This report contains the main findings and recommendations of the JEC Task Force, set up in July 2000, to look into the competitive challenges facing the economic transition of Mauritius. It is divided into three parts; Part I covers the changing picture of Mauritius. Part II has the matrix of issues and problems. Part III contains the possible ‘way forward’.

PART I

2. MAURITIUS: THE CHANGING PICTURE

Participation in international trade has brought about unprecedented economic and employment growth in Mauritius in the second half of the 1980’s and the early 1990’s. GATT set the (non rules-based) international trade environment. The Structural Adjustment Programme implemented between 1979 and 1986 set the domestic policy environment. The interaction of the two allowed Mauritius to launch on a development path quite unique in the region.

A number of key factors and strategic assumptions which guided policy making and drove economic development during that period are no more relevant. While in the 1980’s the labour force grew at 2.4% per annum and employment at 4.9%, the reverse happened in the 1990’s, with the labour force growing at 2.3% and employment only at 1.8%. By the year 2000, unemployment had reached 8%.

The unemployment issue is structural and unlikely to be resolved only by short term macroeconomic changes.

PART II

3. THE CHALLENGES

The Task Force studied the changes which took place (between 1991-2000) with respect to the essential elements of Mauritian competitiveness, the basis of sustained employment creation over the 1983-1991 period. These changes have been classified into three main categories, namely:

• Uncompetitive national business environment;

• International competitive pressures; and

• Weak corporate international competitiveness.

Under the item ‘uncompetitive national business environment’, the Task Force reviewed the weak micro economic foundations and the macro economic constraints.

3.1 Weak micro economic foundations

Weak micro foundations refer to deficiencies in the policies, business inputs, infrastructure and institutions that constitute the business environment. The main weaknesses in Mauritius are:

a. Low business confidence in the recent years;

b. Inappropriate education and training;

c. Poor public utilities;

d. Inefficient capital markets;

e. Weak administrative infrastructure;

f. Labour market rigidities; and

g. Inadequate physical infrastructure.

3.2 Macro economic constraints

The main weaknesses of the macro economic environment in Mauritius are:

a. A serious public finance disequilibrium; and

b. An outdated monetary policy making structure.

3.3 International competitive pressures

The new international context will move inexorably towards more competition. The Cotonou Agreement, the Lamy Initiative, the dismantling of the MFA, the WTO and the regional agreements are all pointing towards the erosion of non-reciprocal preferential market access.

3.4 Weak corporate international competitiveness

The main factors which are adversely affecting the international competitiveness of the corporate sector in Mauritius are:

a. Inadequate corporate re-engineering;

b. Structural problems in the sugar, textile, tourism and import substitution sectors;

c. Low technology and low skills specialisation; and

d. Poor linkages between SMEs and large companies.

PART III

4. THE PROCESS AND THE WAY FORWARD

The Present State of the Economy shows convergence between Government and the private sector on the problems facing the economy. The Task Force believes the need is now to build a shared understanding on appropriate remedial policies.

4.1 Agreeing on the new strategic assumptions

The first step is to build a consensus on the strategic assumptions that will drive policy making and the corporate sector and put Mauritius on a high growth path. Mauritius will then be able to move from the problem matrix to the new matrix.

4.2 The new matrix

The pillars of the new matrix will be:

• Competitive national business environment;

• Optimising the opportunities in the new international trade environment; and

• Effective corporate re-engineering.

The competitive national business environment will rely heavily on strong micro economic foundations as well as macro economic discipline.

4.3 Strong micro economic foundations

The strong micro economic foundations will depend on the following elements:

a. High business confidence;

b. Improving human resource development;

c. Efficient and competitive environment for utilities;

d. Efficient capital markets;

e. Development minded civil service;

f. Flexible labour markets; and

g. Supportive modern infrastructure.

4.4 Macro economic discipline

The two key components of the macro economic discipline are:

a. Sound fiscal policy with a sustainable public deficit. Government should contain the public deficit to a reasonable level by acting on the expenditure side as well as on the buoyancy in revenue.

b. A strong and broad-based Monetary Policy Committee. The monetary policy making process must be structured and strengthened as to enable it to gauge new development paradigms and to allow for transitions which would not be painful and disruptive.

