Economy and Mauritius Growth Performance

BRICS also known as the Big five is a grouping acronym that refers to the countries of Brazil, Russia, India, China and South Africa that are deemed to all be at a similar stage of newly advanced economic development over the next few decades Brazil, Russia, India, China and South Africa will become large, powerful players in the world economy.Regardless of their social, political, or environmental challenges, the BRICS will play an ever-increasing role in the world economy, China and India will remain the dominant pair of the five some thanks to their large and increasingly better-educated populations, their low-cost labour, and their increasing openness. The BRICS thesis posits that China and India will become the world’s dominant suppliers of manufactured goods and services, respectively, while Brazil, Russia and South Africa will become similarly dominant as suppliers of raw materials.A significant part of the growth potential of the world economy for the coming decades resides mostly in some large less developed countries, BRICS Countries have such potential. More than just that, BRICS Countries are thought as having the capacity to change the world by the threats and opportunities they represent from the economic, social and political points of views. Over the next 50 years, Brazil, Russia, India, China and South Africa—the BRICS economies—could become a much larger force in the world economy.Using the latest demographic projections and a model of capital accumulation and productivity growth, we map out GDP growth, income per capita and currency movements in the BRICS economies until 2050. South Africa’s addition is a deft political move that further enhances BRICS’ power and status and India and China, the world’s two most populous countries, formed a strategic Partnership to end a border dispute and boost trade. In the meantime, the speed of the BRICS’ economic recovery has led some to see the global economic crisis as a pivotal milestone in the distribution of economic power.Inevitably, many speculate that the BRICS might turn into bricks in their march to miracle economies and the emergence of the BRICS signals that the next generation of economic development of the global economy will be a thrilling ride. Even if the BRICS come close to reaching their apparent potential, their success will redefine the structure of economic environments, patterns of growth, and dynamics of economic activity. It is important to note that the original BRICS grouping was not based on economic similarities. Indeed, the four original countries could not be more different.It is tempting, however, to divide the countries into two subgroups: India and China are peasant economies with relatively closed, state-controlled, regulated capital markets; Brazil and Russia are primarily natural resource– based economies that are open to foreign trade and financial flows, and have a mixture of state and private sector control of capital markets. Granted, their governments have developed economically sensible policies, opened trade and domestic markets, and begun building institutions that support economic freedom.And indeed, 20 years ago it would have been difficult to imagine Brazil as the new regional hegemon in Latin America, India as a major player in WTO negotiations, or China as the third largest economy in the world, and projected to overtake Japan. * Mauritius is one country that has achieved successful economic with remarkable transformations since independence in 1968. In comparison to many other African countries, Mauritius is an economic success story. Mauritius benefited from the political vision and economic development strategy deftly implemented by its founder and first Prime Minister – Sir Seewoosagur Ramgoolam.From a poor country with high unemployment exporting mainly sugar and buffeted by the vagaries of world demand, Mauritius has become relatively prosperous and diverse. Our country has witnessed a massive development in the last decades * Chart 1 included in the appendices and the economic success of Mauritius has for years depended excessively on the euro-zone countries. The global economic crisis has demonstrated to what extent the euro-centric strategy is risky and can drag Mauritius into recession.From a monocrop economy, depending mainly on sugar, it has diversified its economic activities into textile and apparel industry, tourism and financial services. Mauritius has one of the strongest economies in Africa, with a GDP of US$ 9. 