Graduation to High-Income Economy !!!

Titbits

Mauritius stands on the cusp of great change. The more things change, the more they must not be allowed to remain the same

Mauritius, along with 14 other developing nations, according to a World Bank study on 215 countries carried out by research analyst Ehiwario Efeyini of the US Trust Bank of America Wealth Management, has the potential to graduate to the elite club of high-income economies. Indeed Mauritius, on the basis of its present model of development and policies, can easily increase its wealth in the years ahead but it is also likely that it may not make the transition and get trapped into the so-called “middle income trap” as pointed out by Efeyini.

South Africa and Brazil, for example, have been languishing for decades within the middle-income range. Countries trapped at middle-income level usually have declining investment ratios, slow manufacturing growth, limited industrial and export diversification; and poor labour market conditions. Our research analyst did suggest that though the 14 countries have the potential to make it to the high-income status, they must however create the conditions for a more competitive, entrepreneurial and productive economy.

We are at the crossroads of some serious choices – either to continue with the present model of development as a shameless imitator of neoliberal policies tried elsewhere in given circumstances or we choose a different destiny, a path of serious discovery and inventiveness, by directing our energies to more imaginative forms of planning and policies that produce altogether different outcomes that are more sustainable and inclusive.

Continuing with the present model and policies will only magnify returns for the rich, operating in an environment of low taxation and short-termism, whereas our society will become more unequal, offering diminishing opportunities for the young and our graduates and a growing sense of unfairness. The policies that rely on the speculative and unproductive use of the our country’s strategic land assets by selling them to foreigners (which has accounted so far for around 80% of the FDI inflows during the past five years) will surely generate wealth and some periods of reasonable growth but it will neither be sustainable nor inclusive in the long run.

We need a decisive rupture from the previous economic model and its policies. If we want to realise our potential for sustainable and inclusive growth, we will have to break past shibboleths and move away from the short-termism that has focused on some quick measures and picked the low-hanging fruits. We will have to focus on doing things differently and aim to be a game-changer. We need a long-term horizon and vision. There is frustration over the current status quo and people are restless for change. Problems like unemployment and poverty, instead of being addressed on a sustainable basis, are being postponed by short-term palliatives. All these methods and institutions have run their course and proved to be ineffectual in creating jobs or a competitive economy.

The improvement in the economic prospects of the global economy and Africa, which is developing into an important growth pole, could become the trampoline that Mauritius needs. But we cannot expect to benefit from that springboard if we do not have a clear economic vision with new policies and strategies, medium- to long-term, to meet the core challenges of sustained economic growth and improved social equity. We will have to articulate a vision for the future that embraces the aspirations of all Mauritians, especially the young, and design transparent policy frameworks for the management of our resources.

These will include policies to, first of all, restore confidence amongst our investors and induce them to embark in new emerging sectors and fresh markets. We will have to enhance our competitiveness to sustainably move up the value chain, diversify our exports and revamp our export promotion activities with impetus on market development and brand building. There should also be policies for bolstering research and innovation capacity, address skills shortages in science and technology, ICT and other emerging sectors. There will be need for greater investment in human development while addressing the quality and relevance of education.

The energy mix will have to be reviewed to enhance energy security, accelerate the growth of renewable energy and drive energy conservation and efficiency. The institutional capacity to track and monitor progress will need to be strengthened and supported by a revitalized and more accountable and performing civil service and public sector institutions. The list is long and there is a lot of catching up that the economy has to do before it embarks on a new and more dynamic growth path. Mauritius stands on the cusp of great change. The more things change, the more they must not be allowed to remain the same.

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Promoting Competition in the Financial Sector

In some countries anyone can visit or write to their bank and politely  ask for a refund for unfair bank charges. If the bank refuses to comply, the Financial Ombudsman Service (FOS) will investigate the matter for free. The FOS can help you if you are able to prove, for example, that you were hit with unfair charges or that you are in a cycle of excessive charges that keep putting you further and further in the red.

This may soon be a reality in Mauritius following the Report of the Task Force on Unfair Terms and Conditions in Banking Contracts. The report titled ‘Banking Your Future: Towards a Fair & Inclusive Banking Sector’ contains 100 recommendations including the appointment of an Ombudsperson for the financial services sector and the suggestion of empowering the Bank of Mauritius to regulate interest rate spreads. (A word of caution on these legal wrangles: the Office of Fair Trading of the UK recently had to drop its case after a supreme court ruling said it did not have the power to assess whether bank charges were fair.)

We however have strong reservations as regards the latter recommendation as it may appear to be a retrograde measure of trying to move economic decisions from the marketplace to the offices of governors and bureaucrats. Are we going back to the days of price control and its damaging consequences?

