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The economic success of Mauritius:lessons and policy options for AfricaSanjeev K. Sobhee aa Department of Economics and Statistics , University ofMauritius , Réduit, MauritiusPublished online: 06 Mar 2009.
To cite this article: Sanjeev K. Sobhee (2009) The economic success of Mauritius: lessonsand policy options for Africa, Journal of Economic Policy Reform, 12:1, 29-42, DOI:10.1080/17487870902739186
To link to this article: http://dx.doi.org/10.1080/17487870902739186
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Journal of Economic Policy ReformVol. 12, No. 1, March 2009, 29–42
ISSN 1748-7870 print/ISSN 1748-7889 online© 2009 Taylor & FrancisDOI: 10.1080/17487870902739186http://www.informaworld.com
The economic success of Mauritius: lessons and policy options for Africa
Sanjeev K. Sobhee*
Department of Economics and Statistics, University of Mauritius, Réduit, MauritiusTaylor and FrancisGPRE_A_374088.sgm10.1080/17487870902739186Journal of Policy Reform1384-1289 (print)/1477-2736 (online)Original Article2009Taylor & [email protected]
As a sub-Saharan country, Mauritius has been branded a success story in terms of itssustained economic growth performance, with major improvements in the livingstandards of its population at large over the past few decades. This paper has theobjectives of revisiting this success story, essentially by analyzing the numerous policiesthat have been adopted, to provide insights into Africa’s policy options. The Mauritiancase study demonstrates that no single dose of economic reforms may generate growthdividends to perpetuity, especially when the current economic environment differs frominitial conditions.
Keywords: macroeconomic analyses of economic development; development planningand policy; Africa; regional economic activity: growth, development, and changes
JEL Classification Codes: O11, O2, O55, R11
1. Background
As a small but relatively fast developing economy of sub-Saharan Africa, Mauritius couldprovide useful insights into the relevant policies that could help frame the growth potentialof at least a few countries of Africa. Its political, economic and social history and evolutionare all suggestive ingredients that matter in understanding how this country has become amajor economic power in the Southern and Eastern African continent. Over more than threedecades of independence, Mauritius has gained sufficiently broad experience in implement-ing a wide spectrum of macroeconomic policies with deep micro-foundations, both at thenational and regional levels, to struggle for a positive and sustainable growth path.
Mauritius became independent in 1968, after 158 years of British colonization, after alsohaving been ruled by the French, Portuguese and Dutch over successive periods since itsdiscovery. The official language of the country is English and today, as a matter of historicalcoincidence, it has inherited a plural population of 1.2 million, comprising people of Indian(as the majority), African, Chinese and European origins. This diversity is an exemplaryone, due to social stability, and is further considered to be the social capital of the countrygiven its preponderant role in attracting foreign investors while consolidating commercialties with different continents (Subramanian and Roy 2001). Ethnic tolerance has thereforebeen a major catalyst in strengthening this capital.
The Constitution of Mauritius is a composite of the British Constitution and the FrenchCode Napoleon. As regards its judiciary, the latter comprises the Supreme Court, at theapex, with a number of lower level courts with the highest Court of Appeal being the BritishPrivy Council. On the other hand, the executive branch is made up of the President of theRepublic of Mauritius, as the Head of State; while the legislative branch comprises the
*Email: [email protected]
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Prime Minister who heads the government. The National Assembly is composed of 66 seats,of which 62 are secured through popular vote, and four are allocated on the basis of ethnicminority from the losing political parties. Its democracy is based on a multi-party system,in which coalitions are common and basically formed at the time of elections. The latterhave been held promptly with a tenure period of five years on average and tend to supportthe credence of political stability. These constitutional and political arrangements haveproven to be commendable from an international standpoint (see, for instance, HDR 2005).More of these issues are addressed and unfolded in the section on institutional quality laterin the paper.
Mauritius has developed from a low-income to a middle-income economy within a rela-tively short period of time, with an average annual growth rate of 5.5% over the past 10years, a per capita income of US$5500 today compared to $200 in the late sixties, and acorrespondingly substantial reduction in poverty. There have been significant structuraltransformations in the economy characterized by doses of policy reforms, from the agro-based mono-crop culture (dominated by sugar production) to a much more diversifiedexport-oriented one. In contrast to 1968, today the share of primary sector production hasdeclined from 23% to 6%; manufacturing has increased from 15% to 30% while serviceshave expanded further from 62% to 64% albeit with more intra-sectoral diversification. It isundeniably true that the first decade of the post-independence era was not at all conduciveto promoting growth, particularly because the economy was plagued with rapidly deterio-rating fiscal and external imbalances, high external debt, fast increasing unemployment andinflation rates, compounded with the sluggish performance of the world economy. Thedepressing economic situation urged the country to undergo significant structural adjust-ments administered by the IMF,1 while two devaluations of the order of 20–25% occurredbetween 1979 and 1981. It was only after 1987 that the economy truly recovered, with fiscaldiscipline restored, and export-oriented strategies in place. In fact, the export-led growth ofMauritius could in essence be explained by access to preferential trade arrangements underthe Lomé Convention, for its sugar, and the Multi-Fibre Agreement, for its textile products.However, these privileges are gradually phasing out as the world economic environment isincreasingly being dictated by trade liberalization. Hence, the country has to be ready fornew, but more cut-throat, challenges and choose yet another round of robust economicreforms to sustain its growth path.
