Interview: Philippe Hein, International Consultant & Economist
* ‘There is no reason to believe that today’s entrepreneurs are any less dynamic or public-spirited that those in the early days after Independence’
* ‘I agree that there has been an overemphasis on real estate projects, but the presence of foreign high net worth individuals has directly and indirectly initiated new productive projects’
Philippe Hein has co-authored with his wife, Catherine, ‘From Gloom to Bloom – The Path to the Development Success of Mauritius 1968-2020’, a book which gives an account of the development path that Mauritius chose to pursue since Independence, the outcome of which resulted in the “Mauritian Miracle” as qualified by Devesh Roy & Arvind Subramanian in an IMF Working Paper in 2001. Can that success be replicated in the current circumstances, and what conditions would be required to achieve that objective now and post the Covid-19 pandemic? These are amongst the issues addressed by P. Hein in today’s interview.
Philippe Hein had been with the Mauritius Employers Federation, after a short stint in the education sector. He moved on to become an executive director at Rogers, before embracing an international career at the UN as Senior Economist, in which capacity he has looked after programmes to assist Small Island Developing States, as well as Coordinator of the Integrated Framework (If) for Trade-Related Technical Assistance for Least Developed Countries, etc.
Mauritius Times: Your book ‘From Gloom to Bloom – The Path to the Development Success of Mauritius 1968-2020’ provides an account of how Mauritius made it. What does your study of its development path inform you about the influence of politics thereon? Was it good politics all the way or a mix of good and bad
Philippe Hein: I am not familiar with any metrics to judge the quality of “politics”. What is crucial for success are good policies, designed and implemented under the direction of politicians in power.
In our book, we support the quasi-unanimous opinion of observers that policies pursued by Mauritius were all along development-oriented and well-suited and appropriate to the circumstances of the country. In fact, it is remarkable that irrespective of parties or alliances in power, there has been a broad consensus on and continuity of economic, social and foreign policies. This is illustrated by the similarity of the main electoral programmes presented since at general elections since the 1980s.
One of the key aspects of policy has been to recognize that the main asset of Mauritius is its literate labour force. In order to utilize this asset, the policy has been to make it attractive for employers to create employment in productive activities, as opposed to the former system of “relief work”. For this purpose, the “cost of employment” was kept as low as possible (wages and salaries were kept relatively low, social security costs were not charged to employers – as done in many other countries -, and the former restrictive provisions for termination of employment lifted). These low wages were made acceptable to the population since government provided free education and health, subsidized some essential products and housing, transport in some cases, and a non-contributory pension.
This being said, we draw attention to a number of imperfections and failures to meet challenges. For instance, little attention was paid to environmental issues, and the carbon footprint of Mauritius remains high; the drug problem has become increasingly serious over the years and has not been effectively addressed. Even as regards the Export Processing Zone, whose transformational success and impact we document, we have a section on “Some hiccups in its implementation”.
* Are the political conditions available today in the country conducive to producing the same kind of outcome of the 80s, or at the very least reigniting the engines of growth?
The overall constitutional framework under which political parties operate and their mode of functioning appear to be rather similar now as they were throughout the period covered in our book. The engines of growth have been stopped by Covid-19. This crisis is a worldwide phenomenon presenting unforeseen challenges – and is ongoing. It would therefore be unwise for anyone to pass judgement at this time on which country navigated this pandemic better than any other, or whether a government with a different configuration would have done a better job than the one actually in charge.
In any event, “political conditions” are the result of the expression of the will of the people, and, as long as the democratic process is not impaired, we need to have confidence that, as it has done before, the population in its wisdom will continue to choose political leaders which it feels are in the country’s best interests.
* The times and the economic landscape have changed from what they were in the 1970s. Moreover, Covid-19 has introduced a high degree of uncertainty in the equation. An already bad economic situation for Mauritius, according to some economists, has been made worse by the pandemic. What do we need to do to drive out the gloom that has set in?
It is true that in the last years just before the onset of the pandemic there had been a slowdown in the economic performance of the country. This is partly due to the loss of preferential conditions for sugar in the European Union which had all but disappeared by 2018 and the revision of the exceptional conditions with India on Double Taxation, which took effect during the last years of the 2010s.
At the same time, there has been a certain tendency to take the success for granted and a relaxation in the pursing of competitive policies, with the implementation of excessive increases in public expenditures on unproductive projects, which had a negative impact on growth. In addition, in recent years, we quote several indicators which point to poor governance and increased corruption, which contribute to undermining confidence in Government from economic and social actors and citizens in general.
* Besides favourable political conditions, it will also take a new breed of entrepreneurs, hopefully public-spirited as well – like we had in the early years post-Independence, to do the right thing for their purse and the country. The focus unfortunately has been on real estate development with the IRS, ERS… schemes. Is that sustainable?
