Analysis : from here to where?

Éric Ng

With its independent economic history of five decades, Mauritius has prospered remarkably and has scored high marks, in spite of many handicaps like remoteness from major export markets and vulnerability to cyclones. It has succeeded in becoming an upper middle-income country with a nominal gross domestic product of USD 12 billion in 2017. However, we should not bask in self-complacency because the next half century will be even more challenging than the previous one. The small island economy needs transformative policy-driven changes, at this juncture, to escape from its middle-income trap.

The challenge now for Mauritius is to make a quantum leap in its economic development. The Mauritian economy has reached a tipping point. In the context of a knowledge-based economy, sweeping structural reforms are urgently required to raise productivity in the public sector and address the rigidities in the labour market as well as the growing skills mismatch which has rendered unemployment structural. To be responsive to the realities of the world economy of which it is now an integral part, Mauritius must revisit a number of institutional arrangements, above all the wage determination mechanisms. There is also a need for a new social pact between government and the private sector for a single unified labour market where meritocracy can prevail. In large private enterprises, there should be a clear demarcation between management control and ownership in order to ensure good corporate governance.

As the fourth Industrial Revolution is kicking in (after the revolutions of mechanisation, industrialisation and automation), the next decades will see the digitisation of the Mauritian industry. The Internet of Things, artificial intelligence, robotics and blockchain are coming to work places and will revolutionise the business models of Mauritian enterprises: half of the jobs that will be created in 50 years are unknown today, and half of the existing jobs will have disappeared by 2068. The make-up of the Mauritian economy will be radically changed.

In the next half century, the share of renewable sources in electricity generation, which was 22 per cent in 2016, is likely to double as government promotes the green economy to ensure that Mauritius remains a sustainable island, fully conscious of its immense potential as an Ocean State. As its Exclusive Economic Zone of 2.3 million square kilometres represents nearly one per cent of the world’s oceans, Mauritius will develop its ocean assets into a new economic pillar thanks to the strategic positioning of its port in the South-South corridor, with Port Louis becoming a hub for various port-related activities.

Owing to a judicious public-private collaboration, the Mauritian sugar industry has successfully transformed itself into a modern cane cluster. One sugar group will soon produce ethanol by using molasses. Others will continue to invest in, and bring their expertise to, sugar companies in African countries. Concurrently, Mauritian entrepreneurs will make use of the 10,000 hectares of land provided by Madagascar for the development of agriculture and industry. They will carry out projects in the Special Economic Zone of 100,000 hectares made available to them in Mozambique.

In a world economy characterised by ruthless competition, the traditional industries will be service-oriented in their export strategy. Going upmarket, the textile industry will be transformed into a fashion industry. The manufacturing sector will be a core of the most efficient firms. Export-oriented enterprises will be less euro-centric in their approach and, in the wake of Brexit, will accentuate the diversification of their export markets.

Meanwhile, the tourism sector is turning into a hospitality industry. It will integrate with the real estate market as tourists will choose luxury residences, villas and smart cities for their accommodation. With further air access liberalisation, Mauritius will diversify from its long-standing European tourist generating markets towards Asia and the Middle East.

The financial services sector will continue to thrive. As cross-border banking keeps growing rapidly, Mauritian banks will source a greater share of their income from the region. Local insurance companies will build strategic partnerships with foreign players to tap the huge unexploited African insurance market. The Stock Exchange of Mauritius, evolving into a multi-asset class international exchange, will become a much larger platform for raising capital for companies investing in Africa.

The business process outsourcing sector has no choice other than to move to the high-end of the market. In the technology field, Mauritius started with call centres. From now on, it will offer high value-added services such as data centres, disaster recovery, legal process outsourcing, cloud services, 3D design, mobile applications, cloud computing and data analytics.
A wireless island will give a thrust to an innovation-based economy with a bilingual and well-educated workforce. Professional service providers in the advisory, accounting, legal, ICT and education fields will penetrate deeper into the African market. Mauritius will be a favoured destination in the region for higher education.

The island can capitalise on its geographic position to consolidate itself as the gateway to Africa for enterprises willing to invest in the continent. The country will continue using its tax network to propel cross-border investments within the Indian Ocean region. However, as double taxation avoidance agreements disappear, Mauritius will establish itself as the preferred platform for debt-based investments in Africa and as an international financial centre of substance.