While it remains a fact that trade preferences have been catalytic in the success story ofMauritius, they may not, however, be the only players in this success. In fact, there are othercountries which have had similar trade preferential access, but did not display similar trendsin economic progress (Subramanian and Roy 2001). There are other major economic, socialand political drivers that have to be carefully investigated, identified and analyzed in eval-uating the success story. Thus, the multi-fold objectives of this paper are to describe andstudy the broad, albeit pertinent, policy reforms implemented at all levels, over the past fewdecades in this specific country case, to throw more light on their potential for Africa’seconomic development.
Highlights of policies put in place reveal that the government has adopted and put intopractice the Washington Consensus by providing the private sector with ample scope toexpand, especially in the late 1980s, and thereafter through the least distortionary fiscalmeasures. Moreover, the state has been a facilitator in providing the necessary incentivesand infrastructural development to promote private investment. The post-structuraladjustment period was marked by a significant departure from the Keynesian-type demandmanagement policies prevalent in the 1970s and superseded by more consistent and growth-promoting supply-side techniques. The latter allowed for more market-friendly measures,
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intra- and inter-sectoral diversification of the economy and greater scope for openness. Todate, these techniques are still being adopted and revamped to adjust to the ever evolvingeconomic environment.
The remainder of the paper is organized as follows; Section 2 emphasizes the evolutionof different sectors of production and the role of institutional quality; Section 3 elaborateson the achievements in the social sector and the microeconomic measures adopted; Section4 deals with the socio-economic challenges; Section 5 deals with the policy lessons forAfrica; and the last section concludes.
2. Structural transformations and macroeconomic reforms
Sectoral transformation
Over the past three decades, economic growth in Mauritius has been principally driven bythree main sectors; sugar, tourism and the Export Processing Zone (EPZ), while financialintermediation, a fourth sector, played a more prominent role over the last decade. In thepost-structural adjustment period (after 1983), the manufacturing sector, in particular theEPZ, did perform extremely well as a major contributor towards the growth performancethrough remarkable increases in net exports. However, with the gradual phasing out oftrade privileges, Mauritius had already started to diversify its economy further by establish-ing two more pillars, namely financial services, particularly offshore banking and morerecently Information and Communication Technology (ICT). The government elected inJuly 2005 has urged for further expansion of the existing pillars to incorporate the seafoodhub and the knowledge hub. In addition, the government is developing partnership withIndia which has the necessary expertise and experience in promoting the ICT sector.Altogether, in developing the seafood sector, the possibility of entering joint ventures withthe Malagasy government is being envisaged. Malagasy Republic, besides offering a lowcost of labor, has rich stocks of fisheries resources. These initiatives are consistent withRodrik (2006) to become more resilient against potential external economy shocks, therebyensuring sustained economic growth. Table 1 illustrates clearly the evolution of the differ-ent pillars of the economy.
Table 1. Gross Domestic Product – sectoral growth rates.
2002 2003 2004 2005*
Agriculture and fishing −16.3 1.6 5.8 −3.4- Sugar cane −25.0 3.1 6.5 −3.9
Manufacturing −2.4 0.0 0.3 −1.3- EPZ products −6.0 −6.0 −6.8 −8.0
Construction 6.3 10.2 −0.2 1.0Wholesale and retail trade 3.0 1.0 4.0 4.5Hotels and restaurants 3.1 3.0 2.4 4.8Financial intermediation 4.5 6.0 5.9 7.8
- Banking, including offshore 4.3 6.4 6.2 8.9GDP at basic prices 2.1 3.9 4.1 3.8Overall growth excluding sugar 3.6 3.9 4.0 4.1GDP at market prices 2.1 3.8 4.8 3.0
Source: Central Statistical Office; * = estimates.
