Economist & Senior Lecturer, Middlesex University Mauritius
As the 2019 general election approaches, the race to please the electorate is on. After all, once the election is won, the promises can vanish in thin air, optics and reality being two different beasts. Leaving the battle of narratives to our politicians, elections should be won based on the economic agenda; the prosperity of the nation is intricately linked to the economic performance of the country. What then should be the expectations of the population?
First is the rate of growth which unfortunately for the last five years is staggering to an average of 3.6%. To aspire to become a high-income economy by 2030, Mauritius needs to double this growth rate. With uncertainty looming dangerously on the global economic front and the move by the IMF recently to downgrade the average world growth rate to 3 percent, the gamble for Mauritius is really difficult. Already, our traditional sectors are in tatters with almost no growth in the agriculture and manufacturing sector and wavering signs of turmoil in the tourism sector. Our trade deficit has soared to an all-time high with stagnating exports and no signs of redress. The impending BREXIT and failure of the multilateral system to cope with growing trade tensions is not helping either. On the local front, the meagre growth is still largely over dependent on excess private consumption and government expenditure, which has fuelled a dangerous national debt of more than Rs. 280 billion. Unemployment has remained around 6.6 % and private sector investment has been hesitant. The depreciation of the Rupee has artificially kept the economy afloat but is not sustainable. In such an environment, populist electoral promises, not to say bribes, are like adding insult to injury. Does it then mean that the old age pension or the minimum wage should not be increased? No, both should increase, as it is the duty of any government to ensure that every citizen of the country has a decent life. This will however imply that economic growth needs to pick up rapidly. By the way, who is responsible for Economic planning and development in Mauritius? A state of economic priority or emergency needs to be declared. With inputs from all relevant stakeholders, an audit of our traditional sectors needs to be carried out so that urgent economic measures are implemented. The creation of a dedicated Ministry for Economic Planning and Productivity Improvement is recommended to drive such an initiative.
Secondly, as the fourth industrial revolution or Industry 4.0 unfurls, Mauritius cannot miss the train. Over the last ten years, the finance sector of the country has been the robust pillar supporting job creation and economic growth. With the development in Fintech, block chain, robotic process automation and artificial intelligence, the traditional finance sector will be severely disrupted. For instance, the importance of banks as financial intermediaries or the need for Accountants in the near future is questioned. There is also the risk of foreign companies with their advanced technology and near monopoly power to displace our local operators; the finance sector in Mauritius needs to be modernised and reinvented. For the moment, it is only serving as an outsourcing destination with limited value addition; it is just as the EPZ companies we had in the past. Apart from working towards being recognised as a clean jurisdiction with all the appropriate regulations and controls, what is needed is to position the finance sector as a Fintech hub for Africa. Time is of essence and countries like Kenya and Ghana are already ahead of us. Up to now Mauritius, being a gateway to Africa, has not lived up to our expectations. The next government has to triple efforts to position the country as the finance gateway to the continent just as London is for Europe, Hong Kong for Asia and New York for America. At the same time, the Blue Economy remains the next economic frontier for the island state of Mauritius. Using a multidisciplinary approach combining technology, AI and Marine science, the possibility of developing the Blue Economy needs to be explored. A dedicated Ministry for Financial Services, Marine Technology, Fintech and AI should help.
The third front should be on SMEs and entrepreneurship. Despite the SME sector being the biggest employer in the country, it is still a fragile sector. The two main hindrances are limited market access and stiff competition from cheap imports. Our rising trade balance deficit coupled with trade wars and protectionism on the global front will demand that Mauritius reintroduces tariffs on strategic goods, which can be produced locally. Furthermore, understanding the problems faced by SMEs and providing the necessary skills development, technology and financial support is imperative. The goal should be to help our SMEs to become export ready, which in itself will ensure that these companies become competitive and expand their markets. On the entrepreneurship side, far from becoming “Une Nation d’Entrepreneur”, we are slowing tilting towards “Une nation de Zougader”. Entrepreneurship is not about teaching someone how to come up with a Business Plan, which by the way is a recipe for failure. What is needed is the use of the lean start-up methodology to test the different hypotheses the entrepreneur holds before venturing out. The ubiquitous role of technology including cloud computing, internet of things ( IOT), sharing and the circular economy will open up possibilities to merge technology with traditional sectors for the emergence of a new class of entrepreneurs in Agritech, Edutech, Sportech, Fintech, Healthtech, Bluetech (Marine Technology ), Hometech. The time is now as the window of opportunity is small; capacity development and entrepreneurship facilitation will be of essence. It is suggested that the government work with Higher Education Institutions in the country to put in place the proper capacity development programmes for the emergence of this new class of high tech entrepreneurs.
The above are pointers to put back the economy on a high growth path. There still remains however a lot of unfinished business in Mauritius specially in terms of fairer distribution of income and wealth, equal opportunity and a real democratisation of the economy. Systemic disbalances in terms of access to land and opportunity and the legacy of slavery and indentured labourers have yet to find their rightful voice in contemporary economic policy formulation. Mauritius will not climb to the next economic threshold without first confronting these imbalances lest we may be heading towards social chaos. While these are more long-term structural measures, they are nevertheless crucial for the country. In the shorter term, a review of our fiscal predisposition is needed; why have a standard 15% income, corporate and value added tax? It is proposed that the 15% tax rate is eliminated and two new tax rates are introduced; 10% income tax for people who earns less than Rs.2 million per year and 20% for those earning more. 10% VAT on goods and services costing less than Rs. 100, 000 and 20% on goods and services excluding health expenditure and land acquisition costing more than Rs.100, 000. 10% corporate tax for SMEs with annual profit below Rs 50 million and 20% for profit above. In addition, a true democratisation and equal opportunity council will need to be created for an inclusive high growth economy. At the end of the day, it all about Economics. Are we ready?