Despite being a tropical island, Mauritius seems to be shrouded in a permanent mist, of an intellectual nature, which perpetually robs economic policy makers of the ability to foresee, innovate or be pro-active. Countless examples attest to the lack of economic survival instincts that saw rising industries turned into struggling sectors bordering insular extinction. The financial services sector is a potential example – facing unending international regulatory norms and the unfavourable amendments to the double taxation avoidance agreement (DTAA) with India.
Surprisingly, the latter point is consistently hailed by the former minister of financial services as one of his 30 (paper) achievements during his brief stint in government in spite of general consensus as to the disastrous consequences – a sign of times. Whilst GDP growth rates of 5% can be considered as the floor by African standards based on the past few years, Mauritius will post a GDP growth rate at market prices of 3.9% in 2017. Tossing aside the usual petty politics and placing technocrats in key ministries could help to steer the economy back on track.
Various sectors have suffered from policy makers’ inability to adapt to the dynamic nature of a globalised and integrated world where competition is de rigueur and where protectionism is a fading memory that one cannot permanently lean on. The sugar industry bears testimony to the habitual lack of foresight on the part of policy makers and political nominees. Whilst this industry constituted 25% of the GDP in the 1970s, this share has dropped to 2% today. The industry, though highly profitable in the foundation years, has stagnated for decades (avenues for diversification of the product base from sugar to others have not been thought of), leaving it unprepared for removal of European Union trade preferences (i.e. guaranteed market).
A World Trade Organisation ruling was passed forcing EU to review the quota’s available to excolonies, causing a plunge in prices pursuant to which the cost of production in Mauritius was higher than the export price. A proactive approach would have been to identify the risks before they crystallise and take adequate measures such as market diversification, improving or investing in mechanization with a view to reducing labour proportion of total cost and lower production costs while increasing milling capacity.
Tourism is another important sector where policy makers demonstrated an inaptitude to surf on the wave of change in the business model. There has been a tendency to lean on the traditional sources of tourist arrivals (France and United Kingdom), and the need to innovate, again, never acted upon. Consequently, the sector has been plagued with stagnation and outshined by rival destinations. Since 2009, the Mauritian tourism industry has experienced a paltry annualised growth rate of 3% which is insignificant when compared to the performance of Seychelles (10%), Maldives (14%) and Sri Lanka (30%), amongst others. The unpardonable lack of strategic direction in the face of fierce competition mandates the setting up a technocratic team which would redefine the sector and put an end to stagnation.
Aimless drifting in policymaking
The financial services sector, in particular the global business, has been unable to adapt proactively to the risk of any change brought to the DTAA with India, which has been hanging over the sector as a sword of Damocles for decades and has culminated in the incompetent handling of the negotiations with the Indian government and signature of a revised treaty which was not in the sector’s favour. Though policy makers are belatedly making efforts at diversification by marketing Mauritius as an ideal platform to invest in Africa (and lean less on India), simply finding new markets will not suffice in the face of increased global regulation or moves towards cross jurisdictional sharing of information (example FATCA and CRS).
All these eclectic changes require productivity shifts in the form of upgrading swiftly the technical know-how of the labour force as well as investment in strong Information Technology platforms. To be able to respond to such industry needs, the government should be à l’écoute, but the India DTAA episode underlined the lack of cohesion, the cavalier attitude of the erstwhile minister in charge and the uselessness of having industry lobby groups, at least in this sector.
Announced changes (for example, putting in place a training institute for professionals in the financial services sector) seem to be implemented at a snail’s pace, in all likelihood largely due to petty politics (for instance, not finding the right person to nominate). Again, a steering committee comprised of technocrats and industry operators should have been established a long time back to formulate policy. We are now in a reactive or fire-fighting mode, and the impact of the revision of the India-Mauritius DTAA will only be felt in 2019.
There is an urgent need to end the culture of complacency. Recent times have shown clearly that a weak government, suffering from consistent depletion in political capital, does not have the resources to formulate and implement reforms that are strategic in nature, and to enable the various key pillars of the economy to navigate turbulent waters safely. Merely changing government will not resolve the issue. Putting in place a steering committee comprised of technocrats who are out of the sphere of influence of politicians and in charge of formulating policy could be a solution. The setting up of the National Economic Development Board might help to curb aimless drifting in policymaking, but then again subject to re-grouping technocrats and not merely crony friends.
By Akshaye Proag,
The author, a member of the Association of Chartered Certified Accountants (ACCA) UK, operates in the Mauritius’ global business sector.