A rich example of fruitful collaboration between the University of Nottingham and the University of Mauritius, with the production of a well-documented and thoroughly researched volume titled "The Mauritian Economy: A Reader".
This Reader on the Mauritian Economy has allowed me to time-travel some three decades of Mauritian economic history. We have come a long way from those early dawning hours when the Mauritian flag was raised for the first time. In 1968, we had very little to cheer for. Many thought we were condemned to face the Malthusian nightmare of exploding demography and could not escape from the grim spectre of hopelessness.
Fortunately for us, the "overcrowded barracoon" that had a "reputation for reckless reproduction" was able to prove the prophets of doom wrong by casting its own mold for its economic development. Carving out special niches in sugar, textile, tourism and financial services it finally emerged as the "Indian Ocean Tiger". Our economic miracle is now widely known. We should, however, reckon that the adoption of trade and open policies, which seems to have been the most obvious and easy development option today, was indeed a difficult strategic choice at that time. Prof Chris Milner rightly points out, "It is easier to advocate this development strategy now than in the circumstances in the 1950's and 1960's".
The clash of two main rival ideologies left little room for genuine independent development thinkers. It was more a question of either-or; either import substitution or the market based liberal solution; either adherence to neo-colonialism or the emerging Fabian socialism and so on. Moreover, many independent states chose what in the economist's lexicon has come to be known as the grabbing-hand model of the role of Government. Mauritius opted for the other route. We sought what was best for Mauritius. It was not a copycat version of the Hong Kong laissez-faire system or Taiwanese export processing zones. These were adapted to local conditions and gave rise to a purely Mauritian version of the accompanying policy responses in the sequencing of the adjustment efforts, in trade liberalisation, in tax and tariff reforms and in the incentive regime.
Similarly, in 1979 when the economy had to be taken to the intensive care unit of the Bretton Woods Institutions, the appropriate doses that were then delivered through the Structural Adjustment Lendings (SALs) were wilfully adulterated with purely Mauritian policy insights. These policy prescriptions, with its special Mauritian touch, nurtured the gradual emergence of the Indian Ocean Tiger. It is recomforting to note that this book testifies in some way to this growing ability of Mauritians to find innovative solutions to the new emerging challenges and to their efforts to continuously adjust to the changes of the external environment. In an interesting IMF working paper by Arvind Subramanian and Devesh Roy dated July 2001 and titled "Who can explain the Mauritian miracle; Meade, Romer, Sachs or Rodrik ?", one concluding observation is that Mauritius adopted a distinctive approach to openness. It intervened heavily to promote the export sectors while retaining a highly restrictive trade regime to protect local import competing industries.
As some of the articles of the book predate major local and international changes, allow me to be partisan in picking out the more contextual ones that have important policy bearings. It will thus help me to forge here an important link between the wider world of academia and the more restrictive world of policy makers.
It will be appropriate to start with the insightful comments of the doyen of academia, Prof Roland Lamusse that re-centres somewhat the recent debates on the reforms in the sugar and education sectors. Prof. Lamusse, well known for his pioneering works on the sugar sector, warns us that "cost cutting will be the top priority for the sugar industry in Mauritius" and that "competitive advantage will accrue to those countries with the largest evolvement of knowledge and skill". In both the sugar and education sectors, Government has taken heed of such cautions by coming forcefully forward with the necessary reform plans. The Sugar Industry Efficiency Act 2001 is expected to restore the efficiency and viability of the sector. The declining trend of the sugar sector in terms of its contribution to GDP will continue over the coming years, but there will be a more efficient sectoral allocation of resources as a result of the centralisation of processing factories, which will allow the exploitation of scale economies and thus reduce production costs. The ambitious education reform plan aims at reducing the skills mismatch, which has developed over the years and providing the necessary skilled manpower for the growth sectors. We are implementing a whole set of reforms to enhance the overall productivity of the economy, including the public sector through strategic partnerships. Starting with telecommunication to be followed by the port and energy sectors, strategic partnerships will bring much needed capital as well as foreign technology and management expertise. These are thus the policy responses in the long continuum of adjustment efforts, that I have mentioned earlier, to develop new niches where Mauritius can secure effective competitive advantages. It is also our earnest hope that the reorientation of the economy towards the ICT sector and the continuing developments in the financial and business services sector may, as predicted by our Professor, "position Mauritius as a dynamic centre for manufacturing, education and other services ..... and that the financial and business services may emerge as the leading sector in the economy".