427 billion in 2010 and per capita income close to $13,500. The economy has sustained high 6% annual growth rate for the last two decades. Mauritius is now classified as a middle-income country and ranks, on the basis of the recent Human Development Index for 173 countries, 67th globally, 40th among developing countries, and second in Africa. The average economic growth was 5. % over the last 3 years. The Mauritian economy has experienced profound structural changes during the last two decades. The rapid development of manufacturing in the 1980s led to job creation, largely through the growth of export processing zone (EPZ) enterprises. Since the early 1990s, the financial services and tourism industries have emerged as new growth sectors, requiring higher skilled workers. The demand for high-skilled workers is expected to strengthen further in coming years as the government moves forward to actively promote the development of an information communications technology sector and free port activities. Mauritius being a member of various regional groupings is signatory of a series of international trade agreements which provide preferential market access to key export markets such as the US, EU, India and Sub-Saharan Africa, comprising markets such as the European Union (EU) ,the Common Market for Eastern and Southern Africa (COMESA), the * Chart 2 included in the appendices South African Development Community (SADC) and the African Union (AU) and this helps Mauritius to promote regional economic integration and development through trade and investment.This various regional groupings also help our country to promote sustained growth, to strengthen the economic development of our country and other countries, by strengthening the trade policy environment and supporting poverty reduction programmes, to be more competitive in a global environment and reduce the economic vulnerability of the region, to support regional integration, to strengthen the trade negotiating capacities of the region and member States so that they can play a more meaningful role in negotiations as well as bilateral and multilateral trade and development agreements and to promote and enhance co-operation in trade-related areas. Mauritius’ participation in the multilateral trading system and in various regional agreements reflects its interests as a small, export-oriented economy with advantages in a few products, sugar, textiles and clothing in particular.As part of its economic success is due to preferential market access granted by major trading partners, Mauritius is taking steps to adjust to changes in this international environment and it has the advantage of being stable, being part of both COMESA and SADC – free trade groups that encompass 22 and 15 countries respectively and having a large network of double taxation agreements that makes doing business on the island cheap and easy. Mauritius, with its strong textile sector, has been well poised to take advantage of the Africa Growth and Opportunity Act (AGOA). Garment products are exported to France, the UK and the US where they enter duty free according to the EU-ACP agreement and the US AGOA.The exports are relatively little diversified in terms of products – even though Mauritius remains one of the most diversified exporters in Africa, after Morocco, South Africa and Tunisia – as EPZ exports (textile at 83 per cent) and sugar exports together amount to 90 per cent of total exports. In terms of destination of trade, Mauritius has so far largely favoured the EU and the US markets. * In spite of its small economic size, low endowment of natural resources, and remoteness from world markets, Mauritius has transformed itself from a poor sugar economy into one of the most successful economies in Africa in recent decades, largely through reliance on trade-led development.Real GDP growth averaged more than 5 per cent between 1970 and 2009, while GDP per capita has increased more than tenfold over the same period. Though its economic success has been the subject of considerable debate, several key factors were central in bringing about the Mauritian miracle: good macroeconomic policies, particularly fiscal prudence and a competitive exchange rate policy; strong public sector and private sector institutions, with exceptionally productive interaction between the two; a strong, pro-trade orientation and a liberal trade regime; and use of its ethnic diversity to forge a consensus between the different groups. In parallel to its economic growth, Mauritius has achieved significant improvements in key human development indicators.Mauritius main export markets are the European Union (notably the United Kingdom, France, and Germany). Though a variety of explanations have been developed to explain Mauritius growth performance, there is no doubt that the country’s focus on international trade has been a critical element of that performance. Mauritius preferential access to trading partners, particularly the European Union (EU), in the sugar, textile, and clothing sectors resulted in subsidies for the export sector and provided important foreign exchange for the economy. Preferential trading deals accounted a strong growth in Mauritius total exports. * Table 1 included in the appendices The traditional engines of growth in Mauritius have been sugar, textiles, and tourism.More recently, Mauritius has diversified into financial services and information and computer technologies (ICT). The economy depends on sugar, tourism, textiles and apparel, and financial services, and is expanding into fish processing, information and communications technology, and hospitality and property development. The economic success experienced by Mauritius can be attributed to a combination of internal and external factors that have