How Mauritius Can Become a High Income Country
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A hub bridging Africa and Asia?
Asia and Africa will develop rapidly in the coming decades, bringing both opportunities and competition for Mauritius. A network of globally connected cities which are hubs of knowledge, innovation and enterprise, will increasingly shape and drive the global economy. Unlikely places like Dubai, Hong Kong and Singapore have emerged to join New York, London, Frankfurt, and Tokyo and Shanghai as such hubs. At the same time, attractive cities such as Paris, Madrid, Barcelona and Rio or important cities such as Moscow, Johannesburg and Brazilia are trying to compete as centres of the globalised economy.
Against this backdrop, the key economic challenge is to develop a sustainable and vibrant economy. To grow and create good jobs with good wage growth for Mauritians, Mauritius must become the preferred location for companies to tap into Asia as well as Africa’s growth. Mauritius may have had a first mover advantage tied to a good reputation to become a global hub linking Asia and Africa. However, Nairobi, Seychelles, Johannesburg and possibly Addis Ababa could be alternatives that emerge as suddenly as Dubai did.
The hub will go to whichever country offers a modern city with good logistics and infrastructure that is open and well connected to the region and the world and guarantees political stability and a good business climate. It must also be welcoming to foreigners from all over the world including Africa and Asia. The dominant hub will be the one where businesses and investors see attractive long - term future prospects based on existing policies. It will also be the place which offers the most pleasant living conditions for good work life balance and attractions for family life.
In turn, as can be seen from all the hubs that have already emerged, if Mauritius can become such a hub that attracts global businesses, the country will develop new sectors, and open up a range of good jobs. Such jobs will enable increasingly better - educated Mauritians to pursue their aspirations.
Access to qualified manpower will increasingly determine where businesses locate their high- value operations. Without qualified manpower, companies could scale down their operations or relocate. If Mauritius loses some existing economic clusters, or fails to attract new ones, its economy could slow down sharply or decline.This economic stagnation will be accelerated as other countries in the region play to their strengths whilst catching up on some of the areas where Mauritius is currently ahead. For example, Nairobi and Johannesburg are already ahead with regional and international connectivity which is a strong pull factor for companies to locate their regional headquarters.
A good mix of a resident workforce supplemented with foreign workers is essential to maintain growth potential at a healthy level, and provide greater economic resilience. Indeed, some observers point out that from the early 1980s until the early 1990s, Mauritius and Singapore were on the same growth path. It is only once both countries reached full employment that Mauritius fell behind. In Singapore, high growth and movement to an international hub and high income country were driven by opening up and for the 2 million Singaporeans to welcome 3 million foreigners. Meanwhile the decision of Mauritius not to do so has left the country a prisoner of the middle income country trap. Similarly, Dubai could only emerge as a global hub because the several hundreds of thousands people in Dubai accepted to welcome over 1 million foreigners.
For Mauritius (and potential alternatives), becoming a global hub will rest on being able and willing to accept many foreigners. If Mauritius is not willing to do this, then the country should continue preparing both its best educated and its lower skilled citizens for emigration to the hub that will emerge to serve the region as a bridge between Africa and Asia.
Benefits of foreign labour
Highly skilled foreign workers contribute to rapid knowledge transfer with associated gains in productivity and hence wages. They support the development of services that the economy would otherwise find difficult to afford, including culture and arts which contribute to raising the quality of life. They bring the purchasing power to enable provision of world class services in education and health, which makes the country much more attractive for all its citizens and a more desirable place for talented foreigners to move to. They finally contribute to enlarging the tax base, which enables the financing of a generous welfare state. This is why all the hubs are associated with developments in science and technology, high rates of education, low rates of crime, a high standard of living together with a high quality of life.
Whilst some of these benefits are intangible, employing foreign workers can produce a variety of positive multiplier effects that can more directly be observed. First, job creation. In 2008, Bill Gates testified that “Microsoft has found that for every H- 1B (Highly skilled foreign workers on employment visa in America) hire we make, we add on average four additional employees to support them in various capacities.” Similar ratios have been estimated for other countries and, if applied to Mauritius, would explain the creation of some 20,000 jobs over the period since 2006. Second, impact on national output. Using the ratio of employees to GDP to estimate the impact on GDP, the increase in high income foreigners (including the indirect effects) might have added some 30 billion rupees to the economy from 2007 to 2013, equivalent to about 20 to 30 percent of the growth in national income registered.
