Over the
last three decades, Mauritius has successfully transformed its monocrop sugar
economy to a diversified one and achieved sustained growth. The three main growth sectors have been
sugar, manufacturing textiles and tourism.
The development of the services sector(namely freeport and offshore
banking activities) is expected to stimulate growth in the future.
It was
through government policy initiated in the 1970’s, that the export base was
expanded by the creation of the Export Processing Zone, which absorbed the
available supply of cheap labour and increased export earnings. Favourable fiscal concessions and the
preferential access to Europe under the Lome convention encouraged foreign
direct investment in the EPZ. Two major devaluations in 1979 and 1981, under
the IMF Structural Adjustment Programme enhanced export competitiveness. To further enhance competitiveness of the
Mauritian EPZ, the rupee was delinked from the SDR and pegged to a basket of
currencies. Since 1983, a flexible exchange rate policy was pursued to
depreciate the rupee gradually, which was particularly favourable to the expansion
of the EPZ
The
successful pursuit of these policies greatly promoted the competitiveness of
our EPZ exports and, supported by favourable world economic conditions, set the
stage for higher sustained growth of the EPZ sector. EPZ growth averaged 21% for the period
1983-1989 with a peak 34.9% in 1986.
However, in the 1990’s, growth of EPZ
registered a downturn with a significantly lower average growth rate of 5.9%
due to factors both on the local and international scene. On the local scene, soaring unit labour cost
is rapidly eroding competitiveness (unit labour cost has been rising at an
average 7% per year for the period 1986-1996).
The loss in competitive edge of Mauritian products due to such domestic
cost increases in competitiveness is accentuated by major development on the
international scene in the post GATT era. Globalisation of world markets with
the prospect of greater competition from low cost producers and likely reduced
preferences under Lome Convention are now challenges to our export
competitiveness.
A
profound diagnostic of the Mauritian economy by Sanjaya Lall and Ganesha
Wignaraja[1]
(1997 ) reveals the following inherent weakness of our export stategy.
·
The Mauritian competitive advantage evolved around a
pool of cheap labour force and capital accumulation while taking advantage of
preferential accesses on the European market.
Total Factor Productivity (TFP) growth was much less important (0.45%
for the period 1982-1996 whereas in some East Asian Economies like Japan,
Korea, China, Hong-Kong, Thailand and Taiwan, TFP growth accounts for 33% of
growth on average)
·
Concentration of our EPZ manufacturing into virtually
one product – clothing ( 80% of manufactured exports ). This renders Mauritius extremely vulnerable
to unfavourable development in the world clothing market.
·
Concentration of manufactured exports into low skill,
labour intensive exports. Besides, industry research and development is nearly
inexistent in Mauritius The excessive dependence of Mauritius on low-skill labour
intensive exports and absence of proper research and development on the part of
industry defies the strategy designed to sharpen our international
competitiveness edge in this new trading environment. Such a strategy involves moving up market
into higher quality products to avoid competition with low wage countries in
the lower end market.
·
Over dependence of EPZ exports into a few markets
mainly European – over 70% of our EPZ exports are concentrated in European
markets which renders us vulnerable to the vagaries of their economic policies
and performance.
·
The Mauritian EPZ fails to develop forward and
backward linkages. Forward linkages -
further processing of EPZ products are difficult as EPZ firms are legally
required to produce for the export market.
Similarly as firms import most of their supplies of raw materials and
intermediate products, backward linkages on large scale are very difficult
Faced
with the above weaknesses, Mauritius need to reassess its competitive
advantage. The country seems to have
reached a plateau in how far it can go with its existing endowments, and needs
to alter the underlying structure.
Therefore the goal of its export strategy will be to strengthen market
share for products that already have a competitive advantage in the world
markets and diversify export structure to develop new competitiveness in other
manufacturing products as well as in other sectors like services.
Three
distinct steps are envisaged to sharpen the competitive edge of Mauritian
products and services, namely:
A.
Setting up the appropriate institutional framework
B.
Setting the
right policy-mix
C.
Instilling a change in attitudes
A. Institutional framework
The institutional framework emphasises on
the direct involvement of all the stakeplayers of the economy, including the
employers and the trade unions in the competitiveness programme. The success of such a programme rests on the
shared responsibility between the public and private sector .
