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Republic of Mauritius INDUSTRIALISATION THE MAURITIAN EXPERIENCE By Sen Narrainen Ministry of Finance OUTLINE Challenges at independence in 1968 Achievements: 1968 to 2012 Main drivers behind the Mauritian industrialisation and development success The Mauritian Development Model The industrialisation strategies The three waves of diversification Conclusion “Today, both our countries are hailed as economic miracles, perhaps because conventional wisdom had doomed us to failure after independence”. S. R. Nathan, President of the Republic of Singapore in his address to the National Assembly in Mauritius in June 2011 The challenges at independence 1968 Poor prospects for industrialisation James Meade 1961: little scope for industrialization because of lack of skills. V.S. Naipaul 1972: problems defy solutions Fragile mono-crop economy. No other natural resources but land/sea and people Low per capita income : USD 200 Gini coefficient: .50 Poor infrastructure The challenges at independence 1968 Most indicators were off the norm High and rising unemployment: 16 % Low adult literacy Poor housing quality: > 50% prone to damage by cyclones Infant mortality rate: 58 per 10,000 births Low enrolment ratio at secondary schools: 31.4 The achievements: 1968 to 2012 Annual average GDP growth: 5.3 percent Only one recession (1980) – may be the longest streak of positive growth in the world. Rise in per capita income: from USD 200 to USD 8000. Successful industrialisation policies. Well diversified economy: more than 10 sectors. The achievements: 1968 to 2012 Major improvements in all social and economic indicators. Absolute poverty: less than one percent of population Recently showed great resilience to external shocks Free education/health care/transportation for students and elderly WHAT ARE THE MAIN DRIVERS OF THE MAURITIAN INDUSTRIALISATION AND DEVELOPMENT SUCCESS? Diagram 1. The Mauritian model Developmental state Economic diplomacy Fabian socialism Institutions Education & Health care Ethnic Diversity Class of Well structured indigenous Private entrepreneurs sector Public infrastructure Diversification 2006 + Globally competitive Model Adaptive structural policies 1972 to 2006 Mix of import substituting and Export oriented industrialisation 1968 to 1972 Import substituting industrialisation ISI Strategy: 1968 to 1972 Followed the prevailing orthodoxy Limited outcomes due to: Highly protected markets in the DCs Exiguous domestic market High costs leading to high protective tariffs Not as labour intensive as was expected Needed to be more outward looking ISI-EOI: Main features Outward-looking/export markets The Export Processing Zone Incentive schemes Choosing winners/ Priority sectors From a labour-intensive to a capitalintensive phase ISI-EOI: Main features Encouraging outbound investment so as to shift to high end production Economic liberalisation/adapting to global influences Building institutional capacity Diversification Transfer of knowledge, technology and ideas GLOBALLY COMPETITIVE MODEL: CENTRAL FEATURES Get rid of reliance on trade preferences Ease of doing business Further opening up the economy Income tax policy – flat tax rate of 15 percent Labour market reforms/protecting workers and not jobs Shifting labour to higher productivity activities Massive investment in public infrastructure Further diversification Since 2010: rebalancing the economy GLOBALLY COMPETITIVE MODEL: CENTRAL FEATURES Striking a greater balance between economic and social development CSR as a statutory requirement Stays committed to a strong welfare state Economic democratisation Maurice Ile Durable vision The 5Es: Education/Equity/Environment/Energy/Employment Outcomes of the Globally Competitive Model Surging FDIs Resilient economy: passed the test of external shocks Surging petroleum and food prices Financial mayhem World wide great recession Euro crisis Political upheaval in North Africa Upgrade by Moody’s from Baa2 to Baa1 - Dynamic and reasonably diversified economy - Stable and investment-friendly environment - Pragmatic and competent policy-making Diagram 2. Three Waves of Diversification 2006 + : Third Wave Luxury villas, Real Estate, Knowledge and Health Centres of Excellence, Renewable energy, Creative Industry, OCEAN STATE 1990s: Second Wave Offshore centre, freeport, ICT/BPO, Seafood hub. 1970s and1980s: First Wave Tourism, Textiles, Financial Services 1970s: Mono-crop Sugar - 70% of export revenue Macroeconomic Unit / Conclusion: Going Forward Develop a services economy Transform Mauritius into an Ocean State Eradicate absolute poverty Take Mauritius to the league of high income economies Invest in people Thank You! Macroeconomic Unit / Republic of Mauritius Ministry of Finance and Economic Empowerment