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I. The problem in context back to top
In 2004 Mauritius, a small island state located thousands of
kilometres from its major markets, was facing two major challenges: the
probable erosion of preferential treatment for its main export product
(sugar) and a serious disruption to its textile and apparel industry, as
a result of the impending expiration of the global restraint system that
encouraged producers to seek out locations that could benefit from
marginal quota allocations. In addition to the likelihood of less
favourable access for sugar in the European Communities (EC), the
Mauritian sugar industry faced the prospect of stiff competition in the
future from Brazil and new-to-market entrants benefiting from the EC’s
‘Everything but Arms’ (EBA) initiatives.
Many of the island nation’s problems could have been anticipated at
the time it underwent a WTO trade policy review in 2001. Paragraph 20 of
the WTO Secretariat’s Executive Summary put the situation well at that
time:
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.(1)
Notwithstanding its considerable geographic disadvantage and the
shocks sustained by the traditional pillars of its economy, Mauritius is
a success story. The degree of success achieved is particularly evident
when this country is compared to other island states with similar
resource limitations.
No less a judge than the Director-General of the WTO, Supachai
Panitchpakdi, commented when he visited Mauritius in March 2004, ‘One
can quite reasonably ask — why did a small island developing country,
heavily dependent on a single commodity, vulnerable to terms of trade
shocks, situated at a considerable distance from world markets and faced
with a rapidly growing population, succeed — where other better endowed
countries have failed?’
This case study of Mauritius, based on background research and
interviews conducted in Port Louis in May 2004, attempts to examine the
basis for this success and to explore the future direction of the
economy.
II. The local and external players and their roles back to top
Mauritius is a multi-racial environment where the official language
of business, English, is mixed freely by locals with a French-based
patois that most appear to use in their day-to-day dealings with friends
and colleagues. The differing ethnic backgrounds of the population,
which in other parts of the world so often give rise to political strife
and economic discrimination, are embraced positively in Mauritius and
seem to have been melded into a distinct local culture.
One cannot help but be impressed by the degree to which the business
community and government in Mauritius collaborate on projects designed
to improve the country’s economic and trade prospects. There is a
long-standing tradition in Mauritius of addressing problems and
opportunities through institutional arrangements that bring together
main players from the private sector and relevant government agencies.
The Chamber of Commerce was already established in the mid-nineteenth
century and the Mauritius Chamber of Agriculture opened its doors in
1853.
The single most important co-ordinating body for the private sector
in Mauritius is the Joint Economic Council (JEC), established in the
early 1970s shortly after the country gained independence. Although
dialogue between the JEC and the government was hampered initially by
mutual suspicion, the body has evolved over time into an ideal forum for
sharing new ideas as well as developing shared views of problems and how
best to pursue the country’s economic development. According to Jean
Noël Humbert, the general secretary of the Mauritius Chamber of
Agriculture, it was in the JEC that discussion was first initiated on
turning Port Louis into a regional seafood hub (discussed below) and
where the government agreed on the need to fast-track both
seafood-related investment approvals and fisheries permits in order to
remove any practical difficulties to making the vision a reality.
Close government-private-sector co-operation is also reflected in the
country’s approach to policy development in areas such as trade
negotiations under WTO auspices. In this regard, a standing co-ordinating
committee oversees the work of nine different sub-committees where
government and the private sector share responsibility for policy
development. Humbert, for example, chairs the sub-committee that
oversees policy development relating to trade and environment.
Crisis management is another important role of the institutional
structures evolved in Mauritius. The Sugar Sector Strategic Plan
(2001-5) was developed and discussed through these government-industry
groupings. The non-sugar strategic plan was also formulated within these
structures, as have been the various initiatives to deal with necessary
adjustment in the textiles and clothing sector.
Mahmood Cheeroo, the secretary general of the Mauritius Chamber of
Commerce and Industry, says that the Mauritian economy has necessarily
been open and export-oriented from the start. After serious difficulties
in the late 1970s, when Mauritius was the first to adjust under an IMF
standby agreement, a strong government with a political mandate
undertook a tough restructuring campaign and, with a structured and
co-operative buy-in from the business community, charted a course for
strong export-led growth in the 1980s.