4.5 Opportunities in the new international environment

The Task Force believes that non-reciprocal preferential arrangements will disappear earlier than 2008 and Mauritius would need to embark on negotiations for integration starting with asymmetrical FTAs with the European Union and the United States as early as 2002.

4.6 Bringing about effective corporate re-engineering

In order for the corporate sector to become more competitive, the Task Force has identified the following main activities:

a. Corporate restructuring;

b. Moving from sectors to clusters;

c. Emergence of new clusters; and

d. Strong linkages between SMEs and large companies.

a. Corporate restructuring

The international pressures will force companies to embark on a continuous process of re-engineering. Corporate restructuring and innovation will drive competitiveness at firms’ level. In this context, Government should replace price controls, which have adverse effects on business confidence and maintain the status quo by an effective and modern competition policy. It has to be supplemented, however, by good corporate governance to ensure that financial and equity markets function efficiently.

b. Moving from sectors to clusters

Mauritius has always had a narrow product base in its traditional economic sectors but it is possible to diversify from this base into related activities.

In this context, the following measures must be considered to convert the conventional sectors, namely sugar, textiles and tourism into dynamic clusters:

i. Setting up a Technology Network (as proposed during the National Productivity Consultative Week) to enable an efficient coordination among the technology-oriented institutions for higher technology penetration;

ii. Strengthening the Clothing Technology Centre to become a strategic ally of the corporate sector in textiles - by providing state-of-the-art information and devising strategies in consultation with companies;

iii. Transforming the Mauritius Sugar Authority into a strategic institution to promote the sugar cane cluster;

iv. Overhauling the Mauritius Tourism Promotion Authority to go beyond promotional activities into an institution, which in partnership with the private sector, will develop the hospitality cluster;

v. Streamlining costly and cumbersome procedures for changing company structures; and

vi. Reducing the ‘hidden’ taxes that are being indirectly imposed through the existing labour laws and levies.

c. New clusters

The four emerging clusters identified by the Task Force are:

i. The knowledge cluster. The value addition in this cluster will originate from the creativity of knowledge workers and the success of this cluster will depend essentially on our ability to attract foreign talents in the initial stages. The knowledge cluster can be built around a number of industries, including the ICT, the film and the language industries and the interactions among these industries.

ii. The logistics and services cluster, based on making Mauritius a multi-modal transport hub, a regional supply chain management hub, and an offshore and financial services centre.

iii. The environment cluster, centred on expertise in conservation and recycling. Most forms of waste can be exploited for economic gain. However, this requires regulatory and legal frameworks and fiscal instruments to encourage this cluster.

iv. The pharmacology cluster. Ongoing contacts with toxicology and pharmacology specialists across the world can now open the door in the field of pharmaceuticals. The production of different types of generic pharmaceutical products could be envisaged in Mauritius.

d. Strong linkages between SMEs and large companies

A multi-pronged plan aimed at technology improvement, creating an efficient subcontracting environment and export market penetration for SMEs should be put in place. Accordingly, the role of SMIDO and its relationship with the BOI, MIDA and private sector institutions (MCCI, MEF, MEPZA and AHRIM) should be reinforced.

5. CONCLUSION

Since the 1980s and the early 1990s, many parameters of economic development have changed and therefore the strategic assumptions on which Government as well as the private sector relied to plan their policies are no longer valid. The problems facing the country today primarily arise from our inability to adapt to this new context, with its new set of strategic assumptions.

The new context demands a complete overhaul of our national business environment, a re-engineering of our corporate sector and a ‘new mindset’. Government, the private sector and other stakeholders need to build a shared understanding on the new strategic assumptions. This shared understanding would constitute the foundations on which joint working groups could develop positions and actions with respect to the components of the new matrix.

Although the concept of clustering has been enunciated since the early 1990s, the shift from ‘sectors’ to ‘clusters’ is still being awaited. Some of the elements to be considered in converting our traditional sectors into dynamic clusters have been mentioned in this report. Some new clusters have also been identified. However, we should bear in mind that the development of clusters is a long term process which requires the involvement and close participation of one and all.

Back to Contents Page