Mauritius moves up five places relative to its last ranking and joins the Top 20 among 190 countries according to the World Bank's Doing Business 2019 Report published on 31 October. Government jubilates about this good score being a testimony to Government’s efforts to build a robust and resilient economy.
The PM highlighted the fact that “the efforts deployed since the past three years by Government have consolidated the position of Mauritius on the international front and have accentuated the trust of international investors vis-à-vis Mauritius.” This is testimony, he said, of the various measures implemented such as the enactment of the Business Facilitation Act 2007 as well as budgetary measures. The country came first in all four indicators such as Safety and Rule of Law, Participation and Human Rights; Sustainable Economic Opportunity; and Human Development. Furthermore, Mauritius ranks 6th as regards the efficiency of its taxation system and six indicators on 10 have been improved last year.
Commenting on this progress, the CEO of the Economic Development Board (EDB), underlines that Mauritius remains a "competitive and attractive jurisdiction while consolidating investor confidence". He added that the EDB is currently working on the establishment of e-licensing and a business process re-engineering. Measures that should further contribute to business facilitation.
But critics will say that “Doing Business” indicators doesn’t tell the whole story. The indicators should be considered alongside many others. Doing Business is a sort of economic cholesterol check — important, even critical, but not the whole story. We have seen this before: these reports come in quite glossy paper well packaged to show that the poster boy Mauritius has carried out meaningful reforms which government and its cheerleaders repeat parrot-like. In 2009, Mauritius improved its ranking from 24 to 17 (out of 183 countries). The improvement in ranking at that time was treated with same kind of jubilation that we are seeing now and with more or less the same comments about a more competitive and attractive Mauritius that “will bring in foreign direct investment, critical for country’s development, especially new and more committed capital,(it) will introduce new technologies and management styles, help create jobs, and stimulate competition to bring down local prices and improve people’s access to goods and services.”
This is not necessarily true in our case; the capital inflows were mainly in the real estate and banking sectors and at the mere sight of some economic shocks the capital inflows are found wanting. In such cases, these reports do add a footnote that “their indicators only provide a starting point for governments wanting to improve their global investment competitiveness. They do not measure all aspects of the business environment that matter to investors. For example, they do not measure security, macroeconomic stability, market size and potential, corruption, skill level, or the quality of infrastructure.”
Since it is possible to improve competitive rankings by bringing a few changes to the indicators, Governments go for the easiest reforms, which are not necessarily the most important for business or the economy. Like the previous regime, whose main reforms were the few touches to the tax rates and some improvements in the investment climate framework, the present government’s reform agenda remains unfinished while critical constraints to economic development are becoming increasingly evident. At the end of 2014, this government inherited an economy with some weak macroeconomic fundamentals. The legacy was such that it could not continue on the same trend. Instead of bold decisions to carve out some decisive moves towards an alternative development paradigm anchored in the new realities- for example, the need to reorient the economy toward higher value added and more productive activities- it continued with the with the same lethargy in policies and project implementation thus failing to drive the economy to a new plateau of sustained growth.
The propensity for real estate investment rather than growth-enhancing investments and the ill-managed huge GBCs net inflows that had led to the so-called “Dutch disease”- as reflected by declining importance and the slowdown below trend growth of the manufacturing component of the Export Oriented Industries- has continued. Same thing about private investments which continue to be geared towards real estate driven activities rather than to production for export, particularly of services.
It will take many more years for us to realise a more diversified, high income and high tech economy. We will continue with our steady growth course of below 4%, supported mainly by household consumption and public investments. In 2018, private investments will not grow in real terms. Even with the projected scaling up of the public investment programme, the investment rate will remain stuck at around 17-18% of GDP. However, the push for stronger GDP growth, well above 4% to achieve higher income status, will require a much higher level of investments, and a more ambitious gamut of policies to address structural economic imbalances, and raise overall productivity and competitiveness.
Indeed, there are so many reasons why we have to cut short the jubilation and rejoicing. Major risks to durable growth lie in the external sector, which is under pressure from a number of sources. The deficit on net exports could again widen sizeably as the rebound of oil and commodity prices and the appreciating US dollar raise the value of imports. Financial stability is heavily reliant on continued large inflows of capital for the balance of payments. It will become increasingly important to address the savings-investment imbalance, and revive the domestic savings rate in order to finance the country’s growing investment needs on a sustainable basis. Unfortunately, even our government cheerleaders, now engrossed copiously in partying and celebrations, will have to finally come round to the hard realities of the economy, once they have recovered from their hang overs.