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These macroeconomic indicators capture the compositional and directional changes ofdifferent sectors, with respect to GDP, in more recent years. They illustrate the changingpatterns of production under the regime of greater trade liberalization and the urgent needfor further diversification. In real terms, the economy grew around 4% over the periodshown (2002–2005). A discernible trend can be observed in agriculture and services whichremain dominated by tourism and financial services. Agriculture has been on the declinewhereas services have been on the rise. The trend in manufacturing could be explained bythe loss of competitiveness of the EPZ sector due to the relatively higher wage costs andpersistently low productivity. Foreign investors have indeed been reshuffling their invest-ment portfolio to seek more profitable markets such as Bangladesh, Madagascar andMozambique where labor costs are much lower. Altogether, some domestic investors havealso started to delocalize production to tap the cheaper pool of labor in the region. LowerForeign Direct Investments (FDIs) and delocalization of EPZ firms have led to the closureof the non-competitive local firms. Hence, following this trend, a marked decline of thevalue added in the manufacturing sector occurred. The constant decline in sugar pay-offs isexplained by the unprecedented low sugar prices faced by domestic producers in 2005 asand when more liberalization sets in. However, the 2002 trend could be explained by theoccurrence of tropical cyclone Dina which affected sugar yield and other primary sectorproduction severely. Vulnerability to climate change and extreme weather conditionsremain valid reasons to explain the diversifying portfolio of aggregate production.
In contrast to the primary and secondary sectors, the tertiary sector’s growth has beensatisfactorily stable. In particular, the relatively new sector, financial services, of whichoffshore banking, remains impressive and promising. It is worth noting that the good perfor-mance of the services sector has offset the declining performance of the other two sectors,namely sugar and textiles, allowing the GDP to at least grow at 3.0% in 2005. Moreover,the increase in output has helped to maintain inflation within controllable bounds, despitethe recurrent fiscal deficits, which on average have been exceeding 5% over the last fouryears. Inflation rates have been below two digits over the years reported and the average hasbeen between 5% and 6%, a comfortable range. In fact, for the year 2004, the inflation rateturned out to be 4.8%, lower than the average of previous years. Employment levels whichstood around 500,000 in 2004/05 have also been evolving according to the structuralchanges in the economy. The share of employment in the sugar sector has been decliningsystematically over the past three years from 29,400 in 2000 to 19,900 in 2003; the sametrend was noted in the EPZ sector, where employment levels fell from 89,800 to 80,000 overthe same period due to the closure of several enterprises. However, the trend was reversedin the services sector, especially in tourism-related services, finance and transport andcommunication. In short, the increase in employment levels rose from 238,800 to 264,900over the period 2000–2003.
These figures corroborate the important fact that Mauritius is at a turning point. Thetraditional sectors, sugar and textiles, which once had outstanding contributions to the GDP,have become exhausted as they stand today and would need significant and immediate,albeit carefully designed reforms to ensure their sustainability. Otherwise, the economy hasto strengthen its services sector and look for other production outlets in which it may havea comparative advantage.
Fiscal policy
Fiscal policy in the first decade of the post-independence era was guided principally by theKeynesian advocacy of expansionary public spending to achieve higher economic growth
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rates through linkage effects (see for instance Sobhee 2003). This led to pronounced fiscalimbalances and worsening of economic conditions in the late 1970s and the beginning ofthe 1980s. However, following structural adjustments and a shift in policy regime, macro-economic fundamentals were restored, and the state took prudent measures by investingmassively in both physical capital formation and human capital formation. Such investmentprovided the necessary infrastructure and manpower to attract more foreign direct invest-ment, leading to an expansion of the productive potential of the economy as a whole. Theincreasing investment and the expansion of EPZ exports led to higher growth rates thathelped the state to reduce its external debt significantly from 24% in 1981 to 12.9% in 2004.Such huge investment by the state in public infrastructure and communication networks, aseconometrically justified by Sobhee (1999), led to crowding in effects for domestic privateinvestment. Moreover, in more recent years, the state has replaced foreign debt by local debtin order to reduce its vulnerability to exchange rate movements and the risks of higherdomestic tax liabilities. All in all, the government has drastically reduced its reliance ondebt monetization from 20% at the beginning of the 1980s to less than 5% today. Thispolicy is essential to minimize inflation and its distortionary effects. The cautious and selec-tive government intervention programs have encouraged a more market-friendly environ-ment conducive to economic growth. It is informative to add that the initial conditions thattriggered rapid policy reforms which proved to be successful were backed by strong politi-cal will. In certain emerging economies such initial conditions may hamper the success ofstructural reforms, especially in the absence of strong political commitments, as pointed outby de De Melo et al. (2001) and Balcerowicz and Gelb (1994).
