Competitiveness is an imperative, not an option in today’s global economy. For analyzing the competitiveness of the manufacturing sector, we have to examine the changes in Unit Labour Cost (ULC), that is, not only labour productivity growth but also the growth in the average compensation of employees. ULC measures the remuneration of labour per unit of output.
It is affected by changes in both average compensation of employees and labour productivity. It is computed as the ratio of the labour cost index to an index of production.
Table I : % change in Unit Labour Cost (ULC) - Manufacturing sector
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Year
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ULC (MUR)
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Exchange rate MUR/US $
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Exchange rate MUR/Euro
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ULC (US $)
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ULC (Euro)
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2007
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5.9
|
0.7
|
8.6
|
5.1
|
-2.6
| ||
2008
|
5.9
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-9.6
|
-3.1
|
17.1
|
9.2
| ||
2009
|
-0.3
|
12.6
|
7.0
|
-11.5
|
-6.8
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2010
|
6.6
|
-3.3
|
-8.0
|
10.2
|
15.9
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2011
|
6.7
|
-6.9
|
-2.3
|
14.7
|
9.3
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* + = depreciation, - = appreciation of the MUR vis- a - vis the US $ and Euro
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In 2010 and 2011, average compensation in the manufacturing sector increased by 10.1% and 11.8% whilst labour productivity registered a growth of 3.3% and 4.7% resulting in an increase of 6.6% and 6.7% in ULC respectively. It is to be noted however that the increase in labour productivity in both years resulted partly from decreases in labour inputs. Since 2007, the Export Oriented Enterprises have shed some 12,000 jobs.
Table II: Manufacturing Unit Labour Cost of selected countries, 2010
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Country
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USA
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France
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Germany
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Italy
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UK
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Mauritius
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Taiwan
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Korea
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National currency
|
- 4
|
- 5.4
|
-8.1
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-4.6
|
-1
|
6.6
|
-10.7
|
-0.7
|
US $
|
-4
|
-10
|
-12.6
|
-9.2
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-2.3
|
10.2
|
-6.4
|
9.5
|
The appreciation of the rupee has undermined the competitiveness of enterprises and also eroded their profitability. In the presence of high import content, exports are not adversely affected by currency appreciation because the lower import prices due to appreciation reduce the cost of export production. However, our low value-added products and those with very low or zero import intensity are the ones that are witnessing a decline in growth. Service exports, with very low import content, tend to suffer from currency appreciation. Both our tourism and textiles sectors are price sensitive and are already operating on low margins. They seem to have so far maintained competitiveness in world markets by reducing their profit mark-up in the face of an appreciating currency.
THE NSTC- Whose turf?
In government, a decision can be good or bad but ought to never be naive. The decision to expect line ministries to come up with a vision and accompanying policies for their sectors within three weeks is the perfect instance of naivety, especially now that that the National Strategic Transformation Commission (NSTC) has been entrusted the task of crafting a clear vision for the country.
Most of the line ministries are involved in mundane day-to-day administrative work and routine fire-fighting. They do not have the specialised skills for such strategic planning exercise. Most of them face important human resource constraints, the most frequently mentioned are the high turnover rates and difficulties in retaining technical specialists. Moreover, the line ministries feel that the Ministry of Finance, being a mega ministry with cadres from the ex-MAB and ex- MEPD, has wrongly been utilising these resources whose core competencies lie in strategic thinking and planning as well as research and analysis instead of mere budget work.
Now that the Ministry of Finance is recruiting a whole lot of budget analysts, the ex-MEPD staff will be more than willing to take advantage of the new leadership that is being provided, after more than five years of neglect, at the NSTC under the Prime Minister’s Office. Instead of leaving the budget planners to second-guess the verities of the long-term strategic development of the country, the NSTC has been assigned this specific task for it is expected to do a better job of generating a holistic approach and create the necessary coherence, coordination and synergy with all stakeholders, especially with line ministries.
The Project Management and Delivery Unit (PM&DU)
The World Bank’s Public Sector Performance-Development Policy Loan- 2012 (WB-DPL 2012) notes that “...the fact that delays often occur in the implementation of planned public investment projects can be seen in the low levels of actual expenditure of the capital budget. This highlights not only that financial resources are inadequate but also that there is inadequate institutional and human capacity to implement these infrastructure projects in the short term.”
Capital spending has averaged a dismal 2.6% of GDP annually over the past five years. The proposed Project Management and Delivery Unit, conceptualised along the same lines as tried and described by Michael Barber, the special adviser to Tony Blair, is expected to build the overall capacity of government to implement priority projects by ensuring that the policies, systems and processes put in place deliver the promised outcomes. The approach to delivery that Barber developed is widely seen as constructive and innovative and has been described by the IMF as “the frontier” of performance management in government. His book about this experience, Instruction to Deliver, was published in June 2007 and received widespread acclaim.
A similar Project monitoring unit was set up in December 2004 at the Ministry of Finance in the initial stages of the implementation of the Medium Term Expenditure Framework (MTEF). The team was a multi-disciplinary unit comprising engineers, architects and economists who were essentially tasked to analyze the life cycle of capital projects implemented by government and those of parastatals benefiting from capital budget allocations. The objective was to reduce unit costs and secure greater value for money of capital projects.