Cheeroo was quick to point out that while government-industry
collaboration has produced a number of sectoral success stories over the
years, there also have been policy failures. An effort to cultivate rice
on the island was unsuccessful, as was an attempt to develop the country
as a centre for light engineering in the region. Most importantly,
however, in Cheeroo’s view is that the people of Mauritius are not
afraid to keep experimenting and taking chances on new ideas. Where
there have been real problems or failures, the people involved in the
project were generally not prepared to make a total commitment to its
success.
III. Challenges faced and outcomes
back to top
Mauritius is situated at a considerable
distance from international markets with significant purchasing power.
Transportation costs are onerous and market development can be
expensive. The country has benefited importantly over the past thirty
years from preferential arrangements for sugar purchases by the EC as
well as from the fact that the quota restraint system for international
trade in textiles and apparel helped to create a significant garment
production industry on the island. But the basis for these long-standing
arrangements is subject to challenge, and both the Mauritian government
and the business community have accepted the fact that eventual change
is inevitable and that new routes to economic prosperity need to be
explored and developed.
Overcoming the disadvantages of distance: the
tourism sector back to top
Supachai pinpointed a major element when he
alluded to the problems faced by small developing countries thousands of
kilometres away from major markets. It is obvious to anyone who has had
the pleasure of visiting Mauritius that it has major potential as a
tourist destination. The question is how to develop this potential in a
way that yields the maximum benefit for the local economy. Through an
interview with Patrick Y.-S. Yip Wang Wing, Director of Fiscal Policies
in the Mauritian Ministry of Finance and Economic Development, it was
possible for the author to gain an understanding of what has been a
successful strategy to develop a high-margin tourism business.
Some considerations pertinent to this strategy
are obvious. Mauritius is a relatively small island with a fragile
ecology and environment, especially in areas likely to attract tourist
investment. Additionally, apart from the South African market, Mauritius
is a long way from sources of tourists who are likely to spend
significant amounts of money on beach holidays. Yip Wang Wing explained
that an analysis of this situation had led to the adoption of what seems
to be a very sensible national policy in respect of tourism. The
official policy calls for ‘low-impact’, ‘high-end’ tourism,
meaning that the ecological/environmental impact of tourist sites will
be low and the tourists visiting Mauritius are likely to spend
generously while in the country.
Given the cost of travelling the long distance
to Mauritius combined with the many other competing destinations between
Mauritius and its main cash market (Europe) that are easier and cheaper
to reach, Mauritian planners recognized from the outset that the
attraction of the facilities provided would need to outweigh the cost of
the air tickets. In order to realize its goal, the country needs to be
able to attract the investment in the tourism sector that will produce
high-quality resorts.
Yip Wang Wing explained the investment
strategy along the following lines.
Where the government approves a significant
investment in the tourism sector, accelerated investment and
amortization allowances form an important part of the package from the
start. Approved investors in the sector can amortize the cost of their
investment in hotel facilities over just four years and in the case of
new investments, 25% of the investment is allowed as a special credit.
In addition to making certain that the right
investors put the desired levels of investment into tourism in
Mauritius, governmental authorities also concern themselves with the
standard of service in approved high-end hotels. Measures are in place
to ensure that qualified hotel schools and hotel management
certification requirements are met in the sector.
These efforts appear to be paying handsome
dividends. Tourism is the third-largest source of foreign exchange
earnings for the country and accounts for around 8% of total employment.(2)
Mauritius’ international airport has registered a growth in passenger
traffic of around 8% a year in recent years.(3)
Regional relations: positioning Mauritius as a
strategic hub back to top
At the time of the author’s visit to
Mauritius in May 2004, the country’s Prime Minister, Paul Bérenger,
was on an official visit to Mozambique. A major impetus for the visit
was the Mauritian plan to create a regional ‘seafood hub’ in Port
Louis. Both Mauritius and Mozambique possess vast exclusive maritime
zones. In the Mauritius controlled zone, tuna fishing has produced good
results but many other species are close to exhaustion. Meanwhile, other
countries in the region that have greater stocks of other species often
lack the technology or infrastructure to process the catch. The notion
of co-operating in the development of a rationalized regional ‘hub’
project was laid out by the Prime Minister in his comments to the press
in Maputo. ‘Mauritius has the advantage of having a highly developed
free port that will facilitate the transformation and processing of
fisheries products, with substantial local value added before the
products are exported to European and American markets.’(4)
The fisheries sector is not the only area
where Mauritian industries are seeking co-operation with Mozambique and
other regional neighbours in the development of value-added processing
‘hubs’. Mozambique has abundant and productive land that Mauritius
lacks and Mauritian enterprises are busy building productive
relationships. One Mauritian company, Happy World, inaugurated a new
poultry production facility and abattoir in the course of the Prime
Minister’s trade mission. Another firm, the Food and Allied Industries
Group, directs an agro-industrial complex in Mozambique focused on the
manufacture of wheat flour products and noodles. New opportunities are
being sought out constantly. Humbert, who accompanied the Prime Minister
on the trade mission, was quoted on his departure for Mozambique as
stating that ‘We are leaving with nothing specific in mind. We are
going to study the possibilities and see what they have to offer to us.