We believe that our consumers are best served by the financial services sector when the regulatory framework allows new financial institutions to emerge, grow and compete to offer better products and services without any interference in their pricing policies. Indeed the promotion of effective competition in the financial services sector will be in the interests of consumers by incentivizing the service providers into improving the value and quality of products. Competition in the banking sector promotes efficiency and financial inclusion, keeps loan rates and fees lower, without necessarily undermining financial stability.

Government can play an important role in enhancing bank competition by designing policies that guarantee market contestability through the healthy entry of well-capitalized institutions and more substitute providers and by creating a market-friendly informational and institutional framework.

Among the policies that can foster competition in the retail segment, for example, the promotion of the portability of bank accounts, further improvement to positive credit information sharing, and expanding payment system interconnection. All these allow customers to switch banks more easily and, therefore, force banks to compete more actively.

Competition should be one of the key objectives of financial sector reforms – a willingness to stoke competition in a sector that has long been dominated by a small number of heavyweights. Non-bank financial companies, investment banks and development finance institutions should be encouraged to emerge as alternative sources of funding by offering specialised banking products such as derivatives, advisory services, trade finance, etc.

The government could also support alternative forms of financing, such as credit unions, crowd funding and the development of corporate bond and SME bond markets. Similarly, the presence of a liquid stock market or other financial intermediaries that can provide financing to firms is likely to foster competition in the banking sector, because banks will have to compete to provide financial services to firms. Moreover, the State has a role to play here by introducing regulations and practices that foster the entry and operation of non-bank competition.

And where is the Competition Commission in all these? We would have expected some substantive inputs from the Commission especially on some more objective direct measures of bank pricing behaviour or market power based on the “new empirical industrial organization” literature. These could include the Panzar-Rosse H-statistic, the Lerner index, and the so-called Boone indicator. There was an urgent need to have the Commission to disseminate these indicators with clarity, credibility and authority. But it chose to play truant.

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The NESC’s role revisited

The NESC, as a policy-review body, has an open-ended remit in all matters of national economic and social interest and, to some extent, it has proved to be a valuable tool for generating some ideas and discussions. But it was also designed to be « un exemple parmi d’autres de la volonté de ce gouvernement d’élargir davantage l’espace démocratique du pays et d’approfondir notre système et nos valeurs démocratiques. » The NESC was destined to evolve into an invaluable partner in the governance of the country by forging consensus through a permanent and sustained social dialogue for a greater participation of civil society in the democratic process with the aim of ensuring that social harmony keeps pace with economic development. It would thus help towards strengthening the bridge between the civil society and the National Assembly and further increase confidence in the democratic process.

But unfortunately the NESC has been functioning as a typical government department. It chose to limit its remit to the publication of reports without any active involvement of concerned stakeholders and communities. These reports, not properly backed by research and analysis, usually end up in neat and well-ranged drawers.

Complex economic decisions, programmes and policies have remained purely academic within the exclusive preserve of official experts and technocrats peppered with some trade union officials. It has not functioned as a genuine forum for civil society to organize and give democratic expression to their views after serious dissemination, study, debate, and dialogue. This has allowed our litany of differences to impose its current gridlock such that most of the challenging and topical issues have become a battleground for political partisanship. Such partisanship becomes more acute when there is limited public involvement and when people are not first informed about matters that affect them on a need-to-know basis and not given the opportunity to contribute.

The NESC has not been pro-active enough to take these issues to the grassroots and give individuals and groups the opportunity to participate in vital decisions and strengthen their capacity to assess government programmes and reforms in relation to their needs, that of their region and the country. Such efforts which tap into the local knowledge and resources of a community, with the recognition that these resources can be crucial to a successful implementation. On such issues like electoral reform, education and health sector reforms, poverty alleviation, indiscipline and violence in schools, the forging of a Mauritian identity and others, the NESC was meant to be the institution par excellence to build up grassroots and community involvement that is ongoing and throughout the year – not a ritualistic process but done with a view to be informative; to isolate and clarify each problem and each point of disagreement till we find that our differences become resolvable, and by building upon these incremental resolutions, we can hope to forge a consensus.

This is how we had visualized the ways and means to develop true democracy, where everyone participates in the political process on a continuing basis and where citizen participation is a cherished right. We are aware of the practical difficulties of forging consensus in our multifaceted and multi-cultural nation. Though developing consensus through dialogue is arduous, even exasperating, promoting active involvement of citizens in crafting public policies create healthy societies. And it ensures that we produce policies that reflect the varied perspectives of our citizenry, enabling us to live together peacefully and productively.


* Published in print edition on 20 June 2014

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