IDAH PSWARAYI-RIDDIHOUGH
(World Bank Country Director for Mauritius,
Mozambique, Madagascar, Comoros and Seychelles)

The eye of the storm is a quiet place. Between two waves of Covid-19, Mauritius was blessed with a period of relative calm. When the waters got rough again with the second outbreak in March 2021, the country was well prepared, and tackled it with the same determination and discipline that brought it relatively safely through the first wave. Now we are all raising our hopes for a better tomorrow as vaccination rates progress and some countries gradually reopen.

Many lives have been lost in Mauritius to Covid-19, and every single one of them was one too many, as were each of the over 3 million souls that perished around the world. Nobody can put a number on the suffering of their loved ones and those still battling with the consequences of this disease.

There is no doubt that the storm has also ruffled Mauritius in other ways; no other country in Africa has lost more in economic terms because of Covid-19. Instead of growing 3 or 4 percent, GDP in 2020 fell 15 percent, back to its level in 2014. 26,000 jobs were lost over the course of 2020, and 69 percent of the self-employed say their incomes have dropped because of the pandemic. Children have missed precious time in school. And domestic partner violence increased as women stuck in abusive relationships were confined to their homes.

But where to from here? What will it take for Mauritius to make a full recovery, and come back stronger from the storm than it was before? A team of 20 World Bank experts, including specialists on macroeconomics, governance, private sector development, competition, education, poverty, social protection, labor markets, environmental protection, gender equality, and disaster risk management analyze this question in our new Country Economic Memorandum (www.worldbank.org/mauritius).

The answer may surprise you: The best way forward is to look back, and work on addressing the challenges that Mauritius was already facing before Covid-19. Four lessons stand out, and each of them can be supported by a series of short- and medium-term policy measures, starting under this upcoming budget.

« First, Mauritius needs more productive investment, and that needs to be driven by the private sector. »

Private investment in recent years was much lower than in the past, and more importantly, it went mostly into real estate and traditional sectors. What the country really needs is the bold, disruptive, and risk-taking investment that moves the technology frontier and creates the foundation for future growth. So why isn’t it happening? In a nutshell, it’s because Mauritius is still implementing 20th century industrial policy, attempting to steer private investment through government subsidies, tax breaks, and public credit schemes. There are two problems with this approach: Even with the best of intentions, these measures often don’t achieve the expected outcomes. Most state support ends up benefitting not those who would need it the most, but those who demand it the loudest, and that will always be the established players. As a result, manufacturing, tourism, real estate, and sugar are all among the largest recipients of state support. On the other hand, innovators already know where they want to go, they just need help to clear the path.

Addressing shortcomings in the education, training and migration systems that cause skills shortages is one of the highest priorities. A first step would be to empower the Human Resource Development Council to become a true champion for an all-of-government, cross-sector, overhaul of skills development in Mauritius. Productive investment also requires competitive markets, especially in upstream industries like communication, transport, finance, and energy. The Competition Commission can take the lead on this and become an effective advocate for pro-competitive regulation, including for SOEs. Uncertainty of any kind is perhaps the biggest deterrent to investors. By creating clear and effective frameworks for the management of natural resources and public private partnerships, Mauritius could unlock the potential of private investment in promising areas like the Ocean Economy, Waste Management, the Port, and Renewable Energy. And finally, we need a reallocation of subsidies from supporting the status quo to boosting productivity enhancing innovation, technology absorption, and discovery.

« Second, Mauritius needs to restore its external competitiveness. »

Covid-19 has imposed a shock on export, especially tourism, but a much more worrisome trend is the persistent loss of market share for Mauritius’ main exports over the past years. Tourism, business services, and fish exports from Mauritius all grew slower than the world market. Business services, apparel and sugar even contracted. While there are new things coming up, like heart stents or cool sunglasses ‘made in Moris’, they have not reached sufficient scale to offset the decline. Exports in 2019 stood at 40 percent of GDP, compared to 57 percent in 2009. To reverse this trend, Mauritius needs to boldly embrace new opportunities. And there are plenty of them. Recently signed free trade agreements give Mauritius improved access to the vast Indian and Chinese markets, with Africa next on the agenda through the Continental Free Trade Area. Our analysis found a whole range of products, from light machinery to electrical devices and plastic items, that would enjoy preferences in these countries while upgrading Mauritius’ export sophistication. Many could be produced by local firms, and the Economic Development Board is working with our support to get information on these opportunities to interested producers. But access to these vast markets is also a major selling point to attract export oriented foreign investment that would bring new ideas, technology, and know-how to Mauritius. Meanwhile, Mauritian firms can play the same role for the African continent by offshoring labor intensive production steps.

« Third, perhaps the most important part of Mauritius’ development success has been its inclusiveness.« 

Growth was never just about wealth creation for a few, but led to jobs and public investment in health, education, and critical infrastructure. Mauritius is still a relatively inclusive society by international comparison, but this model is facing challenges. Inequality in labor income has been on the rise and was offset by increasingly generous social transfers. To reduce dependence, more needs to be done to support those at the bottom of the income distribution to obtain productive jobs. That requires more comprehensive and coordinated social support and job training to address the multilayered causes of exclusion and is well aligned with labor market demand. Making quality childcare widely available is a big opportunity for a double win: It allows mothers to work and stay in the labor market, and it helps children who do not get enough support at home to develop the cognitive and language base for a successful start in primary school. While we are on the subject: A lot remains to be done for a more equal distribution of parenting and household work among women and men! Priorities include a more equitable parental leave system, effective enforcement of anti-discrimination laws, and an all of society, zero tolerance effort against the scourge of domestic violence.

As society ages and public debt is on the rise, a more thorough reform of the basic retirement pension system remains critical. Every Rupee spent on a retirement pension that starts way too early – at 60 – and benefits the rich as much as the poor is a Rupee missing to help those who really need it.

None of these reforms are easy.

« So, my fourth and final point is about strengthening the public sector to deliver effective solutions. »

Part of Mauritius’ success has been the ability to reform and adapt. Unfortunately, that gets harder over time as the challenges become more complex. No single entity in Mauritius will be able to solve the skills dilemma on its own. It requires coordinated improvements in education, training, labor market policies, childcare, immigration, and economic policy, all in close concert with the private sector. This will only work if each agency is fully committed and aligns its efforts to a joint vision. Modern, agile, and flexible planning systems have made a comeback around the world and can be used to ensure coherence and reform momentum. The other key is strict monitoring of results (“How many of our program beneficiaries have been placed in productive employment? And how many are still there after a year?”) rather than just focusing on inputs (“How much have we spent?”) or outputs (“How many job seekers have we trained?”). The creation of the Planning Bureau at the Ministry of Finance, Economic Planning and Development is a good first step, but it needs to be filled with purpose and life and connected to an effective planning system across ministries.

We are all hoping to leave the storm of 2020 behind us and sail ahead into calmer waters. Mauritius has an impressive journey behind it. And with the right adjustments, its future will be even brighter. The World Bank has been a partner in Mauritius’ development story since the beginning and stands ready to provide its support for this next chapter of the journey.