There is no reason to believe that today’s entrepreneurs are any less dynamic or public-spirited that those in the early days after Independence. On the contrary, the rise in the education levels and the attraction of foreign businessmen have increased the diversity of persons with new projects.
I agree that there has been an overemphasis on real estate projects, but the development of the right kind of IRS/ERS itself requires entrepreneurial skills, and the presence of foreign high net worth individuals has directly and indirectly initiated new productive projects.
* The Global Business Sector has done well so long the DTA with India contained favourable terms for the sector, but we have not had the same measure of success in developing the various hubs that have been talked about, especially in budget speeches down the years – for instance, the education/medical hubs, the blue economy, and recently there has been talk on Artificial Intelligence, bitcoin… What do you think is coming in the way?
The economy continues to diversify, and it is a good idea to try and develop new hubs, but government need not be too directive and specific in this process. In this regard, the experience of the EPZ is relevant: there was never any targeting of a textile, electronics, jewellery, toys or leather goods hub. It was ex-post that it was found that the textile/clothing sector had become most successful, to the extent that Mauritian firms have expanded outside Mauritius.
In order for hubs to work, they must be initiated by entrepreneurs themselves who are best placed to advise on the specific framework and incentives applicable to their particular sub-sector.
* It’s being said the current pandemic provides us with a once in a 100-year chance to shake up the system and revisit the economic structures and policies. What’s your take on that?
The post-Covid world will indeed be very different. But many new actions and initiatives may be undertaken without having to fundamentally “shake up the system” and “revisit the economic structures”. As we say in the book, it does not mean that we should replicate the specific measures that were successful in the past. But many of the present structures, assets and institutions need to be built upon and modernized, not cast away.
Continuity in building our future by enhancing the quality of our main assets, the population, is more than ever needed; continuation of a mixed economy with a close cooperation between government with the business sector is also essential. Finally, whereas it is desirable for Mauritius to be more self-reliant in some sectors, at the same time our future will necessarily continue to be mostly determined, as it always has been, by our ability and agility to conduct productive exchanges with the outside world, and insert ourselves in the global economy.
* Besides the effectiveness of the vaccination rollout and the reopening of our borders to tourists, what more do you think the Government can do or should be doing in the 2021-2022 next budget to get the economy back on its feet?
There is no magic solution. Sacrifices are already being made by the population through the rise in the cost of living due to the depreciation of the rupee, and by some small shareholders who depended on dividends to make ends meet.
More sacrifices will no doubt be made by all, with Government setting the good example. For instance, do we really need so many physical embassies abroad (e.g. Cairo) at a time when most relations and exchanges may be conducted from a distance? Could senior government and parastatal officials be provided with less luxurious cars and at longer intervals? And so on.
Three broad suggestions: a first requirement in addressing the present crisis is to recognize that there is one — and not paper over its seriousness. Second, have continuity and predictability in policies to give confidence to entrepreneurs and investors. Third, it is necessary to take concrete steps (rapid response unit?) to ensure predictability, transparency and celerity in the decision-making process for new projects.
* As regards the human factor, we do not have the extreme level of poverty that existed in the country many decades ago, and it’s good living in Mauritius so long as one is well off or doing reasonably well and for other reasons as well. What are your thoughts thereon?
In all countries life tends to be easier for those who are better off than for those who are not. But, for the poorer groups, Mauritius continues to have one of the most comprehensive social safety nets among developing countries – and even some developed ones. All social indicators have continued to progress.
It is true that, as in almost all countries, income distribution has tended to widen somewhat in recent years. It is a real challenge to implement income equalisation without pulling those at the top down (and lowering the average). The solution is to improve upward mobility though education, although in Mauritius, much has to be done to enhance the quality and relevance of education. This concerns not only the basic subjects, such as languages and mathematics, but also areas like sports, art and music, where young persons from disadvantaged backgrounds can often excel.
* Are we missing out on some particular issues that might roll back the feel-good climate in Mauritius, and what should we do about it?
In Mauritius there is much free debate, including in the press, about what different persons and groups feel needs to be improved or is threatening the country’s future, so that few issues are missed.
In my view, two issues need more focus in the future if we want to maintain good living conditions for our children and grandchildren: one is protection of the environment, particularly fragile in a small island country, and making stricter building and spatial planning norms and enforce them.
The other is to address the issues related to the declining workforce (which has started in 2017) and of an ageing population. This involves developing a coherent policy for admission of foreigners on a temporary, or permanent basis, so as to maintain output and productivity. There are already efforts to attract back members of the diaspora, but these should be pursued more aggressively. Another suggestion is to give a favoured status to the children and grandchildren of Mauritians born abroad with a simplified path to nationality.
* Published in print edition on 11 June 2021
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