We will see what opportunities present themselves when we get there.’(5)
Working with the neighbours is not free of
problems. Among the challenges in Mozambique cited by more than one of
those interviewed for this case study are rampant corruption, a serious
lack of adequate infrastructure and the need to work in the Portuguese
language.
Dealing with distance: the transport sector
back to top
The efforts being made by Mauritius to
position itself as an economic hub are complicated by serious logistics
competition from Johannesburg and Durban, in South Africa. In order to
keep the harbour of Port Louis in the market as an effective player, the
government and private sector have worked hard to keep down costs. The
Mauritius Marine Authority (MMA) has expanded and modernized the port
facilities in recent years and periodically studies new ways of cutting
costs. A recent study, referred to as the ‘dwell time for cargo’
study, focused on how to remove identified bottlenecks and move vessels
in and out of the harbour in as short a period as possible. The MMA
periodically revises port tariffs to reflect market conditions. A
programme designed to increase the handling level to twenty-five ‘twenty-foot
equivalent units’ (TEUs) per hour by 2005 is contributing to an
improvement in labour productivity in the port.
The sugar sector: making the most of a
changing environment back to top
Historically, sugar has been very important
for Mauritius, and there can be no doubt that the country could not have
reached its current level of economic development were it not for the
many years of preferential sales of sugar to the European Community
under special arrangements. Although Mauritius has a more diversified
domestic economy than many other developing countries that are also
reliant on sugar exports, sugar remains especially important for
Mauritius both because it is the largest single beneficiary of EC
preferential purchases and because the island is ill-suited to the
cultivation of alternative agricultural crops.
The interviews for this case study were
conducted prior to the outcome of the recent EC sugar subsidies dispute,
but those interviewed were nevertheless already expecting major change
to the long-standing regime and considering how to make the best of the
situation through the transition. Humbert gave an overview of how the
sugar industry was adapting. The overall area of land under sugar cane
cultivation was diminishing, in part motivated by a restructuring plan
that would allow for more profitable land use, in some circumstances
potentially contributing to the industry’s modernization and also
cutting one-third of the workforce in the industry. At the same time, an
important part of the strategy called for modernizing and preparing the
industry for the future. Part of the modernization plan involves the
development and marketing of speciality sugars — seventeen different
types of these are now produced in Mauritius.
On a one-to-one basis, it is difficult for any
sugar-producing country to compete with Brazil, where a combination of
ethanol-related investment, cheap labour and suspected cross-subsidies
from the government have made the country the most cost-competitive
sugar producer. In recognition of this challenge, for Mauritius cutting
the cost of production is a major focus of the Sugar Sector Strategic
Plan for 2001-5. Among the targets for the plan are:
- a reduction in the cost of production from 18 cents/lb to 14
cents/lb. In the period from 2006 to 2008, the cost of production is
to be further reduced to 10-12 cents/lb;
- a reduction in the number of sugar factories, from fourteen to
seven or eight, to be realized in conjunction with a reduction in
sugar losses at harvest time and in factory processing;
- the generation of as much electricity as possible from renewable
resources, in particular bagasse;(6)
- taking steps to ensure that a substantial proportion of
sugar-producing land that can be mechanized is prepared, and that an
equivalent proportion of acreage that requires irrigation is
provided with irrigation water;
- the development of research and development so as to be able fully
to tap the benefits of the expected quantum leaps in respect of
biotechnology, biotics and cane biomass.(7)
Dr Rajpati, the executive director of the Mauritius Sugar Authority,
outlined a multi-pronged strategy designed to make the best use of the
country’s sugar-related resources in the face of changing
international competitive positions. In terms of external influences on
the sector, Rajpati cited both the expected changes in the EC’s
preferential regime and the marketplace power of Brazil. As core
elements of its strategy for addressing these challenges, Mauritius had
developed speciality sugars for niche marketing, closed inefficient
operations and implemented a major programme using bagasse. In
Mauritius, power plants are able to burn bagasse in the process of
generating electricity, and it has become a major renewable power
source. In 1988, some 70 million kw of electricity were generated by
burning bagasse; in 2004, bagasse was expected to enable production of
some 350 million kw. Until recently ethanol had not been produced in
Mauritius, but in 2004 a plant producing 18,000 litres of ethanol from
70,000 tonnes of molasses began operations.
