‘I don’t believe that the welfare state is under threat’

Interview: Vinaye Ancharaz, Economist and Executive Director, NPCC

The pension reform, however hard it may be on some segments of the population, is a necessary evil that will ensure the sustainability of the welfare state’

* ‘Globally, the most likely economic scenario is one of a continued period of sluggish, below-potential growth’

* ‘A major productivity boost is needed to push the long-term growth rate closer to the desirable 4% target’

In an increasingly competitive global landscape, productivity is not just an economic term – it’s the very engine of national progress. For Mauritius, a small island economy aiming to achieve high-income status, understanding and boosting productivity is a matter of strategic importance. In this interview with Mauritius Times, Dr Vinaye Ancharaz, a leading economist and Executive Director of the National Productivity and Competitiveness Council (NPCC), sheds light on a topic that is often misunderstood by the public and overlooked in national discourse. He addresses common misconceptions, delves into key productivity metrics, and explains why a significant boost is essential for Mauritius’s economic future.

Mauritius Times: It is likely that a significant segment of the population, along with other stakeholders, is not fully aware of the concept of productivity, its critical importance for national development, or the specific role and mandate of the National Productivity and Competitiveness Council (NPCC). Could you explain why productivity matters, and shed light on how the Mauritian economy is performing in terms of productivity metrics compared to countries with similar economic histories and characteristics?

Dr Vinaye Ancharaz: Let me begin with a definition of productivity – for, I believe, many people tend to equate it with hard work. For example, I have often heard people say that employers prefer foreign workers because they are willing to work longer, or odd, hours. In other words, foreign workers are perceived to be ‘more productive’ than their local counterparts. This notion of productivity is erroneous.

Productivity is defined as the amount of output per unit of input. Labour productivity, therefore, is value added per worker, or output per hour of work. Suppose worker A paints a surface of 100 m2 in 4 hours while worker B paints 120 m2 in 6 hours. The area painted per hour is 25 m2 for worker A and 20 m2 for worker B. Worker B has produced a bigger output, but he put in proportionately more effort than worker A. In this example, worker A is more productive.

Higher labour productivity can be achieved through increased efficiency (that is, using less inputs per output, or ‘doing more with less’) or greater effectiveness (that is, producing more with existing resources.

There are two other concepts of productivity: capital productivity measures output per unit of capital (plant, equipment and machinery), or value added per rupee of fixed investment. Total (or multi-) factor productivity is a measure of output efficiency that represents the portion of output not explained by traditional inputs like labour and capital. TFP reflects the combined effects on output, or GDP, of technological progress, organizational efficiency and innovation.

* Why does productivity matter?

Productivity matters because it is a major contributor to economic growth. Think of an aggregate production function in the form Y = A.f (L, K), where Y is output, L and K are labour and capital inputs, respectively, and A is the technology parameter. This simple equation suggests that there are three major sources of output (or GDP) growth: an increase in labour, or higher labour productivity; an increase in capital, or improved capital productivity; and technological change (that is, an increase in A).

Productivity growth in Mauritius is in decline since the 1990s. Aggregate (or economy-wide) labour productivity increased at 4.2% per annum during the decade 1991-2000. It slowed down to 2.5% during the period 2011-2019 (before the Covid pandemic struck) and further to 1.3% in 2023-2024. The same overall trend characterises productivity growth in the manufacturing and export sectors (the sectors for which published data is available). Labour productivity actually declined by 1.3% among export-oriented enterprises during 2023-2024.

While productivity growth in Mauritius compares favourably with the African average, the country lags behind peers such as Singapore and selected African and Latin American countries. For example, the ILO estimates GDP per hour worked in 2025 at US$32.8 for Mauritius, above the world average. Compare that with US$96.9 for Singapore, US$43.0 for the UAE and US$23.8 for Botswana.

With GDP growth expected to plateau out at 3.4% after this year according to the IMF, it is clear that a major productivity boost is needed to push the long-term growth rate closer to the desirable target of 4%.

* The NPCC faces the challenge of not only promoting productivity but also demonstrating the tangible impact of its work on the public. What metrics would you use to measure its overall effectiveness?

Indeed, it is difficult for the NPCC to demonstrate the impact of its work – for it operates at a micro level whereas the impact is expected to occur at the macro level and measured by changes in aggregate productivity.

The NPCC works with organizations of all sizes and in diverse sectors to boost operational efficiency through customized staff training and business process re-engineering. As a centre of excellence in Kaizen (the Japanese concept of small, incremental improvements, sustained through time), the NPCC is trying to vulgarize Kaizen practices in Mauritius. Its Enterprise Go Digital (EGD) platform provides fourteen ready-to-use business applications to manage sales, production, inventory, accounts, etc., at affordable cost. The NPCC offers training to onboarded enterprises according to their level of digital maturity and monitors progress through scheduled onsite visits.

