Report No. 9685-MAS Mauritius: Expanding Horizons June 12, 1992 Eastern Africa Department Africa Regional Office MICROFICHE COPY Report No. 9685-MAS Type: xECO) MEESOOK, O/ X34031 / J10129/ AF2CO FOR OFFICIAL USE ONLY Ooum alth Wo; Bank Thisodocu I ffethasarestrc dd ti t the Pc rf t r o .:ck)sed w Its contents maynototherwise' ' .)ocumEnfithe World Ba . hk . z .. ',.~~~~~~~ , ', .,..... .' D ,., ,, '~~~ Thi ; oirn n ha . re.ice dAtibto an ma beue y ei c M i die .e o m a c ,f 'h i of i i l d t e . I c n e t a o t e w s kjSc .e wiht , ol S8n .uhoiato - ANNUAL AVERAGE EXCHANGE RATES Year Mauritian Rs/US$ US$/Mauritian Rs 1982 10.873 0.0920 1983 11.706 0.0854 1984 13.800 0.0725 1985 15.442 0.0648 1986 13.466 0.0743 1987 12.878 0.0777 1988 13.438 0.0744 1989 15.250 0.0656 1990 14.863 0.0673 1991 15.652 0.0639 CONVERSION FACTORS FOR WEIGHTS AND MEASURES Arpents Acres Hectares Area: 1 arpent = 1.000 1.043 0.422 1 acre = 0.959 1.000 0.405 1 hectare= 2.369 2.471 1.000 Short Metric Long Tons Tons Tons Weight: 1 short ton = 1.000 0.907 0.810 1 metric ton = 1.102 1.000 0.984 1 long ton = 1.235 1.016 1.000 GOVERNMENT OF MAURITIUS FISCAL YEAR July 1 to June 30 FOR OMCIA USE ONLY ABBREVIATIONS AND ACRONYMS ACP African, Caribbean, and Pacific AHRIM Association des Hoteliers et Restaurateurs le Maurice ALRDS Agricultural Land Resource Database System CEB Central Electricity Board CIF Cost, Insurance, Freight COLEACP Europe-Africa-Caribbean-iPacific Liaison Committee CPI Consumet Price Index CSO Central Statistical Office DC Development Certificate EEC European Economic Community EPZ Export Processing Zone FAO Food and Agricultural Organization FARC Food and Agricultural Research Council FOB Free on Board GDPFC Gross Domestic Product at Factor Cost GDPMP Gross Domestic Product at Market Price GIS Geographic Information System IFS International Financial Statistics IRFA Institut de Recherches sur les Fruits et Agrumes IVTB Industrial and Vocational Training Board LAMU Land Area Management Unit MAFNR Ministry of Agriculture, Fisheries and Natural Resources MGTO Mauritius Government Tourist Office MOTS Ministry of Trade and Shipping MSIRI Mauritius Sugar Industry Research Institute NIC Newly Industrialized Country NFS Non-Factor Services OECD Organization for Economic Co-operation and Development PTA Preferential Trade Area R&D Research and Development SGS Societe G6nerale de SurveiHlance S.A. SITC Standard International Trade Classification UNCTAD United Nations Conference on Trade and Development VAT Value-Added Tax WTO World Tourism Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without Wornd Bank authorization. PREFACE This report is about an exceptionally successful country which is not content to rest on its laurels; indeed, one which is striving to catch up with the "Tigers' of East Asia. The report takes as its starting point the position that, ten or twenty years from now, Mauritius will have developed further and been transformed to the point where it will no longer be heavily concentrated in sugar and textiles. The path ahead cannot be entirely clear at this stage; moreover, where Mauritius goes from here will be up to Mauritians to decide. However, the report hopes to be of some use in the debate and discussion of issues by putting forward some ideas, some of which may be right, some of which may be wrong. The objective is not to prescribe a development path for Mauritius but rather to generate ideas, stimulate discussion, and expand perspectives. In the spirit of the above, the World Bank team enlisted outside consultants with broad experience and perspectives from other countries, people who might have something new to offer Mauritius in the way of ideas, given their expertise in their field of specialization. Agriculture was covered by Mr. Dick Schoorl, an Australian from the Department of Primary Industries of Queensland; industry by Mr. Andrew Singer, with global experience in the export of manufactures and services; and tourism by Mr. Anthony Edwards who has written extensively in this area, including many publications for the Economist Intelligence Unit, and has advised several countries in Southeast Asia and the Caribbean. This report picks up and explores a few of the ideas originally discussed in Mauritius: Managing Success. In that sense, it can be viewed as a sequel to the first report. The clouds that were detected on the horizon at the time of Mauritius: Managing Success would appear to have become more menacing since then. The authors are nevertheless optimistic that, with prudent analyss of its problems and suitable adaptations, Mauritius has the potential to overcome its present obstacles, take maximum advantage of its natural and human resources, and eventually join the ranks of the Newly Industrialized Countries. This report is based on the findings of three minions which visited Mauritius in April and September 1990 and February 1991. Mission members were Oey Astra Meesook (Principal Economist, AF2C0C; Task Manager), KapU Kapoor (Economist, AF2CO) Brendan Horton (Economist, AFTIE), Anthony Edwards (Consultant), Dick Schoorl (Consultant), Andrew Singer (Consultant), and AntoneUa Bassani (Consultant). Mimi Klutstein-Meyer compiled the StatlsttcalAppendLx. Patricia Sanchez, Roboid Covington, Caroline MUad, and Lilian Canamaso were responsible for the production of the report. The report was discussed withe Government of Mauritius in early August, 1991. - v CONTENTS Executive Summary .................... xi Chapter 1: Inomduction ............................................ 1 A. Background 1. B. The Need for Diversification 2. ..... . . 2 Agiculture ........3 Industryn d uy.. ....... 4 Touris..... 6 Chapter 2: Incentive and Regutorj Regime ....... .............. . 7 A. The Macroeconornic Context ............................... . 7 B. Regulation of Prices, Wages and Employment ..................... 11 Prices ................................................ 11 Wages ................................ 12 Regulation of Employment ........................... 16 C. Trade, Foreign Exchange, and Finance ........................... 20 Export Controls.....................................20 Import Controls ................ 21 Foreign Exchange Regulations ....................... 21 Access to Finance ............................... 23 D. Import Duties and Indirect Taxes ................... 26 Introduction ................ 27 Structure of Collecdons ...... ........... .... 28 Sales and Excise Taxes ......................... 30 Hotel and Restaumnt Tax ..................... 32 Foreign Travel Tax ................... 33 E. Investment Incentives ..... ........ ..... .. . 33 F. Customs Regime ......... ............. 35 Custois Regimes for EPZ Companies ............... 36 G. Infrastructure and Logistics ....................... 39 Production .... 39 Investment ...................................... 41 H. Main Findings and Action Plan ...................... 43 Main Findings ..43 Action Plan for the Future ........................... 44 Annex .. ..47 Chapter 3: AgrkulturalDiversiJication ......................... . 49 A. Introduction ....................................... 49 B. Existing Crops ....................... 51 Sugar ..... 51 Tea ........................................... . 55 C. New Directions .................................. 57 Fruits, Vegetables, and Cut Flowers ....................... 57 Deer Farming ..............................66 D. Proposed Action Plan ............................ 67 -vii - Chapter 4: Manufactured and Service Eportr t........................... 69 A. Background .............................. 69 B. Facilitating Export Expansion .............................. 70 Harsh External Realities ............................ 70 The Challenge for Government ............................ 71 Assessment of Constraints ............................. 72 C. Constraints Across All Industries .............................. 72 Access to Capital ............................ 72 Worker Motivation .......... .................. 73 D. Constraints Within Existing Industries ........................... 74 Access to Capital ............................ 76 Undervaluing Outside Expertise ............................ 76 Lack of a Transfer Market in Quotas ......................... 77 E. Constraints Affecting New and Emerging Induistries ................. 78 Precision Assembly ....................................... 78 Brain-Service Exports .............. ...................... 81 F. Proposed Action Plan . ...................................... 82 Chaper 5: Tourism ............................................. 85 A. Introduction ............................................. 85 B. Tourism Demand . ......................................... 86 Characteristics of Tourism in Mauritius .......... ............. 86 Demand Trends ......................................... 88 A Shift to Informal Accommodation ......................... 89 Prices ............................................... 89 Seasonality and Length of Stay ............................. 91 C. Hotel Supply .............................................. 92 Growth in Hotel Rooms ........... ....................... 92 Hotel Costs and Profits ............. ...................... 93 D. Tourism Planning . ......................................... 94 Strategy Issues . ........................................ 95 Planning and Implementation Capabilities ..................... 97 E. Promotion and Diversification ........... ...................... 98 Promotion ............................................ 98 Market Diversification ............. ...................... 100 Air Access ........................................... 101 F. Increasing Tourist Earnings ............ ...................... 105 Net Tourist Earnings ............. ...................... 106 Improving Shopping Opportunities ......................... 107 Tours and Car Hire .............. ...................... 109 Sports Facilities . ...................................... 111 G. Supporting Infrastructure ............. ...................... 111 Staff Shortages and Training ......... ..................... 111 Tourism and the Environment ............................ 112 Infrastructure .......................................... 113 H. Action Plan ............................................. 114 Chapter 6: Synergy in Divenrfication ................................. 115 A. Land Resource Management ........... ...................... 116 B. Human Resource Management .......... ..................... 118 C. Management of Capital . .................................... 119 - viii - Text Table 1.1 Real GDP and Value Added by Sector .............................. 2 2.1 LUst of Products Subject to Price Control ............................ 12 2.2 Structure of Lending Rates for Lending by Commercial Banks ........... 24 2.3 Lerding Rates, Cost of Funds and Spreads, by Cas of Borrower .......... 25 2.4 Ratio of Import Duty and Tax Coliections to Imports 1982/831989/90 ...... 28 2.5 Ratio of Collections to Taxable Value of Imports by SITC Section, 1089 (Non-EPZ imports only) ................................................. 29 2.6 Sales Tax Collections and Corresponding Tax Base 1988/84-1989/90 ... 81 2.7 Distribution of Clearance Times for Non-EPZ Companies Last Quarter 1990 .. 40 3.1 Tea Statistics 1989 ............................................. 56 3.2 Approximate Crop Returns ...................................... 59 3.3 Perishables Airlifted by Air Mauritdus ...... ......................... 64 3.4 Unused Air Capacity ex Mauitius 1989 About 80 Percent to Europe ........ 64 3.5 Cost of Air Freight from Mauritius to Europe .. 65 4.1 Key Indicators for the EPZ ....................................... 70 4.2 Percentage Distribution of EPZ Enterprises and Employment, 1984 to 1991 ... 75 4.3 Main EPZ Exports by Main Commoditdes, 19881991 ........ ............ 79 5.1 Characteristics of Tourists from Main Origin Countries in 1988 ... ........ 87 5.2 Growth Rates in Foreign Travel to Mauritius, 1986-90 . . 90 5..3 Proportion of Foreign Visitor Stays in Hotels 1986-91 . . 90 5.4 Percentage Increases in Average Mauridan Hotel Prices . . 91 5.5 Estimated Hotel Receipts and Operating Costs per Bed Night Sold .. ....... 94 Boxes 2.1 Levy and Range of Rates ......................................... 27 Figures 1.1 Changes in GDP Composition ............................... .3 2.1 Externl Current Account ............................... . 8 2.2 External Current Account .............................. . 8 2.3 Exchange Rate Indices ............................... . 9 2.4a Index of Competitiveness ........................................ 10 2.4b Index of Competitiveness .. ...................................... 10 2.5a Annual Wage and Price Increases .................................. 14 2.5b Wage Indices ................................................. 14 2.6a Wage Indices (British Pound) ..................................... 15 2.6b Wage Indices (French Franc) ..................................... 15 2.6c Wage Indices (German Mark) ..................................... 15 2.6d Wage Indices (US Dollar) ........................................ 15 3.1 Comparisoii of Sugar Cane Yields . . . 53 3.2 Comparison of Sugar Production Costs . . . 53 * -a - Stadk iaAPPondiv ............................... 121 1.1 PopulationandVitalStatistics ........................ 123 1.2 Social Indicators .......... . 124 MI.1 GDP by Sector in Current Prices, 1984-1991 .125 I.2 GDP by Sector in Constant Prices, 1984-1991 .126 11.3 GDP by Expenditure in Current Prices, 19849 1991 .127 II.4 GDP by Expenditure in Constant Prices, 1984-1991 . . 128 JU.1A Balance ofPayments, 1983/841990/91 .. 129 I1I.IB Balance of Payments, 1984-1991 ..130 111.2 Merchandise Imports at Current Prices (CI'), 1983-1991 .131 111.3 Merchandise Exports at Current Prices (FOB), 1983-1991 .132 111.4 Exports and Imports of Main EPZ Commodities, 1983-1991 . 133 IV.1 External Debt, 1981-1990 .134 V.1 Central Government Operadons, 1985/86-1991/92 .138 V.2 Central Government Revenues, 1985/86-1991/92 .139 V.3 Economic Classification of Expenditures, 1985/86-1991/92 .140 V.4 Functional Classification of Expenditures, 1984/85-1989/90 .141 V.5 Central Government Subsidies and Transfers, 1985/86-1991/92 .142 VI.1 Monetary Survey, 1985-1991 .143 VI.2 Interest Rate Structure, 1985-1991 ............................. 144 VII.1 Food Crop Production, 1983-1991 ................. 145 VIII. Main Aggregates of the Industrial Sector, 1984-1990 .146 VIII.2 Local Production of Selected Commodities, 1984-1990 .147 VIII.3 Main Economic Aggregates for EPZ Enterprises, 1984-1990 .148 VIII.4 EPZ Enterprises and Employment, 1984-1991 .149 VIII.5 Representative 1990 Prices of Long-Haul Beach Resort Inclusive Tours from the United Kingdom .150 VIII.6 Trends in Travel to Mauritius by Main Country of Residence .151 VIII.7 Seasonal Peaking of Arrivals from Main Origin Countries, 1988 .152 V111.8 Travel to Mauritius in 1988 Compared with some Competitive Destinations153 VIII.9 Comparison of Budgets of National Tourist Offices for Beach Resort Destinations .154 VIII.10 Comparisons of Long-Haul Air Fares from London .155 lX.I Consumer PiceIndex,1982-1991 ......................... 16..... 1 -x - EXECUTIVE SUMMARY 1. Economic development in Mauritius -ver the past decade has been based on some exceptional circumstances. First, the country has been able to draw or. a large pool of relatively well educated labor, through the reduction in unemployment as well as an increase in the labor force participation rates for women. Second, it has taken full advantage of its preferential access into the European Economic Commne-ity (EEC) market as a signatory to the Lom4 Convention. Third, its Export Processing Zone (EPZ) sector has greatly benefitted from the capital investment and marketin& know-how of investors from Hong Kong and Singapore. Consequently, Mauritius' spectacular success has resulted from its ability to take maximum advantage of these facilitating factors in its development strategy. Thus, in agriculture it has emphasized the production of sugar to take advantage of the Sugar Protocol, while in the EPZ it has concentrated on expor.s of garments for the EEC and U.S. markets, making use of preferential access and cheap labor. 2. Since this development strategy was adopted, the world environment has changed considerably. Frst, other developing countries have now entered the arena with many of the same advantages that Mauritius ernoyed. Many of these countries have even larger pools of cheap labor that they can draw upon; hence, Mauritius is unlikely to be able to continue competing with them on, the same terms as before. Second, the pressures in the EEC to reduce protection within the Community are growing. This, in turn, puts pressure on Mauritius to become more competitive in the world economy and to take a fresh look at the opportunities open to it. 3. This report identifies a number of constraints in the existing incentive and regulatory framework to increasing Mauritius' global competitiveness. First, the overal macroeconomic situation has de 2riorated over the last few years. IMflation rose to double-digit levels in 1989 and 1990 during which time most interest rates became negative in real terms, real wages increased very rapidly, and price controls were reimposed on a large number of commodities. Although inflation dropped to 7 percent in 1991, efforts must continue to contain inflation and keep real interest rates positive. Second, at the firm level, there has been an increase in unit labor costs, with labor productivity unable to keep up with wage increast s. Third, regulations goverrnng employment and wages are much more restrictive outside the sugar sector within agriculture and outside the EPZ sector within manufacturing; this not only affects overall competitiveness but also exacerbates labor shortages since it prevents the movement of labor out of the sugar and non- EPZ sectors. Fourth, the EPZ and non-EPZ sectors are subject to significantly different regimes of taxes and tariffs. This has created biases against the non-EPZ industries, making it very difficult to integrate the two sectors to take advantage of the linkages between them. - xi- 4. Within each of the growth sectors, there is urgent need to increase labor productivity and reduce the vulnerability to extemal fluctuations in demand conditions. Although there is some scope for doing this within sugar and the apparel industry, the possibilities for increasing labor productivity through agricultural and industrial diversification are tar greater and could usefully be explored. The Government has a clear role in all of this by providing an environment which is conducive to such productivity enhancement, for example in areas such as the incentive and regulatory system, infrastructure, information and investment. Moreover, it sihould encourage forward and backward linkages between agriculture, industry and tourism and, within industry, between the EPZ and non-EPZ sectors. 