Last week, Prime Minister Deve Gowda returned from Davos via Mauritius, a bunch of tiny islands off the shore of Africa. A pleasure trip, you might think, to a tourist center run mainly by migrants from India.
In fact Mr. Deve Gowda, and for that matter all Indians, need to learn some basic lessons in economics from Mauritius. It may astonish readers to know that Mauritius has, with no fanfare, become the richest country in Africa. The World Development Report places per capita income in Mauritius at $ 3, 150 in 1994, overtaking even South Africa ($ 3, 040), which was once regarded as a developed country. Mauritius is now ten times as rich as India, whose per capita income remains a miserable $ 320.
Mauritius has no natural resources to speak of. Unlike so many African countries, it has no oil, gold or diamonds. It has proved, like Singapore and Hong Kong, that real wealth lies in human capital, and if you create conditions where human capital can flourish without being squashed by government controls, you can beat the rest of the world.
Being an island economy hundreds of kilometers from the African coast, Mauritius has no natural hinterland, no obvious supplier or buyer of goods, no obvious provider of finance. It has to import basic goods (including even food) from distant countries, raising the cost of living. Yet it has witnessed rapid economic growth, with per capita income rising at an astonishing compound rate of 5.7 per cent annually since the mid-1980s.
How has this African country achieved so much when others are failing? A French diplomat once told me the reason was simple that Mauritius was run by Indians, not Africans. That is too glib an answer. If Indians can run Mauritius so well, why do they run India so badly? The explanation lies in policies, not race. Jawaharlal Nehru would have smiled indulgently at the “very notion that India had anything to learn from Mauritius. Fifty years onwards, it is the turn of Mauritius to be patronising.
Some say that Mauritius has a tiny population of one million, and so finds progress much easier than a large country of 950 million. This will not wash. Other small island economies in Africa (Cape Verde Islands, Madagascar) are basket cases. Within India, the Lakshadweep Islands and Andaman and Nicobar Islands have the small numbers and physical characteristics of Mauritius, yet have a living standard lower than the rest of India. Small islands have no advantage, only severe disadvantages arising from remoteness. This indeed is why the Indian government gives special subsidies to Lakshadweep and the Andamans.
How has Mauritius overcome these disadvantages? By globalising decades ago, long before the word became high fashion. As a remote island economy, it did not suffer from the delusion (prevalent in India) that self-sufficiency is the best policy, or public sector steel plants and heavy industries are vital for raising living standards.
On the contrary, it sought to integrate itself as far as possible into the global economy by building up export industries and importing a large proportion of its consumption; by seeking international capital and multinational investment; and by focussing the role of government on social investment and facilitation of entrepreneurship, not on public sector dominance.
Originally Mauritius was a sugar-based economy, with the plantations and sugar mills run buy Frenchmen. Unlike other developing countries it did not nationalise these, and indeed encouraged foreign investment. It had no Bombay Club claiming that Indian industrialists must dominate as a matter of patriotic duty. It ran a relatively open economy, with low tariffs and few physical controls. Income tax was kept so low that companies moved in to use it as a tax shelter. It gradually built up its industry (which now accounts for 43 per cent of the workforce) by focussing not on heavy industry but light, export oriented industry, notably textiles and garments.
In many ways it tried to be an African version of Singapore. It focussed on attracting foreign investment, building export capacity, and on service industries like tourism and financial services. This proved to be a formula for success. Indeed, some of the capital exiting from Hong Kong (because of its imminent integration with China) will end up in Mauritius. Little, alas, will end up in India.
Some will sneer at Mauritius being a tax haven. But note that the world is full of tax havens, from the Channel islands and Bahamas to Lichtenstein and Monaco. So why should composes come to a very remote bunch of islands in Africa? The reason is that Mauritius also provides world- class infrastructure, and but for this it could not have competed with other tax havens. It does not have a laissez faire government. On the contrary, its government has played a very positive role in building up social capital and infrastructure.
Its social achievements are remarkable. As can be seen in the accompanying table, literacy in Mauritius is 83 per cent, against India’s 52 per cent; infant mortality is 17 per thousand against India’s 74 per thousand; access to sanitation is available for 100 per cent of the people in Mauritius, against just 16 per cent in India. The total fertility rate-number of children per woman-is down to 2.0 in Mauritius, which is less than the replacement rate. It is still 3.3 per cent in India, whose population seems doomed to double in the next century. I
Who are the people who achieved this economic miracle? Migrants from eastern India, along with a sprinkling of Africans, Chinese and French. Note that the Indian migrants hail from Bihar and Uttar Pradesh, states that we often describe with contempt as the slough of despond. But just get the Biharis out of India, and can they perform miracles.
The lessons are clear. Harness your cheap local labour with cheap global capital to create world-class goods and services. Do not fear foreign capital or markets, see them as opportunities and not threats. Do not protect your local businessmen in the mistaken notion that what is good for them is good for ordinary citizens. Stress world-class services, and do not have idiotic policies like Mr. Ibrahim’s idea that the only foreign investors allowed into airlines should be those who know nothing about aviation. Do not attach unwarranted prestige to heavy industry or steel plants. Keep your taxes reasonable, and run an open economy. Do not waste the government’s time in running a command economy. Instead, let it spend its energy in providing education, health, and basic infrastructure. Then, even if you hail from the depths of Bihar, you will speedily become prosperous.
|Mauritius beats India|
|Per capita income||$ 320||$ 3,150|
|Total fertility rate||3.3||2.0|
|Access to sanitation||16%||100%|