Rogoff (1985) and Sargent and Wallace (1985) have emphasized the implications ofhaving an independent or conservative monetary agent. Despite the political independenceof the Bank of Mauritius, as its governor is appointed by the incumbent government, inrecent years monetary policy-making has taken an economically independent path. Therecently created Monetary Policy Board ensures that there is little interference bythe government in its composite membership. This has helped to create more credibility ofthe institution vis-à-vis private agents. Announcements of policies are essential, as high-lighted by Kydland and Prescott (1982), Barro and Gordon (1983) and Chari and Kehoe(2006), in ensuring a market-friendly environment, especially when private agents setexpectations about prices, real wages and real growth movements. Moreover, to avoid theproblem of dynamic inconsistency, it is very important for the government to stick to itscommitments, that is, to honour at large what measures were originally announced. In thecontext of Mauritius, announcements have been a recurrent feature of both fiscal and mone-tary policies for over a decade now. This is done to typically encourage the business commu-nity to set investment and production targets in line with public sector objectives and toencourage greater policy co-ordination between the two. To avoid the problem of timeinconsistency, however, the Bank of Mauritius (BoM) has introduced the BoM bills asopposed to the government bills which still exist and are managed by the Bank, but theformer would be more appropriate and effective in regulating the money stock. Furthermore,the pre-budgetary consultation is another channel through which different stakeholderscould be involved when it comes to the implementation of a policy or adoption of radicalreforms. Consultation within the government departments and ministries does also takeplace to ensure that their financial exigencies are considered in this preparation. By andlarge, the government tries its best to accommodate relevant measures, policies andearmarking of funds after the pre-budgetary consultation. This approach is also successfulto channel public expenditure in the right direction and to meet the expectations of variousstakeholders and, more importantly, breeds more confidence in government action.
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Financial sector reforms and micro-credit schemes
As early as the 1980s, the government realized the need to reform the monetary and finan-cial sectors for more effective mobilization of financial resources and to promote confi-dence of the international community in the financial system. Under the supervision andguidance of the Bank of Mauritius, commercial banks have been instructed to provide awide array of financial packages to small and medium enterprises in order to boost privateinvestment and encourage the small and medium enterprises (SMEs) to invest in agro-business, aquaculture, garments, retail outlets and other niche markets. The SMEs havebeen encouraged to take full advantage of the regional trade agreements (RTAs), such asthe Southern Africa Development Community (SADC) and Common Market for Easternand Southern Africa (COMESA) amongst others, to outsource their products. Interest rateshave been kept within controllable bounds and intentionally regulated through openmarket operations and moral suasion as and when the need was felt. Such facilities havefurther helped in the progress of the EPZ and services sector bringing multiplier effects tothe economy. Financial sector development was remarkable in the mid-1980s and begin-ning of the 1990s, with the formalization of the Stock Exchange of Mauritius in 1989 andthe emergence of non-bank financial institutions such as the National Mutual Fund Ltd,National Investment Trust and the Mauritius Leasing Company. These institutions wouldplay a key role in resource mobilization and financial capital accumulation. In addition,the Development Bank of Mauritius has played an equally important role in agriculturalcredit and softer loans to some priority sectors of the economy at highly concessionaryrates. These have encouraged the inception of small scale businesses, such as retail outlets,the community of planters and of fishermen who could strengthen their production tech-nologies and reduce their vulnerability to risks and uncertainties.
External trade regimes
The external trade sector was marked by trade preferences under the Lomé Convention forsugar and the Multi-Fibre Agreement for garments. Such preferences provided unrestrictedaccess to the European Market for sugar exports and the US market for the exports ofgarments. In fact, Mauritius took full advantage of the Multi-Fibre Agreement by offeringattractive fiscal incentives, such as duty free access to imported raw materials for the textileindustry and unprecedented tax concessions on profits realized by foreign investors. Thesewere complemented with a segmented labor market for the EPZ sector in which femaleworkers were the majority employed with low educational attainment and consequentlyrelatively low wage rates. On the other hand, to ensure the smooth inflows of exports earn-ings, the Bank of Mauritius has been using an undisclosed trade weighted average systemto stabilize the external value of the Rupee over the period 1980–1993. Dabee (2001) arguedthat, after this period, to allow for better signals in the exchange rate market and externaltrade transactions, there was a shift towards a market-determined exchange rate regime withregular interventions of the central bank whenever there were large and undesirable fluctu-ations in the external value of the Rupee. The potential threats to developing countries withrespect to trade liberalization have urged many economies to establish regional tradingblocks such as the SADC, COMESA and New Economic Partnership for Africa’s Develop-ment (NEPAD) amongst others. Mauritius is party to all the three mentioned here and hasbeen actively involved in ratifying regional policies that would promote trade amongmember countries and macroeconomic convergence. It has to be highlighted that Mauritiushas not benefited so far from its multiple membership in regional arrangements. The move-ments of goods and services between Mauritius and member countries in the SADC and
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COMESA have actually been low. To be on a par with the exigencies of trade liberalization,the government has been substantially reducing excise and customs duties, which hasresulted in a loss of fiscal revenue but fortunately offset with increasing corporate andpersonal tax rates and other tax reforms that improved compliance to a great extent.