5. In the agricultural sector, sugar is already a mature industry. There is limited scope for increasing efficiency in sugar production, since sugar yields in Mauritius already compare very favorably with the leading producers in the world. Moreover, given labor shortages, iising labor costs, and p _ssures within the EEC to reduce subsidies to sugar producers, it has become imperative to investigate the possibilities of increasing the production of other highly profitable crops which could supplement sugar income and provide a cushion in the event of a fall in sugar prices. The 1988 Sugar Industry Efficiency Act is a move in the right direction; the Act gives explicit encouragement to agricultural diversification by granting incentives to rLonsugar agriculture. Horticulture, for example, could hold the key to agricultural diversification in Mauritius; the production of fruits, vegetables and cut flowers for export can potentially yield many times the profit per hectare that sugar can. Fruit trees can co-exist with sugar since they can be grown on marginal land which is less suitable for sugar. However, there are a few constraints which need government intervention because of the externalities and scale economries involved. These include finding ways to reduce the vulnerability of the trees to cyclones; eradication of fruit flies; transportation; and research and development. The Government has a clear role in these areas, wilie leaving it to the private sector to find the right crops into which to diversify. 6. As has been the case with agriculture, past growth in the manufacturing and services sector in Mauritius has benefitted from cheap labor; the concentration in textiles, a labor-intensive industry, bears this out. The need to increase labor productivity means that labor for the manufacturing and services sector will either have to compete with other sectors or use existing labor resources more productively. In a sector which is so dependent on the export market, it is essential to start from the "givens" of the external internatiousi market which is highly competitive and demanding. From this vantage point, a number of constraints have been identified. The constraints which apply to all industries include poor access to capital and lack of worker motivation. In the apparel industry, the tendency to undervalue outside expert-se and the lack of a transfer market in quotas are also disadvantages. For the new and emerging industries, the constraints include red tape and the lack of subcontractors and parts stockists for the precision-assembly industries; and higher education for the brain-service sector. 7. The motivation behind suggesting that the Government could relieve some the above constraints is not to suggest that it should be in the business of "picking winners". On the contrary, we see the Government's role purely as a facilitator, - xii - leaving the choice of specific new ventures entirely in the hands of the private sector. As with sugar, and subsequently with the production of anthurium for export, the Government has amply demonstrated that selective interventions aimed at the removal of production and marketing bottlenecks, alon6 with the creation of supporting institutions, can go a long way to complement private sector initiative. Within agriculture, tle domestic productior. of fruits, flowers, and vegetables for the buoyant tourism sector has proved to be very profitable. In manufacturing, there has been encouraging growth in the number of new ventures involved in the areas of precision assembly and "brain-service" exports. Given the potential in these areas, this report suggests that it might be prudent for the Gove.ment to pay particular attention to the environment within which these industries operate. 8. Although Government's stated policy in the tourism sector is to encourage high-end tourism with a low impact on the environment, recent policy actions contradict this. The supply of hotel rooms ha i been rising sharply and is projected to rise further. This is because of the high profitability in recent years of the hotel industry and the ease with which government certificates have been granted for hotel construction. This increase in the supply of hotel rooms has taken place at a time when there has been a considerable slowdown in the growth of demand for hotel rooms owing to a decline in the growth from the major sources (France and South Africa); increases in air fares and hotel costs; inadequate promotion; and a shift by tourists to informal accommodation. The result is a tendency in the growth of the tourism sector which goes completely against Government's stated policy, with the pressure on hotels to fill their rooms and tourists looking for ways of having cheaper holidays. Thus, the Govenmment faces a real dilemma. On the one hand, it could adhere to its policy of promoting low-impact, high-end tourism. This would mean drastically limiting the growth of new hotels, including the cancellation of pe.mits already granted; limiting air access; and strictly regulating the operation and growth of informal tourist accommodations. On the other hand, as is already the case, it could continue to yield to the pressure of the hotel industry to grant new permits which in turn will lead to pressure to increase air access so as to allow larger numbers of tourists to enter the country. This strategy is likely to lead to a degradation of the environment and social reactions against tourists. At this juncture, it is critical for the Government to articulate its overall policy towards the tourism sector and ensure that supporting policies (hotel certificates, tourism promotion, air access, infrastructure, and training) are fully consistent with it. 9. A review of recent economic developments highlights the need for more rigorous macro-management. While the situation today is much more complex and challenging than when Mauritius originally embarked upon its initial adjustment effort, prudent macro-management and policies aimed at enhancing productivity will go a long way in m-oving the country into the next phase of its developmental effort and transforming the economy into a Newly Industrialized Country (NIC). This process of increasing productivity and diversifying the production base of the economy does not necessarily imply competition between the different sectors. On the contrary, what emerges from this study is that there could be considerable synergy in the diversification process; developments in one sector of the economy can generate forward and backward linkages ir. other sectors, thereby stimulating additional growth. As the Government embarks upon this challenging next phase - xiii - of development, this report strongly recommends that the Govenmment explicitly incorporate such cross-sectoral linkages into its planning process. In so doing, the G;overnment stands to succeed in creating the facilitating environment that wlll lead to tne most productive use of land, labor, and capital in the future development of Mauritlus. v - xiv - Introduction A. Background 1.1. In the late 1970s and early 1980s, the Mauritian Government implemented a program of stabilization and adjustment which succeeded in creating an economic environment in which. most of the preconditions for sustained, export-led growth were satisfied. The liberalization of the exchange and trade regimes, improved resource mobilization, restrained public expenditures, restricted credit expansion, and strengthened institutional capability aU contributed to a solid foundation upon which Mauritius was subsequently able to build. Consequently, it was poised to take ful advantage of the favorable developments in the international economy in the 1980s. Having laid a suitable foundation, the Government embarked upon a labor-intensive, export-oriented growth strategy which was powered by the three main sectors of the economy: sugar, manufactured exports, and tourism. 1.2. Until the advent of the Export Processing Zone (EPZ) industries, sugar production was the predominant economic activity in Mauritius. The country is highly suited to the cultivatio;n of sugarcane, which stil covers about 88 percent of the cultivated area; the bulk of the sugar output is exported. The economic importance of sugar to the Mauritian economy hinges upon the preferential price arrangements under the Sugar Protocol of the Lom4 Convention, the signatories to wlich are the European Economic Community (EEC) and the African, Caribbean and Pacific (ACP) countries. Mauritius has greatly benefitted from this arrangement, which has shielded the country against cyclic.l price fluctuations in the world market and enabled the sugar Industry to become a major source of investment funds for the manufacturing sector. 1.3. Financed largely by the start-up capital provided by sugar, EPZ companies have mushroomed throughout the island. They have greatly benefitted from the incentives provided by the Govemment: tax holidays on corporate profits and dividends; free repatriation of capital and dividetds; and duty-free entry of capital goods and raw materials. Aided by these incentives, the Mauritian private sector has been able to take advantage of the preferential access into the European markets; EPZ value added has grown at an impressive annual average growth rate of about 15 percent per annum over the past six years. A number of East Asian entrepreneurs, particularly from Hong Kong, have also set up operations in Mauritius, for whom an added attraction has been the reassuring presence of a local Chinese community. A major factor in EPZ growth has been the country's 2 Maufltrus: Expading Horzorts relatively cheap labor and the ready pool of women who have been drawn irto the labor force. As in the case of sugar, the EPZ sector has benefitted from the preferential treatment that Mauritius receives from the EEC through the Lom6 Convention under which it has more or less free access for its exports to the EEC. Table 1.1 MAURITIUS: Real GDP and Value Added by Sector (Annual average geowth rae, percent) AnnualGrowth % of GDP > Sector 1980.65 1986-91 1980 1985 1991 Agrulture 1.1 02 12.4 153 11.0 o/w Sugar .. -13 .. 11.1 72 Industry 3.6 9.8 25.9 292 32.7 o/w EPZ .. 14.8 .. 9.6 12.8 O/w Sugar .. -IA .. 32 2.0 Ser -es 2.6 6.4 61 55.5 563 GDPFC 2.4 6.6 100.0 100.0 100.0 Source: CeCmtral Statstiadl Ofie. Data reftr to aldendar years. Growth ratesfrom 1988-91 are based o-n 1987s,Jrm 1982-87 on 1982 prices, and prior to 1982 on 1976 pries. The Convention gives Mauritius a considerable advantage over non-ACP countries, such as Hong Kong and the Republic of Korea, which are some of Mauritius' main competitors, since their exports are subject to a 17 percent duty on entry into the EEC. 1.4. Mauritius has also been very effective in developing a tourism industry which caters principally to the affluent, long-haul market. With its gorgeous beaches, great variety of landscapes, an educated, multilingual, multiracial society, excellent hotels of international standard and a tradition of courtesy to foreigners, Mauritius holds a great attraction for tourists. Tourism in Mauritius has grown faster than the worldwide average and year-round hotel bed occupancy rates are very high for a beach resort destination. B. The Need for Diversification 1.5. Notwithstanding the remarkable success discussed above, the economy now faces a number of constraints and vulnerabilities that leave its success fragile. The Mauritian economy is highly dependent on the external economic environment, specifically within the EEC and in the US, and the continuation of preferential trade 1: Introduction 3 arrangements. Moreover, the economy is now close to, or at, full emrployment and thus the supply of labor has become less elastic. The tightening in the labor market is now a binding constraint on economic growth in the short and medium term. The associated upward pressures on wages and prices which are now being felt have adverse implications on the international competitiveness of Mauritian industries and, in addition, threaten the financial stability which has been crucial for the country's outstanding economic performance over the past few years. Given these developments, it is imperative to review the incentive and regulatory regime in Mauritius to determine what might be done to increase the country's international competitiveness. Such a review is given in Chapter 2. In addition, for the successful transformation of the economy from adjustment witih growth to sustained development, it is essential that the factors behind the economy's vulnerability be examined critically and suitable policy actions be taken so as to minimize the risks associated with the occurrence of adverse exogenous events. One of the central elements of such a strategy would be to increase labor productivity through the diversification of agriculture, industry, and tourism. Figure 1.1: Changes In GDP Compositicn Tourism (2%) Tourlsm (3%) Sugar (23%) Sugar (9%) EPZ (13%) EPZ (0%) Oter (75%) Other (76%) 1976 1991 Source: Central StaUstoal OffiOc. Agriculture 1.6. There is little doubt that, for many years to come, Mauritius will continue to be heavily dependent upon sugar and hence on the terms of the Sugar Protocol. The Government should therefore seriously encourage the private sector to explore nonsugar alternatives, while continuing to take maximum advantage of the Sugar Protocol. 4 Mawtus: Expanding Horlzons 1.7. Although Mauritius has already gone some way towards diversifying its agricultural sector, this effort has so far been concentrated in cultivating foodcrops, largely but not exclusively in the interlines of sugarcane. Agricultural strategy, as articulated in the Government's 1983 White Paper on agriculture, has placed greater emphasis on attaining self-sufficiency in a number of food crops, where necessary by subsidizing domestic producers. This emphasis has in the past resulted in a certain amount of resources being devoted to the production of food crops like maize and rice which cannot be produced economically, given the conditions on the island. There has been increasing realization on the part of the Government that such a strategy could potentially become a drain on the economy and consequently the resources allocated to some of the food crops have been gradually reduced. It has been argued that the best way of reconciling the legitimate concerns relating to food security with efficiency considerations is to ensure that scarce resources, particularly land and labor, are devoted to crops that yield the highest returns, be they for export or efficient import substitution. This would ensure that any shortfall in domestic food production would be met through export earnings from high-value crops. 1.8. Several studies have revealed that Mauritius has great potential in horticulture, i.e., tropical fruits, vegetables, flowers, and potted plants. It already successfully exports cut flowers to Europe; its annual export of anthurium is second only to Hawaii. Hybrids can now be produced on a large scale through tissue culture. Possibilities for other flowers, such as vanda orchids, also exist. 1.9. Mauritius also has the potential to export profitably a wide variety of tropical fruits. The island's sGil and climate are highly suitable for these fruits which are already grown on a backyard basis and cater to the -Jwing domestic demand from the tourist industry. This is specially true for litchis and pineapples. The demand for fruits, especially in the off-season, already exists in Europe and is growing quite rapidly, and this should be Mauritius' primary target market because of its large and affluent population, reasonable shipping distance, and EEC preferential treatment. 1.10. Thus the issues regarding diversification in the agricultural sector include: the appropriate level of sugarcane production; the identification of suitable additional crops, and the role of the Government in providing a suitable environment for agricultural export diversification. These issues are discussed in Chapter 3. Industry 1.11. To reduce its vulnerability to fluctuations in demand conditions in foreign markets, Mauritius also needs to increase productivity and diversify its portfolio of export industries, both within and outside the wearing apparel industry. EPZ activities are presently highly concentrated in wearing apparel and the degree of concentration has increased over time. Within wearing apparel, there has been increasing concentration in textile garments, reflecting the relative decline of the 1: Intoduction 5 knitwear industry. In addition, EPZ exports are concentrated in terms of their markets, with almost 90 percent of total EPZ exports, in value terms, going to the EEC and the US. The Government Is concerned about the vulnerability that this product concentration brings to the economy and has actively sought to reduce it, both by discouraging further investment in wearing apparel and by encouraging diversification into other products, such as leather goods, electronics, jeweilery, optical goods, and so on. It has also commissioned a number of industry-specific studies which have examined the potential for establishing electronics, informatics, and agro-processing industries in Mauritius. 