The director of the Mauritius Sugar Syndicate, Mrinal Roy, indicated
that in 2004 Mauritius would produce about 70,000 tonnes of speciality
sugars which it is able to market very successfully, due to a
combination of very specific attention to quality control and customer
requirements and the strong image the country has acquired over the
years as a supplier of quality product.
Specialization in the production of brown sugars for direct
consumption has made the industry in Mauritius famous around the world.
Renowned unrefined sugar varieties include ‘dry demerara’, ‘standard
demerara’, ‘fine demerara’, ‘brown muscovado’, ‘light
muscovado’, ‘golden castor’ and ‘fine golden demerara’ among
others. In advertising campaigns for these sugars considerable weight is
placed on the intrinsic value of a ‘natural’ versus ‘synthetic’
sweetener in a health-conscious diet. Roy points out that the country’s
sugar industry is not neglecting more traditional sugar exports. The
syndicate he oversees charters some twenty specialized vessels to carry
sugar to market and it has invested heavily in port area machinery
designed to load the sugar rapidly on to vessels and to minimize the
costs associated with vessels’ time in harbour.
As the traditional sugar industry begins to be phased out on the
island, Mauritian sugar experts have turned their attention to moving
production offshore, where possibilities exist for more competitiveness.
An outstanding example is the Marromeu project that began with an
earlier Mauritian government-industry visit to Mozambique in 1996. Three
Mauritian companies, Mon Loisir, Espitalier-Noël and FUEL, made the
most significant overseas investment ever by the Mauritian private
sector in a sugar plantation and refinery that had been made all but
defunct by the years of civil war in Mozambique. After benefiting from
Mauritian investments totalling Rs 3.6 billion (US$130 million),
Marromeu is producing 100,000 tonnes of sugar a year — equivalent to
one-sixth of annual Mauritian production in a good year. A considerable
amount of the Marromeu output benefits from access to the EC market
under the ‘Everything but Arms’ initiative in favour of LDCs.(8)
Sugar will remain a major component in the Mauritian economy. There
will be a strong and continuing effort made to develop new speciality
sugars that can be marketed as differentiated products, and the industry
will continue to cut costs on traditional sugar exports. But Roy
emphasizes that even if no sugar could be sold commercially on world
markets, it would probably continue to be cultivated in the country if
for no other reason than that it has become an important resource in
energy production.
Textiles and clothing production
back to top
A combination of developments in the late 1970s and early 1980s gave
rise to the establishment of a significant textile and clothing industry
in Mauritius. Incentives under an export processing zone scheme combined
with visa-related enticements to Hong Kong-based entrepreneurs fearful
at the time of reintegration with China and the existence of quota
allocation possibilities led to rapid development of the export-oriented
sector.
As competitive pressures have grown and rising wages in Mauritius
have made the sector less viable, a number of initiatives have been
undertaken in a government-industry effort to turn the sector around.
One programme, TEST (Textile Emergency Support Team), initiated an
approach of voluntary benchmarking of the relative productivity of
textiles firms with their local counterparts. The export processing zone
system was revisited to assess whether it could not be made more
attractive to textile firms. Labour-related legislation was changed to
make it more flexible in respect of employees working in export
processing zones. One observer commented that the government did its
part and more, but industry has not focused sufficiently on the need to
change.