·
The government is actively promoting the growth of a
dynamic private sector through a more business friendly environment by
fine-tuning the legal and regulatory framework to respond effectively to the
needs of the private sector. Private sector consultations on major national
issues like competitiveness is a priority agenda item. The government will
continue to provide institutional support and fiscal incentives to promote and
develop private sector enterprises.
·
An apex body like the National Productivity Council
which ensures a holistic approach by englobing different institutions like the
MRC, MEDIA, MSB, etc. will be set up to advise government on the appropriate
benchmark to monitor the productivity, efficiency, flexibility of
industry. It will also help to formulate
new policies and advise on choices of activities to be promoted for future
competitiveness.
B. Setting the right Policy-Mix
1. Macroeconomic
policies.
Redefined
foreign exchange policy remains a means to enhance international
competitiveness. Mauritius has in the
past been using exchange rate policy to promote export competitiveness. A more
realistic exchange rate policy reflecting economic fundamentals will ensure
greater investors’ confidence in the economy.
There is thus a need for a reassessment of the use of exchange rate
policy shifting emphasis to achieving cost competitiveness from a supply side
point of view, that is improving total factor productivity while controlling
the rate of inflation
2. Industrial Policy
·
Promotion of SME’s which are relatively efficient,
easy to establish and very flexible.
SME’s contribute to 20% of GDP and 35% of total employment.
·
Promotion of forward and backward linkages. Creation of industrial districts where around
large firms, clusters of smaller ones cater for the special needs of large
firms to improve flexibility and quality of the latter. This will also enable pooling of skills,
knowledge while encouraging exchange of ideas and long term co-operation among
entrepreneurs.
3. Trade
Policies.
Mauritius
is a very open economy, with trade accounting for around 120% of our GDP and
ranking first in Africa's openness to trade index. There is a link between outward orientation
and gains in productivity. In the wake of the post GATT environment, government
is pursuing with trade liberalisation. Trade policies will involve
·
Meeting targets for reductions in import tariffs so as
to achieve a uniform level of effective protection until such protection is
completely eradicated. In the long run,
this will ensure more competition and hence more efficiency among firms.
·
Enhancing the role of the MEDIA for export promotion.
·
Enhancing marketing abilities of private business
associations and attracting multinational co-operations to set up business in
Mauritius, which will bring instill more sophisticated technologies.
4.
Diversification of export
structure
(a).
Manufacturing
·
Incentives are given to industrialists to diversify to
new range of products like electronics, leather, printing, and publishing, etc.
where the best prospect for future expansion lies.
·
Upgrade quality of exports, which will enable us to
move up-market by producing more skill and technology intensive products.
·
Diversify the export markets by shifting emphasis from
Europe to neighbouring countries in the context of regional co-operation
·
Possibility for delocalisation of low-end tasks to
other countries within the region, where labour may be cheaper.
(b). Fourth
Pillar of Growth – Quaternary Sector
Future
growth also lies in diversifying the economy and increasing the share of the
services sector. Mauritius is aiming at
developing into a high-tech and knowledge-based economy. New sources of growth will be towards:
·
Specialising into high tech information technology
like Computer Aided Design, Software Services, Publishing and Voice Operations. However, we face an enormous task to compete
with countries with established software exports like India and
Phillipines. Yet with regional
co-operation, we can make a move towards exporting our services to countries
within the region to start with.
·
Maintaining competitiveness in offshore financial
services. Here, our competitiveness is
enhanced by the presence of a stable political climate, a proper regulatory
framework and tax advantages conferred by various double taxation
agreements. With globalisation and
intense competition, however, these traditional advantages will not be
sufficient to ensure future success. We
need a more aggressive approach to tap new offshore businesses. One way would be to take advantage of the
grouping of nations under regional co-operation, viewing other countries in the
region as potential markets. It will be more feasible for us to compete within
a region first and then compete internationally once we have gathered the
required market intelligence, than to face global competition at the initial
stage.
·
The other
promising area of service exports is consultancy in the African region. Many of
these service exports can be based on the Mauritian experience of export-led
growth, in which it has over the neighbouring countries. Since most other
African countries are liberalising their economies and seeking to promote
export-oriented manufacturing and service operations, they will seek expertise
from other countries that have successfully managed the process. Mauritius is one of these countries with a
significant advantage in its bilingual capabilities. It may also be able to exploit its membership
of the Southern African Development Community (SADC) to develop marketing
opportunities for consultancy services.
