“Miracles do not exist in economic development…
Interview: Nikhil Treebhoohun
… it results from efficient and effective planning, and the capacity to implement decisions and plans”
“There is too much hype around the Budget Speech… The Minister of Finance is neither Father Christmas nor
le Père Fouettard”
Nikhil Treebhoohun was until this year the Head of the Trade Section at the Commonwealth Secretariat. Previous to that he had been the first director of the Export Processing Zones Development Authority and the National Productivity and Competitiveness Council. Speaking to the Mauritius Times, a few days ahead of the Budget Speech, he says: “The engines of global trade are stuttering… A new world economic order is being moulded. Nobody really knows what the final landscape will look like. But one thing is certain: we cannot continue to do business as usual…”
Mauritius Times: Let’s not go into the nitty-gritty of whatever budgetary proposals are going to be read out this Friday, tell us about the context – local and international. It doesn’t look like it’s going to be plain sailing sometime soon, does it?
You are right. At the international level, especially in the euro zone these days, each time we are told that the leaders are seeing light at the end of the tunnel, it turns out to be the reflection of their own torchlight! As has been often repeated the financial crisis of 2007/08 has given way to a sovereign debt crisis, to States being highly indebted.
This is reminiscent of the situation of most developing countries in the late seventies and in the eighties which led to structural adjustment programmes being imposed by the Bretton Woods institutions (World Bank and IMF). Today it is the turn of the developed countries. We had to tighten our belt. And after some seven years we were growing again.
The problem for us today is that the engines of global trade are stuttering. Whilst we may be running our economy well the external factors over which we have no control will impact heavily on us. The challenge facing our policy makers and economic players is how to keep afloat when the storm hits us. Mauritius has been doing relatively well. However we must not lull ourselves into believing that we will be spared. Our economy still depends too much on the developed markets.
But all is not gloom and doom. Some emerging economies are still doing well. A new world economic order is being moulded. Nobody really knows what the final landscape will look like. But one thing is certain: we cannot continue to do business as usual. We will have to adapt to the new situation, to the new geopolitical context.
* 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?
Basically, you are asking whether the old remedies will still work! Stimulus packages are meant to provide a breathing space to firms, which are in danger of collapse because of exogenous factors. Obviously most if not all enterprises would like to have stimulus packages. The export-oriented sectors may wish for depreciation of the rupee so as to remain competitive. This argument has been repeated for the last thirty odd years whenever there has been a crisis – genuine or perceived. I believe the Bank of Mauritius has been monitoring the situation and the Governor of the Bank gave his views during a roundtable discussion held in August this year. At the end of the day the long-term interests of the country will have to prevail.
Depreciation will definitely lead to an increase in the inflation rate which will affect all the sectors of the economy and all consumers as well as producers for the local market. Before we resort to depreciation we will need to know whether the exchange rate is the determining element in making our firms uncompetitive or whether there are problems intrinsic to the firm, e.g. low productivity, operational inefficiency generally, inadequate investment during good times, etc. This reminds me that some eight years ago the NPCC within the context of the TEST (Textile Emergency Support Team) used a benchmarking tool to identify the problem areas in the textile industry. I believe the same kind of thorough approach should be adopted based on facts and not hearsay.
Finally we must accept that in a market system some firms are bound to fail. We must resist the temptation of socializing private losses.
* What do/can we do in the circumstances in the meantime?
I do not believe there is a blueprint on how to deal with the crisis. Effective leadership is required at all levels – political, economic, social and institutional. We are sailing on uncharted seas for the moment and we must develop the capacity to respond to sudden changes in the terrain. On aura à naviguer à vue. Ultimately it all boils down to increased productivity and the capacity to innovate.
There is no quick fix. And there is no one-size-fits-all policy. It is true that for the firm the long run is a series of short runs; but the country must take a strategic view and must not allow itself to be distracted by lobbyists.
An economic crisis also presents opportunities to re-think our economic trajectory, to restructure, to reassess the institutional framework and ensure that enterprises/sectors focus on productivity improvement, financial management, international marketing, and productivity planning and budgeting. It goes without saying that technical skills upgrading should be continuously pursued.
* Others have argued in the past that the (small) size of the Mauritian economy and the prudential norms in place in the banking sector and the conservatism of the business sector have sheltered us so far from the full effects of the international economic crisis. Is that indeed the case?
I am not sure how size can shelter us from the storm. In fact for more than a decade now the Commonwealth Secretariat has been pioneering the cause of small states, which are vulnerable because of their size. However being small allows for more flexible manoeuvring.
