NS4301 Summer 2015 Mauritius Economy. Overview Jeff Frankel, “Mauritius: The Little Economy that Could,” Foreign Policy February 2, 2012 Mauritius is

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

• 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

2

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.

3

Mauritius WEF I

4

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

5

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

6

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.

7

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

8

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 9

Voice and Accountability

1996 2000 2003 2005 2007 2009 2011 201335

40

45

50

55

60

65

70

75

80

Perc

en

tile

: V

oic

e a

nd

Acco

un

tab

ilit

y

Country/GroupMAURITIUSMOZAMBIQUENAMIBIASOUTH AFRICAAverage

Source: World Bank, Worldwide Governance Indicators, 2014

10

Political Stability/Absence of Violence

1996 2000 2003 2005 2007 2009 2011 201320

30

40

50

60

70

80

90

100

Per

cen

tile

: P

olit

ical

Sta

bili

ty/A

bse

nce

of

Vio

len

ce



11

Government Effectiveness

1996 2000 2003 2005 2007 2009 2011 201325

30

35

40

45

50

55

60

65

70

75

80

Perc

en

tile

: G

ov

ern

me

nt

Eff

ec

tiv

en

ess



12

Regulatory Quality

1996 2000 2003 2005 2007 2009 2011 201320

30

40

50

60

70

80

Pe

rce

nti

le:

Re

gu

lato

ry Q

ua

lity



13

Rule of Law

1996 2000 2003 2005 2007 2009 2011 201320

30

40

50

60

70

80

90

Pe

rce

nti

le:

Ru

le o

f L

aw



14

Control of Corruption

1996 2000 2003 2005 2007 2009 2011 201325

30

35

40

45

50

55

60

65

70

75

80

Per

cen

tile

: C

on

tro

l of

Co

rru

pti

on



15

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

16

Future TFP II

17

Future TFP III

18

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 infrastructure19

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

20

Future TFP VI

21

Future TFP VII

22

Mauritius: Economic Freedom I

23

Mauritius: Economic Freedom II

24

Mozambique: Economic Freedom II

25

South Africa/Mauritius Overall Economic Freedom Trends

26

Mauritius: WEF II

27

Mauritius WEF III

28

Documents

NS4301 Summer 2015 Mauritius Economy. Overview Jeff Frankel, “Mauritius: The Little Economy that Could,” Foreign Policy February 2, 2012 Mauritius is