Four main products account for the bulk of the sectors’ output:
knitwear, shirts, trousers and jeans. Local experts say that the knitted
sector remains competitive today but that the other, more labour-intensive,
sectors are experiencing severe difficulties. Despite the closing at
regular intervals of garment factories in anticipation of the end of the
global market allocation system that was largely responsible for the
creation of this industry in Mauritius, at least one observer commented
that this kind of factory job is not what most Mauritians want by way of
employment. As relative income and education levels have risen, interest
in production-line work has waned. Overall employment in the country’s
EPZs has fallen from 91,000 to 77,000 in recent years. Most people
anticipate a continuing decline in the prospects for this sector.
Financial services
back to top
Recognizing that rising income levels and a more well-educated
populace would create a demand for more employment in white-collar
services industries, the government and the private sector have
collaborated very effectively to create an environment in Mauritius
which has allowed the financial services sector to prosper and become a
major and growing part of the island’s economy. The concept and
supporting legislation for offshore banking were introduced in 1991,
supplemented by lower tax rates for particular types of bank. In
mid-2004 there were twenty-two authorized banks operating in the
country, ten under a category-1 licence and twelve under a category-2
licence. From the start, the local regulatory authorities decided that
maintaining a high level of credibility in the sector was important, and
only foreign banks with a recognized international reputation have been
approved to do business in the country. Among those banks currently
holding a category-1 licence are Barclays Bank and HSBC.
Alternative agricultural activities
back to top
With sugar in a situation of long-term decline, business and
government in Mauritius are discussing and experimenting with
alternative agricultural activities. Although agriculture is unlikely to
form a major part of the Mauritian economy of the future, a number of
initiatives are currently being explored in sectors that seem to offer
some promise.
The production of venison is particularly interesting for a number of
reasons. Experiments have shown that deer react well to feedlot
environments, and the local Hindu population has no difficulties with
the farming of deer for food purposes. One problem the Mauritians have
encountered in their efforts to commercialize the sector fully is the
apparent lack of a relevant EC food safety standard applicable to
venison exports from Mauritius.
In addition, and apart from the seafood hub activities recently
promoted by the Prime Minister, Mauritian investors are working hard to
identify land in neighbouring Madagascar, Mozambique and Tanzania that
could be purchased or leased for long-term agro-processing operations
where products such as potatoes, tomatoes and maize could be grown in
these neighbouring countries and then brought to Mauritius for
value-added processing and export to developed country markets.
IV. Lessons for
others back to top
Many of those interviewed by the author commented that there is in
Mauritius today a large level of tolerance prevailing among the
populace, notwithstanding the many different religious and ethnic groups
present on the island. The first comment from Rajpati, the executive
director of the Mauritius Sugar Authority, was that in Mauritius there
is a well-established and functioning collaboration between the public
and private sectors and that the Mauritian people are accustomed to ‘pulling
together’ for the common good.
The stable political environment and absence of ethnic tensions in
Mauritius were credited by many of those interviewed with having
contributed importantly to the country’s relative success. This,
combined with a long-standing tradition of business and government
working together to solve problems and take advantage of opportunities,
has been a cornerstone of the country’s development.
On the international trade front that is so vital to the country’s
well-being, Mauritians are well aware that they have benefited from
special preferences and circumstances over the past thirty years, but
they are also very conscious that the landscape is changing and that
these special features of their international trade cannot be counted on
for the future. Their reaction has been to preserve what they can (by,
for example, acting to cut costs in sugar production while developing
new niche markets for speciality sugars) and, more importantly,
experiment with new ideas for the country’s future economic
development.
NOTES:
1.- WTO Secretariat, Trade Policy Review — Mauritius, Document WT/TPR/S/90, 5 Oct. 2001, Geneva: World Trade
Organization. back to text
2.- Ibid., p. 71. back to text
3.- Ibid., p. 78. back to text
4.- L’Express, 28 May 2004, p. 3
(author’s translation). back to text
5.- L’Express, 26 May 2004, p. 15
(author’s translation). back to text
6.- Bagasse is the leftover organic material
after the cane has been processed for its sugar content. back to text
7.- Ministry of Agriculture, Food Technology
and Natural Resources, Sugar Sector Strategic Plan 2001-2005,
Port Louis, June 2001, pp. 1-2. back to text
8.- L’Express, 26 May 2004, p. 15. back to text
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