Mauritius has weathered the first gusts rather well because tough decisions were taken in the 2006/07 budgets. Discussions may be had about the pace of the reforms, about some isolated policy decisions. But overall there cannot be any argument about the contribution of these budgets in creating a platform for services development. Macroeconomic management has been generally on track.
Yes, the prudential norms have played their role in insulating the Mauritian economy from the financial crisis. But we will now start to feel the first ripples from the debt crisis affecting Europe and the US. The job losses and austerity measures, the loss of confidence of the capital markets in early shoots will dampen consumption of non-essential items. The real economy will be affected. We must be ready for this. Acting like an ostrich will not help. It is nice to hear good things being said about Mauritius by foreign guests and institutions. But past success is not a guarantee of future achievements.
I do not think that the conservatism of the business sector is necessarily a cause for rejoicing. It is also true that the private sector is not homogeneous. There are conglomerates and SMEs; there are those producing for the local market and exporters; there are those in the commercial sector. All do not necessarily at all times have the same requirements. It is therefore advisable, if you allow me to use an image from Google Earth, to move from the “satellite view” to the “street view” to grasp fully what is happening on the ground where production takes place.
For example, if we look at the aggregate value addition figures for tourism we can note that a plateau may soon be reached. Mauritius is an expensive destination. What impact will the recession have on us? Only the hotels will be able to tell us. If our clientele were the upper middle class and rich from Europe, the impact should not be too negative. If marketing efforts have been made to attract the nouveaux riches from the emerging markets, again the tourism sector will probably survive the downturn. If not, there may be an urgent need to develop a strategic response for the tourism sector.
* We have also heard from claims being made in past months about the tough external market conditions that the private sector would be constantly facing and calls for an easing of fiscal policy. But despite the escalation of the crisis centred on excessive public debt in our principal export market, notably the Euro zone, it looks like order books of the local textile sector have generally been in good shape. Is there really the need for a « more accommodating stance » in favour of the private sector by the Central Bank?
Mauritius always feels the effects of a recession in our major markets with a lag. The lags have become shorter with time. So we will be hit. But as I have said before measures have to be adopted taking into consideration the specifics of each sector and the contribution of the latter to the economy at present as well as its potential for growth.
It is essential to avoid knee-jerk reactions. The issue is not about “an accommodating stance” in favour of the private sector, but rather about a stance that will ensure the many do not pay for the few, that growth prospects are not stifled, that economic fundamentals are respected. Adopting a confrontational stance will on the other hand be in nobody’s interest. I think it is time to revive the Mauritius Inc. concept. Perhaps it is high time that the private sector reviews and restructures its institutions.
* Also despite labour constraints and bandwidth charges which affect activities in the ICT, demand in this area has remained more or less sustained. And the wholesale and retail trades, transport and communications have moved on a relatively even keel… We are not doing that bad then, are we?
I think the pertinent question is not whether we are not doing too badly but rather whether we could do better! Most importantly what needs to be done to improve the situation continuously. As you are aware I have been a strong proponent of kaizen, and this concept is even more relevant today if Mauritius is not to fall prey to the middle-income country trap. But you are right. Mauritius has been doing relatively well in the ICT sector. Here we must salute the private sector operators who have forged a niche for Mauritius in this sector in the global market.
The financial sector has also been coping fairly well. Indeed I am happy to note that the services sector has been growing fast and in the direction indicated in the Roadmap for the export of services, a study which was funded by the Commonwealth Secretariat in 2007 at the request of the government of Mauritius. I was also happy to receive a request from Mauritius for the development of a framework for the measurement of services trade; the only other Commonwealth developing country to have asked for such assistance was Malaysia. We also provided assistance to develop a strategy for one sector which you have not mentioned but which has a lot of potential, the seafood sector.
* To come back to the prudential norms and conservatism present in business and the banking sector, one may argue that these may effectively act as a brake to economic growth. Do we have another alternative?
It is important to have a regulatory framework, which is clear and transparent, which comforts investors as well as the citizens of a country. If the regulations are too heavy, there certainly is a risk that growth may be dampened. This is where I mentioned the need for economic leadership, as norms will have to be set up which are flexible without being meaningless. It is usually the application and interpretation of rules that act as an obstacle.
Regulators need to have a developmental mind set. It is not an easy act. But we also cannot wait for the perfect regulations. We must be ready to accept that mistakes may be made; however there must be feedback mechanisms in place to detect anomalies and take remedial action immediately.
* The view has been expressed in some quarters that there are lessons to be drawn from those countries like Singapore, China, India, Korea which have seen their economies expand in the past and are growing despite the current difficult international economic conditions. We are not there yet, but can we realistically aspire to join that league?
