The Mauritian Miracle – then and now

Dear Professor Stiglitz

Sorry for taking so long to respond to your op-ed on Mauritius. Like many of your academic predecessors, the brevity of your visit earlier this year prevented you looking into the details of the state and history of Mauritius. Please permit me to fill some in.

Although free, universal education was introduced in 1976 in response to student protests, decent education is no longer free in Mauritius. Those who “have” send their children to private schools and those who “have less” pay for private tuition after school and at weekends. The children of those who “have nothing” are severely disadvantaged. Moreover, state tertiary education is largely failing to prepare students for work in call centres so forget about advanced technology.

The same is true of “universal” free, healthcare: those who “have” go to private hospitals, those who “have less” attend private surgeries and purchase medicines from pharmacies, avoiding, like the plague, the state run hospitals and their dubiously sourced pills for those who “have nothing”. For those who need expensive treatment overseas, there is a national lottery.

Mauritius has no military spending because it has a defence agreement with the UK to compensate it for the excision of the Chagos Islands for British (read American) “defence” purposes. In fact, UK troops remained stationed here after independence to deal with the then on-going race riots, which, for different reasons, flared up again in 1999. “Social cohesion” is put to the test at every general election.

The “economic miracle” of the 1980s resulted from creating zero-tariff export processing zones that attracted capital flight from Hong Kong and Taiwan because of the preferential access Mauritius had to US and European markets (and incidentally, have exploited both female and then foreign workers). Conversely, the local economy was highly protected. However, preferential access for exports and tariff barriers for imports have been progressively eroded at the command of the WTO.

The financial services sector exists so that foreigners (and too often Indians) investing in India can avoid paying capital gains tax there. “Global businesses” can avoid paying corporate tax anywhere by establishing their “head quarters” behind a plaque on a wall. It is doubtful that either of these “tax planning” advantages are sustainable in the long term.

As for good governance, the politicians and the central bank have failed to heed your advice to make the currency and hence exports more competitive. This is probably because Mauritius is so import dependent that either salaries would have to rise to compensate or there would be an equivalent loss of purchasing power. The latter is not politically expedient, even though Mauritius is living way beyond its means in terms of balance of trade, government deficit and private debt.

To compensate for the trade deficit, Mauritius has tried to attract FDI, largely by selling its prime real-estate along with residency status to shady characters who can then enjoy our 15% flat-rate income tax and extensive double taxation avoidance agreements. Less well off South Africans have been lured into escaping their post-apartheid home-land to return to their previous way of life. This in turn has caused a property bubble, making it nearly impossible for locals to purchase land in desirable locations and led to speculation in property developments that has over-inflated the construction sector which is on the verge of collapse.

While our banks are largely in good shape (although they are regularly associated with financial scandals) many businesses, in nearly all sectors, have had to be propped up with publicly funded/guaranteed soft loans, equity participation and sale-lease-back of capital equipment. If the global recession continues, they are extremely vulnerable.

A global recovery might be even worse for the country. Before the financial crisis food and fuel together accounted for 40% of merchandise imports and were growing exponentially. During the years of the “economic miracle” they were consistently around 20%. Unbelievably, the government prefers investments in coal to renewable energies and spends far more subsidising sugar exports and food imports than farms producing for local consumption.

The prognosis: Mauritius needs another “economic miracle” because it will truly be a miracle if our economy permits us to enjoy our current standard of living for very much longer.

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