1.12. It has been pointed out that, rather than having the Government get involved in identifying specific industries, a better approach would be to leave private investors to make individual decisions concerning the choice of industries while strengthening the Government's role in providing information and guidance to potential investors on conditions in export markets. Such guidance would include the provision of information regarding restrictions that may affect specific industries under the rules of origin of the Lome Convention; the labor and skills requirements of the proposed industries and their availability in Mauritius; and the compatibility of the industries with other objectives, such as environmental protection. The key is to maintain flexibility so as to be ready for changes in the perceptions of investors. 1.13. It also needs to be established whether Mauritius might be ignoring its comparative advantage by fighting against specialization. There are many factors that have contributed to the success of the wearing apparel industries, including a number that are specific to these industries and give them a special advantage in the EEC and the US. The potential for expanding wearing apparel exports to the EEC and the US markets has by no means been exhausted. The EEC market offers the best hope for the future while in the US market there are still many categories of wearing apparel that are not yet under quota. In any case, even in the categories under quota, it should still be possible to move to higher-value products to take advantage of the fact that quotas are specified in volume, not value, terms. 1.14. Recently, the Government has attempted to equalize the incentives given to EPZ and import-substituting firms, defined as those that are given development certificates (DCs). There has been a reduction in the level of tariffs levied on imports, while at the same time DC firms are now granted duty drawbacks on their exports, such that DC firms exporting 100 percent of their output get the same level of incentives as EPZ firms. As would be expected, the tariff reduction has created prcblems for some DC firms which now face increased competition from imports. Another promising area for DC firms is to take advantage of backward linkages in the EPZ industries by, for example, establishing ancillary industries for the garment industry and packaging materials. 115. Thus, a number of issues present themselves in considering industrial export diversification in Mauritius: the incentive regime, particularly as it pertains to the DC firms compared to the EPZ industries; the advisability of moving away 6 Maurtus: EApandg Hotzons from the garments industry; the appropriate strategy for diversifying within the garments industry; tLe development of expoits other than garments; and the role of the Government in supporting and facilitating the diversification process. These issues are discussed in Chapter 4. Tourism 1.16. The Government's policy towards tourism has been to pursue a select cientele, emphasizing the island's distaste for high-rise buildings, mass tourism, and charter flights. Accordingly, official policy now limits the capacliy of new hotels to 200 rooms and bans high-rise construction. However, despite the Government'.s predisposition to the more affluent end of the tourist market, the sector has grown rapidly, with tourist arrivals reaching 298,500 in 1991 and likely to exceed 500,000 by the turn of the century if current trends continue. The rapid expansion of tourism has strained the island's infrastructure, with the existing road, telephone, and electricity networks being stretched to capacity. The mushrooming of new hotels has added to the pressures on the construction industry and several projects are running behind schedule. The high visibility of the tourist sector has also led to a link in the minds of the Mauritians between tourists and the island's environmental degradation. 1.17. A number of issues need to be addressed by the Government as it assesses the future prospects for the tourism sector. There is growing concem about the social impact of the large volume of tourists on the local population; consequently, the question of the optimal size of the tourist population, and hence of related hotel and airline capacities, will need to be addressed. To ensure that Mauritius maintains its reputation of excellent service, suitable training programs will have to be devised and room capacity and hotel quality closely monitored. To guarantee a consistent supply of high-spending tourists, efforts will need to be made not only to diversify the markets but also to enhance the menu of local activities offered the tourist. Most importantly, to maximize the net foreign exchange earnings from the tourists, a program will need to be developed to make Mauritius an attractive place where the tourist can purchase both locally produced and imported products. These issues are discussed in Chapter 5 of this report. 2 Incentive and Regulatory Regime 2.1. This chapter reviews the incentive and regulatory regime for production and irnvestment in Mauritius witth a view to determining how to increase Mauritius' global competitiveness, both within and outside the 7PZ sector. A related issue is the need to move towards a fully integrated economy, i.e., one in which tho EPZ and non-EPZ sectors are subject to similar reg-nes of taxes and tariffs, with a view to increasing the local content of exports in ax, economically efficient manner., A. The Macroeconomic Context 2.2. Mauritius has shown an impressive economic performance during the 1980s. Following the onset of stabilization and the adoption of an export-oriented adjustment program in 1982/83, the GDP annual growth rate increased from just under 0.4 percent in 1983 to nearly 7 percent two years later. Since then, it has gradually declined to just over 4 percent in 1991. During the same period, unemployment 1as declined from 19 percent to less than 3 percent of the work force. The economy is now considered to be at full employment. Labor force participation rates are about 80 percent for males and a little over 40 percent for females. 2.3. As may be seen from Figure 2.1, Mauritius' external current account has fluctuated sharply over the last fifteen years. Following the collapse of the sugar boom in the mid-1970s and the second oil shock, the external current account deficit reached almost 15 percent of GDP in 1981. Under the influence of drastic stabilization and rapid export growth, the deficit was eliminated around 1985, and a surplus of about 5 percent of GDP appeared two years later. There has been Legislation in Mauritius provides special incentives for companies incorporated under the Export Processing Zones Act, 1970, as amended. Such companies which, in principle, export al their production, are exempt from import duties and domestic sales taxes on their purchases of raw materials and capital goods. They benefit from a preferential rate of corporation tax (15 percent) and dividends are exempt from personal income tax for the first ten years of their existence. Such companies are generally referred to as EPZ companies, even though there are no geographical Export Processing Zones in Mauritius. In the past, certain companies producing for the domestir market could obtain special incentives (Development Certificates), but this regime has faUen into almost complete disuse. There is a third category of companies that receive neither EPZ certificates nor DC certificates. In the text, these are referred to as non-EPZ, non-DC, or sometimes non- certificate companies. 8 Masuua: EFpandUV Hortzons continual deterioration since hen, primarily on account of a declining trade balance. Traditionally, Mauritius has nearly always had a negative balance on merchandise trade and net factor services. Net private transfers have usually been positive, however, as may be seen from Figure 2.1. Figure 2.1: Extemal Current Acoount In percent of GDP. 1970 - 1990 16. In peren of. . .. .1 19 90 @16 ....... ......... 1970 1975 1980 1. 19 Source: IMF, IF$. Figure 2.2: Extemal Current Acoount In pereont oi GDP, 1970 e on990 connection,t Sav- t 4rc 8.~~~ 451970 197' low 1195 . . Source: IMF. IFS. 2.4. The infuence of budgetary behavior on the external cuxTent account is clear from Figure 2.2. There is a clear con-elation between the evolution of the two, whether the extenul current aircount is deteriorating or improving. In this connection, the impact of an increase of nearly 40 percent in wages and salaries in 2: IncenUe and Regulatory Regime e 1987/88 should be noted. During the period 1987/88-1989/90, current transfers and subsidies rose by over 35 percent. Capital expenditure also rose by about 19 percent, in part on account of the long-delayed implementation of several large public investment projects. Although this analysis indicates that the budget deficit is quite small at the present time, it has to be remembered that receipts include: social security taxes. After adjusting for this, the deficit is somewhat larger, approximating 2.5 percent of GDP. 2.5. Until 1976, the Mauritian Rupee was linked to the pound sterlir.g. Subsequently, It was initially pegged to the SDR. Since then, a flexible exchange rate policy has been followed. Figure 2.3 shows a steady downward tendency in nominal terms during the 1970s, which accelerated sharply at the end of the decade and in the early 1980s under the influence -f two major devaluations. In real terms, however, there was a slight appreciation in the 1970s, followed by a s'ceady depreciation in the 1980s until 1988, since when there has been an upward trend. 2.6. Figures 2.4(a) and 2.4(b) show the evolution of real bilateral exchange rates against a number of real or potential competitors. It can be seen that the Mauritian Rupee has shown marked depreciation against some countries (Hcng Kong, Singapore, and Sri Lanka), whilst the reverse is the case for others (China, Morocco, Tunisia and Turkey). Thus, the country's competitive position is deteriorating against an important group of competitors. Figure 2.3: Exchange Rate Indices 190 1980-100 170. Tems oTr&& 150. : : ~Nomirual Exah Rats § 90~~~~. °° ~~Real Exchang RaeS , 1970 1976 1980 19 1990 Source: IMF, IFS. 2.7. Real exchange rate movements in Mauritius are heavily influenced by the evolution of wages and prices. The declining rate of inflation during the first half of the 1980s has been reversed since 1937. The annual increase in the consumer price index (CPI) exceeded 10 percent int 1989 and 1990, although it fell to 7 percent 10 Maws: E :axuun Houflons in 1991. Primary explanatory factors for the increases in 1989 and 1990 have been: (a) the nearly 40 percent wage increase given to civil servants in 1987/1988, which prompted similar, if somewhat smaller, adjustments in the private sector; (b) the tightening labor market; and (c) some rise in import prices attendant upon the gradual depreciation of the Rupee. The challenge which the Government now faces is to contain the future level of inflation. Flgure 2.4a: Index of Competitiveness 1980-100 135 t 116 < ~~~~~~~~~Legend es6* - Slngaore Hon Kong Sd Lanka Thaiand 71ig78 19.0 198 Iwo Sour=e IMF. Figure 2.4b: Index of Competitveness 1980 - 100 125 *A | 1 ~~~~~~~~~~~Legend - Morocco - Tufky 45 - Tuniba 1978 190 1985 1990 Soiumi IMf. 2.8. In fact, minimum wage levels and their adjustment are heavily regulated in Mauritius, as disLcussed in the next section. During the early part of the 1980s, 2: Incentive and Regulatory Regime 11 the stabilization period, Government consciously pursued a policy of ensuring that wage awards were less than the rate of price inflation. This policy changed sharply after 1986/87, however, since when increases have tended to be in line with the rate of inflation on an across-the-board basis. Moreover, available evidence suggests that wage increases have exceeded productivity gains during this period, so that unit wages have risen. In part, the decline in productivity has been manifested by a significant rise in absenteeism. 2.9. After several years of negative real interest rates on deposits and almost certainly for some categories of lending operations, in particular for lending to EPZ companies, real interest rates turned positive in 1991. However, during the last six years, the significant rise in the level of reserves has increased liquidity in the economy ana gelerated inflationary expectations, thus exerting upward pressure on the Rupee. This development indicates the need for an appropriate monetary policy that sterilizes the impact of the increase in reserves. 2.10. Thus, the impressive economic performance of the 1980s of high growth and declining unemployment has been accompanied, since 1987, by a rapid upsurge in prices, wages and, more importantly, unit labor costs. This state of affairs must now be regarded as a cause for serious concern. B. Regulation of Prices, Wages and Employment 2.11. Wages are tightly regulated in Mauritius, at least with regard to minimum levels by skill category. So are some prices. In addition, the consumer prices of rice, flour, sugar and potatoes are subsidized. In all areas, Government's intent is to protect consumer purchasing power in real terms and to contain inflation. To this end, prices of over 100 consumer goods were reduced by government decree in February 1991. Despite these price controls and consumption subsidies, inflation reached 13 percent in 1990/91, but fell to an average of 7 percent for calendar year 1991. 2.12. The resurgence of price controls was sharply criticized, for all the conventional reasons, by firms outside the EFZ sector which are the most directly affected. Complaints were made not only of the directly stifling effect of price controls on private sector initiative, but also of the distortions that these continue to introduce into the structure of incentives and competition. For example, in an attempt to lower the consumer price of one commodity, tariffs were eliminated on competing imports whilst being left in place for imported inputs used to manufacture the domestic products. Prices 2.13. During the early to mid-1980s, price controls on domestically produced goods and imports had been reduced to a bare minimum. Some products were subject to maximum prices while, in other cases, distribution markups were regulated. Details are provided in Table 2.1. This list remained unchanged until 12 MaurUus: Expand Horzons Table 2.1 MAURllTUS: List of Pioduct Subject to Pdce Control Ptoduct. Subject ts Maximum c Prfc - Distribution Markups Local Products Imported Products Imported Products 1955 1990 1985 .4990 1985 Bread Bread Cerent Cenent Phanmaceutical Edible Oils Edible Oils Petrolem Pebtleum Products Onions Onions Products Pro iucts and Sports Goods Potatoes Potatoes Rice and LPG Timber Sugar Sugar Flour Rice and Flour School Text Books Canned Foods Edible Oils Whole Wheat Butter and Flour Cheese Margarine Fresh Fruits Frozen Chicken Powdered Milk Toilet Soap Frozen Chicken Toothpaste Iron and Steel Bars Iron and Steel FertUlzers Bars Pesticides, Fertilizers Herbicides and Construction Fungkides Aggregates Aerated Beverages Source: Data provided by Mauritian Aulhoriffs. October 1988, when there was a gradual re-introduction of controls on prices and markups. This reversal of liberalization was partly in response to perceived abuses on the part of some manufacturers, importers and distributors, and partly to minimize Inflation as measured by the CPI. By July 1990, price controls, in the form of maximum prices, extended to about 17 classes of products, both imported and locally manufactured. In addition, the list of products subjected to maximum distribution margins was also widened to include motor vehicle tires. 2.14. With the decline in inflation in 1991, the number of commodities subject to price controls has once again been reduced and efforts are underway to limit the number of commodities under such controls to a minimum; i.e., only those commodities which are considered essentials. Wages 2.15. There is an elaborate set of administrative arrangements for wage rate determination and adjustment in Mauritius, with several bodies advising the Government on wage policy matters and mediating in industrial disputes. These bodies include the Pay Research Bureau, the National Remuneration Board, the Permanent Arbitration Tribunal and a Tripartite Committee. While this system, to 2: .,cenUve and Reuatory Regme 13 date, has succeeded fairly weU in terms of maLntaining industrial peace, since 1987 the interplay of these forces has led to sizeable wage increases that considerably exceed the rate of inflation, as documented below. This situation is a cause for some concern, since wages appear to be rising faster than productivity; the rising unit cost of labor could seriously undermine Mauritius' international cor.petitiveness. Studies undertaken by the Central Statistical Office (CSO) in 1989 indicate that there has already been a significant increase in unit labor cost3.2 2.16. The Tripartite Committee has been meeting for the last ten years, and has generally given wage increases that are close to the increase in the consumer price index. This is very clear from Figure 2.5(a). Figure 2.5(b) shows, however, that wages have in fact risen much faster than the consumer price index - as measured by the dotted line which represents the ratio between the wage index and the CPI.3 This development reflects several factors. In the first place, there has clearly been some upward pressure on wages because of the tightness in the labor market. But it is also clear that part of the increase has resulted from National Remuneration Board recommendations, which have been adopted by Government, and part from delayed spiUlover effects from pay increases granted to the civil service and parastatal sectors in 1987. In both cases, it seems that supplemental wage increases have been given over and above the award emanating from the Tripartite Committee. 