The quality of institutions
Works by North (1990) and Williamson (1994) provided a major breakthrough in thegrowth literature in exclusively emphasizing the role of institutional quality in promotingeconomic growth. With respect to the African continent, Collier (2006) and Ndulu (2006)have made a parallel observation; that to give a big push to Africa’s economic perfor-mance, it is vital that the quality of institutions should be made robust and sustainable.Indeed institutional quality by far constitutes an important channel which determines cred-ibility in local institutions, confidence of the international community and overall macro-economic stability.
Indicators of democracy and governance for Mauritius are given in Table 2 and pertainto the Human Development Report (2004). This provides international evidence on the
Table 2. International indicators of democracy and governance for Mauritius.
IndicatorValue for Mauritius Standard Range of Values
Polity Scorea 10 −10 to 10Civil Libertiesb 2 7 to 1 (1.0–2.5 free, 3.0–5.0 partly
free and 6.0–7.0 not free)Political Rightsc 1 7 to 1 (1.0–2.5 free, 3.0–5.0 partly
free and 6.0–7.0 not free)Press Freedomd 17 100 to 0 (0–30 free, 31–60 partly
free and 61–100 not free)Voice and Accountabilitye 1.27 −2.50 to 2.50, higher the betterPolitical Stability & Lack of Violencef 1.12 −2.50 to 2.50, higher the betterLaw and Orderg NA 0 to 6, higher the betterRule of Lawh 1.00 −2.50 to 2.50, higher the betterGovernment Effectivenessi 0.76 −2.50 to 2.50, higher the betterCorruption: Perceptionj 4.5 0 to 10, higher the betterCorruption: Graftk 0.49 −2.50 to 2.50, higher the better
Source: The State and Progress of Human Development, Human Development Report (2004).Notes: (a) Measures the institutional factors necessary for democracy (laws and institutions). Scores range from−10 (authoritarian) to 10 (democratic); (b) encompasses freedom of expression and belief, rule of law and humanrights, freedom of association and organizational rights and personal autonomy and economic rights; (c) relatesto free and fair elections for offices with real power, freedom of political organization, significant opposition,freedom from domination by powerful groups and autonomy or political inclusion of minority groups; (d) relatesto media objectivity and freedom of expression; (e) includes (a) to (d) along with military in politics, change ingovernment, transparency, business is kept informed of developments in laws and policies and business canexpress its concerns over changes in laws and policies; (f) refers to perceptions of the likelihood of destabilization,terrorist threat, military coups, social unrest and fractionalization of the political spectrum; (g) relates to legalimpartiality and popular observance of the law; (h) refers to black markets, enforceability of private andgovernment contracts, corruption in banking, crime and threats as obstacles to businesses, losses from and costsof crime and unpredictability of the judiciary; (i) deals with bureaucratic quality, transactions costs, quality ofpublic health care and government stability; (j) relates to official corruption as perceived by business people,academics and risk analysts; (k) deals with corruption among public officials, corruption as an obstacle tobusiness, frequency of irregular payments to officials and judiciary and perceptions of corruption in civil service.
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robustness of its democracy and political governance. The respective significance of eachindicator is given in the footnotes to the table.
From the Table 2, it is easy to deduce that Mauritius has been faring reasonably well interms of the quality of its institutions. This status has been a key element which has, to agreat extent, contributed to the sustainable growth performance of this country over the pasttwo decades. Amongst others, the indicators clearly discern the reliable electoral system ofMauritius and the constitutional arrangements to protect each and every citizen. The figuresfor quality of government administration are positive, albeit not very promising, indicatingthe presence of some imperfections that may impede economic growth in the long run asand when they become more significant. There is room for improving and building furtheron the current status of institutional quality to promote and sustain economic growth. Thefigures have shown that a system that has a commendable, not necessarily exceptional oroutstanding, status of good governance could play a major role in attracting FDIs, maintaineconomic, social and political stability – basic ingredients for positive and sustainableeconomic progress.
3. The social sector and microeconomic policies
So far emphasis has been laid on the diversity of macroeconomic policies and their linkagesto numerous achievements in the economic sphere. Now this paper turns to the social sectorachievements, after almost four decades of independence. Since socio-economic develop-ment is very much linked to human development, one may note that in 2005, Mauritius wasranked 65th in a sample of 120 countries and its Human Development Index (HDI) stood at0.791 compared to 0.775 in 2000. The statistics in Table 3 are provided in relation to thesocio-economic development of Mauritius, and give an indication of the achievements todate and areas of weaknesses.