However, our work isn’t limited to enterprises. We build youth leadership through our ProSparks program. The InnovEd program works with students in schools to foster a culture of productivity and innovation. And we teach business English to stay-at-home women with little formal education. These programs have produced a pipeline of innovative projects, and some of our ‘graduates’ have gone on to win national innovation awards. We are also working with the public service to foster smarter processes and lean management in line with the government’s reform agenda.

We are currently finalizing our Strategic Plan 2025-2029, with a focus on programs that prepare enterprises and citizens for a digital Mauritius. We will be launching two new innovative programs – on AI for new generation start-ups, and Internet of Things (IoT) for productive enterprises. We are taking Kaizen into the digital age and are broadening the scope and uptake of the EGD. We will also be launching a leadership program for SME managers and a host of online professional development programs in collaboration with the University of Mauritius.

At the core of the Strategic Plan is a vision of the NPCC as a think tank that generates economic ideas and insights and drives policy innovation. A National Productivity Policy will be a key part of this vision.

The NPCC as an institution has remained in the shadow for many years and has struggled to show its impact. But we are determined to change this. The institution has the potential to grow into a major player in the economy and a respected agent of change.

* We can presume that improving national productivity requires a high degree of collaboration across different sectors. The private sector must invest in new technologies and training, the public sector must put in place supportive policies and streamline bureaucratic processes, while the education system must ensure the development of a skilled workforce. But can all of this be achieved without top-down leadership and support from the highest level of government?

True, productivity at the national level is a complex function of many factors. It requires an ecosystem that is conducive to productivity growth and innovation, and support from the government. I believe that this government is laying the foundation for sustained productivity growth.

The Government Program 2025-2026, which charts out the vision of the newly elected government for the next five years, emphasizes productivity-based growth as it signals a shift from the consumption-based growth model of the past ten years. Following on the Government Program, the 2025-2026 Budget Speech announced R&D and innovation as one of the six drivers of a new economic model. The government has earmarked an initial envelope of Rs 200 million for applied research leading to policy innovation. An Innovative Mauritius Scheme has been launched and a range of measures to accelerate digital transformation and promote AI have been announced. As regards labor productivity, the Budget provides Rs 550 million for training, reskilling and upskilling.

Concurrently, the Budget has provided strong support to public sector reform and to digital transformation. The Ministry of Public Service is overseeing the setting up of Reform and Innovation cells in every ministry while the Ministry of ITC is set to implement its Digitalization blueprint. These measures are expected to have a tangible impact on productivity and innovation in the years ahead.

* What is your assessment of the country’s current economic situation, and in your view, what should be the main areas of focus for enhancing the country’s productivity at this stage of our economic development?

The government has inherited an economy weakened by economic lethargy, fiscal mismanagement, and a debt overhang. Key economic sectors have lagged and, this year, tourism and construction are expected to register zero growth. The manufacturing sector, once dubbed the maker of the Mauritian economic miracle, is waning under the weight of rising wages, growing labour shortages and now, shrinking export markets as the spectre of the expiry of AGOA preferences looms. No new economic pillar has emerged in the past ten years. The much touted pharmaceutical and biotechnology hub remains elusive, and the potential of the blue economy and the green economy remains to be harnessed.

Measures to boost productivity must be directed at all three indicators of productivity. While the training levy scheme has supported capacity building in the private sector, its impact has been limited. Training must be continuous and must extend to the public service. The NPCC’s future work will focus on nurturing a productivity mindset in Mauritian society by encouraging better habits. The National Productivity Policy, expected to be ready early next year, will provide practical recommendations for boosting productivity across sectors, and monitoring will ensure that the recommendations are, to a large degree, implemented.

Capital productivity has declined steadily since 1988, with only a timid uptick noted after the pandemic. Conscious of this situation, the 2025-26 Budget has provided for the setting up of an Industrial Policy Coordination Committee that will provide recommendations for boosting capital productivity in the manufacturing sector.

As for total factor productivity, the plethora of measures aimed at increasing investment in R&D and in innovation is expected to yield dividends in the future. As usual, the challenge is to ensure that the measures are effectively implemented.

* Would you say that the country’s fiscal and monetary policies are sufficiently well aligned to ensure the country’s economy to support economic expansion and achieve the objective of raising the population’s standard of living?

The government has embarked on a fiscal consolidation plan. Expenditure is being tightened across the board, and concerted efforts are being directed at revenue mobilization with a view to reducing the government borrowing requirement and, ultimately, the public sector debt, which stood at a staggering Rs 620 billion, representing 86.4% of GDP.

