How resilient is our economy ?

(Publishd in l'express, 28 October 2020)

If the already slowing economy were not enough, the closing of our borders, the lockdown, a surging pandemic worldwide amidst a still gloomy global economy has further crippled our businesses and left thousands unemployed. The Ministry of Finance, the Bank of Mauritius and the Economic Development Board ,which have the most challenging job of steering the country out of trouble, seem to be quite confident of getting the economy back on track .

One after another, they are finding green shoots everywhere and they have set their confidence-building tactics going full-swing in managing public perception. After the BOM and the MOF, it’s now the EDB which is trying to assure us that we will be able to skive off the contraction in the economy as a result of the “Black Swan” (sic) Covid -19 ( Trying to look and act smart, the EDB’s Ag. CEO happens to be off-mark !!! Going by Nassim Taleb’s definition of Black Swan, Is Covid-19 really an outlier ? Is it that nothing in the past can convincingly point to its possibility? We doubt it, as epidemics and pandemics have been the number one mass killers of people, outperforming even natural disasters and wars !). We are now being told that the economy is fragile but resilient.

How is the economy becoming so resilient ? Do not worry about that!, our EDB is there to restructure our development model – “Au niveau de la structure économique intrinsèque, il est important que nous repensions à valoriser les secteurs productifs pouvant avoir un apport prépondérant en ce qui concerne la souveraineté alimentaire, la santé tout en réduisant notre facture d’importation. …..De manière plus générale, nous multiplions nos efforts pour promouvoir des secteurs productifs en travaillant sur la compétitivité intrinsèque du pays et en nous focalisant sur des marchés promoteurs tout en utilisant de manière ciblée les outils informatiques ..” - bla-blas that we have been hearing for the past ten years , like the nice sound bites and headlines grabbers of the recent budget speech.

And what about the emerging sectors ? Here also our EDB cannot be said to be found lacking, they have the whole set of right policies all laid out for us –“ Plusieurs opportunités de développement sectorielles subsistent à Maurice et l’EDB y accorde une importance stratégique afin de consolider leur impact dans l’écosystème national. Parmi les secteurs ayant un potentiel de croissance, nous retrouvons notamment l’économie circulaire, la nutraceutique, le gaz naturel liquéfié, la biotechnologie, l’économie océanique, l’informatique, les centres de données et la fintech. “

It is all there for the taking ! It is just a question of implementation and our economy will be thoroughly diversified and back on track to realize the 9 .5 % and above growth rates. Our friends of the EDB get so carried away by the exuberance of their vision- cum- fantasy world scripted by the different foreign experts, like their promotional Covid-free videos of Nas Daily and the cover wraps in "The Economist" magazine, that they are not even aware of the reality that comes knocking at their doors.

They design the policies sitting in government offices with the assistance of foreign experts but they never try things out ; it is all about policies that have never been implemented or put to the test and grounded in our local realities ; they have been through this, again and again, bluffing their way with vain promises of developing so-and-so pillars of growth or hubs (Biotechnological Hub, Petroleum Hub, Bunkering Hub, Financial Hub …) and adding a new hub or pillar every year- the latest being the Ocean Economy and Fintech-Blockchain- Cryptocurrency Exchange but with zero results as usual- total fiascos !!!

Our Ag CEO is again off the mark when be brags about “La mise en œuvre de plusieurs projets immobiliers a débuté au second semestre de cette année pour les biens résidentiels, commerciaux, espaces bureaux, etc., à travers l’île dans les “smart cities” telles que Cap Tamarin, Trianon City, Moka City, Beau-Plan Smart City et Uniciti. Dans les six prochains mois, nous attendons une vingtaine de projets qui vont se mettre en chantier avec une période moyenne de trois à cinq ans pour leur concrétisation et qui nécessiteraient un investissement estimé à Rs 20 milliards “.

Again, they are relying on capital spending to get the economy going . But their whole narrative about the impact of capital spending on the economy contains some serious flaws. The apparent attempt to resuscitate economic activity via an overemphasis on capital spending is not likely to reboot the economy and extricate it so easily from the quicksand of the recession (to recovery)-a route that we have tried before with heavy public sector investment growth of 18.3% and 19.4% in the last two years failing to break the growth barrier of 3.4%. In 2019, growth even dipped to 3.0 %.

If they dare to look beyond their own rhetoric, there are reasons to be increasingly worried and concerned that it is more likely that it will take some years before our main economic indicators reach their pre-Covid levels. The deterioration in a large number of parameters continues in areas like economic prospects, overall economic situation, overall business situation, financial situation, sales, working capital requirement, production levels, availability of finance for SMEs, demand, supply, cost of raw materials, utilisation of production capacity, sales, profits, corporate debts, capital inflows, the budget deficit, the trade and current account deficits, the exchange rate, the inflation rate and the level of foreign reserves . Pain points in the economy continue to outnumber the few comfort zones.

Statistics Mauritius cautions us that the forecasts for 2020 and beyond have been built on a scenario which envisages a more prolonged recovery. Recovery will take time for sectors in extreme difficulties and there is also no near term prospect of a recovery that will bring GDP to its pre-pandemic level. Our GDP at basic prices is forecasted to contract by 13.0 per cent in 2020, taking the size of the economy to its 2016 level of around 380 bn compared to its value of some Rs 440 bn in 2019 . In quarterly terms, our GVA growth rate for the second quarter of 2020 over the corresponding quarter of 2019 is estimated at -32.9%. Investment demand took the most severe beating. Gross fixed capital formation (GFCF) slumped by 70 per cent while consumption demand, reflected in private final consumption expenditure, fell by 42 per cent .

The capacity of the economy to bounce back depends, to a large extent, on the state of the economy pre-Covid. With greater fiscal space, a reasonable level of public sector debt to GDP , a more manageable current account deficit and greater efforts to act more decisively and responsibly, the economy would have been really resilient and better equipped to absorb the shocks and recover. Unfortunately, with this government, economic management has today turned into economic irresponsibility which continues unabated despite the economic downturn. For how long will the Central bank continue to defend the rupee ? And at what cost?

As the country plunges into recession with rising unemployment and a rapidly depreciating rupee fuelling inflationary pressures, and our exports of goods and services failing to pick up, the country stands the risk of diving into stagflation which will pose one of the biggest economic challenges for recovery. Indeed, with our elevated levels of budget deficit and Public Sector Debt (one of the worst in Sub-Saharan Africa) and the present irresponsible populist policies, Mauritius seems to be taking the road to stagflation. Getting out will be another herculean task.!!!

13Harish Chundunsing, Raj Ramlugun and 11 others

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