AfrAsia Bank is pleased to post the following from Swadicq Nuthay. Swadicq is the Chief Executive of AfrAsia Capital Management Ltd and discusses in the interview below an overview of the Mauritius economy for the year 2014.
- What is your assessment of the Mauritian economy?
Despite the uncertainties plaguing over the global economy during 2013, Mauritius had a decent performance with GDP growing by 3.2% as compared to 3.4% in 2012. An in-depth analysis of the island’s macro-economic indicators however reveals some structural weaknesses and bottlenecks, impacting negatively on our capacity to grow at a higher pace.
One of the most visible signs is the current account deficit. The situation has deteriorated over the years as consumption outpace production levels: we have gone from a current account surplus of 6% in 2001 to a deficit of 12.6% in 2011 before improving slightly to a deficit level of 10% in 2013.
The year 2014 can be a turning point for the Mauritian economy as the developed world, and especially our main trading partners including Europe, recover and optimistic global growth forecasts surface. I believe that a technical rebound can be in the cards for Mauritius in 2014 with GDP growth of 3.5% -3.8%.
Some economic indicators paint a far from brilliant picture of the Mauritian economy. On one hand, GDP growth and inflation rate are two main positive macro-economic indicators but a closer look at our macro-economic indicators does shed some concerns about the deteriorating structural weaknesses.
As mentioned above, current account deficit is a major source of concern but this is not the sole problem. We have to address the problem of investments too very rapidly. The rate of investments is on a descending trend, going from 26% of GDP in 2009 to 21.5% currently. This situation calls out for action since the ratio of investments to GDP shows the value added of domestic production that is invested in the future. What is even worse is the declining level of investments from the private sector. The private sector has lost its verve and vivacity of former days when it launched itself into new projects and ventures.
We also have problems with our institutions, most notably with structural bottlenecks, which are hampering development. We have already embarked on the path of reforms of our institutional framework but there is still a long way to go for the ease of doing business in Mauritius. Information is lacking on the potential of some sectors. The involvement of private investments in public infrastructure and utilities projects has been broached and yet there is not really a legal framework for these public-private partnership projects. Public infrastructure could have been a very good niche for private sector investments.
- Do you think that GDP growth in 2013 could have been more than 3.2%?
We could have indeed exceeded the 3.2%, but only if all the necessary conditions were fulfilled. We tend to blame the global crisis for our lacklustre performance. The crisis has certainly affected us adversely as it has considerably weakened our foundations, but we have, all the same, a long way to go to bring reforms to the Mauritian economy and to solve our structural issues. If we had had more insight about our development strategy and if reforms were implemented more rapidly, then our growth could have been better.
- What are the factors that are hindering economic growth?
These factors come in two folds. To start with, we are still heavily dependent on Europe though we have recently started to diversify our markets. With the recent global economic crisis, we experienced a domino effect from the cluster of countries on which we depend and which were negatively impacted.
Secondly, I think that we have to align our investment promotion strategy with our objectives. Very often, we announce the development of a sector, like for e.g, the Land-Based Oceanic Industry. Yet, when we look at the inflows of foreign investments, we note that these are not at all directed in this sector. We note also that too much focus has been put on property development to attract FDI. I believe that this is low quality FDI with low value added to the economy. FDI towards more productive sectors has been relatively low in recent years. There is a mismatch between our long-term strategies and targets. Nevertheless, we cannot afford to refuse foreign direct investment, even if it is regarded as of low value-added.
- What about the reforms that Mauritius has embarked into?
We have made considerable progress in that matter but even so, there is still much to do. The ease of doing business is of utmost importance. There is still a lot of bottleneck in the system and this is a major cost to any project.
To address some structural issues will not be an easy thing.
Besides, I believe also need to review the welfare state. Government cannot continue to finance all services, such as education, health or pension. There is really a waste of resources which are not allocated in the most optimal way.
There have some efforts on the part of the public sector but these have the tendency to favour the short term to the detriment of long term. We should not let our fears dominate and hamper reforms but on the contrary, we have to continue to encourage reforms.
- Do you think these services should be eliminated then?
I would not say ‘eliminate’ but rather adopt a system of targeting. For e.g, with regards to the health sector, there is a large portion of the population who can afford to pay for their own treatment. Along the same lines, there is no need for pension or for free public transport for everyone. Mauritius does not have unlimited resources. Hence, we should think about the future of the country, even if this stance is not a politically popular one.
- What do you propose as an economic alternative?
We have to develop economic strategies which focus on the long term even if these policies may prove to be detrimental to short term targets.
Mauritius has been through multiple economic phases and unless we double our efforts, we will not climb out of the ‘middle-income country trap’. To do so entails a more substantial increase in growth. And for this, we need more investments and value added. Our investment level is around 20-21% whereas in Eastern Asia, the rate is in the vicinity of 40%. This is alarming as today’s level of investment is the fuel of tomorrow’s economic growth.
- Will the economy pick up in 2014?
2013 was a turning point for developed countries and various economic data point to an improvement in developed economies, especially in the US and Europe. Europe has been recovering from recession and reverting to growth. However, emerging economies have been experiencing difficulties and have displayed a fall in growth. Broadly speaking, 2014 is deemed to be a better year than 2013. Mauritius, being highly dependent on Europe, a recovery in the latter can only be beneficial to our economy.
We can thus expect a GDP growth of at least 3.6% for this year. We already note a revival in the tourism sector and the level of exports is on the rise. However, I wish to re-iterate the fact that we are still operating below capacity and are under-utilising our resources.