The Economy in need of a ‘Rupture’


By M.K.

General economic slowdown has affected the rich countries in particular since the onset of the international economic crisis in 2008. It went on to affect the emerging economies as well. China, India, Brazil, Indonesia and South Africa have all been beset by falling growth rates. Commodity exporters, including from Africa, did relatively better but they could do so only till demand was sustained in the markets at the global level.

In the case of Mauritius, the rate of growth of the economy has been on a declining trend for successive years. Sushil & Rattan Khushiram have also drawn attention, in recent articles published in this paper, to the present parlous state of the Mauritian economy and to the need for bold policy decisions that will help diversify and transform the economy and put it on a sustainable and inclusive trajectory. In this week’s interview, former Finance minister Rama Sithanen also paints a gloomy picture of the economic situation – contrary to what the rhetoric of the government would want us to believe. “Out of ten key economic fundamentals, only one is doing well, four are faring poorly and five are in a parlous state,” says R. Sithanen. He argues that:

“Sugar is in deep crisis for a long time with a huge decline in world prices, rising costs and falling production. Non-sugar agriculture has hardly improved and the level of food security remains low. Textiles and clothing have been in deep trouble for the last five years. The export sector (besides fish) is underperforming significantly for a long time. SMEs and the domestic oriented industries continue to face structural challenges to access finance, markets and technology while confronting declining tariffs and unfair trade practices. The fall in tourism while worrying is very recent – since the beginning of 2019. ICT is holding up but at a lower growth rate than the 10% we have witnessed in earlier years. And there are dark clouds hovering over the global business industry with the changes to the India treaty and the new regulatory and tax landscape being imposed by the OECD and the EU. Construction is highly cyclical as it is driven by the major infrastructure programme of Government. Once these huge projects are completed, construction will hardly grow statistically. If we do not reverse the declining trend in these key sectors it will affect the overall performance of the country. Economic growth next year is likely to be much lower at 3.5% precisely because sectors like tourism, sugar and textiles will not do well while global business will have lower expansion. And there are no new drivers of growth to compensate for slack and decline elsewhere in the economy.”

In the circumstances, can we put all the blame on the persisting gloomy external economic conditions? Of course, those conditions are brought to bear on our slowing economic performance and will continue to do so depending, as Rama Sithanen cautions in his interview, on “what happens to the global economy with the trade war between US and China, the Brexit fall out, the deceleration in China, the lower growth in Germany and the growing geo-political tension”. These concerns have prompted some economists to predict another recession worse than the one we had in 2008.

The question is why has this happened and, further, what should we do to overcome the downtrend? The economy has been signalling for a number of years now that it was in need of re-engineering, if only by its falling pace of overall growth. The re-engineering takes time. Economists will prescribe the removal of slack that usually settles down in conventional areas of activity and the identification of factors that are preventing those slowing sectors from taking on the markets more forcefully. This is followed by the adoption of corrective policy/administrative actions which enable obstacles to growth being removed. Some call them “reforms”.

In many cases, one has to innovate; firms like Apple and Samsung, for example, keep smoothing the rough edges as they put on the market a novel version of the previous product just to eke up demand. In the case of our tourism sector, for instance, one has to keep up the creative aspect of the hospitality activity until a new and better product emerges but at the same time, maintain the price in an acceptable range and with travel facilities that provide the most efficient connections to customers. There are many ends to manage simultaneously; we have, even in good times, to keep renovating the product on offer to ensure what is called productivity growth. It makes the market impregnable when bad times set in.

What goes for our tourism sector equally applies to other activities we undertake. Once an activity starts declining, the risk is to lose it altogether if one does not perk it up before it goes down too far. The consequences of not attending to it are seen in growing unemployment. Dynamic countries are always on the lookout to introduce fresh lines of economic activity suited to the combination of local resources and emerging global market patterns. Although we announced adding to our scope by going out for what was called an “ocean economy”, we have yet to see any concrete advance in that area.

Cutting across all sectors is the need for fiscal policies that are less skewed in favour of big business and that do not stifle smaller operators and the people at large. For example, tax breaks at the very inception on land for mega projects that may never see the light of day unduly favour the promoters who benefit from the equivalent of windfalls while there is a significant ‘manque à gagner’ to the public purse that could have been passed on to the people at large. By the same token, taxes on plastic products at the consumer end, as shown by Sada Reddi in his article in today’s issue of this paper, also benefit the larger groups to the detriment of the masses. This is but one amongst many policies and measures that discriminates against the small operator in the business sector.

What all this shows is the need for effective economic, social and political leaderships to get their acts together. It is for the country’s political leadership to turn real and chart as clear a course as possible. Without it, the economy will not veer course the way it is required to do at this stage. That would require a new team, a different approach and one committed to the public interest above anything else – “une vrai rupture”, not one meant only for the sake of winning elections.

* Published in print edition on 28 June 2019

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