Table 3 shows the various social indicators in 2005 and they reveal the relatively muchbetter score than other sub-Saharan or developing countries. In addition to the eradicationof malaria in 1973, the government has been investing enormously in the health sector to
Table 3. Socio-economic indicators from the Human Development Report 2005.
Indicator Value
Population with sustainable access to improved sanitation 99% (was 100% in 1999)Population with sustainable access to an improved water source 100%Human Poverty Index 11.3%Life Expectancy 72Literacy 84.3%Internet Users (per 1000 people) 99.1
Gender InequalityFemale Employment (as a proportion of Male Employment):Agriculture 13%Industry 110%Services 97%Economic Activity Rate (as a proportion of male) 48%Seats in Parliament (as a % of total) 5.7%
Source: Human Development Report (2005).
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reduce the ratio of patients to doctor and to ensure that villages and suburban areas do haveadequate health centers or public hospitals for better health care. This transformation isreflected in the high life expectancy, reduction in “under-five mortality rates” from 86 in1970 to 19 in 2002, with similar improvement in “one-year-olds fully immunized againstmeasles”. As argued earlier, the state has also been investing a lot in human resource devel-opment at all levels. Since 1976, Mauritius has run a free educational system from primaryto tertiary levels. Indeed, the figure pertaining to the literacy rate of 84.3% speaks for itselfand is among the best in sub-Saharan Africa. While only postgraduate students are fullycharged, undergraduate students pay fees which are highly subsidized at the University ofMauritius. To cater for the increasing needs of tertiary education and to promote knowledgein Information Technology and Research and Development, in the year 2000 a new univer-sity was created – the University of Technology, Mauritius.
To combat poverty, a long-term strategy encompassing compulsory education andmeans-tested incentives to poor families and children has been introduced. Special schoolsknown as the ZEP (Zone d’Education Prioritaire) schools have been recently created andmonitored to address this issue. Besides, micro-credit schemes have been launched to dealwith poor households and women who require finance to start up a business of their own.Figures to date pertaining to The Millennium Development Goals tend to show a rathersatisfactory range of performance, as indicated by Sobhee (2005).
On the increasing role of women, it can be commented that the concerned Ministry ofWomen’s Right, Child Development and Family Welfare has launched several projectsendeavoring to increase the participation of women in the socio-economic activity ofMauritius. Financial schemes have been introduced to empower women as potential entre-preneurs and to be less dependent financially on their husbands wherever this was the case.Women with little education receive counseling and are trained by officials to improvetheir skills. This would ensure their greater employability in the near future and theireconomic independence too.
4. Shortcomings of reforms
With the global emphasis on international competitiveness and trade liberalization, thecountry is currently facing difficulties due to the phasing out of its trade privileges. The doseof reforms that would have actually buttressed the economy against the trade shockscurrently being felt has not been promptly implemented. In fact, the setting up of neweconomic pillars has been an important initiative which may not necessarily contribute todampening trade shocks or boosting economic growth within a short span of time.2 They aresimply “juvenile” sectors that grow sluggishly in the initial years before actually taking offand playing a major role in terms of their value added to GDP.
Monetary measures set by the Bank of Mauritius have proven to be unsuccessful toarrest the continued depreciation of the Mauritian Rupee. This could be explained by thereluctance of monetary authorities to intervene as this depreciation was in a way cushioningthe declining prices of the sugar sector. In other words, the decline in sugar prices wouldhave had a more substantial impact on the earnings of this sector had the Rupee been stableinstead. However, this policy has had adverse effects on the prices of imported consumergoods that has led to significant price increases in recent years, especially on food items,pharmaceuticals and gas. Low- and fixed-income earners have been seriously hit by thiscontinuous depreciation given that the distribution of sugar earnings is highly skewed andthere have not been substantial increases in incomes to compensate for the specific priceincreases.
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Related to the issue of sustainable growth is the problem of high and rising unemploy-ment due to the mismatch between demand and supply of labor as structural changes set in,compounded with a problem of gender. The government is at present trying to align thelabor market forces through skills development and redeployment programs but these mayprove inadequate. Unattractive local conditions are encouraging more brain-drain and aresulting loss in the future stock of labor as well as the net social rate of return on education.