Access to qualified manpower will increasingly determine where businesses locate their high-value operations. Employing foreign workers can produce a variety of positive multiplier effects. The intangible benefits may, however, be higher, especially if the cumulative effect over a long period is considered. These include: 1) Opportunities for domestic workers to integrate global value chains through new start - up companies. These may offer not only better pay but new work practices with better life - work balance. 2) Diffusion of knowledge and international business practices that can enhance the competitiveness of local firms. 3) New skills and expertise from training of local staff that could result in higher labour productivity and hence higher wages. 4) To boost the active, working population as the population ages. Consequently, this will attenuate pressures to make pensions less generous. 5) Increasing purchasing power, especially for high quality leisure services, thus making it possible to bring world class performances. 6) Boost to real estate and banking activities. 7) Contributing to tax revenue. 8) Increased visibility internationally. 8) Boost to tourism as there are more visits from friends and family. 9) Capacity to sustain world class shopping and restaurants on the basis of expanded national purchasing power.
Can Mauritius accommodate the labour inflows?
If labour flows are similar to what Dubai, Hong Kong and Singapore experienced at a similar stage, over the next decade Mauritius should be ready and willing to accommodate some 5,000 to 20,000 foreigners annually with a total of 100,000 to 200,000 for the period. In the short run such an influx could be accommodated in the various real estate projects that have se en the light of day in the past decade. However, going forward, this offers Mauritius the opportunity to revive the Highlands project and build a world class city.
Such an endeavour would not only create jobs and offer homes to foreigners but would allow Mauritians to enjoy world class services without having to leave the country. Such a city would also offer the opportunity to allow foreigners to buy property without overly inflating prices in the rest of the country. Moreover, it may facilitate integration if large numbers of foreigners were to gravitate to a new international city.
Natural endowments and Government policy ensure that Mauritius can cope with a large influx of people without undue pressure on the environment. Fortunately for Mauritius, it has five times the land mass of Hong Kong, three times that of Singapore and twice that of Dubai. Moreover, most of the land in Mauritius is fertile, and rain is plentiful. The country receives twice the amount of rain of the United Kingdom, three times that of France, four times that of Australia and nineteen times that of Dubai.
The large investment of Government in a waste water system to protect the lagoons and in treating solid waste mean that the country can protect its natural endowments as the population increases. In fact, a higher population would increase the return on the heavy investments made by spreading the costs over a larger base. The one area where more effort would be required is raising the efficiency of water collection and distribution. Even here, though, a programme is being put in place with technical assistance from Singapore.
Can Mauritius manage without immigration?
The Economist magazine once wrote that the question is not if America needs immigration but if it could manage without it. The same is true for Mauritius. This is already evident from the large number of foreigners already working in the country at all skill levels. However, there is another reality which we need to grapple with. Our population is not only ageing but our workforce is hardly growing.
Economic growth comes from a combination of more labour, more investment (capital), productivity gains to labour, productivity gains to capital investment, and technology driven productivity gains (which can also come from better institutional arrangements).
In the absence of available labour with the required skills, neither foreigners nor Mauritians will invest to expand the productive base. Moreover, without new investment, especially foreign direct investment (FDI), i t is hard to generate productivity gains from labour (let alone capital). Finally, technology driven productivity gains comes from innovation which is usually associated with FDI in a small developing economy.
This means that unless there is a readily available labour supply, Mauritius is unlikely to see the capital investment that is required to both directly raise growth rates and indirectly do so by raising productivity in all the possible spheres. This is why the choice for Mauritius is to sustain high growth (as did Dubai, Hong Kong and Singapore) through making the Mauritius labour market global, or to accept low growth and eventually stagnation as has been observed in a large number of small economies across the world that keep their labour markets insulated.
By Ali Mansoor
The author is the former Financial Secretary and currently an Assistant Director at the International Monetary Fund. This paper does not reflect the views of the IMF but only the personal views of the author.