The current global situation and Mauritius
We can no more look at Mauritius in isolation when making an analysis of its economic performance and deciding of its future and vision of where we would like Mauritius to be. Mauritius is part and parcel of the global economy and influenced by what happens elsewhere. More so today, given the fact that we are an exporting country be it, goods and services, including tourism sector, and we almost import pretty much everything we consume. Without forgetting our financial services sector which is reliant on foreign investors’ money passing via Mauritius. So what’s the status of the global economy?
The global economy went through an unsurprising slow-down in 2019 after almost a decade of bull-run global growth since the financial crisis of 2007/08. This ongoing growth has been on the back of major quantitative easing with low interest rates in major economies. Pump money and you hope that this will boost and kick start the global economy. That was the aim post financial crisis.
2020 does not seem to be improving with major downside risks still hanging around.
2020 does not seem to be improving with major downside risks.
World Bank as usual seem to have an optimistic forecast of 2.5% for the global economy compared to 2.4% in 2019 bearing in mind that the same World Bank revised its growth forecast several times downwards in 2019.
Since we have started the New Year 2020, a number of events are already prompting the downside risks for global growth and these include the following : We have seen increasing tensions between USA and Iran in the 1st week of the year, the USA-China trade war is not over yet, political turmoil in the USA with Trump’s impeachment trial, political change in Spain. Whereby a last minute coalition had to be concluded with the extreme left, Russia’s unexpected change of Government, the longest strike in France where workers are fighting for their retirement rights, Australia under fire for the longest number of months highlighting the environmental challenges facing the world, continuous civil unrests in Lebanon and Hong Kong, South Africa going through the toughest time ever with the failure of both Eskom, the national electricity provider, and South African Airways, its national airline, and facing a rating downgrade to Junk status by Moody, the German economy growth in 2019 at 0.6% was at the slowest pace since the euro zone's debt crisis and both emerging markets China and India growth forecast to remain low this decade.
In addition, as if these were not enough bad news, the new Managing Director, Kristalina Georgieva, of the International Monetary Fund (IMF), made a shocking statement last week saying that the risk of a great depression similar to 1920s could be real for this new decade. What a start for 2020 ! Where can we find the upside to prompting global growth rate upwards? It seems extremely unlikely in this global environment.
One thing for sure, is that stability is something of the past and we are living in a world of increasing uncertainty.
Against this tough backdrop, the Mauritian economy despite being very small in comparison to the global economy, will continue to face these global head-winds. In addition, various pillars of the economy have reached a cross-road or even the end of a life-cycle and we need structural changes at this point in time and innovative ideas to manoeuvre through this new decade. For an economy like Mauritius, to bank on consumption led strategies by pumping liquidity in the system is a short-term fix and short-sighted. We can’t carry on like that, and it’s high time that the public and private sector regroup and transparently work together to mitigate all the downside risks ahead of us.
Mauritius GDP Growth in 2019 and forecast in 2020?
It was expected that the original GDP growth forecast for Mauritius of 3.9% for 2019 set by the Bank of Mauritius (BOM) was never going to be met since June 2019 and yet the BOM persisted with the 3.9% until we reached the end of November 2019, whereby the forecast was eventually levelled down to a realistic 3.6%. Even the Central Statistics Office (CSO) recast to 3.6% well before the BOM. The question we should ask is why an institution like the BOM, which is at the heart of the Mauritian economy, has visibility on all the sectors of the economy, and monitors the ins and outs of money in the country, couldn’t see that the original forecast of 3.9% wasn’t going to be met well in advance. How did they miss what was obvious to many? The next question is whether their forecast going forward can be trusted. Let’s see what they come up with in the near future.
The New Minister of Finance and the challenges ahead
As for the 2020 forecast, again it will be very unlikely that the 4% will be met as the global economy is still struggling and the structural difficulties for the various pillars of the local economy remain. I think we might end up in the range of 3.5%-3.6% again with public investment pushing that growth rather than private sector investment if nothing radical is done.
