Eric Ng Ping Cheun is among the rare Mauritians, a handful almost, who can express a fiercely independent mind on national economic issues, without any fear or favour. His latest publication, "Penser comme un économiste", framed in the guise of lessons, offers a sharp and clinical analysis of the Mauritian economy, highlighting key burning issues, and proposing several corrective policies to improve the country’s long-term prospects.
Eric’s views lean heavily towards economic freedom and liberalism. Like true economic liberals, he is strongly pro-market, but not pro-business, or pro-labour. He has played a vital role, as an economist, in speaking the truth on economic matters, to Government and policy makers, opinion and business leaders, and the wider public. He deserves absolute appreciation for his intellectual vigour and integrity, and our deep appreciation for his varied and valuable contributions to the advancement of economic ideas.
Government intervention
Economics is basically about how we make choices, how we allocate finite resources among competing needs. Unlike economists, many people fail to fully grasp the reality that resources are finite. The populist politician even assumes an unlimited availability of resources. The economist lives in the real world, not in an alternative and illusory universe where all choices are possible, without any adverse consequences, and with a free lunch always on the table.
Given constrained choices and unavoidable trade-offs, capitalism, or free and competitive markets, provides a system for an efficient allocation of resources. However, a free-market system does not always produce fair outcomes. Not everyone benefits to the same degree – those taking greater risks usually earn a higher reward, sometimes disproportionately.
There is also the prevalence of market distortions and even of market failures, requiring Government intervention. However, misconceived or excessive Government intervention to correct the functioning of markets can accentuate distortions and work against society’s overall benefit.
For example, price controls to keep goods affordable can go wrong, if prices are set below production costs, resulting in scarcity. The recent Government attempt to control the mark up on pharmaceutical products has been associated with increased shortages. Import tariffs and import restrictions are advocated to discourage imports and encourage domestic production and self-sufficiency, but also lead to higher prices for the consumer.
Government-mandated higher minimum wages sound like music to the ears, by offering to raise the standard of living of workers, but often lead to adverse results. Wage increases in excess of productivity gains will mean employees being laid off, or not hired, in private enterprises, especially small and medium enterprises, and higher prices for everyone. The current Government and business tussle on substantial wage increases well illustrates the lack of recognition that a country cannot continue to live beyond its means.
Unchecked social welfare spending, including increases in basic retirement pensions, raises the fiscal deficit and debt to unsustainable levels, leading to a deterioration of the external deficit, of rupee depreciation and of inflation. Funding fiscal deficits, or private sector hand-outs, by central bank money printing only aggravates inflation. While our seniors are undoubtedly pleased with their bigger pension cheques, future pension benefits will be much reduced in real terms.
The national pension fund, which was a self-funded programme, was already doomed to insolvency, even before its replacement by the CSG, collected by Government. The social security system is now in a worse state, with an ageing and declining population. Pension funds of public bodies also show huge deficits. Future adjustment measures are inevitable, ranging from higher CSG rates to an increase in the retirement age, or to reduced benefits.
The recently announced interest waiver, borne by Government, on home and property bank loans to young people, adds further to make the fiscal burden unsustainable. Moreover, this measure will put upward pressure on land and property prices, as demand increases, thereby offsetting part of the interest benefit.
Our weak productivity gains fail to support higher growth
Let me turn to one of the key policy recommendations in Eric’s book, namely, to enhance productivity for a faster development of our small island economy.
Mauritius only briefly attained high income country status in 2020, and its sovereign credit rating was downgraded to borderline junk status in 2022, owing to its heavy fiscal deficits and debt. According to the World Bank, investing in human capital and boosting private sector innovation will be crucial to regain and sustain high-income country status.
For stronger growth, we must further develop our human resources, intelligence, creativity and social dynamism, look beyond our shores for new ideas, technology and innovation, and remain open to attracting and welcoming foreign investment and skills. In Eric’s words, we must embrace “l’intelligence économique comme force de frappe coopérative”, and make “un changement de paradigme politique pour stimuler la productivité”. Clearly, our weak productivity gains fail to support higher growth, weighed down by public sector overemployment and unproductive public investments, aptly described by Eric as “investissement public sans valeur”.
A most insightful observation by Eric, in my view, is about the misguided reliance on the exchange rate for enhancing export competitiveness, instead of focusing on raising productivity.
Being a highly open economy, the country’s external current account balance is a major source of vulnerability. Mauritius has long resorted to exchange rate depreciation to boost exports and limit the external deficit. Either by Bank of Mauritius’ interventions to artificially weaken the rupee, keeping interest rates low and even negative in real terms, or providing cash support to exporters.
Instead, quoting Eric, « les firmes doivent répondre à une appréciation de la roupie en améliorant la productivité et le contrôle de qualité, par des investissements et par des innovations en gestion d’entreprise. Elles doivent rechercher des gains d’efficacité en adoptant de nouvelles technologies pour fabriquer des produits à forte valeur ajoutée destinés à l’exportation ».
It’s a strong call for a thorough review of our business strategy, which is domestically focused on less productive real estate and property investments, and on private equity investments abroad. Mauritius needs to emulate the Singapore example of a trade dependent economy that successfully stabilized its exchange rate over decades through productive investments.
Equally, low interest rate policy does not promote external balance or sustained growth. Eric insists on positive real interest rates to promote savings and viable investments: « Il convient de revenir à une économie fondée sur l’épargne afin de retrouver une croissance pérenne forte. » « Toute croissance passe par une reconstitution de l’épargne ». So let’s save more, and invest better, starting with Government.
And last but not least, the quality and independence of institutions is critical to ensure well-functioning and competitive markets and robust growth. Institutions should be led by persons chosen on meritocratic principles, not by “des vauriens nommés sur la base de leur affiliation politique ou ethnique”. The quality of people matters, whether they lead the state, public institutions, or private family enterprises. After all, a country is only as good as its people.
