Transcript Slide 1
Are Diamonds there forever?
Prospects of a sustainable
development model for
Botswana
‘Mauritius as case study of a successfully implemented
economic diversification strategy’
Dr Rama Sithanen
27 August 2014
1
Answering five questions
How did Mauritius develop from a colonial state sugar monoculture
economy into one of Africa’s most dynamic economies?
What measures did the Mauritian state take to jumpstart industrial
outlets in a small country? What role did the State play in the industrial
take-off?
How did the internal political context of the Mauritian democracy
contribute to the country’s economic success?
How did external factors such as relations with the donor community
contribute (or not) to Mauritius’ industrialisation?
What are the specific characteristics that describe Mauritius’ economic
development model that could be replicated (or not) in other countries?
Initial conditions of Mauritius as seen by two Nobel laureates
James Meade (Report to Government of Mauritius, 1961):
“Heavy population pressure must inevitably reduce real income per
head…That surely is bad enough in a community that is full of
political conflict… the outlook for peaceful development is poor.”
V.S. Naipaul (The Overcrowded Barracoon, 1972):
”The disaster has occurred… now given a thing called independence
and set adrift, an abandoned imperial barracoon, incapable of
economic or cultural autonomy…”
From a colonial sugar mono culture into a dynamic economy
Overcome four handicaps: small economic size, isolation/remoteness from
world markets, overpopulation, and very low natural resources endowment
A transformation of the economy. We had to bite the bullet many times
Diversification into textiles and garments, tourism, financial services,
ICT/BPO, Free Port, global business, seafood hub, real estate, etc
Both a growth payoff and a stability (less volatility) payoff to diversification
GDP per capita: from US$ 300 in 1970 to US$ 10000 at market rate and US$
16000 at PPP in 2013
High HDI country since 2004: GDP per capita, education and health
indicators. HDI of 0.737 in 2012. From 0.551 in 1980 to 0.737 in 2012
Income inequality (GINI) down from 0.5 in 1962 to 0.38 in 2013
From a colonial sugar mono culture into a dynamic economy
Governance: first in Mo Ibrahim index for a long time
Primary enrolment from 93% to 107% between 1990 and 2013
Life expectancy at birth from 61 years in 1965 to 75 years in 2013
Infant mortality from 64 per 1000 in 1970 to 10 in 2013
Relative Poverty from 40% in 1975 to 8% in 2013
Absence of absolute poverty with less than US$ 1.25 per day
Significant improvement in gender equality
87% of home ownership
From a monocrop to a diversified economy
7/8/2015
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From a colonial sugar mono culture into a dynamic economy
Diversified economy with 8 to 10 pillars. Also diversification within sectors
Investment in education and human capital. Quality of human resources is key
Investment in physical infrastructure: quantity and quality
Strong and independent economic institutions such as property rights and regulatory
mechanisms
Political, social and economic stability. Harmonious and vibrant multicultural
community. Diversity as an asset
Strong and supportive private sector. Sugar rents invested to diversify economy
Established rule of law and good governance
Enabling business climate. The key role of Foreign Direct Investment
Openness policies: trade-led development and export–driven growth
Adapt to changed global economic circumstances. Receptive to new ideas
Measures to start industrialisation and role of the state
Sugar: from king sugar to cane cluster
Textiles and garments: from CMT to vertical integration to niche players
Tourism: from sea, sand, and sun to a broad based hospitality industry
Financial services: from low hanging fruits to a gateway for trade and investment
into Africa
ICT/BPO: from call centres to shared services to software development
Real Estate and property development: IRS/RES/HIS for High net worth persons
Services hub to Africa: education, health and professional services
Business and financial hub between Asia and Africa
Test of successful diversification: % of sugar in GDP, export earnings and
employment. Production and export structure has changed considerably
Sugar accounted for 33% of GDP in 1968 and 4% today
Sugar represented 93% of foreign exchange earnings in 1968 and 25% today
Sugar employed 40% of labour force in 1968 and 5% today
Measures to start industrialisation and role of the state
Market access: State negotiate trade preferences in sugar, textiles, clothing, fish
products
Government invested heavily in the infrastructure needed to set up EPZs.
Construction of industrial estates and subsidised rent to firms. Other infrastructure
Relaxed labour market regulations to start EPZ. Different from rest of the economy
Role of IPA/BOI in promotion, marketing and branding. Sales missions funded by
Govt
Development Bank to facilitate availability, access and cost of finance
Support to training institutions to build skills set
Tax incentives: duty free import of raw materials and plant, equipment and
machinery. Tax holidays and low & flat corporate tax rate of 15%, free repatriation of
profit, dividend, capital, etc
Abolition of exchange controls, relatively stable currency, and a large number of
double taxation avoidance agreements and IPPA
Attract FDI: investment, technology, innovation, market access, management
Contribution of internal political context to economic success
Robust democracy with frequent alternation in power
Taste of office brings element of consensus and convergence in
economic/social policies
Always an alliance to govern the country: pragmatic, practical.
Work across party lines
Everybody on board and no feeling of exclusion from the system
Search for consensus is key feature of Mauritian political economy
Political parties recognise that building consensus is necessary to avoid
adverse economic effects in a small economy
Prudent macro economic management: fiscal, monetary and exchange
rate policies
Inclusive growth, shared prosperity and poverty reduction
The role of external factors
Strong relationship with development partners: EU, IMF, WB, AfDB, AFD, EIB, etc
Market access: Sugar protocol, MFA, DTAA with India, EU, AGOA, COMESA/SADC
Accompanying
measures
adjustments/reforms
to
support
transition
and
structural
EDF(EU) funding over the years for socio-economic development
IMF/WB stand by arrangements and structural adjustment loans
Technical assistance and analytical work. Lender also
Bilateral relations with many countries: trade, investment & technical assistance
Good use of both aid and trade. Use aid for trade. Case of adjustment in sugar
Did not agree all the time with them: IFC,ICT/BPO, Social protection/welfare
state
Are there policy lessons for other countries?
Context ,circumstances and history matter and they differ across countries
No one size fits all. Not lessons all can be exported
However there are common threads that explain ‘success’
Sound economic management: fiscal, exchange rate and monetary policies
Physical infrastructure and education/training/human capital
Strong, dynamic and independent institutions
Robust regulatory framework and good governance
Dynamic and risk taking private sector
Vibrant partnership between public and private sectors
Are there policy lessons for other countries?
Political and social stability
Trade-led development & export-oriented development strategy
Openness to trade and FDI. Open to new ideas. Cosmopolitan
Constant search for new drivers of growth
Need policies that facilitate diversification and structural transformation.
Incentives
Social protection and empowerment for shared prosperity and poverty
reduction
Flexibility and adaptability to change
International Accolades
Cautionary Remarks
Achieved remarkable progress in the face of daunting challenges
Showed that history, geography and the environment is not always destiny
No miracle: Hard work, discipline, determination
Good policies, pragmatism and flexibility
Some luck! But it must be seized (case of Hong Kong investors in textiles & garments)
Not always been the poster boy of the Washington consensus
Hit by natural disasters and terms of trade/exogenous shocks
Made mistakes and admitted to the ICU of Bretton Woods institutions
Administered shock therapy by WB/IMF
Today we face the challenges of avoiding the middle income trap