2.17. For example, the 1987 Remuneration Order awarded Export Enterprises employees increases of 10-15 percent, with effect from July 1, 1987. The Additional Remuneration Act for 1987-1988, which was voted in December and made retroactive to July 1, led to an additional increase of 10 percent for the lowest category of workers and somewhat less for higher grades. This same Remuneration Order also increased fringe benefits. In the same veirn, deliberations of the Permanent Arbitration Tribunal led to an 18 percent exceptional increase in the sugar sector in 1990, over and above the 11 percent across-the-board increase granted as of July 1 by the Additional Remuneration Act. In this case, the problem appears to have been that sugar sector employees felt aggrieved by the massive increase granted in 1987 to agricultural employees in the parastatal sector, which made them about 10 percent better off than private sector agricultural employees. 2.18. Overall, then, it appears that a combination of circumstances has led to increases in wages that exceed the rate of inflation. As already indicated, this is very clear from the dotted line in Figure 2.5(b). This has had repercussions on the evolution of nominal wages in foreign currency terms, for which an index has also been presented in Figure 2.5(b). SpecificaUy, the foreign exchange wage index 2 For further details, see Digest of Industrial Statistics 1990, Central Statistical Office, Mauritius, June 1991. The ware index has been calculated using the average monthly earnings reported to the Central Statistical Office in March and September I;z the Bi-Annual Survey of Employment and Earnings in Large Establishments. 14 Maurfs: Expndirg Holzons Flgure 2.5a: Annual Wage & Price Increases 1975-1990 85. 25 10 1976 190 1965 1990 Souro: Nnal Remuneration Board. Pay Reseach Bureau Flgure 2.5b: Wage Indlces 1980-100 800 250 200 iM 1X75 lo9W NEERCPI Sources: Ulannual Survey of Wage and Enpoymen IMF. deflates the nominal wage index by an index of the trade-weighted nominal exchange rate. The beneficial impact of continual currency depreciation in nomina terms on the foreign exchange 'wage" is immediately apparent but, nevertheless, the foreign exchange wage stiR shows a pronounced upward trend. The iEpact on competitiveness in real terms would require some direct comparison of wages and their evolution in Mauritius and its conpetitors. These are not currently available. However, Figures 2.6(a)-(d) show the evolution of wages in pounds sterling, French 2: Incen*tve and Regulatory RegIm 15 francs, German marks and US dollars. In all cases, it is clear that the depreciation of the exchange rate has resulted in a somewhat lower rate of increase of wages expressed in foreign currency. This has undoubtedly helped maintain competitiveness, even though the wage level in foreign currency has showed an upward trend in all cases. Figure X6: Wage Indlou (sh Pound) Fgn 2Ab: WW Indloe (Froh FImno) 1"0- 100 1"0" IM100 lao ~ ~ ~ ~ ~ ~~n W 4aa/ WIPU30 52 11 Total 475 100 Source: Freight forwarding conpany. 2.97. These data indicate that 475 dossiers were dealt with during the period concerned. In only 77 cases, i.e., just under 16 percent of the time, was the customer in possession of the goods in less than five days. Overall, 56 percent of goods take more than 10 days to clear the port, for a variety of different reasons 2: Incentfv and Reglakory RegIne 41 attributable not ondy to the complexity of procedures per se, but also to the inefficiency of the various parties concerned, Including the Importer himself. The time cost of these delays is considerable, because they involve stoppages in production and so on. The reasons should be researched and remedies found to minimize the delays as much as possible. 2.98. Internal tmr,asport does not appear to be a major problem, while the telephone is getting better by the day, both Internally and internationally. The one area where significant bottlenecks are emerging concerns the transport of personnel (see Chapter 4). This appears quite inefficient, slow and often uncomfortable, and could be a factor which decreases the supply of effort on the part of workers. This problem should be looked at more carefully in the near future. 2.99. This progress notwithstanding, muen remains to be done to improve the situation in all areas. One that is of particular importance concerns electronic processing of trade-related information. A good start has been made with the computerization of customs information using the ASYCUDA (Automated System for Customs Data) package prepared by UNCTAD. This has led to customs docu- ments being aligned with international norms and should be extended to all other international trade and commercial documents (import and export permits, certifi- cates of origin, bank documents, etc.), as is happening across the world. This documentary alignment should also be done in line with UN norms, not only with regard to layout but also data elements. In particular, UN-EDIFACT norms should be adopted in order to facilitate international electronic computer-to-computer transmission of trade-related data using the EDIFACT language, the emerging international norm in this area. By the same token, consideration should be given to allowing shipping companies, customs agents, importers and exporters to make their customs entries into the Customs Department computer from factory or office terminals. This will lead to considerable reduction in information processing times. Examples that Mauritius might follow in this connection include, among others, Singapore and Felixstowe (United Kingdom). Imitating their example would undoubtedly increase Mauritius' competitive edge, both globally and regionally. 2.100. The first key step here will be the reform of all international trade documents and their alignment with international norms (UN layout key). In turn, this will imply normalization of the underlying data elements in line with EDIFACT norms. Secondly, and in parallel with the documentary reform, there should be a thorough review and reform, if necessary, of all international trade information requirements and corresponding procedures. The key idea is to rationalize and simplify procedures in order to facilitate international trade to the maximunL Investment 2.101. The picture with respect to investment logistics is considerably less rosy, despite the efforts being made to improve the situation. Procedures for setting up companies and obtaining EPZ and other certificates remain complicated and time- 42 Maulluts: Expanding Horlzons consuming. Following the recommendation of a recent Government-commissioned study, a One-Stop Shop which would "act as a focal point for receiving and transmitting to the authorities concemed all the applications for the various approvals, clearances and services, and for ensuring that they are obtained expeditiously" has been established in the Ministry of Industry and Industrial Technology in June 1990. This Unit, as it is called, will act as a coordination body and will consist of a Coordinating Committee, chaired by the Minister of Industry and comprising liaison officers who are senior officials designated by the different ministries and organizations which deliver the permits and clearances required by industrialists, and a Secretariat. The Unit is under the overall responsibility of a principal assistant secretary; it has a total professional staff of three, including one typist. 2.102. Investors are not obliged to use the One-Stop Shop. Those who wish to do so receive assistance in filling out and verifying all application forms, and with the supplementary information needed for the various permits. Completed applications are then forwarded to the liaison officers concemed, who are informed, at the same time, of the date at which the Coordinating Committee will examine the relevant applications. Liaison officers must convey the decision of their respective ministries to the Coordinating Committee in a timely manner or report on delays and indicate a date at which the decision will be taken. In turn, the Coordinating Committee meets every fortnight, ensures that rapid decisions are taken asid that bottlenecks are removed expeditiously. If the Coordinating Committee is notified of a particular decision, the Secretariat immediately asks the applicant to request official confirmation directly from the ministry or organization concerned. In addition, the One-Stop Shop will assist firms in the event of grievances relating to public services and other formalities. The One-Stop Shop caters not only to new investors but also existing enterprises in connection with their day-to-day dealings with the different ministries and state organizations. 2.103. The reality is a little different. The One-Stop Shop has no executive power, so neatly avoiding the difficulty of appearing to usurp the powers of any one administration concemed with manufacturing. In a typical case, the Unit will contact the appropriate liaison officer and press for a decision, whether favorable or unfavcrable. The Unit does not seek to impose its decision on other ministries. However, in the event that a given approval is not forthcoming, the Unit can request a meeting of the One-Stop Committee, where all relevant ministries a.- represented, in order to seek a definitive and binding solution to the problem at hand. The essence of the problem is that, as long as statutory powers to grant certain clearances (e.g., land use, work permits, utilities, etc.) continue to be vested in various ministries and agencies, the One-Stop Shop can at best only act as a coordinating body. The complexity arises from the fact that, unlike other export processing zones, the Mauritius EPZ covers the entire island and is not limited to a mere geographical area. 2.104. To date, this low-key and pragmatic approach appears to have worked well, at least in the eyes of the Ministry of Industry. But ministry officials have been 2: Incentie and Regutory Regimu 43 rather surprised by the infrequency of requests for assistance - perhaps reflecting the fact that the Unit was only created in June 1990. 2.105. One problem, however, is that the present approach facilitates the existing set of procedures, without examining whether or not these are well or badly executed, or more importantly, justified. Here, as in the case of trade facilitation, a thorough examination is needed. This will be a major piece of work because it must call into question fundamental options concerning the kind and extent of investment and production regulation that are appropriate to the next stage of Mauritius' development. 2.106. In the same vein, it must be remembered that a myriad of decisions are required during the life of a company. Not all of this can or should be addressed by a One-Stop Shop located in the Ministry of Industry. This is particularly true of financial regulation which is the domain of the Ministry of Finance and the Bank of Mauritius. Consequently, one should not expect the One-Stop Shop to be the answer to every problem. H. Main Findings and Action Plan 2.107. This chapter has examined the regulatory and incentive framework. Its intent has been to identify the constraints to increasing the global competitiveness of the Mauritian economy, both inside and outside the EPZ sectors. A second concem has been to identify whether there are substantially different regulatory and incentive frameworks in these two sectors. The third focus has been on wheher the present regimes facilitate backward and forward linkages between the EPZ and non-EPZ sectors. In other words, what can be done to increase, in an economicaly efficient manner, the domestic content of exports both within and between the EPZ and non-EPZ sectors. Main Findins 2.108. On the macroeconomic front, there have been rapid increases in wages and prices over the last few years. Inflation, as measured by the CPI, reached 14 percent in 1990, during which time the real interest rate was negative even on deposits. This was also the case for working capital loans to EPZ companies and to some other borrowers as well. Bank operating margins for this category of loans may well have been negative. During 1991, owing to a decline in the level of inflation, real interest rates turned positive. Efforts must continue to contain inflation to ensure future positive real interest rates in the future. 2.109. At the firm level, the increases in wages have been accompanied by a rise in absenteeism, increasing turnover rate, and a decline in productivity. The result has been a significant increase in unit labor costs which, if it continues unabated, could seriously undermine the country's competitiveness. The Government's focus on increasing productivity is therefore entirely appropriate. One may, however, 44 Mawuits: Expandng Hortzons wonder whether there is too much focus on training to the relative exclusion of productivity improvements in the work place. 2.110. The regulation of employment outside the EPZ sector is considerably more restrictive than within the sector. In certain cases, this is preventing firms from shedding labor as quickly as they would like. Apart from adversely influencing their competitiveness, this may also be exacerbating labor shortages. 2.111. The present structure of tariffs, indirect taxes and direct taxes clearly provides different operating regimes for the EPZ and non-EPZ sectors. It will prove difficult to integrate the two sectors under the present circumstances. 2.112. The same comment applies to the customs regimes. The EPZ scheme is fairly simple and works well. However, the customs regimes for non-EPZ firms will need substantial improvement to foster both direct exports and deliveries to EPZ firms. 2.113. First-rate logistics are an essential component of global competitiveness. Merchandise and information logistics for production appear broadly satisfactory, though perhaps more so for EPZ than non-EPZ companies. However, there is room for substantial improvement in both cases. The situation is less satisfactory regarding investment logistics, though it is to be hoped that the recently created Coordinating Committee within the Ministry of Industry (One-Stop Shop) may help in this regard. However, it should not be expected that the One-Stop Shop should be able, or even try, to solve all the problems faced by new investors and existing firms. Its view of itself as a facilitator is broadly correct. At present it is, however, facilitating excessively complicated procedures. The next step should be to simplify the procedures themselves. Action Plan for the Future 2.114. In the first place, it is essential to ensure stability in the overall macroeconomic framework. In particular, there is a need for greater wage and price stability, in real terms, compared to Mauritius' competitors. Interest rate policy must be reviewed to continue to ensure a return to positive real interest rates. 2.115. The second issue concerns factor productivity. Govermnent's present emphasis on increasing the productivity of labor through industrial and vocational training is entirely appropriate. It is also important that this concem be broadened to include employment regulation and issues relating to working conditions. A review of these, both in the EPZ and non-EPZ sectors, should be undertaken to ensure that labor laws enhance productivity and do not exacerbate labor shortages. 2.116. Third, improving factor productivity implies improved management at the firm level, especially concerning finance, production and marketing. 2: Incentiv and Regulktonj Regime 45 2.117. Fourth, for Mauritius to attain its objective of internationally competitive industrial diversification and enhanced backward linkages between the EPZ and non-EPZ sectors, it will be necessary to continue gradually to reduce and rationalize the structure of tariffs. Budgetary stability will require compensatory fiscal measures, all the more so if the objective of turning Mauritius into a Free Port is to be attained. This will almost certainly involve a simultaneous reform of the internal indirect taxes and, in particular, the sales tax. 2.118. It may not be appropriate to limit the scope of the tax reform to indirect taxes; direct taxes should be included as well. The issue is that there appears to be a severe imbalance in the structure of direct tax receipts with the EPZ sector making only a marginal contribution to corporate income tax receipts. This would reflect the fact that their tax rate is 15 percent, as against a standard rate of 35 percent for non-certificate companies. In addition, non-certificate companies pay significant duties and taxes on their capital equipment, etc. The consequences of this state of affairs should be examined in a thorough review of the structure of enterprise taxation using the marginal effective tax rate methodology. This study should examine the structure of effective taxation in both the EPZ and non-EPZ sectors, and make proposals to redress any excessive differentials without compromising the economy's competitiveness. This will also be necessary to promote integration between the EPZ and non-EPZ sectors. 