National Income

Mauritius Times – 71 Years

By Peter Ibbotson

The problem of increasing the national income is of great magnitude, meriting careful and detailed study. It is a subject with which the Meade Report (due early in October) must assuredly be concerned. Professor Meade and his colleagues have had access to more detailed information and statistics than I have at my disposal, but what follows will nonetheless be found a basis for discussion.

In the period 1950-1957, the national income (net national product at factor cost) has varied as follows:

Thus, although the total national income and the actual national income per head have risen, the national income per head reduced to 1950 prices (that is, in real terms) has fallen. This was due, in part, to the dramatic increase in population: a rise of over 157,000—from 456,717 at 31 Dec 1949 to 613,888 at 31 Dec 1958. Another factor contributing to the drop in national income in real terms was the 20 percent rise in world prices (as a result of the Korean War) between 1950 and 1955.

What about the rate of capital investment during the same period? Between 1951 and 1957, the rate of capital investment fluctuated alarmingly and barely kept pace with rising prices; only in 1958 was there an appreciable increase:

Year                                       Capital Investment in Rs millions

1951                                                              72.5

1952                                                             74 25

1953                                                             90.5

1954                                                             75.75

1955                                                              86

1956                                                              79

1957                                                              90.5

1958                                                              112.5

In view of the fluctuations in capital investment and the overall picture of stagnation presented by the only slight increase (in real terms) between 1951 and 1957, it is hardly surprising to find that the national income per head has steadily declined, in both actual terms and real terms, since 1953. This decline can be arrested only by a continuing vigorous increase in the rate of capital investment, such as there was in 1958 (an increase of Rs 22 million over 1957).

The population, however, is increasing rapidly, and from 1960 onwards, the permanent labour force will be augmented by the additional persons who were born from 1945 onwards. Merely to provide them with jobs will call for increased capital investment, too; the need will be even greater after 1964 when the vastly increased number of persons born from 1949 onwards reach the age of 15. From 1945 to 1948, the average annual increase in population was 4,500; from 1949 to 1958, the average annual was 17,000. Lumping these together, we have an average of 13,000 extra people reaching the age of 15 each year from now on. If we assume that half of these are male and that only males will join the labour force, we shall need an extra 6,500 jobs each year simply to provide work in an effort to maintain the national income per head.

It can be assumed that on average, at least Rs 25,000 capital investment is required to provide each new job. Even simply to maintain the existing income per head, therefore, would require stepping up the rate of capital investment immediately from Rs 112.25 million of 1958 to at least Rs 162.5 million per year. And this, which would merely provide employment for the additional workers joining the labour force every year, makes no allowance for expansion or development in order to raise the national income per head. This vigorous increase in capital investment, by nearly 50 percent, might well, however, increase the total national income (at net factor cost) to Rs 900 million by 1965, which, with an estimated population of 750,000 in that year, would give about Rs 1200 as the estimated national income per head (Rs 950 in real terms). This would appear to be a satisfactory increase — real as well as actual — in national income per head, but appearances are deceptive. A national income per head of Rs 1200 in 1965 would be an increase of nearly 20 percent on the 1958 figure; but during the same period, world price levels are expected to rise by more than 20 percent. When this is taken into account, it becomes apparent that any increase in national income which is less than the rise in world price levels is not really an increase at all.

On these estimates, therefore, simply to hold the fort as regards national income would seem, I suggest, to call for a capital investment programme of about Rs 162.5 million a year. A perceptible increase in the national income per head would call for a capital investment programme of Rs 175 million a year at the very least. A marked increase would call for Rs 200 million a year.

Where and how is such an increase in capital investment to be made? Of the Rs 112.25 million gross capital formation in 1958, only a quarter went into manufacturing, i.e., into reducing dependence on what is virtually a one-crop agricultural economy. (The investment of many millions of rupees in housebuilding after the cyclones, announced by Dr Ramgoolam at his press conference the other day, will have an immediate effect equal to the erection of factories having annual sales of a similar value; but only equal, not continuing. In general, public works, although they may well have great social value, are not usually productive; but this criticism does not apply to all the public works projected in A Plan for Mauritius, many of which have been selected and phased for their productive and developmental effect).

Diversification of the economy is a prerequisite for social and economic progress in Mauritius; energetic steps to achieve such diversification will only follow, I suggest, the establishment of a Mauritius Development Board with the statutory duty of stimulating, facilitating, and undertaking the development of industry and of agricultural undertakings or projects not already sufficiently well established (including tourist hotels), and aiming at increasing employment prospects in Mauritius and improving the external balance of trade by expanding local production of goods and food.

7th Year – No 316
Friday 16th September, 1960

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