transformed an agro-based industry into an export-oriented manufacturing economy with a strong tourism sector. The economic track record of Mauritius is the product of its sound institutions, good level of human capital and preferential access to the European Union (EU) market for its key exports.In addition to encouraging the restructuring and modernization of the textile and sugar sectors, the government is putting much emphasis on the development of the ICT sector and the promotion of Mauritius as a seafood hub in the region, using existing logistics and distribution facilities at the Freeport (free trade zone at the port and airport). To further diversify the economic base and generate sustainable growth, the government is actively encouraging the following economic activities: the land-based oceanic industry, hospitality and property development, healthcare and biomedical industry, agro-processing and biotechnology, the knowledge industry, and renewable energy.As can be seen the economic development strategy of Mauritius has paved the way for sustainable development in the various economic sectors while establishing a sound and coherent economic environment for the development of the services sector, especially financial services. With the setting up of the offshore business sector and services like the Freeport and Stock Exchange, Mauritius has ensured that an integrated operating framework for the services sector be allowed to develop in order to exploit fully the business opportunities availing in the Indian Ocean region. The emphasis of the current Government on IT and E-Business developments will no doubt consolidate this framework. Foreign Direct Investment (FDI) in Mauritius was successful in allowing local investors to acquire and assimilate these technologies and know-how and develop domestic firms in the EPZ and the tourism sector.However, FDI in Mauritius have also been highly concentrated regarding sector as well as in skills and capabilities, therefore limiting the capacity to rapidly upgrade and diversify production. One other key factor of the development success of Mauritius has been the large proportion of domestic investments in these leading economic sectors, in particular private domestic investment as can be seen on. Indeed, the large proportion of private domestic investment in sectors such as the EPZ, tourism and the financial sector is thought to have prevented large dependency on foreign capital and to have facilitated joint ventures and therefore technological spill overs.Looking at the structure of investment in Mauritius in the last 25 years and comparing it to other middle – income industrializing economies, we can see that the low proportion of FDI to the Gross Fixed Capital Formation (GFCF) is not unique to Mauritius. Countries such as South Korea and Taiwan also had low FDI as a proportion of GFCF, while Singapore, Malaysia and Hong Kong had much higher FDI inflows as a proportion of GFCF. However, all these countries experienced incredible growth rates in the last 30 years. Therefore, given the mixed evidence, it is difficult to know whether FDI in Mauritius has been growth-enhancing or not on the basis of the small proportion of FDI to GFCF. Nevertheless, it could be argued that given the existing evidence on the relationship between FDI and economic growth, we would expect FDI in Mauritius to be growth-enhancing.The conditions for growth-enhancing FDI are all met in Mauritius: the country has a large human capital base, it is an export-oriented economy, and the high rate of domestic investment in sector with relatively high FDI inflow suggests there is a relatively high complementarity between domestic and foreign investments. With the emergence of BRICS, Mauritius can face new challenges and its economic performance will suffer, resulting from its loss of preferential access to European Union (EU) sugar and Textiles markets. However, despite its remarkable performance, the country will face severe economic challenges with the intervention of BRICS countries in the world market.Increasing labour costs can erode the competitiveness of the textile industry, and preferential market access, which will be critical for the development of the sugar sector and garment industry of our country. One of the main thrusts of the Budget of Mauritius is directed towards the rebalancing of growth away from a euro-centric development strategy towards the emerging poles of economic activity, notably BRICS countries (Brazil, Russia, India, China, and South Africa). Mauritius established Export Processing Zones, known as EPZs, in order to encourage the production of goods for export. To this end, Mauritius imports semi-finished goods duty-free. The goods are then completed in Mauritius and are re-exported.Unsurprisingly, the EPZs have been a magnet for large amounts of foreign investments and, as they deal mainly in clothing and textiles, the textile industry is now one of the main sectors of the economy. Brand name clothing such as Boss and Hilfiger is manufactured in Mauritius for export to Europe and America. Textiles are the main EPZ product, accounting for 89 per cent of jobs