Rising poverty and greater inequality of income in recent years have been creating a lotof debate among academics and policy makers following the social unrest that occurredalmost a decade ago. Indeed the riots of February 1999 bear testimony to the increasinginequality amongst some segments of the Mauritian people, particularly the Creole commu-nity (descendants of the slaves). The commonly used term, albeit more prominently then,“malaise Creole” would reflect the frustration of this community as a result of increasedmarginalization. A large segment of the Creole community occupy essentially low-paid jobsdue to their relative lack of skills and their inability to accede to free public education dueto the prohibitive private costs involved.3 The growth process that has benefited the countryin terms of high per capita GDP has not been very rewarding to this component of the popu-lation. However, this could be explained by a process in which there has been investmentin people, especially in the 1980s and 1990s, but barely in terms of social protection andempowerment programs targeting social and economic inclusion.4 Policies adopted bysuccessive governments, particularly prior to the 1999 riots, would provide little scope tostrengthen the connection between growth and poverty alleviation. The poor segment inquestion has benefited only peripherally from the growth momentum of the country; basi-cally, out of positive externality effects. Moreover, though the 1999 event was short-lived,it clearly proved how social unrest could bring to a standstill the economic activity of thecountry. Several attacks against both public and private infrastructure were reported, hinder-ing transportation and the mobility of people. Since then, various empowerment schemes(some of these have already been addressed in the previous section) have been approved tofinancially assist the poor and vulnerable, thereby benefiting to a large extent the Creolecommunity. Nonetheless, today most of the measures announced have remained at the levelof rhetoric or, else, have not been very effective in reducing marginalization. One importantlesson from this event is that failure to implement robust pro-poor policies may have seriousrepercussions on the economy of Mauritius. All in all, if time-inconsistent policies, due tolack of political commitments and policy sequencing, especially following a change inregime, are not avoided, Mauritius would have to bear the brunt again in the near future.Riots of greater magnitude and frequency may undeniably tarnish the international image ofthe country, jeopardize its sustainable growth path via output losses, while frustratingforeign investors.
Beside pockets of poverty, squatting has become a persistent phenomenon over the lastfive to ten years. Inadequate housing policy reforms and lack of political will to address thedemocratization of land and its uses have resulted in acute housing problems. It is only veryrecently that, due to the phasing of sugar protocol, several agricultural plots of land ownedby the sugar industry have become redundant for growing cane and have been released aspart of a compensation scheme to retired field workers. In addition, in its democratizationof the economy endeavor, the current government is trying to acquire some additional acresof land from the sugar industry which would then be distributed through a means-testedapproach to the homeless and needy citizens.
All in all, like in many African Countries, Mauritius too faces the HIV/AIDS pandemic.The number of affected individuals has been increasing rather fast over the last five years,fuelled by drug addiction and prostitution. It is often believed that there is no proper database
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available to carry out an effective follow-up of the infected ones. Again, there is lack of polit-ical will to combat this evil and to make serious commitments to analyzing the root causesof this plague. Hence, the problem remains a case of rhetoric versus reality and would notbe addressed seriously if no effective commitments are undertaken by government, civilsociety and through greater corporate social responsibility.
5. Policy lessons for Africa
Despite its country-specific features, the case of Mauritius provides an interesting platformfor the African continent, and particularly small economies which generally find it hard toenjoy scale economies in production. It is rather impressive to note that the geographicallocation and insulation of a small island economy detached from the mainland or continenthave not acted as barriers to the growth and development of the country. In fact, trade costshave been kept within reach through effective management of ports (air and sea), reliabletelecommunication facilities and infrastructural networks combined with an efficient andsmooth operating financial sector. These are the prerequisites for the progress of trade andcommercial activities. Thus, land-locked economies within the African continent, whichundoubtedly are at a comparative disadvantage in that they may be located off regular trad-ing and shipping routes, consequently facing high trading costs may reduce these costs bymeans of extensive investment in efficient telecommunications and infrastructuralnetworks.
Besides its natural aesthetic assets – wonderful beaches, volcanic topography and richmarine resources – the country does not have any other form of natural resources that wouldengender sustainable economic growth and development. It had extensively used its socialand human capital for progress, and empirical studies by the World Bank (for example,Subramanian and Roy 2001) have shown that ethno-fractionalization (measured by ethnicdiversity or pluralism) has played an important part in the country’s economic progress byestablishing robust trade links through the ancestral ties of the current population. Altogether,the government has not neglected human capital formation, in terms of health and education,while investing and adapting to technical change. The consolidation of physical, human andsocial capital has thus largely contributed to the success of Mauritius and could prove to beuseful knowledge for the economic progress of certain African nations.
