MAURITIUS ECONOMY – THE UNDERLYING PLAGUE

Mauritius stands at the crossroads of its future development and potentially faces challenges as great as those of the early era of post independence which consisted at that time in laying the foundation for the socio-economic development of the country.

 

 

The doomsday scenarios for Mauritius elaborated at that period by James Meade and V.S. Naipaul (both Nobel laureates) were proved wrong thanks to the Mauritius genius and hard work.

 

 

As we are about to draw the curtain on the year 2016 some 45 years later, we are again faced with the daunting challenge to reinvent the economy in the aftermath of the dismantlement of trade preferences (mainly the multi fibre agreement and the sugar protocol) which have accompanied Mauritius in its post independence development for around 30 years. Measures implemented since 2005 – revolving mainly around fiscal incentives, consolidation of existing sectors, opening of the economy to foreigners, deregulation of the labour market and improving the ease of doing business environment – have to a large extent boosted the resilience of the local economy and prevented Mauritius from slipping into a recession.

 

 

However, a closer look at the structure of the growth engines of the economy warrants a sense of urgency and purposeful response. The current architecture of the economy underpins a situation of growth pattern highly skewed towards private consumption and the trend is amplifying. Private investment is continuing to recede while net exports are in negative area.

 

 

Figures below (based on latest reports from the Central Statistical Office) shed lights on the challenges facing our decision makers.

 

 

Table 1 – Components of GDP

 

 

 

2013

2014

2015

2016 (forecast)

GDP Growth Rate

%

+3.4

+3.7

+3.5

+3.9

 

 

 

 

 

 

Gross Domestic Product

MUR m

371,047   

390,692   

408,308   

436,848   

     Private Consumption

MUR m

276,507   

292,343   

306,206   

321,238   

     Private Investment

MUR m

63,696

58,200   

46,909   

57,464   

     Government Expenditure

MUR m

72,133

76,151

78,980

89,805

     Net Exports

MUR m

-48,914

-43,782

-40,414

-35,733

     Statistical Discrepancies

MUR m

7,625

7,780

16,627

4,074

 

 

 

Table 2 – Percentage share (of GDP) of Growth Drivers

 

 

 

2013

2014

2015

2016 (forecast)

Private Consumption

% of GDP

75%

79%

83%

87%

Private Investment

% of GDP

17%

16%

13%

15%

Government Expenditure

% of GDP

19%

21%

21%

24%

Net Exports

% of GDP

-13%

-12%

-11%

-10%

Statistical Discrepancies

% of GDP

2%

2%

4%

1%

 

 

The figures above clearly show that the economy is heading in the wrong direction with growth being increasingly propelled by private consumption. Private investment continues to decline while international trade is severely hampering growth when in fact it should have bolstered the economy.

 

 

To better understand the urgency to reengineer our current economic model we provide below the figures relating to two components of GDP for Singapore and Germany, two countries which are usually used for benchmarking purpose.    

 

 

Singapore (2013 figures)

 

  • Private consumption (% of GDP): 38.4%
  • Net exports (% of GDP): +25.1%

 

Germany (2013 figures)

 

  • Private consumption (% of GDP): 57.6%
  • Net exports (% of GDP): +5.4%

 

 

Conclusion

 

 

In order to drive the economy towards its potential capacity, improve its resilience and flexibility, it is important to tackle the structural weaknesses of the economy. The future of the economy will largely depend on the depth and diversity of its economic pillars. Foreign direct investment in sharp decline (MUR 13.8 bn in 2013, MUR 18.9 bn in 2014 and MUR 9.6 bn in 2015) has been mainly confined to real estate activities in 2015 (84%) compared to 44% in 2013.

 

 

Attracting investment in greenfield export-led activities is sine qua non for the emergence of new drivers for growth and a broad based economy.

 

 

At this defining period of the economic history, the political management of the economy will be under close scrutiny. Defying the odds has been the hallmark of Mauritius since independence. Will history again be on our side?