Island faces economic challenges

Faced with the loss of preferential market access to Europe and the United States, the Mauritian economy is confronting major challenges. In a recent interview with IRIN in the capital, Port-Louis, analyst Dr Ram Seegobin noted that the country's economic growth has been driven by clothing and textile exports and revenue from tourism and sugar. Although the economy has sustained high annual growth for the last two decades, Seegobin warned that the loss of preferential access to US and European markets by 2007 would have negative consequences for two of the three pillars supporting the country's economy: sugar and textiles. The impending loss of free market access has resulted in a rationalisation process in the export-processing zone (EPZ), with tens of thousands of jobs lost in 2003/04, while the forthcoming loss of the EPZ's trade advantage was causing many investors to relocate to other countries. Tourism, the third pillar of the economy, has shown little growth and recent tourist arrival figures point to overall stagnation. The World Bank has commented that "to maintain economic growth, Mauritius must move more into higher technology industries and services". In a bid to assist with this transition the Bank has made available a US $16 million loan that "will make broad improvements in the University of Mauritius and at polytechnic institutes. In part, the programme will increase the number of graduates, especially in engineering, science and management, improve facilities and teachers and foster ties with employers," according to a Bank statement. "Mauritius' competitiveness is being tested by the emergence of new low-cost competitors with the phasing out of preferential trade agreements," said the Bank. "The country's challenges are to maintain the economic growth rate of the past few years through higher productivity; human capital development through education reform to raise skill levels; investment in a second generation of industries that correspond better to Mauritius' evolving comparative advantage; [and] welfare state reform, ensuring focus on the neediest ..." In response to these challenges, the government has embarked on an ambitious programme, the Economic Agenda for the New Millennium (NEA). Its key objectives are to increase Mauritian competitiveness and bring about deeper social development by diversifying into a high-skill services sector. But Seegobin is doubtful that this will be able to plug the gaps left by the anticipated dwindling of textile and sugar exports. "With regard to this [focus] on information and communications technology: so you employ 200 to 300 people in call centres ... there's [still] no development of sectors to absorb the kind of unemployment we are getting from textiles and sugar," he told IRIN. Seegobin noted that "Mauritian sugar and textiles have always had free entry into Europe - free of duties. Sugar has been under a quota, but quite a big one of over 500,000 mt, at a price less than two thirds of the world market price. For textiles, because of the Lome Convention ... we had duty-free access to Europe. It meant that a large number of industrialists, many of them from the Far East and Europe, set up industry here to have this access". "For example, a few years before Hong Kong reverted back to China there was some panic, as people there were unsure of the future, and a number of Hong Kong textile companies opened up shop here in Mauritius," he added. However, "in terms of both textiles and sugar, things have come home to roost. There's been World Trade Organisation (WTO) pressure, which has resulted in that protection disappearing ... there's nothing the WTO likes less than protected markets. The first Multi-fibre Agreement (MFA) is coming to an end this year. Countries like China and Vietnam will no longer be subject to [trade restrictions] in the US and EU [European Union]," Seegobin explained. The MFA governed trade in the textile and clothing industry through a framework of bilateral agreements that established quotas limiting the amount of imports into countries whose domestic industries were threatened by rapidly increasing imports. Although intended to be a temporary arrangement, the MFA has been in existence for almost 25 years and has been extended four times: in 1977, 1981, 1986 and 1994. The WTO replaced the MFA with the Agreement on Textiles and Clothing (ATC) in January 1995. According to Seegobin, "this means Mauritius will have to compete with textiles from these big producers", such as China and Vietnam, in markets where it had traditionally held a trade advantage. "It's already putting a lot of downward pressure on prices. With the Hong Kong companies [which set up shop on the island] no longer having that competitive advantage [of free market access], they are going back to mainland China and also to Vietnam." The sugar industry is facing similar difficulties. Sugar trade between African Caribbean and Pacific (ACP) countries and the EU has been regulated by two trade agreements: the ACP/EU Sugar Protocol and The Agreement on Special Preferential Sugar, but the EU has been under pressure to revise its agri-policy regarding sugar quotas. The Sugar Protocol is an agreement between governments whereby the EU member states undertake to buy and import agreed quantities of sugar at guaranteed prices from ACP states. Mauritius has benefited substantially from this agreement. However, Australia, Thailand and Brazil, which are excluded from the Sugar Protocol, recently lodged a petition with the WTO over the agreement, and a tribunal ruled in their favour. The EU has meanwhile said its sugar policy is legal and warned that ruling against it could hurt poorer developing ACP countries who benefit from its subsidy system. "They [Australia, Thailand and Brazil] were having to sell sugar on a world market at a third of the price. What's being proposed by the EU Agriculture Commissioner is a 37,5 percent drop in [the EU] sugar price in the next two years. My estimation is that the sugar industry here will just not survive that drop," Seegobin warned. These changes in the global trade regime have meant job losses in Mauritius, he said, "over the past two years, over 8,000 people have been laid off in the EPZ ... they've accelerated the process of centralisation in sugar milling and that's causing some retrenchments as well". According to official figures, 2,600 people have lost jobs in the sector. "The protection the Mauritian economy has enjoyed for all these years is disappearing for good!" said Seegobin. The country's unemployment rate stood at 10.2 percent in 2003, but the Central Statistical Office (CSO) has revised its methodology and will now follow stricter guidelines for defining unemployment. While this may change the complexion of official statistics, there is acute awareness of the need to establish more job-creating industries.