and 83 per cent of exports. With regard to wearing apparel, Mauritius benefits from preferential treatment in the European Community (EC) marked under the Lome Convention. With a strict emphasis on quality control and good work ethic, Mauritius now enjoys a sound reputation for textiles all over the world.With the dominant power of China and India in the textile sector, Mauritius will face increased competition from cheaper Chinese and Indian Textiles and these new constraints mean there is an urgent need to diversify the Mauritian economy. In order to be in the position to compete with Asia new tigers that can bank on a reservoir of low salary workforce, there is an urgent necessity to restructure the sugar cane industry; implementing capitalistic mergers in order to scrape some profit gains; the same for the textile industry which need to turn to high quality production. The Mauritian textile sector would be severely affected by the emergence of BRICS because most (80 per cent) textile products (sweaters, tee-shirts, trousers) are not in the high-quality category and also face stiff competition from Chinese, Indian Producers.Cheap textile products from China and India are now reaching US and EU markets at much lower prices than those made in Mauritius and the textile industry in Mauritius will suffer a lot with a low profitability. China’s trade expansion has huge implications in the Mauritian economy as the threat to Mauritius will be of lost jobs to the Textile industries workers due to a significant impact of BRICS that will force the textile industries to close and poverty may arise. Perhaps the impact of BRICS especially China’s economic rise has been most significant for Mauritian exports and the end of apparel quotas and the consequent surge in garment exports from China will compete out Mauritius from developed-country markets, especially the USA. In Mauritius, a number of clothing firms can be closed down, leading to mass layoffs and a sharp dip in exports.The AGOA is seen as a good opportunity for Mauritius to diversify the sector by encouraging spinning and weaving operations and promoting regional integration of the local textile industry with other Sub-Saharan countries eligible for AGOA benefits but it will be difficult for Mauritius to trade with other countries since the price of Chinese and Indian textile goods are much more cheaper than produced in Mauritius. Mauritian sugar producers will find it difficult to compete on the international market because their production costs are much higher than the world market price. In fact, their cost of production is twice that of the most efficient ACP suppliers, and even higher when compared to Brazilian prices and Mauritius will then face a decrease in the exports orders of its sugar. To tackle the anticipated fall in the guaranteed sugar price, the sugar industry and the government have to take some measures to adapt to the new situation in order to stay competitive in the market and to compete with the strong BRICS countries.The emergence of BRICS can affect Mauritian economy and it will face poor economic performance that will mean the unemployment and public finances will deteriorate. Brazil’s economy features well-developed agriculture, mining, and service sectors. While the agriculture sector’s share of GDP is somewhat small, this sector is of particular importance since Brazil is a major world producer of sugar, beef, coffee, soya, and wheat and it can be a competitor to Mauritius in the market of sugar industries. Alongside financial intermediation, tourism continues to be a key factor in the overall development of Mauritius and it has been the second engine of economic development in Mauritius. Tourism, third pillar of the economy after the E. P. Z. anufacturing sector and Agriculture, contributes significantly to economic growth and the government took advantage of its tropical island appeal, beautiful beaches, security and absence of tropical diseases to promote Mauritius as an exclusive destination. Mauritius is predominantly a holiday destination for beach-resort tourists. It possesses a wide range of natural and man-made attractions, enjoys a sub-tropical climate with clear warm sea waters, attractive beaches, tropical fauna and flora complemented by a multi-ethnic and cultural population that is friendly and welcoming. These tourism assets are, its main strength, especially since they are backed up by well-designed and run hotels, and reliable and operational services and infrastructures.Our country ranked first out of all countries for the overall prioritization of the sector, with high government spending on the tourism industry (ranked third), ensuring excellent destination-marketing campaigns to attract tourists (ranked second), and ensuring the country’s presence at many international tourism fairs. Tourism is still very much a growth industry in Mauritius and a major reason for rise in tourism industry of Mauritius is initiatives taken by the government, as the government believes that tourism industry plays a key role in the economic growth of the country. Indeed, foreign earnings from tourism now exceed earnings