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close this bookExporting Africa: Technology, Trade and Industrialization in Sub-Saharan Africa (UNU, 1995, 434 pages)
close this folderPart II. Country studies
close this folder12. Mauritius
View the document(introductory text...)
View the documentBackground
View the documentThe firms in the sample
View the documentFirm strategies
View the documentLinkage capabilities
View the documentResponse to external factors
View the documentNew technologies and exports
View the documentNote
View the documentBibliography

Background

Phases of industrialization

The industrialization of Mauritius has gone through three distinct stages: the import substitution (IS) phase which began with the creation of Development Certificate enterprises in 1964: a mixed phase following the passing of the Export Processing Zones (EPZ) Act in 1970, characterized by a combination of IS and export-oriented (EO) strategies; and a third phase in which industrialization strategy and policy became almost exclusively oriented towards exports, during which a number of measures were taken to liberalize trade and prices and reduce exchange control restrictions. Yet a number of features of the earlier IS period remain, especially in the form of high import tariffs on a large number of commodities.

Import substitution

Thirty years ago, Mauritius was in many ways a typical monocrop plantation economy, virtually entirely dependent on sugar, which, with its by-products, accounted for some 98 per cent of total exports. There was, however, one way in which the Mauritian economy differed from many other plantation economies: the sugar industry was predominantly owned and controlled by local interests, rather than by foreign companies. This had led to the emergence of an indigenous business class initially consisting of the planters and their affiliates in commerce, banking, garages and workshops. The development of the sugar industry thus gave rise to a network of local supportive activities and a supply of local entrepreneurial talent. Much of the surplus arising from sugar was at that time exported but the existence of a local plantocracy and of a locally generated surplus were important factors in the later development of manufacturing industries.

The development of manufacturing was originally seen as a means of job creation. During the 1950s, the rate of population increase was some 3 per cent per annum. The problem was how to find employment for the growing labour force. Meade (1961), argued that the sugar industry could not provide any substantial volume of increased employment and that other agriculture was likely to provide employment for only a strictly limited, if appreciable, labour force. Since it was assumed that local savings were a limiting factor, Meade argued that it was necessary to choose labour-intensive industries. Although the point was not made, these would be industries employing low-level technologies.

During the 1960s several measures were taken to encourage industry. Development Certificates (DC) were granted to selected enterprises, entitling them to income tax and other concessions. Industrialization was envisaged in terms of IS, with the certificates going to enterprises which produced for the local market. An existing Agricultural Bank was transformed into the Development Bank of Mauritius, with responsibility, inter alia for helping to finance industry. A complex structure of import duties and quotas helped protect industries in the home market, while the exchange control system made it expensive to export capital and more profitable to employ local savings in local manufacturing.

Export processing zones

These measures had a degree of success, but by the early 1970s, the limited scope of import substitution industrialization (ISI) in a country with a population of less than one million and a low per capita GDP was increasingly felt. Export industries became the focus of attention. The critical measure was the Export Processing Zones Act (1970). In addition to very favourable tax concessions, the Act permitted firms to import commodities used in the enterprise free of duty.

These measures had the effect of creating two classes of industrial enterprise - 'DC enterprises' and EPZ enterprises'. The DC firms remained IS enterprises and branched into exports to only a very slight degree, while the EPZ enterprises were allowed to sell their products on the local market to only a limited extent. It is possible that the failure of DC firms to diversify into export markets reflected their cost structure, which had developed under protection and was thus unable to compete outside Mauritius.

In spite of a levelling-off during the past five years, the EPZ sector has been the most dynamic part of the Mauritian economy. By 1991, manufacturing accounted for 23.3 per cent of the GDP at factor cost. Of this the sugar industry accounted for 2 per cent, EPZ businesses for 12.1 per cent, and other manufacturing for 8.5 per cent. Exports of manufactured goods other than sugar, which were negligible in 1961, amounted to 67 per cent of total exports in 1991 - virtually all from the EPZ.

The success of the EPZ - especially during the 1980s - was due to a variety of factors. Mauritius had a reserve labour force of literate women who were readily trainable for semi-skilled production jobs and whose wage levels were internationally competitive. The island benefited from preferential access to the European market. Various Hong Kong enterprises were seeking new locations in preparation for the take-over by China in 1997 and were attracted by the low wages and political stability of Mauritius. The growing Mauritian business community was seeking new opportunities for profitable investment.

