Ladies and Gentlemen, let me first of all dwell on development before we discuss the management of the transition process. The whole development landscape has been transformed presenting policymakers with new challenges at both global and local levels.
We have recently been looking persistently for new rules and structures to serve as a foundation for a new development paradigm for the 21st Century. Since development's emergence as the great hope of the post war era, we have always believed that economic progress is impossible without painful adjustments. But now this "fierce" and "hard knocks" view of development is increasingly being questioned. There is a genuine outcry against the new phenomenon of the development process-globalisation- as a "haemorrhage that fattens the powerful." The "painful adjustment" of development has been enacted without the promised recompense. The income of the wealthiest quintile today is 74 times that of the poorest quintile: 850 million adults remain literate and 840 million people are malnourished.
But this new development phenomenon of globalisation will not go away just because we do not like some of its worrisome implications or its disturbing impacts. The process is irreversible and it is already changing the parameters of our development agenda. Globalisation is not just a destructive leviathan flattering all in its wake, it is also a powerful force for the improved material well-being of mankind. Dealing with the imperatives of its negatives is perhaps the most important challenge of the new millennium. I'll quote here from Dani Rodrik's book - Has globalisation gone too far - "the broader challenge for the 21st century is to engineer a new balance between market and society, one that will continue to unleash the creative energies of private entrepreneurship without eroding the social basis of co-operation."
And to borrow from the Nobelist, Prof. Amartya Sen recent masterpiece, "Development as freedom ", the new development paradigm has to straddle the rival views of Western and Third World development experts; it has to transcend the narrowness of the standard model for a more integrated approach to development. Though it still has at its core the extensive use of markets, it needs to be supplemented with social safety nets and must co-exist with local cultures; its overarching objective should be to maximise people's capabilities- their freedom to " lead the kind of lives they value and have reason to value ".
Only if we are able to define development as such -a more middle-path approach that stretches the boundaries of development to encompass democracy, culture, human rights, gender rights, education and health care- can we except to discern its essential contours and attempt to manage its transition.
But managing transition from one phase of development to another through a whole arsenal of economic, social and institutional building and strengthening policies is strongly influenced by the particular contextual milieu of each phase. Each phase of development has its own specificity requiring certain insights, an appropriate blend of policies grounded in the realities of to-day and most important of all, the right dose of luck.
Many of the countries present here have successfully managed their transition through different levels of development and this constitutes indeed an enlightening and enriching pool of knowledge and experience that will be available to many others in their uphill task to manage their economic development in this new setting of a more globalised, integrated and uni-polar world.
Ladies and gentlemen
Allow me to add to this knowledge pool by sharing with you the Mauritian experience of its continuous adjustment programme and management of its transition through mainly three distinct phases of its ongoing development process.
In the early sixties, the outlook of the Mauritian economy was quite bleak. The country was rapidly acquiring a "reputation for reckless reproduction". James Meade, in an official report on the economic and social structure of the island, noted with apprehension that "… the economic future of Mauritius is dominated by its population problem. …. unless resolute measures are taken to solve it, Mauritius will be faced with a catastrophic situation." The death rate was indeed falling faster than the birth rate leading to a rate of natural increase of 3%. About 30 per cent of the population was below the poverty line.
There were little prospects for sustained economic growth and improvement in the standard of living. The economic fortunes of the island were very much linked to the sugar industry, which accounted for about 34% of GNP, contributed to more than 95% of total export earnings and provided over 50% of total employment. Mauritius, branded as an “overcrowded barracoon”, was then an IDA-supported economy. Managing the economy against the backdrop of increasing population, rising unemployment and economic stagnation was the most formidable challenge facing Government.
The prophets of doom were to be proved wrong as we laid the foundation of success by adopting appropriate measures to control population growth, eradicate malaria, and introduce universal suffrage. These measures, not only enabled us gain a better grip over population control and development goals, but also gave us the much needed space to introduce more development oriented policies. This marked the first stage of our ongoing process of economic development. At every stage, we have put in place the necessary mechanisms to better manage our transition in economic development.
We embarked on an ambitious planning process in an attempt to better gear our economic policy orientation and thus accelerate the pace of development. From 1970 to date, we have formulated six Development Plans. And each Plan has had its own specific objectives, responding to given challenges and priorities in particular settings. The principal objectives were to achieve full employment, a steady and viable economic growth of just over 7% annually, greater economic diversification and a more equitable income distribution. We thus adopted a new industrial policy. A Development Certificate Scheme, which extended a wide range of fiscal benefits to industrial ventures for a selected list of imported substitution manufactures, was introduced. The Development Bank of Mauritius was established in 1964 to support this industrial policy by providing subsidised long-term loans to investors in non-sugar activities.
Our second phase of development was marked by a reorientation in our industrial policy moving from import substitution towards an outward looking strategy favouring export promotion. Such a change in policy was designed primarily to put the economy on the path of sustained growth and to address the unemployment problem prevailing.
The main foundations to launch Mauritius into two decades of robust economic performance were namely the enactment of the Export Processing Zone Act in 1970; adherence to the Yaoundé Convention in 1972; the establishment of links with the European Community; the upgrading of our human resource with free education at all levels in Mauritius in 1976; and further diversification into the tourism sector. The results were forthcoming. The economy grew on average by 8.2% annually. Savings and investment reached record highs. Employment increased significantly.
However, it was perhaps unwise on our part to cosily enjoy this success and not to prepare ourselves for the unfolding domestic and international challenges. Much of our resources were wasted through non-priority public sector projects, generous wage awards, social transfers and subsidies. These, along with external factors such as world oil market pressures and global economic slowdown, triggered an economic crisis, arrested growth and fuelled unemployment.
