Striving to compete: the role of a dynamic private sector

Having successfully become an upper middle income country, Mauritius now strives to become a high income nation. Ranked only behind South Africa in the Africa Region on The World Economic Forum, Mauritius is recognized as one of the most competitive business-friendly destinations. However, achieving the high income nation status requires keeping up to and surpassing the pace of reforms set by its competitors. The manufacturing sector in Mauritius is facing increasing competitive pressure from increasing global competition in the export markets especially in light of the ongoing European slowdown which is taking a toll on Mauritius’ economy.

The competitiveness agenda thus remains centre piece to achieving the government’s program of reforms. With a view to weather the slowdown accompanied by the current global economic crisis; to boost economic growth through higher productivity and to increase high value added exports, the new Government Program adopted in April 2012, astutely remains committed on continuing to support the competitiveness agenda for development of the manufacturing and services sector. It emphasizes the need to gain greater global competitiveness through the need to promote technology investments to improve quality of Mauritian exports to enable entry into new markets abroad and also reemphasizes the need to prioritize the Small and Medium Enterprises (SME) sector which is an important source of job creation and growth.

Low job creation and productivity are driven by some root causes. These include limited formal entry of new firms; limited growth of existing firms both of which can be due to the lack of adequate capital stock per worker and/or the lack of basic worker and managerial skills. Improving entry, survival and growth of innovative and entrepreneurial firms and facilitating firm exit are thus an important part of the “creative destruction” process that underpins economic growth. Over time the government of Mauritius has undertaken several “market completing” interventions,focusing on skills and training, technology development, and information services gaps. The Mauritius Business Growth Scheme (MBGS) originally set up under the World Bank Mauritius Manufacturing and Services Development and Competitiveness Project supports enterprise productivity and competitiveness in line with the evolving needs of private sector firms. The Scheme which is now completely government funded offers reimbursable financing, on cost-sharing basis, to buy specialized expertise in areas of skills and training, technology upgrading, standards and marketing that constrain firm growth and productivity. Another key feature of this scheme is the MBGS Unit is set up as a fully independent operational unit but accountable to Ministry of Business, Enterprise and Cooperatives (MoBEC) for administrative functions related to the fiduciary aspects. Preliminary results indicated that this new model is working well. In addition the MBGS has a window for support to new firms or start ups to encourage entrepreneurs to venture into new potential niche areas.

With a view to increase access to finance to SMEs, the 2012 Budget Speech also put in place a major reform to boost the supply of bank credit available to Micro, Small and Medium Enterprise (MSME) entrepreneurs by i) setting up a MUR 3 billion fund from which loans will be disbursed to MSMEs through commercial banks over a 3 year period and ii) agreeing with participating banks to offer these loans at a reduced interest rate of 8.5% pa (compared to the commercial rate of 14% pa). As at 31 July 2012, of the MUR1 billion of funding made available, MUR 928,000 of loans has been approved, of which 53% has been disbursed.

While having a number of schemes outlined above that address certain market failures, education plays a key role in addressing the skills mismatch that is observed in Mauritius. Success at diversifying into more sophisticated products with higher domestic value added depends upon the capability to adapt technologies and customize products, processes and design. To keep abreast of technological advances and with competitive pressures intensifying, firms have to employ workers with higher qualifications. In other words, as countries move up the ladder of technology and the gap between them and the advanced economies narrows, the need for education and skills at all levels grows. Thus as industrialization progresses, a variety of tertiary level and vocational training institutions take on larger responsibilities because they are the primary sources of entrepreneurs, managers and skilled workers.

The government recognizes the importance of skills as a pillar of economic transformation and growth and aims to become a knowledge hub. In part this will involve adjustments to the regulations to encourage alliances with high quality international Technical Efficiency Index (TEIs), in part it will be achieved through the attraction of higher quality academic staff where expanded research funding will play a positive role, in part it will involve the attraction of the private sector for both research and teaching activities and in part it will be a result of developing better infrastructure for TEIs to reinforce the quality brand and produce highly qualified skilled professionals.