All these factors served to encourage investment in the EPZ and to provide the labour force required. But the EPZ has its weaknesses. Because of low wage levels, and in line with government objectives during the first phase of industrialization, it attracted industries with a high labour/capital ratio. Thus in September 1982, 83.9 per cent of employment in the EPZ was in wearing apparel and a further 5.9 per cent in textile yarns and fabrics. All other industries accounted for only some 10 per cent of total employment. But wages have been rising and there is no longer a reserve labour force. Further expansion based on cheap, literate and plentiful women workers is no longer a viable option. The creation of a single European market raises doubts concerning the conditions of access of Mauritius' products to its traditional markets.

Social changes

Mauritian society has undergone a process of rapid economic and social change and modernization over the last three decades. Previously, Mauritius could be described as a remote, secluded, peripheral, colonial society. Its history of colonization and settlement and the sugar industry produced a society of great variety - a kaleidoscope of races and cultures.

During the last thirty years the island has undergone an accelerated process of development under the pressure of external and internal events. In the first place there was the population explosion and its aftermath. The Mauritian population doubled between 1948 and 1970, leaving Mauritius to cope with a young population, with its challenge to traditional cultures and values, and a rapid increase in the labour force as the younger generations reached working age and entered the labour market. Thirty years ago, families with six or seven children were common: today the typical family has two or three children. Girls stay longer at school, the age of marriage has risen and social attitudes which used to inhibit the employment of some girls have been relaxed.

Secondly, there was the spread of education at the primary and secondary levels. Increasing amounts are being spent by families on education as a means of fulfilling rising aspirations. Education is a fundamental factor and a powerful catalyst in the process of modernization. It improves the quality of labour and enhances its attitudes to social mobility and aspirations. But it may also lead to frustration and maladjustment if the job opportunities do not correspond - as they rarely do in developing societies - to the expectations of school-levers. In that sense the rapid spread of education in the island in the 1960s and 1970s, while desirable in itself, may have aggravated the imbalances, both quantitative and qualitative, between job opportunities and the aspirations of school levers.

The third important element in the rapid transformation of Mauritian society was the political and constitutional events which preceded and followed the island's independence in 1968. The strong democratic tradition which developed in Mauritius. and the country's political stability, was very important for the success of the industrialization strategy. More recently, political events, particularly the 1982 general elections and their aftermath, have been instrumental in securing continued popular support for the measures taken by government under the structural adjustment programme (SAP) which in many respects has transformed the local economic environment.

A fourth feature is the mobility and adventurous spirit of Mauritians who' especially after World War 11 and in the late 1960s, have created a substantial Mauritian 'diaspora'. A large number of Mauritians left the island to work and settle in Europe, South Africa and Australia but they retained ties with their families in Mauritius. As a result, new ideas and attitudes were disseminated within the family network and contributed to the process of change.

Another factor in the process of social change in Mauritius was the opening up of the island itself to the rest of the world. The establishment of frequent air services with Europe, Africa, Asia and Australia and the development of the tourist industry had a profound effect on the attitudes and aspirations of the people. The success of family planning and the consequent drop in the birth rate in turn freed more women from household chores and the care of children for work outside home.

The future of Mauritian industry

In the search for new patterns and new emphases, we must distinguish between the reactions of the local business community and those of investors from abroad. The Hong Kong firm has little to lose from closing down in Mauritius and starting again in another location where wages are lower and trainable workers are available. The locally controlled enterprise has a greater incentive to seek new solutions inside Mauritius.

Industrial development must continue to be predominantly for export. Such industries must therefore be competitive on world markets. They can no longer base their competitive position on cheap labour. They must rather look to increasing labour productivity for continued expansion. One possible means of raising labour productivity is through the use of high technology. This would be a new departure in Mauritius. None of the existing industries employs high technology; the predominant industry -the manufacture of clothing - typically employs low technology. Mauritius lacks the research and development base for high-technology industry. Many enterprises might see the move as a high-risk option. But steps are being taken to strengthen education in science and technology as a preliminary move towards a more science-based industrial structure. The questions to be asked are:

· How realistic is it to see high-technology industry as the dynamic for the next stage of industrial growth?

· What measures could be taken to encourage and assist the development of such industries?

· Are existing firms appropriately structured to move into such industries? If not, how could they be helped or encouraged to do so?

· Are there alternative strategies which would enable Mauritian industry to compete on world markets?