2.119. The next issue concerns customs regimes, both within and outside the EPZ. A detailed study is needed to identify how these regimes may be reformed in order to maximize export growth from both zones, and the linkages between them. 2.120. Last but not least, efforts must continue to improve infrastructure and logistics relating to production and investment. While a good start has been made in this area, much remains to be done to close the gap with East Asian countries such as Singapore and Taiwan. The first step should be a set of studies on trade and transport facilitation, covering all aspects of international trade. This will identify the priority issues to be addressed; on the basis ot this study, an action program would be formulated for implementation. 2: Annex 47 ANNEX A.1. The Government has identified the lack of a well-trained labor force as a major constraint to further sustained growth and has developed a broad strategy towards industrial and vocational training, both within the context of the existing educational system and through the creation of the Industrial and Vocational Training Board (IVTB). A.2. The IVTB is conceived as a joint venture between the private and public sectors with three roles: first, to support, encourage and finance training in the private sector in major established existing industries, namely textiles; second, to provide a locus for training for the smaller sub-sectors of the industria! and services sectors; and third, to provide the drive and impetus to training for new and emerging industries. The IVTB is currently funded through a training levy, a government grant for recurrent expenditures and capital investments, and through government funding for all the costs of pre-vocational training. The training levy is currently set at 1 percent of basic payroll (i.e., excluding overtime) on all establishments. Collection is automatic at source through the National Pension Fund. A.3. As a first step, the IVTB held a national seminar in April 1989, which brou .ht together representatives of Government, the private sector, academia, the labor 'mions, the Mauritius Chamber of Commerce and Industry, and the Mauritius Chamber of Agriculture to discuss and review the industrial training strategy. Priority areas for training program development were identified for both existing and emerging industries. The development of an industrial training strategy led to the preparation of a number of training projects which were presented to the Donors' Meeting in Geneva in March 1990. A.4. Since then, the Industrial and Vocational Training Board has made progress in many areas. It has begun, for example, tc, assume additional responsibilities for pre-vocational training, an activity which was not envisioned in its original mandate. Twelve pre-vocational training centers have been, or are being, planned and two are currently in operation. Training in jewellery has started and the initial courses have been expanded in response to industry demand. Technical assistance is being sought for training in printing, precision engineering and information technology. Training in electronics has already started, while plans are well advanced for the construction of a Hotels and Catering School at Ebene. A course has been held in fashion and design for the textile industry and consultants have reviewed the training needs of the sector. In footwear and leather craft, a new proposal has been submitted and consultants have reviewed both the needs of the sector and the training required. In addition, some 29 private training institutions have been registered by the IVTB and a system of trade testing has been established for some skills and about 100 tradesmen were tested last year. The pass rate (around 45 percent) indicates that the system was being introduced on a 46 Mawws: Expandrg Horizons serious basis. The IVTB is also in the process of taking over responsibility for the Industrial Trade Training Centres at Piton and Beau Bassin, as well as other vocational training centers. A.5. The private sector is benefitting from the grants paid for approved in-house training (up to 75 percent of costs), but the grant system currently in place is not yet transparent. For the IVTB training activities, the overall response from industry has been mixed. Where companies have taken advantage of the services of IVTB, the reaction and feedback are positive. Other companies manifest little interest in the training services offered by the Board and continue to rely on in-house training. Finally, several companies criticize the IVTB training strategy as being too generic and often more geared to small-scale, artisanal activities. This indicates the need to tailor IVTB training activities more to the needs of the more sophisticated and up-market manufacturers and to focus on quality assurance and specific trade skills improvement rather than on basic training. In addition, differential tax treatment for deductions of labor training expenditures tends to penalize non-certificate companies, thus distorting the incentives offered for training across sectors (see paragraph 2.74). A.6. The Government's emphasis on increasing the productivity of labor through industrial and vocational training is entirely appropriate and it is strongly recommended that it be continued. However, it appears that, given the rapid and unforeseen growth in its mandate, the IVTB could risk becoming a major provider of training programs which are supply-driven, whereas they should be demand- driven. Thus, the IVTB's overall mandate needs to be more properly monitored and its responsibilities and activities prioritized. The identification of priority areas for training programs must be based on the fundamental concept that all training is initiated as a result of demand from the private sector, either in support of existing industries or new and emerging industries. 3 Agricultural Diversification A. Introduction 3.1. The agricultural sector in Mauritius is currently undergoing fundamental changes. Domestically, the rapid pace of industrialization has resulted in increasing labor shortages, necessitating rapid movements towards agricultural mechanization. Internationally, the external pressures on EEC countries to liberalize, i.e., to reduce the levels of subsidies granted to EEC farmers, will eventually affect the trade regime of ACP countries, including Mauritius. Moreover, the growth of incomes in industrialized countries implies changing patterns of food consumption over time, with likely shifts to commodities with high income elasticities of demand such as fresh fruits and vegetables. The growth of the tourism and EPZ sectors also opens up many opportunities for agriculture. These developments will have far-reaching implications both for existing crops, such as sugar and tea, and new and emerging ventures, such as fruits, vegetables, aquaculture and horticulture. 3.2. These developments highlight the necessity and desirability of broadening the base of Mauritian agriculture by diversifying and moving into higher value- added, more profitable areas. Government will have a role in designing and implementing policies to make this transition as smooth and painless as possible. This chapter presents a selective menu of options and recommendations for consideration by Govemment. That being the case, it is not an attempt to present a comprehensive strategic framework for agricultural diversification, since the articulation of such a framework will necessarily require much more detailed analysis. 3.3. Until the last few years, agricultural diversification was mostly confined to the use of the interlines of sugarcane for growing food crops such as potatoes, onions, etc.' The objective was not so much to reduce the country's reliance on sugar for foreign exchange and income, but rather to encourage import substitution and increase the total returns to sugar land. This initiative has been very successful for a number of crops, the most notable being potatoes, while for others it has helped to reduce the dependence on imports to varying degrees. On the whole though, agricultural diversification was not regarded as a means of broadening the 36 See World Bank, Mauritius: Managing Success, A World Bank Country Study, November 1989. S0 Maurttus: Expandrn HorHzons country's export base, the one notable exception being anthurium (see paragraph 3.20). Prior to 1984, the Government was reluctant to allow exports of fruits and vegetables on the ground that this would reduce the supply to the domestic market. There is a greater appreciation now that, on the contrary, the stimulation of production for exports increases the domestic supply; this has already been observed with anthurium and fresh fruits. 3.4. Anticipating some of the changes outlined above, the Government has already embarked upon a program, through the Sugar Industry Efficiency Act of 1988, aimed at promoting agricultural diversification. The Act grants incentives to nonsugar agriculture similar to those given to EPZ industries, provides incentives for the use of sugar by-products, such as molasses and bagasse, and offers export duty rebates to sugar producers based on the extent to which they diversify out of sugar. As a result, within the sugar sector, increasing diversification is already taking place through crop rotation, interline cultivation, and more effective utilization of by-products. Moreover, sugar companies have set up several important agricultural diversification projects, including anthurium and deer ranching. Sugar funds have also provided the start-up capital for numerous industrial and tourism enterprises, and the technical and managerial expertise within the sugar sector has also facilitated the expansion of manufacturing. Outside sugar, export opportunities for fruits, vegetables, and flowers have been identified and exploited in Europe; these developments complement those within the sugar industry. At the same time, the rapid growth of the tourism and EPZ sectors has created a whole range of new opportunities which directly affect the allocation of land, labor, and capital in agriculture. These sectors are providing new opportunities for investment, diversifying the economy and making it more robust. In this changing environment, an additional role for agriculture could be that of an employment buffer for the extremely dynamic, and sometimes volatile, manufacturing sector. 3.5. One fundamental issue that the agricultural sector faces now is whether the traditional practice of promoting small holdings is in keeping with these changed circumstances; increasing farm size and the introduction of more capital-intensive techniques may be more appropriate at this stage. The Prime Minister's National Derocking Scheme and the Small Farmer Efficiency Scheme address the derocking and mechanization issues, respectively. While the Government is keenly aware of the vital role that smallholder agriculture will continue to play in the economy, efforts are already underway to consolidate the cultivated areas of smallholder farmers into Land Area Management Units (LAMU) in order to reap the benefits of economies of scale. In this connection, the Solitude LAMU-Drip Irrigation Pilot Project covering some 100 hectares is of particular interest. A Small Planters Efficiency Study is currently underway with the objectives of: examining the technical, economic, social and institutional constraints on small planter productivity; reviewing present government policies in relation to such constraints; and recommending an agenda for policy and institutional reform. 3: Agiloultur DIversykicaon 51 B. Existing Crops Sugar 3.6. The importance of sugar and its numerous contributions to the Mauritian economy has been well documented in a number of reports.3 Sugar, for a very long time, has been the backbone of the Mauritian economy, providing it with a vital source of income, employment, and foreign exchange. It is widely looked upon as the mainstay of the country, to be counted on as a secure source of foreign exchange earnings. 3.7. For several very good reasons sugar continues to be the principal crop of choice. First, Mauritius has some clear natural advantages for growing sugar. The climatic and soil conditions on the island are exceptionally well-suited to the cultivation of sugarcane, as evidenced by the fact that as much as 90 percent of the cultivable land is devoted to sugar. The sugarcane plant needs relatively little care and maintenance; for example, replanting is only required every eight years or so. Thus, it is favored by smallholders who grow sugar on a small-scale basis and use it to augment their incomes from full-time employment elsewhere. Sugarcane is also tolerant to cyclones; this greatly enhances its attractiveness to farmers, since Mauritius is periodically subjected to cyclonic activity. Second, the special prices for sugar negotiated periodically with the EEC in the context of the Sugar Protocol under the Lome Convention have insulated the sugar industry from the effects of the levels and fluctuations of the world market prices. Third, the profitability of sugar has been further enhanced through the use of land between crop rotations and in the interline for the production of crops like potatoes and onions which are supplied to the local market. Fourth, over the years the Governmnent has reinforced the natural advantages of Mauritius in sugar production through a number of supporting institutions. Sugar farmers are now offered a high degree of stability and security in terms of their incomes. For example, the Mauritius Sugar Industry Research Institute (MSIRI) is widely reputed to be among the best in the world; the Mauritius Sugar Syndicate is extremely efficient in marketing Mauritian sugar abroad; and the Sugar Insurance Fund Board insulates the farmers from adverse weather conditions, e.g., drought and cyclone. With most elements of risk eliminated, the industry has become remarkably stable in terms of production and income generation, making sugar an ideal crop for most farmers. 3.8. In the medium term, however, three factors will have a major impact on the sugar industry: limited potential for increasing efficiency and growth in sugar production; rising labor costs and the relatively low profitability of sugar compared The World Bank, Mauritius: Managing Success, A World Bank Country Study, November 1989; FAO/World Bank, Mauritius: Agricultural Dversificaiton Project Reconnaissance Mission, Report No 75/86 CP-MR15, 1986; KR. Chapman and D. Schoorl, Tropical Fruits Study of Mauritius, Australian Development Assistance Bureau, Febmary 1986. 52 Mawltts: Expanding Hoflions with the potential return from alternative uses of sugar land; and the future of the preferential price arrangement with the EEC under the Lome Convention. 3.9. Increasing Efficiency. The sugar industry in Mauritius is a mature industry, with limited prospects for future growth and increased efficiency. Sugar production is already highly efficient by world standards, both in terms of cane production and mnlling, although there is still scope for improving the recovery at the mill level. Sugarcane yields, presently around 71 tors per hectare, are comparable to those in Australia, South Africa and the United States (see Figures 3.1 and 3.2). Simnilarly, the milling of cane is very well organized and efficient. While small planters' yields are approximately 15 percent below those of miller- planters in good years and about 25 percent below them in drought years, these figures can be almost entirely attributed to differences in land quality, the presence of rocks, and the effects of drought and limited irrigation. Stepping up extension efforts for better crop production methods is, therefore, unlikely to lead to substantial improvements and the prospects for major yield increases are by now limited. As mentioned above, the Small Planters Efficiency Study is expected to examine these issues in greater detail. Nonetheless, the retums from expenditures on improving efficiency in sugar production are likely to be very limited. Further improvements, for example through derocking and irrigation, are uneconomic at prevailing sugar prices on the world market. Although they should be seen as part of a long-term strategy to release land and generate water for the production of crops which have higher economic returns than sugar, in the short-to-medium term, they do allow increased sales of special and white sugars, reduce the burden on the Sugar Insurance Fund, ensure a steady supply of bagasse to electrical power stations, Lnd enhance food crop production. 3.10. One positive way in which the sugar industry is increasing its efficiency and diversifying its revenue base is by enhancing the utilization of sugar by-products, as was stressed by the Sugar Action Plan adopted by the Government and the sugar industry in 1985. Bagasse, the fibrous material contained in sugarcane, has traditionally been used by sugar factories to generate steam for crushing cane and manufacturing sugar. It is a domestic renewable source of fuel, with few, if any, alternative uses, which currently supplies about 15 percent of the national electricity supply. There is considerable potential that this contribution could be raised significantly. 