Transcript Slide 1

Are Diamonds there forever?
Prospects of a sustainable
development model for
Botswana
‘Mauritius as case study of a successfully implemented
economic diversification strategy’
Dr Rama Sithanen
27 August 2014
1
Answering five questions
 How did Mauritius develop from a colonial state sugar monoculture
economy into one of Africa’s most dynamic economies?
 What measures did the Mauritian state take to jumpstart industrial
outlets in a small country? What role did the State play in the industrial
take-off?
 How did the internal political context of the Mauritian democracy
contribute to the country’s economic success?
 How did external factors such as relations with the donor community
contribute (or not) to Mauritius’ industrialisation?
 What are the specific characteristics that describe Mauritius’ economic
development model that could be replicated (or not) in other countries?
Initial conditions of Mauritius as seen by two Nobel laureates
James Meade (Report to Government of Mauritius, 1961):
 “Heavy population pressure must inevitably reduce real income per
head…That surely is bad enough in a community that is full of
political conflict… the outlook for peaceful development is poor.”
V.S. Naipaul (The Overcrowded Barracoon, 1972):
 ”The disaster has occurred… now given a thing called independence
and set adrift, an abandoned imperial barracoon, incapable of
economic or cultural autonomy…”
From a colonial sugar mono culture into a dynamic economy
 Overcome four handicaps: small economic size, isolation/remoteness from
world markets, overpopulation, and very low natural resources endowment
 A transformation of the economy. We had to bite the bullet many times
 Diversification into textiles and garments, tourism, financial services,
ICT/BPO, Free Port, global business, seafood hub, real estate, etc
 Both a growth payoff and a stability (less volatility) payoff to diversification
 GDP per capita: from US$ 300 in 1970 to US$ 10000 at market rate and US$
16000 at PPP in 2013
 High HDI country since 2004: GDP per capita, education and health
indicators. HDI of 0.737 in 2012. From 0.551 in 1980 to 0.737 in 2012
 Income inequality (GINI) down from 0.5 in 1962 to 0.38 in 2013
From a colonial sugar mono culture into a dynamic economy
 Governance: first in Mo Ibrahim index for a long time
 Primary enrolment from 93% to 107% between 1990 and 2013
 Life expectancy at birth from 61 years in 1965 to 75 years in 2013
 Infant mortality from 64 per 1000 in 1970 to 10 in 2013
 Relative Poverty from 40% in 1975 to 8% in 2013
 Absence of absolute poverty with less than US$ 1.25 per day
 Significant improvement in gender equality
 87% of home ownership
From a monocrop to a diversified economy
7/8/2015
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From a colonial sugar mono culture into a dynamic economy
 Diversified economy with 8 to 10 pillars. Also diversification within sectors
 Investment in education and human capital. Quality of human resources is key
 Investment in physical infrastructure: quantity and quality
 Strong and independent economic institutions such as property rights and regulatory
mechanisms
 Political, social and economic stability. Harmonious and vibrant multicultural
community. Diversity as an asset
 Strong and supportive private sector. Sugar rents invested to diversify economy
 Established rule of law and good governance
 Enabling business climate. The key role of Foreign Direct Investment
 Openness policies: trade-led development and export–driven growth
 Adapt to changed global economic circumstances. Receptive to new ideas
Measures to start industrialisation and role of the state
 Sugar: from king sugar to cane cluster
 Textiles and garments: from CMT to vertical integration to niche players
 Tourism: from sea, sand, and sun to a broad based hospitality industry
 Financial services: from low hanging fruits to a gateway for trade and investment
into Africa
 ICT/BPO: from call centres to shared services to software development
 Real Estate and property development: IRS/RES/HIS for High net worth persons
 Services hub to Africa: education, health and professional services
 Business and financial hub between Asia and Africa
 Test of successful diversification: % of sugar in GDP, export earnings and
employment. Production and export structure has changed considerably
 Sugar accounted for 33% of GDP in 1968 and 4% today
 Sugar represented 93% of foreign exchange earnings in 1968 and 25% today
 Sugar employed 40% of labour force in 1968 and 5% today
Measures to start industrialisation and role of the state
 Market access: State negotiate trade preferences in sugar, textiles, clothing, fish
products
 Government invested heavily in the infrastructure needed to set up EPZs.
Construction of industrial estates and subsidised rent to firms. Other infrastructure
 Relaxed labour market regulations to start EPZ. Different from rest of the economy
 Role of IPA/BOI in promotion, marketing and branding. Sales missions funded by
Govt
 Development Bank to facilitate availability, access and cost of finance
 Support to training institutions to build skills set
 Tax incentives: duty free import of raw materials and plant, equipment and
machinery. Tax holidays and low & flat corporate tax rate of 15%, free repatriation of
profit, dividend, capital, etc
 Abolition of exchange controls, relatively stable currency, and a large number of
double taxation avoidance agreements and IPPA
 Attract FDI: investment, technology, innovation, market access, management
Contribution of internal political context to economic success
 Robust democracy with frequent alternation in power
 Taste of office brings element of consensus and convergence in
economic/social policies
 Always an alliance to govern the country: pragmatic, practical.
Work across party lines
 Everybody on board and no feeling of exclusion from the system
 Search for consensus is key feature of Mauritian political economy
 Political parties recognise that building consensus is necessary to avoid
adverse economic effects in a small economy
 Prudent macro economic management: fiscal, monetary and exchange
rate policies
 Inclusive growth, shared prosperity and poverty reduction
The role of external factors
 Strong relationship with development partners: EU, IMF, WB, AfDB, AFD, EIB, etc
 Market access: Sugar protocol, MFA, DTAA with India, EU, AGOA, COMESA/SADC
 Accompanying
measures
adjustments/reforms
to
support
transition
and
structural
 EDF(EU) funding over the years for socio-economic development
 IMF/WB stand by arrangements and structural adjustment loans
 Technical assistance and analytical work. Lender also
 Bilateral relations with many countries: trade, investment & technical assistance
 Good use of both aid and trade. Use aid for trade. Case of adjustment in sugar
 Did not agree all the time with them: IFC,ICT/BPO, Social protection/welfare
state
Are there policy lessons for other countries?
 Context ,circumstances and history matter and they differ across countries
 No one size fits all. Not lessons all can be exported
 However there are common threads that explain ‘success’
 Sound economic management: fiscal, exchange rate and monetary policies
 Physical infrastructure and education/training/human capital
 Strong, dynamic and independent institutions
 Robust regulatory framework and good governance
 Dynamic and risk taking private sector
 Vibrant partnership between public and private sectors
Are there policy lessons for other countries?
 Political and social stability
 Trade-led development & export-oriented development strategy
 Openness to trade and FDI. Open to new ideas. Cosmopolitan
 Constant search for new drivers of growth
 Need policies that facilitate diversification and structural transformation.
 Incentives
 Social protection and empowerment for shared prosperity and poverty
reduction
 Flexibility and adaptability to change
International Accolades
Cautionary Remarks
 Achieved remarkable progress in the face of daunting challenges
 Showed that history, geography and the environment is not always destiny
 No miracle: Hard work, discipline, determination
 Good policies, pragmatism and flexibility
 Some luck! But it must be seized (case of Hong Kong investors in textiles & garments)
 Not always been the poster boy of the Washington consensus
 Hit by natural disasters and terms of trade/exogenous shocks
 Made mistakes and admitted to the ICU of Bretton Woods institutions
 Administered shock therapy by WB/IMF
 Today we face the challenges of avoiding the middle income trap