Trying to catch up on Development Planning after wasting some five years chasing short-term goals, the Ministry of Finance and Economic Development (MOFED) has embarked on an ambitious planning dialogue for a “Ten Year Economic and Social Transformation Plan” on a wrong note. The planning dialogue looks like a theatre of the absurd. It has uncovered a team that is second-guessing the verities that it has ignored for too long; there was ample confusion and uncertainty about the vision, the policy orientations/strategies and the Plan. We doubt if things will get any clearer as MOFED engages in the planning dialogue with line ministries. The confusion is just beginning. The team is blessed with enthusiasm, but this may be why a sober reading of the past eludes them.
Previous planning exercises have seen first of all a host of preliminary studies and analytical work. Preliminary data and relevant information have to be collected scientifically and analysed comprehensively on a sector-wise basis for the whole economy. This calls for a full-fledged Planning Unit or Commission. Some specific components or sub-components can be entrusted to sectoral ministries or private sector organisations or a combination of both. A steering committee set up under the aegis of the Planning Commission, comprising think-tanks of public and private sector organisations, will ensure a democratic approach, giving the opportunity to all sectoral stakeholders to express their opinion freely on any issue and would ensure that the 10-year Plan benefits from a wide-ranging national discussion, starting from the grassroots to the top echelon.
Already some stakeholders are demanding that we reassess the developmental model based on the 20th century experiences which is neither sustainable nor desirable or even workable. Today a whole new model of delivering public services is required. The growth model needs to be inclusive. The idea of consumption we have had so far need to change. Businesses need to really find new answers; to be a global player and attain sustainable growth; knowledge excellence and exemplary business practices have to be adopted. For others, technological development, innovation, access to finance hold the key for transition towards a more inclusive and resource-efficient economy. Still others want to go beyond the ‘Maurice Ile Durable’ project, to see how we are to decrease the environmental footprint of our products across the value chain; how we develop our cities to have a soul, a living landmark rather than a theme park; how we are to source most of our raw materials sustainably and how the corporate houses are to steadily integrate green practices into their mainstream functioning. These initiatives will be the building blocks to achieve the biggest competitive advantage in the years to come.
If we are interested in producing a final report rather than facilitating dialogue and consensus, we can opt not to change course. Otherwise, leave it to a full-fledged Planning Unit or Commission. The overarching need is an effective interaction between government and all stakeholders to develop (or update) a vision and a consensus in each sector with regard to overall direction, strategy and expectations for the main actors in the public and private sectors. Within government, the Commission will ensure that the consensus encompasses any needs for coordination between various ministries and departments. Only then can we expect it not be yet another report with sweeping generalisations or another theoretical PBB exercise without any improved outcomes on the ground.
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There are tentative signs of economic upturn appearing in the Eurozone. The Organisation for Economic Cooperation and Development (OECD) saw its leading indicator of economic activity in its 34 member-countries rising to 100.9 in January from 100.5 in December 2011, the third straight monthly increase in the measure which varies significantly from the long-term trend for growth. The United States and Japan continue to drive the overall position. The indicators for India and Russia were also pointing to positive change in their rate of growth. On the other hand, near-term economic prospects for most emerging markets generally have been dimming of late. The OECD also noted that its index of business cycle indicators in the Asian region showed “weak growth momentum” in most of the ASE AN economies, though with some signs of improvement. Early last week, China announced its slowest target annual economic growth rate in eight years, signalling a somewhat serious slowing of the world’s second-largest economy. China also registered last February its first trade deficit in 22 years.
Given the ongoing backdrop of austerity and deleveraging in a majority of Eurozone member countries now agreeing to collective fiscal measures, consumer demand is expected to pick up very slowly because fiscal tightening is leading to cuts in public spending and a higher level of taxation will in turn reduce export demand in the coming months. Thus, with both the US and Europe facing long-haul roads to recovery and Asia’s emerging economies shorn of solid growth through the anaesthesia of external demand, the risk to our growth has increased. GDP at basic prices, which grew at an average of 4.8% between 2006 and 2010, slowed down to 4.1% in 2011 and is estimated to decelerate further to around 3.3 – 3.7% in 2012. In a worst case scenario, some forecasters have even posted a figure of 3%. That’s quite wide off-the-mark from the overly optimistic MOFED estimates of a real GDP growth of 4% with an investment rate of 27.1%. As at January, only 2.1% of the earmarked capital expenditure for 2012 has been spent.