On the topic of exchange rate policy, there are now growing doubts that the policy of competitive depreciation that have served us so well since the 1980's can still be relied upon to provide the necessary cushion to our export sectors. Prof. Dabee's concerns that "the competitiveness of Mauritian exports should be reinforced by other policies which can increase the productivity of the export sector" are very topical. These concerns were also raised in the "Present State of the Economy", where it was pointed out that "we have to strike the right balance between the need to maintain price stability and the need to safeguard the competitiveness of our export sectors." The pursuit of a sound and consistent exchange rate policy is fundamental for a small open economy like Mauritius. I have in the past myself shared some concern over policy inconsistencies: "the reorientation of the exchange rate policy to tackle inflationary pressures, however well intentioned, cannot attract credibility if it is not conducted in full transparency and with the support of fiscal, wage and other economic policies." While reinforcing the independence of the central bank, Government believes in a more functional Monetary Policy Committee, which is expected to be more than a liquidity management authority to carry the function of a monetary/fiscal policy coordinating body. It will be more representative of different stakeholders and of a wider range of sectors of the economy.
The recent budget did borrow a leaf from Prof Nath's article, "Government Expenditure and Economic Development", for when he advises that "The size of the capital budgets should increase further, provided selective domestic and external borrowings are encouraged to finance the emerging capital needs of infrastructure development"; this is exactly what we have done in our very first budget; we have increased capital expenditure by a record 58%. Capital expenditure as a percentage of GDP is increasing considerably from the annual average of only 3.9% to 5.1% in this financial year. As for the concerns expressed by Professor Nath on the possibilities of crowding out of private sector investment, Govt has taken the "more pragmatic approach towards government budgets" that he has proposed by negotiating with the World Bank for an umbrella-type loan for the budget - a Public Expenditure Review Loan that will reduce some of the pressures on the domestic capital market. We are also adopting a medium term framework to monitor overall fiscal discipline which will give a more holistic and comprehensive view of fiscal policy objectives with the ultimate aim of having a Fiscal Responsibility Act. The Act will thus encourage better decision-making by government, strengthen accountability, and ensure more informed public debate about fiscal policy.
As far as local government finance is concerned, we share the observations of Prof Nath that there is a need for decentralising fiscal responsibilities to the level of local government authorities. This issue has to be approached the in phases. First, fiscal responsibilities will have to be decentralised from central government to respective ministries and at a later stage to local authorities. A new Local Government Bill will soon be introduced to provide greater administrative and financial autonomy to local authorities.
It will also be appropriate to conclude this rapid overview with Prof. Chris Milner's comments that "Improved access to the regional market that relies on preferences may be helpful in the shorter term, but greater competition in the global market provides a more secure basis for both improved global and regional trade performance." Truly, regional agreements are not a panacea for challenges of globalisation or a substitute for our efforts to increase growth by enhancing quantitative and qualitative investment and competitiveness. Rather, it is one step along the path to globalisation and higher growth. It provides us with the means to participate effectively in the global market, and places us in a better position to reap the benefits of globalisation. Thus, economic integration will continue to demand from us appropriate government policies and behaviour, in particular, in the pursuance of the liberalisation of trade and FDI regimes, the deregulation of financial markets and the promotion of domestic competition. Over and above these macroeconomic measures, economic integration can only make much head-way if it is accompanied by developments in physical infrastructure, notably transport and communications, to say nothing of social infrastructure and human development.
The concerns and recommendations in this Reader, be it the "need for further changes in the incentive schemes, the anti-export bias in the trade regime or the scope for moving towards a first best trade policy" are valuable recommendations to Govt and have to be addressed.