3.11. I.e main constraint to the development of energy from bagasse has been an inadequate regulatory framework governing the purchase of electricity by the Central Electricity Board (CEB) from co-generators of power in the sugar sector. Efficient energy pricing, the establishment of appropriate contractual arrangements between the public power utility (CEB) and private sector industrial co-generators, and the establishment of a Bagasse Energy Fund for investment support and technology development are key elements of the Bagasse-Energy Development Program now being implemented. The optimization of the use of bagasse will also allow the sugar factories to be modernized. 3: AgMlcutur DLversklcaUon 58 3.12. Labor Costs. Rising labor costs reflect new employment opportunities in the EPZ and tourism sectors, away from the hard manual work in the sugar sector. Seasonal labor is becoming increasingly hard to find and is generally considered Figure 3.1: Comparison of Sugar Cane Yields Average of 1987-1989 Yield Data 100 '20 0W Cuba Ouyana MaurWus Barbado AusUal USA Sourca Food and AgIua OrganiaIon databas. Figure 3.2: Comparison of Sugar Production Costs Wolghtd World 100 140. 1201 40 20. 0 AustalI Mawus Babado Cub USA GUuya Souw own, Mm InW snal Sugar Induary. 54 MaurUlus: Expanding Hortzons to be unreliable. The situation mirrors that in Australia during the 19509 when European immigrant labor was used to cut cane. As the Australian economy developed, there was no option but for the cane industry to adopt mechanization in order to remain competitive; a prerequisite for mechanization is a properly derocked field. Following derocking, land preparation can be undertaken by wheU tractors instead of crawler tractors, which results in cost savings. Mechanization is increasingly being adopted in Mauritius, with approximately 50 percent of loading already being done mechanically, although most of the cane is still cut manually. About 50 percent of the sugar land currently in use is considered suitable for mechanical harvesting and loading when derocked. There are several disadvantages of increased mechanical harvesting, however, including some reduction in yield (by up to as much as 10 percent in some regions of the super- humid zone), largely as a result of the compaction of the ground, and the increased cost of land preparation and planting. Sugar profitability is presently estimated to be in the range of Mau Rs 10,000 per hectare, down from about Mau Rs 12,000 in 1985,3 owing to the higher labor costs in the face of stable prices. The use of land between crop rotation and in the sugar interline for the production of potatoes, onions and other crops can improve the profitability of sugarcane production to about Mau Rs 17,000 per hectare. The decline in the profitability of sugar production, coupled with an increase in mechanization, should result in a gradual release of sugar land for alternative uses with prospects for higher returns; this applies especially to land that is slop'ng or rocky, that is, land that is unsuitable for mechanization. 3.13. Preferential Prices. Most of the output of the sugar sector is exported and herce earnings depend crucially on conditions in the export markets, by far the most important of which is the EEC where over 80 percent of Mauritian sugar exports go. Mauritius has a large quota (507,000 metric tons) with the EEC through the Sugar Protocol, which is annexed to the Lom6 Convention but can outlive it, and has benefitted from an EEC price which is related to the price guaranteed to EEC beet producers. The EEC price for Mauritian sugar has in fact been about three times the free world market price during the past few years.39 3.14. Given the close economic, political and social ties between the EEC and the ACP, there appears to be a consensus among the parties to the Sugar Protocol that it is here to stay. This notwithstanding, Mauritius' continued dependence on sugar leaves it vulnerable to adverse changes In the terms of the Sugar Protocol. With pressures within the Community to contain its budget, and strong extemal opposition to EEC agricultural subsidies, questions could arise with respect to its internal pricing policies for sugar and hence the price paid to ACP sugar exporters. 38 See Chapman and Schoorl (1986). 39 The World Bank, Managing Success, November 1989. It is important to note, however, that the world market in sugar is a residual one, accounting for only about 15 percent of world production, thus making the world market price an imperfect yardstick for measuring production efficiency. 3: Agricutural Dlversykat(on 55 Thus, while continuing to take full advantage of the Protocol, it would nevertheless be prudent for Mauritius to be prepared for a much less favorable enviromnent for its sugar exports. As sugar resources are graduaUy redeployed in nonsugar agriculture or outside the agricultural sector altogether, efforts should simultaneously be put into finding ways to maintain its earnings from sugar by taking maximum advantage of the Sugar Protocol, improving efficiency in sugar production to the extent possible, and taking advantage of opportunities for sales in special sugars especially in non-EEC markets.40 Tea 3.15. Tea is the second most important cash crop in Mauritius after sugar. In 1989, tea value added amounted to approximately Mau Rs 84 million, or about 2.5 percent of the value added of the agricultural sector and about 4 percent of the value added of sugar.41 Tea is grown in the super-humid to humid zone (3,000- 5,000 mm of rain per annum) on humic acid soils, which are very prone to erosion. Since very few alternative crops can be grown in such an environment, tea represents the best use of land under these conditions. It is also not affected by cyclones and is a good soil stabilizer. Potential alternative crops, such as timber, do not give returns which are as high as tea, are more vulnerable to cyclones, and do not protect the soil as well. 3.16. The tea industry has been under intense pressure to restructure because of its low profitability. Mauritius produces a low-to-medium quality of tea which is not competitive given existing world market prices. The plantations are very capital-intensive to set up, owing to the cost of preparing the ground and planting, the investment in building drains, roads and other equipment, and the waiting period before the crop starts producing. The profitability of a tea planter's plot is about Mau Rs 10,000 per hectare (see Table 3.1) compared to average earnings of about Mau Rs 12,500 in other sectors of the economy. As a consequence, there has been a gradual reduction in the area under tea production. 3.17. Other crops which could be grown on the soil presently used for tea include citrus fruits, bananas, passionfruit and guava. Of these, citrus (in particular, mandarins) shows the most promise. Citrus is well adapted, so long as sound, clean planting materials (rootstock, scions and virus-free planting trees) are used. The biggest advantage of citrus is that it can be interplanted with tea without sacrificing tea yields. It can also be planted where tea has died out or where boulders are too numerous. The economics of citrus production is shown in Table 3.1. The returns per hectare of citrus on tea land are estimated to be about Mau 40 Ibid, pp. 29-32. 41 The tea industry has been descriLd in some detail in the following documents: FAO/World Bank, Mauritius: Agrkulture Diversifiation Project Reconnaissance Mission, Report No 75/86 CP-MRI5, 1986; Mauritius: Tea Board Annual Report, 1987; Mauritius: Chamber of Agriculture, Annual Report, 1988-89. 56 Mautus: ExpanpLu Horizons Rs 16,000 which, together with Mau Rs 10,000 from tea, can provide the tea planter with a viable income. Citrus interlining with tea is, therefore, quite profitable and can help to make the whole tea industry more viable. In this connection, it should be mentioned that about 90 arpents of unutilized land in tea areas at Plaine Sophie and Chartreuze have been granted to small tea planters for foodcrop and citrus production. Table 3.1 MAURlTIUS: Tea Statistics 1989 Criteria Unibt Value Tea Production Tea land Hectare 3,070 Production Black Tea, Million Kg 5.5 Local Consumption Black Tea, Million Kg 1.1 Local Value Million Mau Rs 45.0 Price Mau Rs/Kg FOB 19.4 Export Earnings Million Mau Rs 89.8 Tea Industry Value, Domestic + Export Million Mau Rs 134.8 Citrus within Tea Plantation Domestic Citrus Consumption' tons 1,250 Production per Hectare tons 10 Hectares for Domestic Consumption Hectare 125 Hectars Tea Land (capacity - 1/3 average Hectare 375 poduction) Mau Rs/Kg 30 Prices Mau Rs/Hectare 300,=00 Returns (if in citrus alone) Mau Rs/Hectare 100,000 Returns to Tea Plantation (1/3 average production) Total Returns for Tea Industry Million Mau Rs 375 (Hectare x returns/Hectare) Profitability (rea Planter/Hectare) 20,000 Gross Retuns from Tea Kg/year/Hectare 8,000 Leaf Production Mau Rs/Kg 2.5 Price Mau Rs 10,000 Costs - Rent, Fertlizer, Labor, Transport, etc. Mau Rs 10,000 Profit iea Mau Rs 16,000 Profit Citrus Mau Rs 26,000 Profit Tea and Citrus Combined _^ Based on a per capita consumption of 0.25 kg per week. Source: Minfstry of Agrkulture, Fisheries and Natural Resources 3.18. The major limitation to realizing the profits from citrus interlining is the shortage of clean citrus trees for planting since the Ministry of Agriculture, 3: AgMictura! Diersytlcatn 57 Fisheries and Natural Resources (MAFNR) has insufficient funds to produce the number of trees required. In order to get this industry started, consideration should be given to privatizing nurseries operating under government supervision. Trees currently cost about Mau Rs 10 each and the retums would justify even higher costs of planting. 3.19. A strategy of improving tea quality, reducing the costs of harvesting through increased use of mechanization, and interline production of citrus will boost profitability to the tea farmer considerably. A pilot project on mechanization has already been started on some 60 arpents of land at Petit Merlo. With the introduction of proper management, tea quality can be upgraded to medium-to- high quality, which could result in a price increase of about 40 percent. Proper management would involve correct leaf plucking, prevention of leaf damage during harvest handling and transport, and ensuring that various steps, such as withering, processing, fermentation, drying and grading are correctly performed. This is an area where government intervention, aimed at educating tea planters in production techniques, interline citrus cropping and post-harvest technology, can yield considerable dividends. If world prices continue to improve, the prcspects for the tea industry will become even better. Another fundamental problem that will need to be addressed is that of re-organizing the parastatal tea company and redefining its relationship with smallholders. One advantage of the tea plantation is that it man be neglected for several years and subsequently rehabilitated when prices are high or labor costs are low because of hi;gh unemployment. Careful consideration should therefore be given before tea plantations are eradicated because such resilient industries are few in number and tea land should be considered a long- term asset. The tea sector rehabilitation plan was launched in July 1991 with the help of a team of consultants from India. C. New Directions Fruits, Vegetables, and Cut Flowers 3.20. The topography of Mauritius is such that rainfall, humidity, temperature and wind are widely variable, thus providing a range of microclimates and general climatic zones conducive to the production of a large variety of tropical fruits and vegetables. A number of studies and reports have documented Mauritius' export potential for horticultural products.O These provide an excellent overview of the potential for cut flowers, such as anthurium, as well as fruit and vegetable exports. That such potential exists is evident from the fact .iat fruits and vegetables almost u2 I.KR. Chapman and D. Schoorl, 7ropical Pruits Study of Mauritius, Australian Development Assistance Bureau, February 1986; Food and Agricultural Research Council, Mauritius: Seventeen Ad Hoc Committee Reports on Agricultural Research and Experlmental Worh. 1987; J. Monty, Fruit Production Committee First Report, Ministry of Agriculture, 1989; Chambre d'Agrlculture de l'lle Maurice, Sdminaire sur l'Exportation et la 7Transformation des Products Agricoles Frais, 1988; Institut de Recherches sur lee Fruits et Agrumes, Mauritius: OnziWme Commission Mixte Franco-Mauricfenne Projet de Dveloppement Fruitier, Reunion, May 1989. 58 Maulus: Expandtng Horizons doubled in prodiuction and value between 1985 and 1989 and anthurium production increased by about 60 percent, with a three-fold increase in returns, over the same period. Between 1986 and 1989, the volume of fruits arnd vegetables airlifted by Air Mauritius increased by more than four-fold, while that of cut flowers nearly tripled. The share of flowers, fruits and vegetables in agricultural value added is already in excess of 10 percent. By far the largest destination for the export of these products is Europe, which accounts for about 70 percent of the total value of exports, with smal quantities of vegetables going to Reuion and a few other recently discovered markets. 3.21. Given the prominence of the sugar industry in Mauritius, there is someti!mes a tendency to consider the objectives of agricultural diversification to be at odds with the continued well-being of the sugar industry. In fact, sugar, fruits, vegetables and flowers when combined effectively can form an industry grouping with mutually reinforcing elements. This synergism comes from making better use of land, increasing overal economic stability (as when one crop fails and another takes its place), better labor utilization and a broadening of the technical skiUs base. Fruit tree orchards can co-exist with sugarcane, thereby enhancing economic rates of return, particularly when marginal lands (steep slopes and rocky land) are used for orchards. A similar situation already exists for vegetable crops which are grown on rotational land between cane crops and in the sugarcane interlines. The practice of rotating sugar and vegetables improves yields through better fertilizer use, as well as improved pest and disease control. Irrigation and derocking also become profitable when both sugar and vegetables are grown, whereas this may not be the case when sugar is cultivated on its own. Sirnilarly, there is also no conflict between sugar and flower crops like anthurium, as developments over the past few years have shown. The marketing of anthurium is now weU established and this industry provides a model for developing other horticultural industries. Other flowers, such as orchids and heliconia, can also be grown which will help give the flower industry a broader base. The financial and technical support provided by the Government to small planters in this sector has been remarkable and should be emulated. 3.22. At this stage, it is not yet clear which particular fruits and vegetables might be the most suitable ones for Mauritius to develop. Table 3.2 compares the potential profitability of pineapple, papaya, litchi, mango;~ nd anthurium with that of sugar. These are crops that already thrive in Mauritius and have been successfully supplied to the tourist market; they are used here merely as examples of what may be possible. The figures on profitability per hectare have been calculated on the basis of yield and cost of production data collected by the Ministry of Agriculture, Fisheries and Natural Resources (MAFNR) and by the institut de Recherches sur les Fruits et Agrumes (IRFA), Reunion, as part of a 1989 study on the prospects for Mauritian horticultural exports. Information on export prices has been taken directly from the weekly price information bulletin of the Europe-Africa-Caribbean-Pacific Liaison Committee (COLEACP). Anthurium profitability has been estimated on the basis of a Food and Agricultural Research Council (FARC) report issued in 1987; it is likely to be underestimated for 1990. 3: AgrIcultural DtversykaUon 59 Sugar profitability has been calculated from estimates of costs of production and sugar prices provided by the Mauritius Chamber of Agriculture. The comparison suggests that the altemative crops have potential profitability levels which are many times that of sugar. Given the poor database, however, these numbers need to be treated with caution. In effect, they indicate what might be possible under certain ideal circumstances, which do not as yet exist. La particular, the cost estimates are likely to underestimate the costs of collecting, preserving, transporting and marketing the fresh produce. Moreover, export prices might be overstated by not adequately taking into account product quality, the reputation of the supplier in the market place, and quantity supplied. Despite these data limitations the numbers suggest that the potential exists for the export of fruits and flowers; this potential should be explored in greater detail. Table 3.2 MAURnTIUS: Approximate Crop Retums (Per hectar) Pinappe Papya Utci Mano Anthurum Sugar Yield,Metric Ton 40 30 15 15 Co4sts8 Production 2.56 3.08 2.22 3.17 Freight/Packaging, etc. 18.00 18.00 18.00 18.00 Total Cost 20.56 21.08 20.22 21.17 Export Market Price 45 44 68 47 Profita 24 23 47 26 Profit per Hectare, Mau Re 960,000 690,000 705,000 390,000 318,000b 10,000 Profit-Ratio, Crop to Sugar 96 69 70 39 31 1 Notc. Prices are fion. .EACP Nopember, 1989; Litchi - Averagefor Mauritius; Pineapple - Riunion (Victoria variey) Papaya - C0li d' Ivoire; Mango - Kenya. Mau Rs per Kg. Thesefgures should be treated with caution, given the poor database and the undaerng assumptions. b Anthurium profitability - Food and Agriculture Research Council (1987). ' Sugar psi ltaility - Estmate, Mauriulus Oaumber ofAgricuture. Sourse: MAFNR, COLEACP, IRFA, etc. 3.23. For this significant potential to be realized, there are several constraints, real and perceived, which could usefully be addressed jointly by the Government and the private sector. These relate to the successful production and marketing of fresh fruits and vegetables and include the availability of land, research and development, periodic occurrences of cyclones, the presence of fruit flies, and transportation. 