Lessons can be learnt from all relative success stories, Singapore, Taiwan, Dubai, Korea, even China and India. But these latter countries are in a league of their own because of their size. Their demographics give them an edge. The Asian countries have been better able to withstand the present crisis because they have been through this scenario before in 1997. They restructured, reviewed their monetary policy.
Still, even Singapore, being a very open economy, has known negative growth. Being a small economy with a strong government that is made up of top-notch individuals who can take decisions in the interest of the country, where discipline and economic rigour are seen as Confucian principles, Singapore has maintained its spectacular economic record.
If we really want to join that league, we have to get the best players whether local or international (like Manchester City or United or Chelsea), agree on the destination and the level of social inequality we are ready to accept and put in place institutions which have a clear mandate and whose activities and outcomes are monitored constantly to ensure conformity with set targets. Lame ducks cannot be shown any pity. Governance should not be a word that only litters speeches – it should become a way of life. Education, training, talent search, rewarding competence, premium on integrity, strategic planning involving all stakeholders, respected political leadership explain in a nutshell the success of Singapore – at least those elements that can be replicated.
Yes, we can – and should aspire – to join the league of developed countries. But we will definitely have to change the way we do things. Miracles do not exist in economic development. It results from efficient and effective planning, and the capacity to implement decisions and plans.
* Enlarge significantly the numbers of operators in the key sectors of the economy so as to reduce the government’s vulnerability to the few dominant players on the market; sharpen our economic diplomacy to attract and support world class entrepreneurs to set up new business hubs in Mauritius with ever larger amounts of value-added going into the economy; diversify production to improve our self-sufficiency – these have been talked about time and again, but we do not seem to be walking the talk. Why is that so?
This question contains different layers. A simple (simplistic?) answer would be that those who do the talking are not those who do the walking!
But seriously, if rules are clear I do not see how government can be “vulnerable” to a few dominant players. In any case, the reason for attracting more operators to a sector is to ensure there is greater competition, which should benefit the consumer. More operators also ensure that jobs are created and competition will push them to seek new markets.
Similarly product diversification is not aimed at improving self-sufficiency but rather to spread risk and reduce the vulnerability of the economy. It has been happening. But it is a gradual process.
Economic diplomacy is a means to facilitate market access for our products and services, to ensure that at the least there is no discrimination against us, to open up investment opportunities abroad for Mauritian based companies, to ensure that we make the most of our membership of various international institutions. Attracting investors here is the mandate of the Board of Investment. I am sure these things are happening. The problem perhaps is a deficiency in communication.
* The need to move to other markets, notably in Africa and in Asia has been canvassed, 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. 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?
Government cannot decree where enterprises sell their products. Economic diplomacy ensured that we had preferential access to the European market through the Lome Convention. Similarly the double taxation agreements signed with various countries have facilitated the take-off of the financial sector. If I am not mistaken there is also an agreement with the Chinese government in the tourism sector. If, because of the conservatism you have mentioned, firms do not want to diversify their markets, then they will certainly perish. Unless government depreciates the currency to maintain artificially their competitiveness! The solution lies in attracting new investors who operate in these markets.
* As far as expectations about the desired budget policies, there is agreement currently on one aspect at least across the spectrum: the policies should be balanced enough so as to sustain economic growth despite the prevailing difficult external environment, whilst providing some sort of relief to the lower income groups and the middle class who have seen their purchasing power taking the dip down the years. Is that doable in the present circumstances?
The times are tough. At some point people will have to realize that we cannot live in a bubble for long. There is a trade-off to be made between short-term pain and long-term gains. I believe that Mauritius has put in place some mechanisms to protect vulnerable groups; I am referring to the Corporate Social Responsibility Fund and the Empowerment Fund. If well managed with a coherent strategy these can be powerful tools for the transformation of Mauritian society.
I must say that I feel there is too much hype around the Budget Speech. The budget is a yearly accounting exercise which shows the areas where government intends to spend in pursuance of its strategic objectives and how it is going to raise revenue. The Minister of Finance is neither Father Christmas nor le Père Fouettard. The Director of Audit is the watchdog that alerts the nation to inefficiencies in the system. Unfortunately, it would seem that the report remains a report that makes headlines for a few days.
What is more interesting is to see whether there is agreement on the strategic objectives and whether tactical moves are furthering the attainment of these objectives. I am not too sure who is responsible for strategic planning. Would it not be useful to have an EPU (Economic Planning Unit) again? At the end of the day I think Mauritius will continue to improve if it enhances productivity and attracts investment.
* Published in print edition on 4 November 2011
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