In response to these challenges, the economy had to be taken to the intensive care unit and the specialists of the Bretton Woods. The IMF and the World Bank were called in. The 30% devaluation of the rupee in October 1979 marked the opening shot of the painful structural adjustment programmes. The programme aimed at correcting the financial and external imbalances and restructuring the economy. Since then Mauritius has adopted a continuous and consistent programme of policy reforms. For example, a flexible exchange rate policy was actively pursued to favour the expansion of the exports sectors. Major reforms were undertaken in formulating fiscal policy in view of restoring sound public finance, and in readjusting tariff and price policies in order to facilitate the integration of Mauritius to the global economy.
The implementation of these measures has brought significant improvements in the economic and social conditions of the country. Mauritius has emerged as a middle-income economy with a per capita income of around US$ 3,800. It has now achieved a fair degree of diversification in its economic activities. To the traditional three pillars of the economy namely agriculture, manufacturing and tourism, it has successfully added a new pillar, the quaternary sector, covering the stock exchange, offshore, freeport activities, business, insurance and telecommunications sectors and representing about 17 per cent of total output.
Our economic success, if I may call it so, has not been a miracle as some quarters may call it. It has been the result of clear policy orientation, close Government/Private sector collaboration and greater participation of workers in the development process.
Yet again as we peel off some of the layers of this success story, we gradually uncover the fragile underlying fabric which, for quite some time now, is being gnawed by a typical Mauritian virus – the Dodo virus. We are confronted to a whole backlog of issues, which left unattended may jeopardise our future economic development. The economy is still well-cocooned, where the economic agents haven't learnt all the tricks of competitive trade and business practices. The education and training system is no longer responsive to the needs of the economy. There is excess luggage on board with respect to the civil service, SOEs, and the social maintenance programmes. The labour and capital markets are constrained by inherent rigidities.
The changing world economic landscape is further adding pressure on our growth prospects. With the world economy undergoing an irreversible trade liberalization process, competition is intensifying; bringing in its wake new opportunities as well as important threats.
Tackling these challenges necessitate a thorough review of our economic and social policies. In our Economic Agenda for the New Millennium, we have outlined strategies and policy orientations in line with our vision to transform Mauritius into a diversified, high-tech, high-income services and knowledge economy fully integrated in the new global environment.
The New Economic Agenda outlined a 5-year program for job creation, education reform and investment, environment protection, modernisation of the country's economic management and improvement in the competitiveness of the country.
This Economic Agenda for the New Millennium lays particular emphasis on developing the ICT sector, thus adding a fifth pillar to the economy, framing the right policy mix to consolidate public finances, creating an enabling environment, enhancing export competitiveness and modernising the welfare state while favouring a participatory approach of all stakeholders.
The free education system and the universal primary education have contributed enormously in bringing the adult literacy rate to 85 % but have lagged behind the structural changes in the economy. Despite a strong growth averaging 5 % during the past years, Mauritius is faced with unemployment problems, resulting mainly from skills mismatch.
Human resource development is, therefore, being given utmost attention and an education reform programme is well under way to improve access to the education system while also improving its quality and equity. A skilled workforce, having innovative and creative abilities remains one the driving forces of the New Economy.
Our social aid programmes have not helped to reduce economic and social disparities. Government is conscious that the present social aid program falls short in protecting the most vulnerable sections of the population. It is reviewing the efficiency of available social aid programmes at the policy and technical levels to ensure that social assistance reaches the poor more efficiently and is financially sustainable.
The new poverty alleviation strategy being pursued by adopting a bottom-up community-based participatory approach is aimed at reaching the most vulnerable group of our society. All poverty alleviation programmes will be harmonised to ensure better coordination and the avoidance of the risk of duplications. All the expenses on the social programmes will be streamlined to ensure judicious and effective use of public funds. Government will develop poverty indices that will enable the monitoring of improvements in living conditions and ensuring follow-up with beneficiaries. Putting in place such a mechanism will allow us to assess the effectiveness of all poverty alleviation programmes.
The growth experience of many countries can be explained in terms of the ability of governments to adjust their macroeconomic policies to exogenous shocks. The key determinant of this ability is the quality of domestic institutions. Efficient and properly functioning institutions are a precondition to investment, entrepreneurship, innovation hence long-run growth. The success of Mauritius in overcoming its macroeconomic imbalances in the early 1980s owes much to domestic institutions. The need for consultation and national consensus has always been the overriding consideration. The culture of transparency and participatory politics ensured that early warning signals and feedback mechanisms were in place, allowing emerging economic problems to be tackled at an early stage.
Government is also introducing the employee share ownership culture, which will encourage a greater participation of the employee to help enhance enterprise performance by giving workers an economic stake in its financial success, improve labour-management relations and advance notions of economic and social justice.
The new approach of Government in forging an open and democratic society encourages a new style of government that believes in consensus building. Government has thus set up the National Economic Social Council (NESC) as the appropriate framework to involve all participants –local communities, NGOs, civil society, religious bodies, workers federations and all interested groups -to give meaning to the multifarious struggles of the Mauritian people for greater control of their own lives, for decent standards of health, education, housing, nutrition, for social justice and ageing with attitude. It is a new contract between the State and the Citizen to bring public and private interests into closer alignment for a better government. This new contract aims to deliver transparency, responsibility and responsiveness. It reflects Government’s intention to create a new Welfare State which promotes opportunity instead of dependence.