Strictly speaking, the contractionary effect of the fiscal consolidation should have been offset by an accommodating monetary policy, that is, by lower interest rates. However, the Monetary Policy Committee of the Bank of Mauritius chose to raise the key rate from 4% to 4.5% in its very first seating in February this year and has kept it unchanged at that level since. Arguably, this decision was dictated by the urgency to ward off pressures on the rupee to depreciate. But it is debatable whether the central bank’s monetary policy has been effective. While the rupee has strengthened relative to the US dollar, it has depreciated sharply against the Euro and the UK Pound in recent months.

Moody’s, in its latest report, maintained the credit rating for Mauritius at Baa3, with negative outlook, citing risks of an economic slowdown induced by the contractionary fiscal stance. This further justifies the need for an offsetting expansionary monetary policy, that is, a cut in the key rate.

* It’s obvious that the combination of local and global conditions, including the unpredictable nature of Trump’s tariff policies and the legacy of previous governments, creates a challenging environment for economic forecasting. Nevertheless, do you think a rebound is possible in the near future, and if so, will its strength be sufficient to ensure sustained growth for the country?

Globally, the most likely economic scenario is one of a continued period of sluggish, below-potential growth. The IMF and the World Bank have warned of “downside risks” and “vulnerability”, suggesting that 2025 will be a critical stress test. The uncertainty around Trump’s tariffs, the high-interest-rate environment, geopolitical risks, and China’s protracted slowdown continue to weigh down on growth.

For Mauritius, the IMF has forecasted a growth rate of 3% this year (compared to 3.3% by Statistics Mauritius), rising to 3.4% in 2026 and staying at that level for the next four years until 2030. The optimistic growth forecast of 3.3% for 2025 must be tempered by the reciprocal tariff of 15% on Mauritius’ exports to the US and by the impending expiry of the AGOA trade preference regime in September.

It is unlikely that AGOA will be renewed in its current form. A bilateral trade agreement with the US could be the saviour, but it will take time to negotiate. A regional trade pact involving eligible African countries will take even longer to conclude. In the absence of a trade agreement, Mauritius could be hit by an additional tariff (in the vicinity of 19%), which could deal a fatal blow to the country’s clothing exports to the US. Under these circumstances, the projected growth of 3.3% should be interpreted as a best-case scenario.

* Like in many other countries, pension reform has met with strong resistance from a large cross-section of the population, and the discontent is still present. It’s not known at this stage whether other government social welfare programmes will be reduced or rolled back, but do you think that the Welfare State itself is under threat due to current and future economic circumstances?

As an economist, I don’t believe that the welfare state is under threat. In fact, I am convinced that the pension reform, however hard it may be on some segments of the population, is a necessary evil that will ensure the sustainability of the welfare state into the future.

In the final analysis, what made the pension system unsustainable is the repeated hikes in the basic retirement pension (BRP) given by the preceding government in an attempt to woo the elderly voters. If the BRP was Rs 9,000, do you think the current government would have raised the pension-eligibility age?

* There are other challenges facing the country: climate change, rising sea levels, and ecological degradation pose a threat to Mauritius’s economic model, particularly the tourism and agricultural sectors. What is your assessment of the country’s preparedness to tackle these challenges?

Mauritius has been a poor student on climate action. The Sustainable Development Report 2025 shows that “major challenges” remain on SDGs 14 (‘Life below water’) and 15 (‘Life on land’) while “significant challenges” persist on SDG 11 (‘Sustainable cities and communities’). More importantly, Mauritius has often slipped on progress on these SDGs. It seems that climate action took a back seat under the previous regime.

But the Budget Speech 2025-26 has announced several promising measures in the area of environmental protection and stewardship. The setting up of a Climate Finance Unit can help mobilize critically needed funding for climate adaptation, which remains a priority for Mauritius. Requiring smart cities to incorporate sustainability features, implementing a deposit refund scheme on plastic bottles and higher environmental protection fees, among others, augur well for the green economy ambition of the country.

* The debate about the role of the public sector in the economy is ongoing. From a strategic point of view, should the public sector be limited to providing essential services and creating a favourable business environment, or should it play a more active role in driving economic growth and innovation?

This is a fundamental question that has pitted economists from different schools of thought, not to mention social scientists from other disciplines. Laissez-faire economists believe that freely functioning markets generally deliver optimal economic outcomes. This represents a solid case against interventionism. Indeed, when markets work efficiently, government intervention distorts the market.

For example, the introduction of the minimum wage led to job losses as firms shut down or relocated. This (classical) view argues for a minimal role of the government as a provider of public goods, law and order, and as an enabler of economic activity.

But markets do fail. For example, dominant firms can exploit consumers by charging excessive prices and workers by paying very low wages. Firms can pollute if not held accountable.

In practice, efficient markets are an ideal concept that doesn’t exist in the real world. To the extent that markets failures are the norm, there is a case for government intervention through welfare-improving policies. These may include policies to support the economy and boost growth and innovation as well as redistributive policies to achieve a measure of social equity. But such intervention should be limited – for governments can fail too.

Mauritius Times ePaper Friday 29 August 2025