NESC analyses the impact of the global financial crisis on the Mauritian economy

The National Economic and Social Council released last week its report on the impact of the Global Financial Crisis on the Mauritian economy. The report notes that the country has faced three major economic challenges since 2006. In the years 2005-2006, it faced the triple shock of the dismantling of the multi-fibre agreement, a sharp cut in sugar prices and an increase in fuel prices. This was closely followed by a severe increase in fuel and food prices in 2007 -2008. At around that time in 2008, the Global Financial Crisis had started in the United States and, subsequently, spread to Europe. The impact on the country started to be felt as from 2009. The crisis is still persisting in Europe and is having enduring effects on the local economy.

The crisis adversely impacted the country. The economic activities slowed in the ensuing years. This was evidenced through the main Key Economic Indicators, notably those of Consumption & Savings, Investment, Foreign Direct Investment, Trade, the Inflation Rate and the Public Debt. All those indicators revealed diminishing performances. In particular, the overarching indicator of Gross Domestic Product (GDP) suffered a sudden decline from an average of 5.5% growth in the immediate years preceding the impact to some 3.3% in the ensuing years after the crisis. The GDP growth rate is still projected to be below 4% for the year 2013.

Since 2008, the authorities launched a series of countervailing measures to confront the impact of the crisis. A first initiative was in the form of the Additional Stimulus Package in 2008. This was followed with the Economic Restructuring and Competitiveness Programme in 2010. In the Year 2012, the National Resilience Fund was introduced whose main objectives were to bring support to the vulnerable sectors, to counteract the effect of any eventual redundancies, to boost up public investment and to strengthen the resilience of the economy.

Some segments of the economy were moderately influenced. The report considers those which comprised the sectors of manufacturing, wholesale and retail, the financial and insurance sectors, agriculture and the Information and Communication Technologies (ICT) sector. The report, however, covers to some greater depth the sectors that have been significantly affected, notably t he Export oriented, the Construction and the Tourism sectors.

The falling demand in Europe induced a sharp decline in the exports from Mauritius, thereby affecting the export oriented enterprises. Compounding this, the enterprises also faced an appreciating rupee leading additionally to reduced profitability. These resulted in the closure of some factories and layoffs. The construction sector, for its part, which represents one of the main drivers of the economy, registered negative growth rates for the past two years. This is in comparison to the growth rates of 15.7% and 11.8% in 2007 and 2008 respectively. This is mainly attributable to severe decrease in private sector investment.

The stimulus programmes put in place have, to some extent, attenuated the impact on unemployment. However, as the crisis affected mostly the textile export-oriented industries, female employment suffered a setback. The slowdown in economic activities has led to fewer job opportunities for the young. As well, the drop in investment led to new job creations being affected.

The impact of the crisis on the vulnerable groups has been somewhat subdued, owing to the strong social protection net in the country. The authorities maintained and, to some extent, enlarged the social sector expenditures.

All indicators for the tourism sector point to a sharp decrease in performance. The growth rate, which was in double digits (12.7%) in 2007 prior to the crisis, fell to about 3.6% for the last two years. Again, for the same period, tourist arrivals stagnated at about 965,000 arrivals per year.

Room occupancy rates in hotels also fell. Further, as per the World Economic Forum Report, Mauritius lost its prestigious leadership in tourism in the Indian Ocean to Seychelles. The industry faced a severe crisis as a result of, notably, over-concentration on the tourist market of Europe.

Diversification of the market as well as offerings other than coastal tourism has been slow. In addition, the unending debate between the hoteliers and the airlines/aviation authorities on the issues of filling up hotel rooms and airline seats, flight destinations and air access policies all add to the traumas. All these indicate a serious lack of convergence in the tourism industry.

Further to its study and observations, NESC recommends as follows:

1. Evaluation of Outcomes of Stimulus Packages

Several stimulus programmes had been put in place to counteract the effects of the crisis. NESC recommends that an evaluation be undertaken and made public as to the success of these programmes. Lessons drawn would assist in the eventuality of the emergence or recurrence of any similar future crisis.

2. Diversifying Export Markets into Non-Eurozones

NESC recommends the need to diversify the export markets into the non-euro zone areas. The African market looks to be a promising potential. This, however, also requires the improvement of the maritime and air links to these regions.

3. Investment: Marketing Mauritius

To attract investment flows back again, NESC recommends that Mauritius plays up its reputation as a stable and open economy with excellent legal and regulatory systems. The conditions for setting up business may also need to be improved. NESC also recommends that strong innovations be brought to the Small and Medium Enterprise (SME) sector.

4. Addressing Skill Mismatch and Youth Employment

NESC notes that the crisis had the effect of dampening the labour market and checking new job creation affecting particularly youth employment. NESC recommends that the issue of mismatch between job supply and job demand, as well as the issue of sustainable employment for the youth be urgently addressed.

5. Creating a Positive Dynamism in the Tourism Sector

NESC considers that there is a need for a national effort to find solutions to systemic problems in the tourism sector. NESC accordingly recommends the setting up of an ad-hoc National Tourism Commission or a such-like platform, along the same lines as the recently set-up National Energy Commission, to listen to all parties and to create a consensus towards a mutually agreed and unified orientation and plan of action by the different stakeholders in the tourism and hotel sector.

It is also noted that there is not enough convergence in the sector such that each stakeholder pursues his or her own interest. NESC recommends that the example of Dubai may be a source of inspiration where there is an integrated approach and cohesion among the national airline, the tourism authorities, the hoteliers and the shopping/entertainment sectors, all benefiting from converging policies.

Mauritius offers basically coastal tourism which may not be as attractive to non-European tourists. NESC thus recommends the development of new poles of tourist attractions, e.g. green tourism, sport-related tourism, shopping tourism and such like innovations.

The current tourism database serves more for historical statistical analysis and is inadequate for planning purposes. NESC thus recommends the setting up of a more comprehensive tourism database operating on a real time basis to better understand the industry and to assist in decision making.

Furthermore in the same context, NESC recommends that the cleanliness, hygiene, law and order aspects in the whole of the island earnestly need to be fully addressed.

6. Bringing more Efficiency to Social Protection System

The social protection net in the country is quite broad and deep and access to social services and benefits has come to be regarded as a right by the population. Concern may be raised as to the sustainability of social expenditures that are highly demanding of financial resources. NESC recommends the pursuance of the effort of the authorities in bringing more efficiency through the social register system.

7. Revamping Emerging Sectors and Pushing for New Growth Sectors

NESC recommends that some sectors, notably, the Mauritius Freeport Sector, the Land-Based Oceanic Industry and the Information & Communication Technology Sector need robust revamping. NESC further recommends that it may be timely for the country to identify and forcefully embark on developing new sectors of the economy, such as the green economy, seafood sector, the aquaculture sector, and the ocean economy.

8. Addressing Medium and Long Term Growth Issue

NESC considers that it is also opportune to consider the medium and long term and thus to address growth issues and boost the economy. The NESC thus recommends that Mauritius should aim at achieving and sustainably maintaining a GDP growth rate of above 5% . It may thus be necessary to embark on major economic reengineering and adopting bold reformist policies.

9. Seizing New Opportunity for New Approaches and Paradigms

Every crisis, be it economic or otherwise, brings unexpected opportunities. Fittingly, in this context, the financial crisis may be taken as an opportunity for prodding national thinking into new approaches and paradigms, for thrusting forward for a reorientation of the economy towards new development sectors.

* Published in print edition on 3 May 2013