60 Mawuus: Expandlng Horwonsr 3.24. Avallability of Land. Land is generally regarded as a major constraint to the expansion of fresh fruits and vegetable production. While there is recognition of the fact that orchard-scale development is necessary if the horticultural or fruit and vegetable export industry is to take off, it is widely believed that there is little agricultural land left for developing such large-scale orchards. Moreover, there is evidence that existing agricultural land is already being lost to other uses fuch as tourism, EPZ companies, urban development and speculation at an annual rate of about 500 hectares, or 0.6 percent of the total land area. 3.25. While it is true that Mauritius does not possess vast quantities of land like some of its potential competitors, land is far from being a binding constraint for Mauritius at this stage. As mentioned above, the labor shortages, which have emerged during the last few years, will necessitate an increase in mechanization which wiU gradually release sugar land for other purposes, including orchard development. This will be specially true of sugar land which cannot be mechanically harvested, in particular steep slopes and rocky soil. To deal with the land constraint, Mauritius can also turn towards some of its neighbors within the Preferential Trade Area (PTA). Just as the labor constraint has prompted Mauritian entrepreneurs to set up industries in neighboring Madagascar, Mauritian agriculture might usefully explore the agricultural potential of some neighboring countries, for example Madagascar and Uganda, which can provide exceptionally fertile land. Mauritian entrepreneurs in turn can offer their marketing know-how and reputation for which they have come to be known over the years. The macroeconomic environment and investnient climate in several neighboring countries are steadily improving, which should make such collaborations increasingly feasible. 3.26. Research and Development. Research and development (R&D) efforts in Mauritius have traditionally been narrowly focussed, with little or no integration of research findings. There is a widespread feeling among staff of research organizations that the research conducted is not directly relevant to the present development needs of Mauritius and that the focus of much research is on isolated issues, problems and experiments. Consequently, there is a need for shifting emphasis to areas such as increasing productivity, marketing, and environmental issues. This implies that a new approach towards conceiving and conducting agricultural research is warranted. Efforts are already underway to reorganize nonsugar-related research under an Agricultural Services and Management Project financed by the World Bank. 3.27. Research organizations need to take into account the structural changes taking place in the economy and be receptive to new ideas in order to be effective. The industrialization of Mauritius is forcing agriculture to adapt. In addition to providing the traditional support to small planterc, this means that R&D will need to devote increasing attention to some of the new crops which show promise and assist in the development of systems and management packages for the newly emerging agricultural businesses. Accordingly, funding sources for agricultural research, which are fairly limited at present, will need to be augmented. Funding 3: AgrIultural Dtversycatton 61 sources could include governmerP grants, special allocations by statutory authorities, industry levies, donations and foreign aid. Additionally, services of research organizations could also be marketed more effectively, for example, by the sale of books, seminars, courses and consultancy. Funding should encourage research officers to document research proposals, be responsible for the research, provide adequate funding to carry out the work, and encourage greater independence. Government funds should be used to fund basic infrastructure, such as computing, office equipment, library books, journals and electronic media aids. At present, 96 percent of funds go to staff salaries, leaving little for the support of research activities. Research managers should also focus attention on more long-term issues where the pay-off may take longer to realize. 3.28. Research can be usefully carried out in a number of areas: production of seeds, the optimal plant varieties and breeding techniques; orchard management, including grafting and pruning techniques to reduce the vulnerability of the trees to cyclones; the proper post-harvest handling and packaging for the various fruits and vegetables; and pest control. One of the most important areas for research and development at this stage is tissue culture which provides a rapid and safe means of introducing large quantities of high-yielding, disease-resistant varieties. The use of tissue culture requires modem research facilities, as well as supporting infrastructure such as conditioning stations. 3.29. Degree of Care and Cyclones. Another constraint which presents a problem is the high degree of care that is necessary for horticultural plants, particularly when compared with the minimal demands placed by sugarcane, and the specter of calamitous losses during a cyclone. The risk associated with such losses has presumably been a major hindrance to the development of a large-scale horticultural industry. Mauritius is located in a region which experiences tropical cyclones fairly regularly; the frequency has been about one cyclone every two years since 1876. Wind speeds from cyclones in Mauritius between 1876 and 1983 have ranged between 48 and 130 km/h, with the majority between 60 and 70 km/h. Every 50 years or so 3-second gusts of 240 km/h are experienced, while 3-second gusts of 275 km/h can be expected every 100 years or so.4 3.30. Against this background, it should be pointed out that sugarcane, which is considered to be tolerant to cyclones, is itself nevertheless affected once every ten years or so by yield reductions of up to 50 percent as a result of cyclones. Furthermore, there are a number of strategies available to minimize the damage from cyclones, including orchard planting, proper selection of tree type, pruning, and the creation of artificial or natural windbreaks, for example, trees and other natural shelters. Close orchard planting with micro-irrigation would enable tree crops to come into production within three years, giving early production and retums. Selecting fruit trees which are tough, pruning them to reduced height and allowing wind to pass through the tree canopy can minimize damage. Windbreaks should ideally allow 30 to 70 percent of the wind to pass throug4, the idea is to 43 Meteorological Office, Mauritius: 7he Cimate of Mauntius, 2nd Edition, 1984. 62 Mau .s: Expndn Horulons create turbulence to dissipate the energy of the wind. Windbreaks not only serve to reduce cyclone damage, but also retard the spread of pests and diseases and wind blemish on the fruit. They should therefore be seen as part of the overall strategy for orchard management. 3.31. The Government, together with organizations like the Food and Agriculture Research Council, can establish small test blocks where alternative strategies of dealing with cyclones can be tested. Within the test blocks, anemometers (wind speed measuring devices) can be set up to measure wind speed within the tree canopy. The anemometer readings give a direct measure of the effectiveness of the various windbreak strategies. Similar measurements should be made on building structures used for anthurium and ordchds. Cyclones or hurricanes are a common phenomenon in many fruit-growing areas, e.g., Bowen, Queensland, where mangoes are grown, and Florida where citrus orchards abound. The approach adopted in Mauritius should be one which emphasizes damage control in the event of a natural disaster. This can best be achieved by studying what is done in similar circumstances in different parts of the world, that is, studying windbreak research, experimenting with the best findings known and measuring the results. The Government could also examine the possibility of establishing an insurance scheme, similar to that in the sugar industry, to remove some of the uncertainty associated with horticultural development. 3.32. Fruit Flies. The presence of fruit flies in Mauritius is a major impediment to the entry of fruits and vegetables into European and other markets. Thus, the significance of fruit fly eradication in fruit and vegetable export development has long been recognized. Several important studies have been conducted in Mauritius on how to deal with the fruit fly problem and excellent work has been done on collecting information on fly species, fly biology, population dynamics and dispersal." There is now a very good understanding of the land, climate, food, fly biological-ecological relationships and the population dynamics in relation to all these factors. A further series of studies aimed at integrated pest management is also underway at the MAFNR. Effective management of the fruit fly problem requires the integration of all of this information. The fruit fly situation is complex and reflects the various interactions over time and space between the many species of flies, the numerous sources of food supply, and variations in the weather. It is necessary, therefore, to get a dynamic picture of what is going on by analyzing all the information available. 3.33. Before intervention strategies to deal with fruit flies can be designed, they need to be modelled for their effectiveness, cost and future benefits. These intervention strategies, such as the release of sterilized males, genetic sabotage, BS. Fletcher, Report on an Assignment on Mauritius Fruit Fly Situation, International Atomic Energy Agency, October 1987; C. Hammes, Projet de Lutte contre la Mouche du Natal, Pterandrus Rosa, A l'&l Maurice, Ministry of Agriculture, Mauritius, October 1982; Ministry of Agriculture, Mauritius: Fruit Fly Project - Position Paper, July 1989; R. Soonoo, Ecological Studies of Natal Fruit Fly in Rodrigues, Ministry of Agriculture, 1989. 3: Agriculftral Dversycat1on 68 trapping, and baiting, tend to be very expensive and should not be undertaken unless the success of the intervention strategies has been accurately modelled and the results have been analyzed and evaluated. One of the major constraints in doing this in Mauritius is that it is not yet possible to integrate the information available and show what is happening at any point in time, making it difficult to evaluate the management options that might exist. What is needed is the establishment of a suitable database which can then be analyzed using software systems such as the Geographic Information System (GIS).4 Such systems enable the integration of various components, such as space, attribute, process, and time, to give a dynamic picture of what is happening to the fruit flies. Intervention strategies either for control or eradication can then be modelled for effectiveness over the island. The benefits of dealing with the fruit fly problem within such a framework can be substantial. Effective use of fruit fly modelling technology can provide Mauritius with a unique opportunity in which the country can design effective fruit fly intervention strategies which can then not only be used domestically by the agricultural sector, but also packaged and sold to neighboring African economies, several of which are experiencing similar problems with pestilence. 3.34. Transportation. Given the distance of Mavuritius from major markets and the perishability of cut flowers, fruits and vegetables, transportation is clearly a vital ingredient in the development of export markets. All fruits, vegetables and cut flowers are currently transported by air. It is a quick method of transportation and most markets can be reached easily in this way. Table 3.3 gives the tonnage of produce airlifted during 1986-89 by Air Mauritius which commands about 45 percent of the total market share, with most of the remainder going to Air France. The figures show a steady growth of cut flower exports and rapid but somewhat erratic growth of fruits and vegetables. 3.35. One problem with cut flower exports is their low weight in relation to volume; only 60 percent of the permissible weight is used up for a given volume. This increases the cost per unit of weight. Moreover, given the variability in production, space reouirements for fruit and vegetable exports have fluctuated widely, making plaining difficult, although Air Mauritius confirms that cut flower exporters are very professional and book their loading requirements well in advance. Some of the production-related problems encountered include adverse climatic conditions affecting the volume of production, bans on exports, non- payment for exports, robbing of orchards, and damage in packaging. Table 3.4 shows that there is considerable excess air cargo space. If two-way loading can be organized, that is, from Europe to Africa and Mauritius and vice versa, then cargo planes could be organized to transport more produce. At present, there is too much unused capacity to warrant additional service. 45 This would be done using the necessary software, for example Arc Info and SPANS. 54 Mawtfus: Exp ng Hortzons Table 3.3 MAURrIUS: Perlshables Airlfted by Air Mauritius STons) Season 1986 1987 1988 1989 Cut Flowen Januasy - June 43.8 658 106.0 110.0 July - December 475 89.1 97.1 153.0 Fruits and Vegetables January -June 47.6 513 505.4 475.6 July - December 675 72.6 255.8 140.0 Combined Total 206A 278.8 9643 878.6 Source: Air Mauritius. Table 3A bLAURffUS: Unused Air Capacity ex Mauritius 1989 About 80% to Europe (Tons) Month January 4245 February 477.0 March 255.0 Apri 2865 may 722.7 June 341.7 July 373.8 August 351.6 September 262.5 October 394.2 November 419.4 December 456.9 TOTAL 4,765.8 Source: Air Mauritius. 3.36. Further, the costs associated with air transportation can be very steep. At present, passengers and courier rates are some 10 to 20 times greater than produce charges and are being used to subsidize the freight costs of fresh produce, keeping the commodity rates for pershable products very low in comparison to other charges (see Table 3.5). The industry, therefore, needs to give careful consideration 3: Agricutural Diver8?aton 65 to the potential of sea transportation to Europe for those products which do not deteriorate rapidly. Sea transport is more suitable for shifting large commercial tonnages - the costs can be from one-third to one-half that of air transport, unlimited tonnage can be shifted, i.e., up to 8,500 tons per reefer container ship, and shipments can be scheduled as required. Trial shipments could be made by containerized sea transport to familiarize Mauritian exporters with this method. This could be done with existing shipping routes, for example, from Mauritius to Livomo, Italy. Container trials could be done with Victorian pineapples, small Mauritian bananas, litchi, mangoes and melons. From these trials, the pre- and post-harvest management necessary to control the quality and perishability of produce can be determined. Post-harvest treatment, packaging and good temperature control are essential. For example, for litchis, post harvest dipping in a hot benlate solution, packing in punnets with a plastic overwrap, combined with precooling, can extend the shelf life of this crop to about four or five weeks, with the fruit still retaining its red color. Similarly for mangoes, post-harvest dipping in hot benlate solutions, drying, and washing to remove sap stains, combined with precooling, controlled atmosphere storage and subsequent ripening, can pave the way for exporting this crop by sea. Table 3.5 MAURITIUS: Cost of Air Freight from Maurutlus to Europe (Mau Rs) Commodity Mau RlIKg Flowers 20.0 Vegetables 15.0 Fruit 15.0 Ciothing 22.4 Passengers 266.2 Courier Parcels 350 - 500 Source: Air Mauritius 3.37. Some new developments in transport also need to be considered to retard deterioration in quality. Air ride suspension trucks are now being introduced in several produce-exporting countries for the haulage of fruit; these offer much better ride characteristics when the vehicle is partly laden. An additional benefit is that the vehicles require less maintenance, last longer and are cheaper to operate. Pallet handling with well-designed plastic crates or bulk bins would also mean less damage from manual handling. Estimates indicate that handling damage, i.e., the bruising and cracking of fruit, is 15 times greater for manual handling than when pallet handling and forklifts are used.46 Temperature management in transit is 46 J.E. Holt and D. Schoorl, Fruit Pakaging and Handling Distribution Systems: An Evaluation Method, Agricultural Systems 7,3, pp. 209218,1981. 66 Mawltfus: h :pandlrg Horzns also important and new curtain-sided trucks, which protect the product from the weather, offer not ordy ease of loading and unloading but also better environment control to maintain produce quality. 