It is likely that the Central Bank will give growth some space largely because headline inflation rate has come down from 6.5% in December 2011 to 6.2% for the twelve-month period ending February 2012. Core inflation, as measured by CORE1, CORE2 and TRIM10, is showing signs of moderating. Though there are upside risks to inflation from the global crude oil prices and possible slippage in the fiscal deficit, the positive output gap, the drop in tourist arrivals in December 2011 and January 2012, the slackening in the credit to the private sector and the lower overall weighted yield are additional factors that point to the possibility that a cut in the repo rate is not being ruled out.
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Public Enterprise Reform
Five years after the 2007-08 Budget Speech’s announcement of a substantive public enterprise reform, we are still awaiting a preliminary diagnosis/study of some 150 parastatals – the particular types of State-owned enterprises (SOEs), the size of state ownership, the value of the SOEs and their economic performance. The earlier Public Enterprise Reform Unit (“PERU”) under the Mauritius Economic Transition Technical Assistance Project — another 18-million dollars loan from the World Bank that had to be cancelled — did not deliver much in terms of results.
A reform programme for SOEs can be quite ambitious focussing on imposing hard budget constraints, increasing competition particularly for the trading parastatals, rightsizing, management and operational audits to improve operational efficiency, rationalizations and mergers where the need is identified and examining a range of options from outsourcing of services, through awarding management contracts to concessions, outright sale of assets of parastatals or outright closures.
We may wish to add to that list some key performance indicators for parastatals including a performance indicator of a 5% return on new investment as proposed by the Ministry of Finance. However the latter will not amount to good practice as this requires that such targets be based on criteria that go beyond purely financial indicators to include social goals of the SOE, customer service, etc. But we believe that at the outset small incremental changes can deliver some quick meaningful results.
First of all we have to plug the governance deficit. The legal and regulatory framework governing the parastatals will have to be reviewed to separate government’s ownership function from its policy/regulatory functions in line with international good practice. Before government functionaries are made accountable for their lapses, just as board members of the private sector are made to under the Company Act, they will need to be freed from power pressures. We should have a structured nomination process for SOEs to ensure an effective provision of competence to SOE’s boards. The nominations or appointments should be made out of a list of eligible candidates (maintained by an independent agency) with appropriate professional background, skills, experience and knowledge. The process needs to be efficient, transparent and based on merit, excluding political activity and affiliation from the selection criteria.
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The Quality of Tertiary Education
The crux of the challenges in the education sector is two-fold: first, that of access — the need to get more Mauritians to enter and complete primary and secondary schools and thereafter to access and complete university education; second, the issue of quality. It is not enough to get more Mauritians into educational institutions; we need to ensure that they have access to quality learning.
The recent incident at the UTM is rather damaging especially at a time when we are laying the foundation for becoming a regional educational hub and a centre of higher learning. Some of the tracer studies of the Tertiary Education Commission (TEC) are quire revealing; though there has been significant progress over time, still some 25% of degree graduate respondents are not satisfied with the course content, 46% rate down the quality of delivery, 38% find their courses not in line with employers’ needs and 33% are of the opinion that UoM’s courses did not impart problem-solving skills, and the level of underemployment amongst UoM degree graduate averages some 20.9%. That was in 2008 and the situation seems to have worsened. There is a lot of expectations on the TEC, which will have to assume its role as a driver of the tertiary sector, upgrading quality audits and enhancing the international comparability of its quality assurance framework for quality tertiary education. Tie-ups with foreign universities are not enough. The purpose of any tie-up should be to encourage out-of-the-box thinking and innovation.
Moreover, to achieve a level of excellence, the TEC will have to ensure that universities stop viewing themselves merely as brain factories churning out scientists and engineers only for economic growth. Creativity and innovation are becoming more important; the emphasis on rote learning must go. The explosive success of American universities stems at least in part from the fact that they are treated not merely as economic units but as guardians of the souls of their people; they nourish both hearts and minds – an old western ideal which declared that educated minds understand both their own cultures and the world. To succeed, our universities will have to cultivate equally strong traditions of freedom of spirit and inquiry that have been the hallmark of great universities throughout the ages.