The technical team examined details of capital projects right from conception to the commissioning stage. These included the need for justification of capital projects, effectiveness of design, costing accuracies, correctness of tendering procedures and monitoring of project implementation. The team made useful interventions in limiting costs of new project proposals, restraining cost overruns (ranging up to 90 per cent), reducing wastages and delays and generated substantial savings. It played an effective check-and-balance role and highlighted the shortcomings in the functioning of the Ministry of Public Infrastructure (MPI), several line ministries, and private consultants. They also came forward with some proposals like the Central Highway project, which was re-styled as the Terre Rouge-Verdun Link Road project and the New Administrative City (NAC), later adopted by the TINAs (There Is No Alternative) as their dream project of developing the Highlands region.
In the process, they seemed to have stepped on some sensitive but powerful toes. They were branded by the TINAs as a parallel MPI and disbanded. I am sure that the PM&DU, under the direct responsibility of the PMO, has better prospects and will be a more strengthened unit, equipped with the skills to better grasp the complexities of project management -- including a proper evaluation of costs, funding options and risks and tendering procedures which are often the cause of most cost overruns and delays -- to ensure “deliverology” on our priority capital projects.
Improving education outcomes
Before government even starts thinking about building universities in every nook and corner of Mauritius or generate one graduate per family, we must try to improve our education outcomes. We can safely leave higher education to the private players who are prepared to provide high quality professional and vocational education, campus and hostel facilities, state of the art laboratories, foreign trips, university tie-ups et al for those who are willing to take the plunge.
The WB-DPL 2012 also notes that “recent increases in public spending on basic education have had only limited results. Total spending on education as a percentage of GDP increased from 3.7 percent in 2005/06 to 4.0 percent in 2010, but pass rates and retention rates at all levels did not change significantly during this period. Mauritius now allocates a similar share of its GDP to education as Singapore, but the countries’ achievements are far from comparable. For example, while in Singapore 98.2 percent of a cohort passed the Primary School Leaving Examination in 2009, only 68.1 percent of primary school pupils passed the Certificate of Primary Education (CPE) in Mauritius. Similarly, while 92 percent of a cohort made the transition to post-secondary education in Singapore, the gross tertiary enrolment rate (GTER) was just 45 percent in Mauritius.”
Improvements in overall efficiency of the education system are critical. The rate of transition between primary and secondary education has to be increased along with improvement in survival rates in secondary education. World-class education costs money. People talk about accountability, measurements, tenure, test scores and pay for performance. These questions are worthy of debate, but are secondary to recruiting and training teachers and treating them fairly. We have to understand the centrality of teachers in education; improving our education system begins and ends with great teachers. Out teachers are being mowed down by the high student/teacher ratio, low pay, students’ indiscipline, lack of support and respect.
The treatment of teachers in the three countries that perform best on standardized tests -- Finland, Singapore and South Korea -- show that they have an entirely different approach to the profession. First, the governments in these countries recruit top graduates to the profession. In Finland and Singapore they pay for training. In terms of purchasing power, South Korea pays teachers on average 250 percent of what teachers earn in the US. Accordingly, turnover in these countries is startlingly low. In South Korea, it’s 1 percent per year. In Finland, it’s 2 percent. In Singapore, 3 percent. And most important of all, they trust their teachers. They are rightly seen as the solution, not the problem, and when improvement is needed, the school receives support and development, not punishment.
Reactivating the Indian Ocean Rim Association for Regional Cooperation
The recent inauguration of the new premises of the Secretariat of the IOR-ARC in the congenial business environment of Ebene City is an excellent opportunity to reactivate the association . The geopolitical tectonic shift is being confirmed as the economic centre of gravity gradually shifts from the west to the east and this has mostly immunised the spillover effects of the crisis to the emerging markets including the export-oriented small economies that have succeeded in diversifying their markets. The biggest opportunity will go to those economies that are complimentary to the new configuration of global economic forces rather than in competition with it. As our new development paradigm recognizes the new multi-polarity of growth and the need to rebalance/restructure the economy, our exporters, companies and investors are realising the potential in the region. But with big business from the West making a beeline for IOR region, competition will stiffen. This is where we have to make some quick moves.
There is a great opportunity for stepping up trade. We have to move beyond the traditional trade fairs and road shows. Our industry associations should make greater use of the economic diplomacy via the IOR-ARC to open new markets, work to build platforms in the region to develop strategic partnerships, set up more trading posts and aim at becoming increasingly integrated into the regional production chains. Many of the economies of the IOR-ARC offer tremendous scope as a base to tap third-country markets in the region.
Mauritius will thus need to steer the changes in a direction that will be advantageous to its growth and development but only if it has a properly tuned and consistent new trade, regional and global strategy which is part and parcel of our responses to the global and regional challenges and new developments. The Minister of Foreign Affairs was totally on target when he proposed that we chart out a new vision of economic cooperation to enhance trade and investment in the IOR region
