In February 2019, the MCB published a report known as “Lokal is Beautiful”. It is an unprecedented step by a major financial institution and hence it deserves close attention.
Our first comment is that, interestingly enough, the country is referred to as: “island”. This is repeated often throughout the report when in fact Mauritius refers to a Republic comprising several islands: the mainland, Rodrigues, Agalega, St Brandon and the Chagos Archipelago (the latter being currently under foreign military occupation).
Secondly: the report identifies only economic crisis and global warming as the main global challenges the country faces. This is a very narrow outlook of the global dynamics currently impacting our civilization. The point is not academic. An inadequate understanding of our situation may lead to largely ineffectual responses.
In our understanding, modern civilization has evolved an economic system that relies on perpetual economic growth to sustain itself and so requires increasing volumes of raw materials and energy to manufacture goods and services in stupendous quantities. It is linear (from natural resources to goods to wastes), exponential (due to the need for growth) and heavily dependent on fossil fuels. This system depletes natural resources and fossil energy, degrades and pollutes the environment and triggers climate change. The now fully globalized economic system relies on cheap labour that lifts out of poverty many people in manufacturing countries but plunges many more middle class people into destitution in rich countries. The system is intrinsically financially unstable due to astronomic flows of speculative capital that sloshes around the globe disconnected from the real economy of goods and services of use to humans.
Given the above, it is no wonder that serious questions are being asked by many, the MCB included. In short, according to us, the global challenge is in reforming a metastatic economic system which, if left unchecked, may cause the decline of our civilization. We believe that what is at stake here is the future of our civilization. Alas, the MCB report appears oblivious to that reality. It is a major failing.
Interesting and sound analysis
However, the report is quite right in underlying that the future prosperity of the country will continue to rely on attracting external wealth and making it circulate within the country, hence the concept of local multiplier effect (LME). Their analysis of this effect is both interesting and sound. As the local multiplier effect falls, less wealth is created within the country and more wealth leaks out. This is undeniable. We agree with the report that the LME has fallen over the past 20 years. They have correctly identified that the LME has declined due to increased imports which are the main source of leakage (p 20). They also correctly identify that the country is heavily depended on imports for petroleum, chemical, non-metallic mineral products and transport equipment and machinery. Amazingly enough, at this point the report fails to take notice that there is a link between LME and international oil prices in constant US dollars. We reproduce here under their table of page 18 with added oil prices in constant US dollars.
Note the strong correlation between LME and oil prices. As the latter increases the former decreases, except for 2015, but note that in 2014 oil prices were US $ 100! Although we do not claim causation, it is highly probable that as oil prices increase, imports become more costly whilst export prices do not follow proportionally, hence the LME drops. If our analysis is correct, then it follows that to increase our LME will require, amongst others, a significantly reduced dependency on oil. Page 33 mentions briefly that “This dependence on international raw materials exposes the country to a number of risks related to resource rarefaction in particular fossil fuels, but also mineral resources”. It is regrettable that the report does not elaborate on this critical point. Resource rarefaction of oil is another name for Peak Oil. The country remains dangerously reliant on oil to function and is at the mercy of any spikes in oil prices. Oil prices, on their own, have the capacity to derail any transition to a low carbon economy and send our country in a tailspin from which recovery might be slow and painful. We believe that this oversight by the report is another major failing.
The report proposes a strategy of increasing both international income per capita by 50% and enhancing the LME by 25% by the development of services more than that of goods. This approach appears reasonable. Competition from low cost countries and logistics may mean that large increases of exports of goods from Mauritius may not be entirely achievable. However, increases of exports of services mean greater uses of intellectual power. The country will have to ensure that everybody gets a decent quality education that fosters creativity. The report does not mention that and it is a pity.
Transforming Mauritius into a maker, circular and smart island
Part 2 of the report describes how to increase the national income by transforming Mauritius into a maker, circular and smart island (note the term!). So what is meant by these terms? A maker island would be to increase the ability of Mauritius to produce what it consumes using local resources (human, material, technical, natural). A circular island means looping economic and material flows using existing material resources, especially local inputs extracted from recycling, repair and re-use. Whilst a smart island consists of creating value rather than products, selling know-how and skills with significant added value. There are conceptual problems with the model. Indeed human beings have been makers ever since our distant ancestors used fire and made tools millions of years ago. There is little new there. The novelty lies in the use of advanced technologies to make products in a non-conventional manner. However, the report is correct in advocating the increase of quality local manufacture, especially if local resources can be used sustainably.
Secondly, we have an issue with the “circular island” concept for there is nothing new with it. This is how nature works. Solar energy acts as the primary energy input allowing living organisms to feed on each other and recycle materials in any given ecosystem. Before tapping into fossil fuels as from the industrial revolution of the 19th century, most economies were fairly circular in mode of operation. Wastes were mainly organic in nature and recycled locally as compost. Metals were fairly scarce and expensive and so were recycled as often as could be. There is nothing new in having a circular economy. However the report is correct in that we really need to reduce, reuse and recycle wastes and transform them into usable products. The country has largely failed to take such issues seriously.
Thirdly, the smart island concept is the most curious of the triad. We shall admit that we are wary of the wanton use of the term “smart” for it can mean everything and anything, from smart phones to smart agriculture to smart fish, the list is truly endless. It sounds more like new packaging for old ideas. Indeed, by definition the production of any goods or service always require the input of energy, materials, labour and knowledge. Although there is much scope in creating new services that are knowledge intensive and profitable, we note that many of these services require an efficient, fast and extensive internet.
Few people realise how energy and resource intensive is the internet. It now consumes a significant share of the world’s electrical power, requires extensive maintenance, the regular replacement of burnt out hardware, millions of kilometers of optical cables, a ring of satellites in low orbit. To present the use of the internet as a platform to reduce our civilisation’s appetite for primary and secondary resources is largely misleading. We doubt very much that the intensive use of very sophisticated computational platforms will reduce significantly our environmental impacts.
In conclusion in spite of the shortcomings of the report, the MCB has merit in embarking on the long quest to sustainability. It has begun to ask some of the right questions and as the largest corporation in Mauritius it can attract much attention. For the sake of Mauritius, we can only hope that it will hold firm in this quest in the years ahead.