Moreover, the country has found it vital to diversify its economy invariably within andacross sectors. These are supply-side techniques to reduce risks and uncertainties such asworld economy shocks, climate variability and geopolitical threats, amongst others, to makea nation more resilient. Diversification of GDP has led to the exploitation of new marketswith the possibility of securing high value added. Today, the economy’s diversificationstrategy continues with new pillars being identified, such as the knowledge hub, ICT andthe seafood hub. All along, there is wider intra-industry diversification. Hence, it is defi-nitely an important option to try and look for other market-based strategies (local and inter-national), new products and emerging markets, if traditional sectors have collapsed. Suchpossibilities may benefit the economy in terms of higher value added exports and higheremployment generation.
Announcements of policy reforms and pre-budgetary consultation with the privatesector and all stakeholders concerned help to mould budgetary targets and spending plansin the proper direction. The public sector of Mauritius has always been attentive to theneeds of the private sector and has invested in areas that have crowded in private invest-ment altogether, consolidating the linkages among different sectors and multiplier effects.Furthermore, it has been common practice for the state to play the lead in international
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rounds and negotiations at the WTO or during diplomatic missions. Private investors andparties concerned have always been encouraged to participate actively in these businessmissions in search of new and emerging markets for Mauritian products. The policy ofannouncing reforms helps private enterprises to reduce the problems of dynamic inconsis-tency and high adjustment costs in a world where information and expectations matter.Rather than functioning as compartments and in isolation, it is necessary therefore to havegreater synergy in the decision-making process between the public and private sectors for afaster developing African continent.
Fiscal incentives have been another route through which African countries could learnhow to promote certain sectors of their economy in which they believe they could have acomparative advantage. Mauritius has been providing enormous fiscal incentives to foreigninvestors so that the latter could repatriate the maximum profits to their country of originbut all in all ensuring a win-win situation. This constitutes a trade off; in the short run therewould have to be a sacrifice, in terms of lower fiscal revenue, but with higher tax returns inthe long run as the tax base broadens. This is the framework which the Mauritian economyadopted in the mid-1980s. Fiscal incentives attracted many investors from the Far East whosubsequently did boost employment levels and fuel the export-led growth. The resultingexpansion of the tax base allowed the government to undertake unprecedented socialcommitments and welfare programs.
Good governance and good quality of institutions are yet another channel which couldserve as a lesson to the other countries. Free and fair elections and a reliable democraticsystem with elections held promptly would ensure peace and political stability as essentialpre-requisites for foreign direct investors and smooth running of the economy. Mauritiushas been able to maintain a relatively good international image compared to other countriesin either the SADC or sub-Saharan Africa over the past few decades and this has invariablyplayed in its favor in both the financial and tourism sectors.
The quality of government administration is a major area of interest. Public sectorimperfections such as bureaucracy, red-tapism and corruption, simply act as hurdles forforeign and domestic investors. Elimination of such hurdles would encourage a morevibrant public sector and a more conducive environment for public–private partnershipleading to better growth performance. International investors are deterred from moving to acountry whose public administration is badly managed and at the same time suffers fromsuch imperfections as these would clearly keep transaction costs very high.
6. Concluding remarks
This paper has attempted to explain the remarkable growth performance of the Mauritianeconomy since its independence and to discuss this success story through different stages ofsocio-economic reforms. There are factors which go beyond trade privileges to explain thesustained positive performance of this economy and which could be useful policy optionsfor Africa’s development. These were macroeconomic policies with profound microeco-nomic elements to ensure the trickle-down effects. However, it should be borne in mind thatthese policies may be consistent with initial conditions such as economic structure, politicalsystem in place, demographic elements and social capital, which may not be comparablewith any other similar or less developed economy. Furthermore, the Mauritian experienceshows that no unique dose of economic reforms would bring growth dividends to perpetuityand that reforms may be a recurrent feature to ensure a sustainable path. Today, Mauritiushas to find new ways and means to develop resilience and ensure continuity in its economicprogress by further diversifying its economy. But, all in all, conventional wisdom dictates
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that sustained economic growth would require systematic investment in human, physical,social and natural capital combined with an environment of reliable institutional quality.
AcknowledgementThis paper was presented at the Globalisation and Economic Success – Policy Options for AfricaConference held in Cairo, Egypt on 13–14 November 2006.The author is thankful to the KonradAdenauer Foundation for financial support, and all participants, but in particular to Alan Gelb (WorldBank) and Greg Mills (Adenauer Foundation), for their invaluable comments on an earlier version.However, the usual disclaimer applies.
Notes1. Greenaway and Gooroochurn (2001) have shown the positive contribution of structural adjust-
ments to the high growth performance of Mauritius.2. See Sobhee (2007) on the linkages between exports growth and economic growth and their impli-
cations for output diversification.3. Sobhee (2004) has shown how the community of fishermen dominated by Creole has been
affected by the lack of pro-poor and empowerment programs for several years.4. See Stern (2002) on the three forms of investment required to empower the poor and combat
poverty.
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