5. Policies
towards Skills and Technology development
Diversification and technological
upgrading cannot be pursued without an appropriate human resource development
programme and policies to favour technological development and its efficient
adoption.
i.
Human Resources
Development.
·
To ensure that a shortage of skills does not slacken
the growth momentum, the government is reviewing its human resource development
strategy. Priorities are concentrated at raising the share of technicians,
engineers and professionals for the benefit of both existing industries and
upcoming future growth industries. Apart
from university training in information technology, engineering, and
consultancy to meet the needs for future sectors, the strategy also
concentrates on industry led training provided by the IVTB to cater for the
special needs of existing industries.
·
Skill needs and provision will be monitored and
prioritised on a continuous basis, with effective interaction between employers and training
institutions. Skill needs will also be
assessed by continuous monitoring of international competitors .
·
Particular attention should be paid to the SME’s by
special information and incentive programmes to recruit better trained labour and to invest in formal training.
Their method of skill transmission tends to be confined to the apprenticeship
system, where craftsmen teach young workers, largely with little formal
education, traditional methods that have been used over time without much
change. Government will assist by providing subsidies to SME’s to invest in
training and setting up activity specific training centres.
ii. Policies
towards technology.
·
The creation of a separate institution for Research
and Development, namely the Mauritius Research Council. The Government would
encourage the share of industry in R&D possibly through tax incentives and
other business policies. An appropriate
campaign may be launched to create a stronger research culture among larger
firms aiming at raising the consciousness of the benefits of in-house design
and development activity. The government can also aim at increasing linkages
between large firms and technology support institutions.
·
Undertake policies towards diffusion of technology to
SME’s – our manufacturing industry is characterised by a few large
technologically advanced firms and many very technologically backward SME’s. It
is also possible for government to set up “Technology Transfer Centres”. This
would help SMEs in defining their technological needs and problems (by technology
audits), providing them with relevant
information on sources technology,
helping them with training, and testing, equipment repair and maintenance, and
generally raising awareness of technological activity. Such centres could take
over several of the functions of SMIDO or be combined with it.
·
Promoting FDI as an important source of new
technology. As the factors behind the
initial massive FDI flows in the EPZ (i.e. the presence of cheap, literate
labour, reasonable labour productivity and industrial discipline, preferential
and business environment) have been significantly eroded, FDI has to be
attracted by some other means. Apart
from emphasising on a stable macro economic environment other policies to
stimulate FDI are being envisaged
·
Transforming of MEDIA, which currently undertakes
investment as well as trade promotion and industrial estate management, into a
specialised trade promotion organisation, with its management and development
of industrial estates hived off to the private sector.
·
Establishment of a ‘ New Specialised Agency’ for foreign investment
promotion. The new agency will place considerable emphasis on targetting
selected activities and investors. One key element in the new approach will be a
regional head quarters (RHQ) programme to attract leading MNCs to set up bases
for the African region
·
the approval process must be greatly simplified and
streamlined, reducing the number of
stages in the approval process to one, centering on one Foreign
Investment Approval committee.
6. Refocusing
Role of the state
·
Rethinking of the government as a regulatory body and
a provider of infrastructure. Market
forces and the private sector should predominate in investment and
production. Private sector contribution
to total investment has now reached 80%.
Privatisation of government business through sale to strategic partners
is expected to bring in new technology (Mauritius Telecoms)
·
The BOT scheme
is expected to unleash private initiatives.
·
Rethinking the welfare estate to improve efficiency of
government expenditure. There is the
need to review some social services like pensions, social security, education,
housing and health and to provide some of these services on an ‘ability to pay’
basis.
C. A change in attitudes
There need
to be a change in attitudes on the part of every stakeplayer and economic
agent. New work ethics has to be
inculcated. Political stability, sound
legal and regulatory framework and absence of corruption are ideals to be
pursued to ensure social harmony and sustained socio-economic development.
[1] Lall S.
and Wignaraja G; “ Mauritius: Dynamising
Export Competitiveness”, Report for the Ministry of Finance, Government of
Mauritius, June, 1997.
