• Thursday, November 27, 2014

International

A Pearl in the Indian Ocean

Mauritius is more than an exotic tourist destination. When it comes to economic success stories, you can hardly do better than Mauritius.

Amitava Kar

Suppose someone were to describe to you a small country that provided free education through university for all of its citizens, transportation for school children, free universal health care—where people of all religions live in peace and harmony. Chances are you will begin to suspect that such a country is either phenomenally rich or merely a utopia.
In reality, Mauritius, a tropical island nation of 1.3 million people with heavenly beaches and clear aquamarine water off the east coast of Africa, is neither particularly rich nor is it a figment of the imagination. Nonetheless, it has spent the last few decades successfully building a diverse economy, a democratic political system, and a strong social safety net. Many countries, not least Bangladesh, could learn from its experiences.
For in 2013, Mauritius was (again) ranked number one on the Ibrahim Index of governance among African countries—South Africa ranked a distant 5th. And by no coincidence, it remains one of the top economic performers in the region: Measured in terms of purchasing power, income per person exceeds $15,000-- more than that of Turkey or Brazil.

Mauritius draws its strength from its diversity.
Mauritius draws its strength from its diversity.

How did Mauritius with no exploitable natural resources manage to grab the brass ring, while so many others in the region have failed?
Indeed, so dismal were its prospects as it approached independence from Britain, which came in 1968, Economist and Nobel Prize winner James Meade prophesied in the early 1960s that Mauritius's development prospects were poor—that Mauritius was a strong candidate for failure, with its heavy economic dependence on one crop (sugar), vulnerability to terms of trade shocks, rapid population growth, and potential for ethnic tensions. History—or, rather, Mauritius—proved Meade's dire prognostication famously wrong. Mauritius recognized that without natural resources, its people were its only asset. Since then the country has progressed from the sugar-based monoculture of 50 years ago to a diversified economy that includes tourism, finance, textiles, and, now, advanced technology.
 Mauritius's economic success came at a steady pace, and in ways that spread the wealth. Between 1970 and 2010, the GDP grew at an average annual rate of 5.4 percent, compared with the African average of about 1 percent. Mauritius's commitment to open trade and the rule of law has correlated well with growth.
Now, a few small African countries like Equatorial Guinea that are rich in oil have grown faster and have higher average incomes. But Equatorial Guinea is a kleptocratic nightmare in which only the guys with fancy uniforms and mirrored sunglasses enjoy high living standards. Mauritius, by contrast, ranks second in Africa (after the Seychelles) on the Human Development Index.
Underlying the economic and human development of Mauritius are two major accomplishments. First, it rapidly developed a manufacturing sector specializing in textiles and clothing. Second, Mauritius has successfully navigated the vagaries of the global economy, on which it is so dependent. It managed to contain the damage from the oil price shocks of the 1970s, and it took in stride the successive losses of preferred access to rich-country markets for sugar and apparel.
The adjustments didn't require novel policies. Mauritius focused on export growth, maintained a business-friendly climate (Mauritius ranked 19th on the Ease of Doing Business Index in 2013), pursued effective diplomacy to sustain access to critical global markets, took care to prevent its currency from becoming overvalued, and spent enough on education to create a productive labour force. They have realized that it is not enough to listen to the advice of the World Bank and crew. If the policies don't mesh with local politics and institutions, they are unlikely to take root. And in Mauritius, one can see a powerful synergy between democracy and economic growth.
Unlike most newly independent African countries, Mauritius created political institutions that gave a voice to both the rural poor and to ethnic minorities. “Also important, Mauritius chose not to establish a standing army,” says Vincent Rose, a banker. “This likely saved us from military coups - and it certainly saved us a lot of money, which was spent on education, health care and infrastructure.”
Okay, so Mauritius has good institutions that led to prosperity. But why did Mauritius, in contrast to so many other post-colonial nations, end up with good institutions? To find answers, you have to look at history of leadership in this island.
Descendents of the French émigrés who developed the sugar plantations, along with the Creoles whose ancestors had worked the plantations as slaves, initially opposed independence because they feared domination by the majority ethnic Hindus. But they eventually agreed to cede political power in return for guarantees that their property would not be expropriated. Meanwhile the first Prime Minister, Sir Seewoosagur Ramgoolam, was able to persuade his constituents to abandon efforts to nationalise the sugar plantations in return for this acknowledgment of their majority political status. The melting pot that is Mauritius today is the product of an aggressive immigration policy that recruited foreigners (Indians, Chinese and Africans, mostly) to toil as low-paid labourers in the fields and factories catering to the island's raison d'être: sugar cane. “Here everyone respects the religion of everyone else,” says Mohamuddally Mohamed Reza, an affluent businessman, over phone. In the recent years, Mauritius has attracted thousands of Bangladeshi workers to work in its apparel sector.
Even though Mauritius had ceased to be the crossroads of the Indian Ocean when the Suez Canal opened in 1869, it has retained a cosmopolitan mindset - one of several respects in which it resembles city-states such as Singapore, Hong Kong and Dubai. This cosmopolitanism came in handy in the process of economic development. Ethnic links to China and India led directly to the rise of the textile and apparel sector and to a financial centre, respectively. Mauritius has also been a beneficiary of a high inflow of FDI into India. Due to special tax treatment given to investments that come through Mauritius to India, there was a surge in recent years in companies registering themselves in Mauritius. Mauritius was a quasi-tax haven for foreign funds invested in India, more than 39 percent of all inflows of FDI into India which was worth about $162 billion for the time period 2000 to 2012 flowed through Mauritius via private equity, hedge funds and mutual funds. The Chinese community, also, has attracted investment by Hong Kong entrepreneurs who sought overseas locations for their textile operations in an attempt to circumvent the textile quotas imposed on Hong Kong.
Mauritius is unique in many ways and offers three lessons. First, trade is the key to growth. Openness forces economic interests to compete in global markets and deters what economists call "rent-seeking" -- that is, creating pockets of economic privilege and hanging on to them. Second, the malign economic consequences of deep ethnic divisions can be moderated by a political structure that is truly inclusive and prevents winner-take-all outcomes. Third, even in relatively undeveloped countries, democracies can manage painful economic reforms because a sense of inclusiveness makes it easier to impose collective sacrifice.
Still, you are tempted to search for the X-factor that gave Mauritius an economic edge. Could it be the cultural values of the majority Indians? Probably not. For one thing, while Mauritius was industrializing, India itself was crawling along at snail's pace.
Are Mauritius's achievements due to good policies—especially openness to trade and foreign investment—sound domestic institutions, or other factors? Experts say it has had a lot to do with the way how well the country's ethnic diversity has been managed. “Perhaps, instilling confidence in the Mauritians in their rights, their votes, the power of their opinions was the key to Mauritius's economic success,” opines Subhash Lallchand, a history teacher at a local school.

 

 

Published: 12:01 am Friday, January 10, 2014

Last modified: 8:35 pm Friday, January 10, 2014

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