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NS4301 Summer 2015 Mauritius Economy. Overview. Jeff Frankel, “Mauritius: The Little Economy that Could,” Foreign Policy February 2, 2012 Mauritius is considered an African success story One of the top economic performers in the region
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Overview • Jeff Frankel, “Mauritius: The Little Economy that Could,” Foreign Policy February 2, 2012 • Mauritius is considered an African success story • One of the top economic performers in the region • Income per person exceeds $15,000 – more than Turkey or Brazil • Article contends • there has not been one unique ingredient to the country’s success, • but a number of lessons as to what can propel economic development • Few people predicted success for the country
Mauritius I • In the 1960s, British economist James Meade concluded “outlook for peaceful development poor” because: • High population density, reliance on a single crop (sugar cane), ethnic conflict. • Also country isolated far from markets for its exports or tourism • Instead Mauritius’ economic success built on a steady pace that spread the wealth. • Between 1970 and 2010 GDP grew at an average annual rate of 5.4% compared with the African average of about 1%. • Mauritius ranks second in Africa (after Seychelles) on the UN’s Human Development Index • Mauritius’ commitment to open trade and rule of law do correlate well with growth.
Mauritius II • What made Mauritius choose the virtuous path? • Mauritius’s human history did not start promisingly • Original Dutch occupiers stripped island of its valuable ebony trees in the early 17th century • French then imported African slaves to grow sugar cane. • But with British rule (beginning in 1814) island began to enjoy “good globalization.. • Slavery was abolished • Sugar plantations learned to make do with indentured servants – 500,000 imported from India • During next century British gradually extended political rights to all literate adults • Sugar production rose steadily
Mauritius III • Underlying the economic success of Mauritius since independence (1968) are two key factors • First unlike other African countries, the country rapidly developed a manufacturing sector (specializing in textiles and clothing • Second Mauritius has successfully navigated the global economy upon 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
Mauritius IV • Mauritius success did not demand novel policies • Country focused on export growth • Maintained a business friendly climate • 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 labor force • Standard policies advocated by World Bank/IMF • However if the policies don’t mesh with local politics and institutions they are unlikely to take root. • In Mauritius a powerful synergy between democracy and economic growth.
Mauritius V • Unlike most newly independent African countries, Mauritius created political institutions that: • Gave a voice to rural poor and • Ethnic minorities • Also important, Mauritius chose not to establish a standing army • Likely saved it from military coups • Saved a lot of money which was spent of education and infrastructure • Clearly good institutions can lead to prosperity
Mauritius VI • Country offers three major lessons in what would sustain growth in other African countries • First, trade is the key to growth • Openness forces economic interests to compete in global markets and • Deters rent-seeking – that is creating pockets of economic privilege and hanging on to them • Second the 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 underdeveloped countries, democracies an manage painful economic reforms • a sense of inclusiveness makes it easier to impose collective sacrifice
Future TFP I Considerations for the future • IMF, “Namibia: Selected Issues, February 2014 Policies that can raise potential growth in small middle-income countries of SSA • Want to look at long term declining rates of growth • Find TFP total factor productivity is the key • Look for ways to increase TFP
Future TFP IV • Past actions taken by government that improve TFP • Addressed the infrastructure gap in 1980s by ensuring country-wide coverage of basic infrastructure services • Electricity, • Water and • Telecommunications network • Country’s strong legal and institutional framework attracted massive inflows of FDI during late 1980s and early 1990s • More recently government has sought public-private partnerships with foreign investors to invest in • Electricity generation and • Port infrastructure
Future TFP V • Country has benefitted from investment, expertise and technical know-how of Hong Kong and Chinese businessman • These entrepreneurs developed textile and apparel industry • Initiated the country’s export-processing zone (EPZ) industrialization phase • Still many challenges remain • Although economy relatively diversified, still reliance on European markets for trade and tourism • Structural labor problems including youth unemployment
