When India started posting impressive economic growth rates at the end of the last century, an oft-heard comment which used to go round the business community was that “the economy grows at night when the government is sleeping”.
Of course this was said half-jokingly. It was fully appreciated by one and all that without the revolutionary reforms initiated by Finance Minister Manmohan Singh in 1991 under the able leadership of Prime Minister Narasimha Rao the country would still be languishing in what was ignominiously called the “Hindu rate of growth” which had characterized India’s economy since it became independent nearly half a century earlier.
The fact of the matter is that, before the emergence of the neo-liberal creed of Margaret Thatcher and Ronald Reagan, it was widely recognized that it is a complex and dynamic interaction between the State and Private Sector which has been the basis of impressive economic growth across geographies and time. Europe and the “trente glorieuses” (uninterrupted economic prosperity over thirty years after the Second World War), the United States under the New Deal of President Roosevelt, the South East Asian nations and Japan which put in place an export-led growth model of economic development were vivid illustrations of how such interactions between the State and the private sector helped transform these economies. The nature of the regimes varied according to the local conditions. Thus, in South East Asia, the rapid economic transformation generally occurred under particularly harsh and autocratic regimes.
Government-private sector relations in Mauritius have been a critical factor in our erstwhile economic success. Unfortunately as of late the interaction has become merely formal as each party seems to be content to get through the motions while the relationship has been constantly drained of substance. In the process successive governments have failed to build a broad constituency for reform. This regression in what constituted one of our definite assets in the promotion of socio-economic development has been particularly damaging as we go through a period of deep transition. As a result, while we can all agree on what we are transiting from, it is very difficult to find consensus about where we are transiting to. In the absence of a coherent economic development model and the corresponding policies, incentives and legal and institutional framework, the chances of achieving a breakthrough towards sustained economic growth over the medium and longer term are indeed very slim.
The unfortunate truth about our present situation is that not only has there not been even a semblance of a coherent economic model but events over the past two years have actually dampened even the residue of appetite for risk-taking among economic operators. Some of the actions of the government at the very start of its mandate were viewed by most private sector operators as reckless in their implementation and contrary to the confidence building measures that one would expect from a new government. Added to this the political instability caused by permanent and publicized tensions among ministers, and the change of three Finance Ministers over such a short period of time, have considerably contributed to the dearth of new investments.
2017: Could be better, if only…
It is always easy to blame external forces for the sluggishness of the national economy. In the case of our performance over the past two years, while there have undoubtedly been some headwinds due to the global environment, it will be naïve to consider that these have been the principal causes of our stagnating growth rate. The truth is that the constant in-fighting and lack of consistency in economic policies – what with three Finance Ministers over two years — have been particularly damaging for investments.
Governments unfortunately behave as if the statement that there is a close relationship between clarity and visibility of policies and the quantum of investments in the country is a figment of the imagination of economists and intellectuals in general. One of the most sensible prescriptions for governments to achieve economic efficiency is that they must start by getting a grip on factors which are under their control. Political stability, a coherent economic programme and clarity in medium- and long-term objectives are some of the elements which constitute an environment which is propitious for investments by economic operators. Such positive dispositions can constitute the cheapest stimulus package that a government can offer to private operators.
The above could prove particularly effective in the coming new year 2017 because there are a number of green shoots which only need to be nurtured so as to contribute to better economic growth. One of those is the tourism industry which has benefited from the difficult conditions prevailing in some of our competing markets. All indicators point to continued steady growth of tourist arrivals over the next year. While numbers are not a negligible consideration given the increased room offerings, it is an opportune time for all stakeholders to revisit some of the fundamentals of the industry in terms of pricing, marketing and positioning as well as air access policy to ensure the sustainability of the industry over the longer term.
The construction industry also seems poised to have a good year as real estate projects will continue to drive the growth momentum. The recent amendment to the law for facilitating the acquisition of apartments by foreigners will likely give a boost to that segment. In addition, at least some of the public infrastructure projects which have been on the agenda for some time now look like they will finally be implemented over the next year.
Sugar production for this year has been better that 2015 and the trends regarding the price of sugar on the international markets are rather promising. The Sugar Syndicate is leading a successful transition in our marketing strategies, and revenues for 2017 should increase for planters and millers. The respite until 2019 for the financial services industry following the re-vamping of the DTAA with India earlier this year will have to be put to good use in order to re-invent the industry by building on our existing strengths and accumulated experience and knowledgeable resources. Meanwhile news from the industry point to a very good performance over the next year.
While sugar, construction, financial services and tourism should do well in 2017, the problem areas are going to be the manufacturing sector, principally textile and garments but also the seafood industry and other operators who export on the Euro zone area. The fall in the value of the Euro and British Pound will constitute serious headwinds for these industries.
To sum up while we do not expect transformative reforms to take place over the next year it would be sufficient for a united government to identify and remove some of the most obvious constraints on the growth process as they arise and build the necessary consensus on what we want to achieve in 2017.