We now have a full-time Minister of Finance which hasn’t been the case for the last three years. It has been a bit more than two months since the new Minister has taken the hot seat and he has been very silent. We can put it on the fact that December was the month of festivities and hence not much for him to talk about. However, reality for his silence (or rather embargo) might be that of the long awaited « discours programme 2020-2024 » which is due to happen on the 24th of January 2020. Till then, « motus et bouche cousue ».
A lot of promises have been made prior to the last general elections and now it is time to deliver.
Be it as it may, the new Minister of Finance has a tough task in front of him. A lot of promises have been made prior to the last general elections and now is the time to deliver. His main challenges will be to stimulate private sector investments as the public sector cannot keep on to carry the bucket of stimulating the economy via public investment ad-vitam, attract at least US$1Billion of FDI annually compared to $500M which we have been receiving annually over the last five years if he means business and more so given our ease of business rating has improved to number 13, keep our national debt at sustainable levels, and manage the twin deficits being budget and trade deficits.
Here I would like to point out that a « discours programme » in itself is not a saviour. We have had « discours programmes » before, but then a number of ideas remain stuck in theory and hard to implement more so because of some disconnect between vision and the reality on the ground both locally and globally. The concept that the Government alone will come up with an economic miracle road map and the private sector will just tag along is an old concept that’s unlikely to work in this new global environment. What we need today are practical ideas and solutions. Mauritius economically is an easy fix, and for that, we need to assemble both public and private sector and agree on a road map for the next five years.
Minister of Finance and the social agendas?
Social agendas in a globally difficult environment and in the context where we are in terms of our economy pillars at the end of life cycles coupled with a balance sheet like Mauritius will be difficult to sustain unless we break away from what has been a slow era of growth for the Mauritian economy in the last decade. The last decade was what I would qualify as a lost decade and we cannot have another lost decade this time. We can’t afford it anymore.
We need at least 5% GDP growth but not any type of growth, but rather efficient and inclusive GDP growth to be able to sustain the social agendas. We can’t promise forever what we don’t have and don’t seem to have visibility of in the future. As far as I know, we are not Qatar, nor UAE, where we have cash reserves sitting under our soil.
What we need today are practical ideas and solutions.
There are 2 scenarios
If we carry on in having the same economic policies and slow economic growth and nothing radical to stimulate the economy, the social agendas will be difficult to sustain and deficits will run bigger and at some point in time we can end up in an « effet de boule de neige » and we then fall in the populism trap leading to a Greece scenario, that’s the worst case scenario.
If he is able to instil confidence to the business community, open Mauritius further to attract both private sector investment and the much needed Foreign Direct Investments (FDI), then this will lead to a multiplier effect, whereby the economy will create jobs, create value, boost consumption and the bigger the economic pie can grow the better we can share and more importantly sharing in an efficient way that would reduce currently growing wealth inequality.
Private Sector on the sitting fence and for how long ?
We have to be realistic here. The private sector needs visibility, stability, consistency in terms of economic policies and also engaging Ministers in a positive way. If these conditions are reunited, a number of private sector companies are willing to invest and re-invest. We have to also acknowledge that our private sector is “small” and is too stretched in too many old pillars of the economy which led them to a very tight cash situation. This is not an excuse. This is just the reality we are facing. We should not stigmatise the private sector for that cash-tight situation, but rather embrace what they need and can reinvest. For example, practically speaking a number of them need their permits to be delivered and for Government bureaucratic process to be simplified further.
Having said that, banking only on our local private sector will not solve our economic problems. That’s why we need Foreign Direct Investment (FDI) of at least $ 1billion annually, we need new investors to come in, and in an unstable world, we have the ability to attract investors and here we need a sniper approach to know where we need to go and who we need to attract to invest in Mauritius. South Africa is a prime example, where with the current troubling situation in South Africa, Mauritius should have accentuated its marketing program to attract South African investors in the sectors of agriculture, financial services, real estate and technology.
In addition to foreign investors, Mauritian diaspora who have healthy cash and expertise and ideas should be encouraged to come back and invest in their home country. Take for example Ghana, whereby successfully launched the Year of the Return of the Diaspora in 2019 and got many who have committed to come back and invest and stimulate the economy. As they say, if you want a new recipe, you can’t make it with the same ingredients. You also need new ingredients.
