The construction sites, or “chantiers” in common parlance sprouting all over the island do not seem to be producing that much of an impact on the economy. These activities do not seem to be stimulating growth. Despite the fact that the construction sector is booming with a growth rate of 9.5% ( as compared to 7.5% in 2017), the latest national accounts estimates of Statistics Mauritius, of March 2018, forecast a growth rate of less than 4% in 2018,which is marginally higher than in 2017. Why ?
The main reasons that may account for this lack of positive correlation between the “chantiers” and growth or the generation of jobs or a feel good factor as reflected in the improvement in people’s life or standard of living may be because of the following: (1) the projects may have a low investment multiplier in the short run because of their high import content; they act more on the demand rather than the supply side and this leads to important leakages through imports, (2) Many of these projects have long gestation periods; indeed most of the investment multipliers for urban infrastructure in SIDS tend to be low in the short term and lower than multipliers in the export or the manufacturing sector which have a greater potential of boosting growth substantially and creating productive jobs in the short run. (3) Whatever the impact of these multipliers, there are reasons to believe that there are other factors that are plateauing or deflating the growth rate, namely
a) Slowing down of manufacturing exports : The share of the manufacturing sector in the economy has been decreasing from 15.7% in 2013 to 13.4% in 2017. Over the past three years the sector has been growing at an average rate barely higher than 0.5%. Manufactured exports are facing strong headwinds, including domestic cost pressures, a weak US dollar, and Brexit. Giveaways like the 40% reduction in air freight costs to Europe and the Exchange Rate Support Scheme to support the export-oriented sector, besides being distortionary, are poor substitutes for structural reforms to address the emerging cost competitiveness challenges.
Real growth rate (%)
|
2015
|
2016
|
2017
|
Exports of goo
|
-2.7
|
-10.5
|
-4.4
|
-Manufactured goods
|
-2.4
|
-6.9
|
-4.1
|
b) Low investment rate: Public investment has continued to stagnate at around Rs19 bn annually for several years. Private investment recovered strongly in 2016 and 2017, after years of negative real growth, but would show a zero real increase in 2018. Even with the projected sizeable public investment programme, the investment rate will remain stuck at around 17% of GDP in 2018, since private investments account for three quarters of total investments.
c) Shrinking net exports : Net exports of goods and services averaged a deficit of around Rs43 bn during 2011-16, but this gap grew substantially to Rs 60 bn in 2017, and is forecast to widen further to Rs65 bn in 2018. Net exports of goods and services relative to GDP are back to the trend level of 13% of GDP, after a slight and short-lived improvement. This heavy external deficit can be sustained only if capital flows are continuously available in the longer term to finance the balance of payments. The offshore banking and global business sector has so far provided a source of capital for meeting the goods and services deficit and generating balance of payments surpluses. But, external threats are looming, such as the end of quantitative easing in the U.S. and the EU, with an attendant rise in global interest rates, the ongoing OECD and EU initiatives to curb the business of tax havens, and the final elimination of the capital tax advantage under the India Mauritius tax treaty in April 2019.
RChand
