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.
2.1 Key factors of development
The key factors that drove past development in Mauritius were:
- Political stability;
- Non-reciprocal preferential market access under Lomé;
- Export Processing Zone activity, dominated by low-end garment manufacture using cheap labour with basic skills;
- Sugar production under the Sugar Protocol arrangements;
- Tourism, heavily focused on sea resorts;
- Infrastructure and utilities, adequate for garments and for tourism;
- Foreign investment inflows and sustained domestic investment; and
- A materially pro-business attitude within Government.
2.2 Strategic assumptions
During the 1980’s and early 1990’s Mauritian economic policy was based (implicitly or explicitly) on the following assumptions:
- Non-reciprocal preferential market access under Lomé would continue indefinitely.
- Domestic private investment would continue to grow.
- The price of sugar, in rupees, would always cover production costs.
- EPZ activity would continue in low-end garments, despite rising wages and growing competition from other emerging economies.
- Tourism would be always accepted by the population and would be leisure and beach resort driven.
- The universal free education system, with low skills output, would be sustainable.
- Inflexible labour legislation would not harm the economy or employment creation.
- The fiscal structure would be sector-oriented.
- Exchange rate policy would always retain a significant export competitiveness factor.
- Public utilities would be efficiently run by the state in an environment without a strong regulatory framework.
- Air Mauritius would continue to influence air access policy.
- The traditional ‘administrative’ civil service would meet the country’s needs, thus rendering a ‘developmental’ civil service unnecessary.
These assumptions continued to guide strategy in both the Government and the private sector, despite the need for change signalled by the Marrakech Accord in April 1994. The need for change may not have been felt because national negotiating positions were not clearly distinguished from policies for economic restructuring. This is forcefully reflected by the decision to open up telecommunications after 2003 on the basis of a WTO commitment taken purely to ‘bind’ a date.
In the meanwhile, the economic structure is not responding to the loss of export competitiveness and growing unemployment. Despite an annual increase in overall labour productivity of 3.5% in the 1990’s, Mauritian cost competitiveness has eroded significantly, with average wage increases of 10.5% per annum. The annual average increase in unit labour cost for the manufacturing sector over the last 10 years has been 6.5% compared to 2.4% in the newly industrialised Asian countries. This could have been sustainable if the economic structure was upgrading into higher skills and technology activities, but this was not the case. Private investment is growing but, since 1997, at a declining rate. It is clear that the problems facing Mauritius are structural in nature.
2.3 The unemployment problem
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%. Figure 1 clearly shows this reversal.
While the figures suggest that employment is rising in all sectors apart from sugar, deeper analysis of the trends suggests the following:
