AFRICANGLOBE – Companies in Mauritius’ dominant economic sectors – tourism, agribusiness and textiles – need to find new markets outside of Europe. The country’s planners are crafting a more conducive business environment that will allow Mauritius to profit from links to new trading partners in Africa and Asia.
Just as Mauritius often endures the cyclones that tear across the Indian Ocean with minimal damage, so the economy of this small island has withstood the aftershocks of the financial crisis on the other side of the world. The country’s ability to adapt to changing external factors yet retain its stability will continue to be tested.
The government wants to reduce dependence on trade with Europe, encourage private sector growth and enhance the service sectors of an economy that has long been based on exporting goods.
The process is already underway. The government has overhauled key sectors over the past five years. The textile companies moved production to lower- cost countries and secured high-value export markets in the face of increased worldwide competition.
Sugar producers have cut costs and production but shifted to added-value processing after the European Union (EU) scrapped a guaranteed price for the island’s principal commodity. The restructuring was supported by a government stimulus package, backed by EU aid.
European Impact on Mauritius
But now the other two pillars of the economy are at risk. A drop in visitors from Europe has hit the tourism industry, whilst the Indian government’s concerns about abuse of a double taxation threaten to weaken the boom in offshore banking.
Gross domestic product growth – forecast at 3.5% this year – has been held back by the downturn in Europe, which, together with the United States, bought three-quarters of Mauritian ex- ports in 2011.
Europe was also the source of two-thirds of last year’s tourist visitors and 60% of foreign direct investment.
There are other structural problems. Unemployment, officially around 8%, is more acute amongst the young population and a rising average age is leading towards a pension-funding crisis.
The external trade and fiscal deficits are widening this year as the effects of a state investment programme kick in.
Mauritius has got out of previous crises through the quick reactions of a resourceful private sector, dominated by a few large conglomerates, backed by government initiatives.
“Sugar is an indication of what we should be doing here,” says Rundheersing Bheenick, governor of the Bank of Mauritius. “The sugar estates no longer produce just sugar; nowadays we talk of cane. The industry produces electricity and various other by-products are extracted.”
Government’s supply-side stimulus measures since 2008 have included low-interest bank loans for companies to save jobs, the Economic Restructuring and Competitiveness Programme and the National Resilience Fund for companies in financial difficulties.
There is consensus among private sector leaders and independent economists that the state must curb welfare spending and support for inefficient state industries.
The governing coalition led by Prime Minister Navin Ramgoolam’s Parti Travailliste (PT) is sometimes fractious and has relied on a very small majority to survive since the abrupt exit last year of the Mouvement Socialiste Militant.
The smallish Parti Mauricien Social-Démocrate led by Xavier Luc Duval took its place. Like his predecessor Pravind Jugnauth, Duval is the son of a hero of the independence era and has become finance minister and one of three deputy prime ministers.
“The tripartite alliance of government, opposition parties and trade unions is the main forum for economic policy making. Decisions are reached by dialogue,” says Eric Ng Ping Cheun, an economist who has chaired two state-owned banks and now runs PluriConseil, a consultancy firm. “Often this works well, for example, with setting public sector wages.
However, it has not been as effective when it comes to some of the strategic policy decisions, such as pension reform or restructuring the parastatals,” says Ng.
Ideological differences amongst the coalition partners are limited, and the Mauritian government has a tradition of reaching decisions by consensus.
But, with the economy in a fragile state, taking on powerful public sector companies is politically risky and the PT is backed by the majority Asian-origin population that dominates the civil service.
Members of the private sector say the need for reform is apparent, especially for the connectivity that is vital to the economy of a small remote island that seeks to turn itself into a service sector hub.
Leading bankers, information technology (IT) specialists and manufacturers argue that transport and telecommunications links need to be improved.
The IT sector made up 6.7% of gross domestic product in 2011, according to government statistics, and is one of the fastest growing, spurred on by international investment in business process outsourcing (BPO).
Critics say the low quality and high cost of internet and mobile phone services are holding back IT and the rest of the economy, largely because of the de facto monopoly of Mauritius Telecom.
“Mauritius can be an IT hub, but we need more competition, especially in internet service providers”, says Vidia Mooneegan, the managing director of US-based Ceridian Global Workforce, which was among the first international firms to invest in software development and BPO in the island’s gleaming new Cyber City IT hub.