We should be extremely concerned that we have a growing youth unemployment.
We should be extremely concerned that we have growing youth unemployment (aged below 25 years old) which is increasing every single year and has reached almost 25%. This is not good at all and not sustainable. We cannot have increasing youngsters who come to the labour market and hopes for the future destroyed. This is not healthy at all for a small country like Mauritius. The issue is the Mauritian economy had a slow GDP growth era in the last decade and it is correlated with the fact that not sufficient number of jobs have been created. On top of that, there is a mismatch with the jobs and the skillsets available. For example, the global business (offshore) sector is currently in a period of transition, as over the last two decades this sector required back office administration/accounting skill sets to incorporate and administrate GBL1 and GBL2 companies. The good old and easy days of the global business sector are over. But it doesn’t mean the financial services sector has no future. On the contrary, the future is bright if we do this much needed transition.
Today in the global sector we need to go up the value chain immediately and one of the skillsets required now is investment banking and the market locally has very limited and most likely no professional experienced investment bankers. The same thing when we talk about wealth and asset managers, there’s a lack of professionals. We saw this coming over the last five years and yet there’s no one advising our youngsters that company secretarial and back office accounting are becoming less relevant and that rather we need these new skillsets of investment banking and asset/wealth management. So we are therefore stuck with lowly and even poorly skilled youngsters who come out of university and don’t fit the job profiles available. This is where we have a great opportunity to tap upon our diaspora who are working in London, Singapore, DC, Dubai, Sydney etc. We have seen lately a couple, not enough though, of Mauritian diaspora who used to work overseas in very high flying jobs and who have returned back to Mauritius and taken high level positions in key private sector companies. We need to see far more of that.
Mauritius and Africa
One of the things we could easily position Mauritius within less than two years is to position the island as the Silicon Valley for Africa, make it the place where African entrepreneurs in technology can be based and incubate their ideas, raise funding and operate their tech companies from Mauritius to deliver technology products and services to Africa be it whether it’s fintech, proptech, edutech, healthtech. Africa has a lot techpreneurs and we have good legislations, sound business environment, decent infrastructure and here both public and private sector should team up to say how can we provide the African techpreneurs what they need to relocate to Mauritius. These techpreneurs would be keen to move to Mauritius, but we need to offer them a package and then go and find where they are, be it in CapeTown, Nairobi, Lagos, Gaborone etc.
All the smart cities that are struggling to kick off because they are stuck with an old concept would then be able to position themselves to attract these techpreneurs. All these offices that are sitting empty be it in Port-Louis and Ebène can also attract these techpreneurs. This is as practical as it gets.
Linked to the Mauritius Silicon Valley, is the positioning of Mauritius as an eduation hub especially for Africa. The potential is enormous and the current number of students around 2000 is very low. We have just scratched the surface. We can easily accommodate 50,000 to 100,000 African students and the demand is there. There’s a huge and growing market for education in Africa. The more foreign students and universities in Mauritius, it creates an eco-system to the transition to a knowledge and innovation economy and this feeds through to the concept of Silicon Valley for Mauritius.
The Way Forward
Mauritius is quick fix and I mean it. Given the global uncertainty we need to have a cohesive vision, that of placing Mauritius as a safe place far from all these potential wars, terrorism, extremism and so on. For a foreign investor, we should be the preferred place to live, to have a second home, educate their kids, do business, have fun, have leisure activities and retire. We have pretty much all the ingredients but we need to have the right cooks to bake the best recipe to attract these foreign investors. And here I would like to make a plea to the government, we need to have experienced and solid board members on key institutions, the same institutions that would be the catalyst to either upgrade the exist pillars of the economy for example tourism and financial services and also to allow the creation of new pillars of the economy. Put asides politics, and bring the best brains and experienced Mauritians. And there are many of them out there.
That’s why I believe with practical solutions, getting experienced people at the helms of public institutions and a simplified vision for the next five years, we can bring Mauritius back to the much needed inclusive GDP growth of 5%.
By Kevin Teeroovengadum