of a third player in this market.
Be that as it may, the STC has informed that should it become necessary, it would intervene on the market (we understand by supplying on its own) to prevent any abuse that might take place on the market for cement in its absence. This assurance is important, to the extent it can be actually put into practice in the event the local market moved towards an oligopolistic price setting model in which none of the limited number of market operators would take the risk to hurt each other’s interests through collusive or any similar restrictive market practices adopted collectively.
Let us look beyond the market for cement. Investors come into a market not for philanthropic reasons but because they want to make money, first and foremost. Many watch with some sort of nostalgia the slow disappearance of small street corner traders, known as boutiques, in Mauritius. These small shops have been losing out for at least two decades to large retailers hailing from various foreign countries as well as from Mauritius, which call themselves supermarkets and even hypermarkets. Their mode of dealing with consumers is quite different from that which was and is still being practised by the few remaining local small retail shops: they cater to bigger numbers of consumers who have a personal means of transport (and we are not running short of such shoppers, by any standards!); they buy commodities in bulk from overseas and, with the economies of scale, they can set a price which wholesaler-dependent local small retailers can hardly compete against; they put limited stocks of goods coming near the end of their useful life on defiant promotion sales, thereby extending their consumer base for other non-promotional items; their displays of goods on the shelves and the self-importance they give to buyers under the close scrutiny of surveillance cameras add to the glamour of shopping in the numerous shopping malls that have sprung up during the past two decades. Mauritian shoppers have got so much used to this kind of convenience that it would be impossible to get them off the spending spree they engage in at the end of every month in particular. In simple words, the new generation retailers have identified some sort of a latent demand among consumers and used their universal appeal to displace existing smaller traders. Having identified the niche market thanks to all of this, they are making sure that eventually one or two of them will dominate the local market.
We are not yet there. Consider however other more mature production structures of the country to see how a similar pattern of market concentration has been taking over. Although there are fewer than 400 textile units in operation in the country today, there were 600 of them some years ago. Even within the 400, there are less than half a dozen significant large textile groups operating in Mauritius. From a macroeconomic point of view, it matters only when such large groups are affected by the international economic situation because that has a really negative impact on local employment and exports. In the sugar sector, there are only 4 factories left but there were nearly 20 of them a decade earlier; it is market dominant factories such as these that also dominate private energy production (IPPs) contributing up to 60% of the electricity sold by the CEB to consumers. Once they have put themselves in a contractually binding position to supply electricity to the CEB, the few IPPs are not prepared to negotiate the comfortable economic zone in which they have placed themselves.
There are sundry examples of the different sectors making up the lion’s share of Mauritian GDP in which the business structure is or has been gravitating towards duopoly or oligopoly at best. In sugar, small planters have kept moving out as there has taken place no restructuring in their case for them to come to collectively share in enduring market dominant positions and, hence, survive in the emerging economic arena dominated by few players in each segment. The hospitality/tourism sector is dominated by a few only dominant hotel groups that have developed international market contacts and savoir-faire in this line of business. This has given them unique advantages over others; they can sustain the advantages in moments of crisis for a specific type of clientele they want to host; the smaller operators cannot but operate on the fringes of the market so long they can sustain it. Unless others can raise themselves to the level of service the few bigger hotel groups are providing with constant product upgrade, they risk being phased out altogether.
We can go on with the construction and transportation sectors which are both in the hands of the few who have raised their capabilities to positions others cannot attain. It is they who secure major contracts by virtue of their market dominant positions. By contrast, in aviation, Air Mauritius has kept losing its market share by inviting certain airlines with the appetite of phagocytes to share the local market with it; it has been losing even more by adopting Air France’s lower standards of service, putting itself in a position of no fallback. In telephony, phasing of liberalisation of the sector has been done with such minute calculation over the years from out of a monopoly à deux that we don’t even know if there is a third player worth the name on the field and, if so, by how much it has been distanced out by the two dominant market leaders as to be able to offer any effective competition to them for the benefit of helpless consumers. While the private sector has made inroads into the supply of electricity through the IPPs, it has not yet exercised a serious option on taking over the water sector which looks like a natural monopoly. Mismanagement of the sector has made it ripe for this kind of takeover so that the trend towards market concentration in almost all key sectors of activity will go on consolidating at the expense of consumers on present trends.
The signal for this kind of business concentration was given many years ago by the financial sector. The role of this sector is to support business growth by providing financing. Where banks in particular have been selective in the provision of finance to some customers but not to others, they have deliberately favoured businesses they support and not those that can put their existing financing at risk by competing out their established clients. Nearly three quarters of the domestic banking sector has historically been dominated by one bank for no fault of its own. It has satisfied its customers in much the same way as today’s supermarkets are doing; by occupying dominant positions on the market, such institutions put themselves in a position to set prices for local financial services at exorbitant levels. Actually, it is not they who have to do this kind of work; it is the other banks that are at the lower rungs with very minimal shares of the total banking market that need to toe the line for bank charges for their own survival.
Was it necessary for matters to come to such a quasi-monopoly situation in almost all key and upward moving compartments of economic activity for everybody to realize that it is only by innovating constantly and moving up the market that unviable economic conditions could have been avoided? Policies that have favoured consolidation of existing strong economic positions have failed to raise the tide that could have lifted the boats of others as well without, for that matter, limiting the scope of our successful local business houses to penetrate newer markets. As we move more firmly into services, appropriate skilling and sharing/partnership in promising new businesses holds out a flicker of hope; it can restore the balance more equitably by creating a more wide ranging business leadership structure. It is for policy-makers to sharpen their tools in the quest of a more comprehensive growth of this type without deliberate exclusion of anyone who can actually make it to the top. We need to groom up more talents.
* Published in print edition on 8 July 2011