from sugar.Although Mauritius relies heavily on the exports of sugar, textiles/garments and tourism, services like the Freeport, offshore business and financial services constitute other pillars of the economy but if the BRICS affect the developed countries from where the major tourists are coming, then Mauritius may seek a decline in its tourism industry and so the economic situation will not be favourable. Brazil, Russia, India, China and South Africa (so called BRICS countries) will dominate the next years in global tourism and grow faster than the average economy of the world while global tourism will grow of 5% a year. In the nearest time, middle incomes in BRICS countries ill increase massively and it will have great influence on global tourism industry, because middle-income earners will spend more on their leisure activities and Mauritius will seek a fall in the tourists coming into the country. BRICS countries are developing the tourism industry rapidly and soon Chinese companies will venture outside China. Overseas expansion is inevitable in the field of tourism and the Chinese Government encourages overseas expansion and buys technology and strong brands. China has stunning nature and great culture, and variety of food, but before tourists see all the peculiarities of the country, modern tourism infrastructure has to be built to let tourism move in.Mauritius has traditionally exported to the EU and the US and with the emergence of BRICS, Mauritius will not be able to face the competitiveness of the cheap Chinese and Indian goods as Mauritius is not enough competitive and the cost of production in Mauritius are too high compared to China and India. Moreover, Mauritius exports to the same markets – Europe and the US – in which Chinese competition is known to be most acute and Mauritius is not cost competitive relative to China and India. Then, there is less chance for Mauritius to measure up to china and India Since china and India’s massive entry into international markets, China and India has been characterized for its capacity of supplying low cost manufactures. BRICS has vast implications for the multilateral trading system, transatlantic relations and the global balance of power and its progress will be critical for the progress of Mauritius.Mauritius imports its manufactured goods from China which has placed China into the enviable position of Mauritius’ second largest source of imports, behind India. The bulk of imports have been more precisely in textile yarn and fabrics, machinery and transport equipment (motorcycles), and miscellaneous manufactured goods such as garments and toys and a more significant loss arises from the injury that Chinese import competition can cause to the local industry in Mauritius. Small firms in Mauritius and those in such sectors as garments, footwear and furniture could experience a loss of market, and can have consequently downsized which may cause these small firms to close down. These firms cite lower prices and a favourable rice-quality ratio as the key competitive pressures exerted by Chinese imports and attribute China’s superior cost competitiveness to cheap labour and easy access to low-cost materials and inputs. This is not to say that Mauritius is without problems and with the emergence of BRICS, Mauritius will be confronting a loss of exchange-rate competitiveness. To face globalisation and a new economic environment, the Government of Mauritius has to take several steps. The Information Technology sector is undergoing rapid changes so as to be fit for the next millennium and the aim is to make Mauritius a centre for high-tech and software services, which can be exported.China has emerged as the world’s manufacturing hub, while India has come on very strong as its counterpart hub in services, both providing Western firms access to inexpensive educated and -or- highly-skilled labour. The comparative advantage of countries such as China and India will remain for the time being in labour-intensive Industries, they lag far behind developed Countries when it comes to education attainment and literacy rates, but the numbers are improving. China may be the world’s top exporter of high-tech products, but most of the sophisticated parts are imported from other Asian countries and the final products are only assembled in China.India is an outsourcing hot spot when it comes to computer and communications services, but the main services outsourced to India are call centres and data entry services, not high value-added services. Russia, under Putin, has successfully emerged as a highly profitable energy and raw materials producer, second in oil and gas reserves to Saudi Arabia. Brazil has changed the regional balance in the Americas by turning itself into the winds of east-west trade in hard and soft commodities and using its strength to bolster its new economic clout in relation to North America. From these informations, as far as Mauritius is concerned, it will be difficult for our country to compete with these so called giant economies that is the BRICS Countries and it will suffer a lot with the dominance of BRICS in the trading of goods and services.