Can Mauritius look outward a bit more?

It is not difficult to see that Mauritius needs a more performing model, with a greater balance of skills and demography, to overcome a bottleneck which may otherwise keep holding it down. Many observers have kept remarking that our exports are not performing well enough to sustain the economy reasonably well. Others have also noted that it is quite a number of years now that our imports have been exceeding our exports by much, and that “something needs to be done” about this situation. Were the international price of oil to soar again, that would not only worsen our international trade gap, our cost competitiveness would itself be eroded internationally putting at risk our production potential. Besides, the rate of economic growth has not pulled up beyond the 3-4 % for a number of years now. We need to do something new to overcome all this.

What earnings data show

Statistics Mauritius classifies the economy into 18 sectors of activity from ‘Agriculture’ to ‘Other Services’. Data published by it show that, between March 2010 and March 2016, certain sectors have kept occupying the top ranks in terms of average monthly earnings over this entire period. Likewise, some other sectors of activity have remained at the bottom of the pay hierarchy. The sector with the highest average monthly earning was ‘Electricity, Gas, etc’ with a figure of Rs 33,345 in March 2010, maintaining its first rank as at March 2016 with an average monthly pay of Rs 56,465. Numbers 2 to 6 were, respectively, ‘Finance and Insurance’, ‘Professional, Scientific’, ‘Real Estate’, ‘Health’ and ‘Information & Communications’. The 2016 respective monthly average pay for Numbers 2 to 6 were : Rs 44,419, Rs 43,496, Rs 40,509, Rs 35,851 and Rs 35,241, up from 2010: Rs 33,797, Rs 31,672, Rs 29,471, Rs 24,108 and Rs 25,771.

By contrast, the monthly average pay was lowest in both March 2010 and 2016 in the ‘Manufacturing’ sector : Rs 10,948 and Rs 16,786, respectively. The lowest monthly pay of all 18 sectors was in the ‘Export Oriented Enterprises’ sector, mostly the former EPZ, Rs 9,408 in March 2010 and Rs 15,414 in March 2016.

A cursory analytical glance at the above data shows that it is price-dictating economic activities directed to the internal market of the country that pays the highest to workers whereas the least pay is where we export goods, notably export manufacturing. We paid in 2015 (latest data available) an average hourly compensation of only US$ 2.53 in our manufacturing sector. In contrast, the hourly pay in manufacturing is over three times as much in the case of Taiwan’s US$ 9.51 (one of the lowest at global level), much lower than Singapore’s US$ 25.41 and US$ 42.42 in the case of Germany (the world’s highest average pay in manufacturing).

This means that our manufacturing exports are not diversified and sophisticated enough to be able to pay the higher rates other exporting countries are able to afford. We have not graduated and here lies the scope for future progress. Obviously, it comes with risks. We needed capital owners and business managers who know how to take those risks and grow the activities competitively for external markets. We can still catch up if we have the will to do so. A targeted futuristic policy orientation is necessary.

By contrast, sectors which pay the highest are mostly internally driven and involve typical monopoly-type producers: electricity, financial services, professional services, real estate, private health care and telephony. Consumers, mostly local, have no bargaining powers against these providers who operate on a captive market. Within this, there are enormous income disparities among employees in these sectors of activity, which means that those at the bottom of the hierarchy get much less than the monthly averages for the respective sectors.

The problem is that all these monopoly supply-siders will eventually face serious limits to growth unless the scope of the overall economy is simultaneously raised by increasing our external market reach. But that has not been happening for quite some time and this is what the almost invariant 3-4% annual GDP growth rates are showing for quite some time now. Mauritius can grow its scope if it successfully breaks away from this pattern in which capital is drawing to itself a larger share of national output without helping to grow the cake itself.

This will come if we manage to: better allocate resources for future economic growth, do all we can to become increasingly internationally competitive for as many strategic exports of goods and services as possible, improve the structure of our production sustainably, dilute numerous pricedictating concentrations of economic activity which have set in for long and, most importantly, get into the country that higher quality of management, in both public and private sectors, which will identify hurdles to economic growth before it is too late, and tackle them efficiently.

Source : Conjoncture (September-October)