3.38. In addition to the constraints already listed, there are a number of other difficulties faced by entrepreneurs, for example, the lack of a constant supply of produce, export shipments competing with domestic supplies, and so on. These are largely growing pains which will resolve themselves once fruit orchards and commercial vegetable production are established and markets for out-of-season produce are found. In the meantime, it is clear that some experimentation will be required to find out which products are most suited to Mauritius' conditions. The most successful role models for fruit exporters for Mauritius to follow are Delmonte, Dole, Chiquita, Geecht, and South African and Israeli exporters. All of these organizations use shipping extensively, and have good quality control, market intelligence and management. A joint venture with any one of these companies to get capital, technical and management expertise might be worthy of consideration. Deer Farming 3.39. Deer farming and ranching is a comparatively new industry which developed in Mauritius during the late 1970s aid which complements the extensive presence of wild deer in the forests. The intensive raising of deer commenced in 1976; the management of deer is now sufficiently well understood that a new industry is emerging. There are now nine deer farms, utilizing 400 hectares, with about 10,000 head of deer being extensively managed in natural forests and grasslands and receiving supplementary feeding in the dry season. Deer farming is being carried out under an integrated plan which makes the best use of economic resources and the land and its natural beauty. Hence it can provide the basis for a new tourist industry which takes advantage of inland scenery and deer huntniT complementing the traditional tourist industry which relies primarily on beaches.7 3.40. The economics of the industry are not yet clearly understood since a number of management issues are stil being studied. The major factors which will affect the development of the industry are: a) breeding and selection; b) fawning and weaning percentages, where there is room for improvement; c) feeding in the dry season, using a mixture of molasses, bagasse, mineral supplements and cottonseed meal; d) the need to reduce the high costs of fencing through the use of electric fencing; e) pasture, forest and ground cover management to prevent overgrazing, land degradation and parasite buildup; and f) disease eradicatiorL Several articles have been written documenting the development of this industry. These include. J.A. Lalouette, "Deer Farming in Retrospect and in Prospect", Prosi, 240, Mauritius, January 1989, pp. 24.29. R.M. dUnienville, Cevus Timorensis Russa, Une Briive Note sur le Cerf, Mauritius Report; Jean Li Yeun Fong, "Un Bref Survol des Activit6s de la MatuAtius Meat Producers' Association", Prosi, February 1990, pp. 4246. 3: Agrluiurak Dlters(ftlalfon 87 3.41. Fong (1990) documents the rapid expansion in trade in deer carcasses and live animals from Mauritius, from 350 in 1986 to 1,400 by 1989. Preliminary estimates indicate that the economic returns from deer farming could be between Mau Rs 3,000 and 5,000 per hectare. With continuing improvements in institutional arrangements and management practices and with the development of new markets for live deer, hides, antlers, and venison, it appears likely that the returns will continue to improve. 3.42. These developments complement the deer-hunting industry which has no room for expansion and is limited to a harvest of about 10,000 head annually. The naturally hunted deer is limited to a seasonal shoot and consequently venison is either in glut supply or not available, since freezing facilities are as yet limited. The ranching and farming of deer can even out the venison supply and this provides the basis for a promising livestock industry. Deer farming naturally complements the sugar industry since it uses the more marginal land and climatic regions, as well as sugar by-products (molasses and bagasse). The industry also has great prospects for assisting inlanid tourist development through the promotion of stag shoots and related tourist activities. D. Proposed Action Plan 3.43. This chapter offers a few preliminary ideas for consideration, it does not give a comprehensive strategy for agricultural diversification in Mauritius. Nevertheless, the conclusions are that a number of actions might be considered by Government to put Mauritius on the path towards increased profitability and increased diversification in agriculture. As outlined above, despite the island's potential, there are at present several constraints which require government intervention. 3.44. Fruits, Vegetables, and Flowers. In this area, further work is required to determine the kind of government support necessary to enable this emerging industry to take off. Such support is no more than what has been provided to the sugar industry over the years. Such work would entail dealing, in some detail, with issues related to orchard development, new varieties suitable for export, trial shipments by sea, market analysis and the institutional support necessary, e.g., insurance fund, marketing intelligence, etc. There is need for an in-depth demand analysis, keeping in mind the strong competition that countries like Kenya, Ghana, and Zimbabwe offer, so that Mauritius can carve out a suitable niche for its products. Further, a material handling and packaging committee needs to be formed to study and make recommendations on the standardization of pallets and returnable crates. Given the potential threat of cyclones, studies also need to be carried out on modelling windbreaks for orchards and flower shade houses, orchard layout, tree size and pruning, and natural shelter. 3.45. Tea. In the tea industry, economic returns could be improved through restructuring, inproving tea quality, and making maximum use of the land by interlining tea plantations with complementary crops like citrus. At the same time, 68 Maurtts: Expandin Horlwons studies could be undertaken to determine the potential for the mechanical harvesting of tea. For example, the tea industry might derive lessons from North Queensland, Australia, where the industry is highly mechanized and profitable. 3.46. Fruit Flies. Fruit flies pose a serious threat to both domestic and export produce. It is therefore recommended that a fruit fly information system be set up by the Goverrunent so that fly intervention strategies can be modelled and eradication strategies implemented. 3.47. Deer Farming. It is recommended that the deer industry be given livestock support funds for investigating breeding, management techniques, new markets and the potential for agro-tourist development. 4 Manufactured and Service Exports A. Background 4.1. Manufactured exports have brought about a structural transformation of the Mauritan economy which, until a few years ago, was a mono-crop economy wholly dependent upon sugar for its merchandise exports. The combination of political stability, a greatly improved macroeconomic environment, a large pool of educated, highly trainable workers, and generous fiscal incentives enjoyed by the Export Processing Zone (EPZ) attracted foreign investors who flocked to Mauritius to take advantage of the tremendous benefits from its association with the European Economic Community through the Lom6 Convention.' Between 1980 and 1990, there was a five-fold increase in the number of EPZ companies as investors from France, Germany, Hong Kong, the Netherlands and Singapore sought the preferential access into European markets. During this period, employment in the EPZ grew from approximately 21,000 to well over 88,000 (Table 4.1). Between 1984 and 1991, value added increased at an annual average real rate of 17 percent. From around 20 percent unemployment in the early 1980s, EPZ growth has enabled Mauritius to achieve full employment. The EPZ now accounts for over 65 percent of gross export earnings, 30 percent of employment, and its share of GDP has risen to well over 11 percent in 1991, compared with 4 percent a decade earlier. 4.2. However, it is interesting to note that, within the EPZ sector itself, more than 85 percent of employment is in apparel manufacturing. This underlines the fact that growth of the EPZ sector during the past few years has been generated by the absorption of more and more workers into labor-intensive manufacturing, primarily of apparel. In other words, Mauritius has achieved its spectacular economic success primarily by absorbing the available slack in the labor market into labor-intensive export manufacturing. With full employment now achieved, this engine of growth is no longer available. Consequently, the fundamental issue which now needs to be addressed is what the new engine of growth will be. If manufactured and service exports continue their growth by employing more labor, from now on they will on'ly be able to do so at the expense of other sectors. In this case, increased growth will only come about if this sector is able to make more productive use of labor than the other sectors. If, instead, manufactured and See Mauritius: Managing Success, A World Bank Country Study, November 1989. 70 Mautttus: ExpandiW Ho,lwons service exports continue their growth without employing more labor, then this will necessitate making more productive use of the labor already employed. Table 4.1 MAURITIUS: Key Indkcaton for the EPZ 1980 1985 1990 1991 Number ,5 Enterprises 101 290 568 586 Employment 21,642 53,951 89,906 90,861 Exports (Million Mau Rs) 894 3,283 11,474 12,136 Imports (Million Mau Rs) 658 2,530 7,348 7,068- Net exports (Million Mau Rs) 236 753 4,126 5,068 Value added (Million Mau Rs) 321 1,333 4,000 4,615 Value added per worker 14,845 24,708 44,491 50,792 Total investment (Million Mau Rs) .. 340 750 Source: Digest of Industrial Statistis, various issues. 4.3. Either way, the only route to continued export growth in this sector will be a steady and continuing growth in labor productivity, specifically, exported value added per worker. Hence, the emphasis now should be strongly and clearly on diversifying the industrial base and improving labor productivity in export production as the only means available for achieving continued export growth. B. Facilitating Export Expansion Harsh Extemal Realities 4.4. What distinguishes export development from most other types of development is that one is obliged to start from the 'givens" of the external international market. All export development efforts must be directed towards improving the acceptability in this given external market of the export production facilities being offered. Only in this way will more orders be obtained, thus fuelling export growth. 4.5. The most important characteristic of nearly all available potential markets for developing country exports is that they are extreme "buyers' markets". In other words, each potential buyer can choose between many would-be suppliers, in many different countries, all very hungry for his order. The result of this harsh reality is that each buyer is able to insist on virtually every important aspect of supply meeting his requirements. Typically, these night cover not only price itself, but also quality level quality consistency, speed of response to changing buyer requirements, delivery reliability, incorporation of specified components or labels, usually imported, quality of packaging and outer presentation, and terms of payment offered. 4: Manufactured and Servfce Ekports 71 4.6. The new would-be supplier does not win the order unless he at least matches other potential or actual suppliers in all of these various aspects and beats them in at least one, such as price. At the level of the individual buyer, there are no preferential terms or special concessions given to developing countries. The reality is one of highly competitive and demanding markets. Countries that facilitate their exporters in meeting all these various requirements stand to increase their share of the huge world import market. Countries that ignore these realities, and believe that the solution lies elsewhere (for instance, in lobbying for ever-better concessions and preferences), on the other hand, allow the available benefits to go to other countries. The Challange for Government 4.7. The reality in most developing countries is that the capacity of an exporter to meet these various buyer requirements is severely constrained. The essential reason, usually, is that the local markets for the various inputs that he needs do not operate as buyers' markets. Here are some typical examples. First, the available ports operate as a protected monopoly; they are regularly congested; red tape delays individual consignments; and the reliability of the individual exporter in terms of delivery srfcers drastically. Second, utilizing imported components, even when supplied by the potential buyer, is virtually impossible because of costly, complex and time-consuming controls and taxes on imports. Third, the ability of an exporter to respond to new export opportunities by investing in new productive capacity is constrained by restricted access to loan capital, owing to government controls on credit allocation and pricing. Fourth, every change in buyer requirements takes much longer to organize, because of pervasive controls on every aspect of the production process. Shedding or switching workers, importing new machines or quality control instruments, using a special steel that has to be imported, all simple tasks for competitors in less regulated countries, become major costly and time-consuming hurdles in most developing countries. Buyers who can obtain fast responsiveness elsewhere are intolerant of these difficulties. 4.8. For a developing country government wishing to increase exports, the task is essentially a simple one. In addition to maintaining a stable macroeconomic environment and favorable investment climate, what is needed is to facilitate the operation of effective buyers' markets in the various key input markets facing the would-be exporter. In other words, the external reality of an extreme buyers' market has to be extended back into the domestic economy, ;f exporters are to be able to match external buyer requirements. However, with many input markets operating far from effectively, the practical dilemma that most governments generally face is not knowing where to start. The methodology adopted here has been to concentrate on the following four areas. First, examine what is already being exported and identify the next most promising directions for export expansionm Second, for each of these promising directions, find out what input 72 Maur=s: Expandng Horzzons market constraints are holding back this expansion.9 Third, delve into each constraint and identify the core problems that need to be addressed in order for that constraint to be overcome. Fourth, develop an action plan, with priorities and timetable, for Govenmment to address the various core prol'ems in a manner that will give the fastest pay-off in terms of increased exports. The results of the analysis are described below. Assessment of Constraints 4.9. Broadly speaking, the manufactured exports sector in Mauritius can be classified in terms of two distinct categories of industries. First, there is the group of existing industries consisting predominantly of either knitwear exports to Europe or quota-limited exports to the US. Second, there is the set of new and emerging industries comprising primarily "precision assembly' companies, for example, jewellery, sunglasses and watch movements, and "brain-service" exports, for example, slow-turnaround data entry, computer software, translation services, digitizing of maps and drawings, and so on. The analysis confirmed that al of these directions hav- substantial potential for achieving a steady and continuing improvement in labor productivity, and thus for continuing export growth under full employment. hlowever, the work also highlighted the fact that significant input market constraints exist in Mauritius which are adversely affecting both groups of industries and are presently constraining further development. While many of these constraints are industry specific, several of them cut across sectors, presenting the Government with a wide spectrum of areas where immediate action is warranted on the part of the Government. C. Constraints Across All Industries Access to Capital 4.10. There appears to be very little doubt that the existing financial system is fast emerging as a major constraint to growth.50 While much has already been achieved in the liberalization of financial markets, the new focus on labor productivity *w demands much more of the financial sector. The core problem appears to bv , continuing lack of real competition within the financial sector and the absence uf a market-determined system for the allocation and pricing of credit. This problem is aggravated by the weaknesses in the creait delivery systems which constrain exporters' access to outside borrowing. If input markets were working well, and if indeed these directions represent attractive profit opportunities, then the requirements of external buyers would work themselves back automatically through the domestic input markets into the required supply adjustments, and the new opportunities would be taken up without the need for further intervention. so For an analysis of financial sector constraints and issues, see Mauritius: Financial Sector Review, World Bank, 1992. Some of the issues and recommendations in this section have been discussed in greater detail in that report. 4: Marnufactured and Serutce Fxports 73 4.11. It has not been possible to evaluate the relative impact of the core problems on the workings of the various credit delivery markets. Some potential exporters were convinced that aU that was wrong was the dominance of the banking market by one large commercial bank; however, others were convinced that formal and informal pressure on commercial banks by the central bank was the root of the problem. Accordingly, an in-depth review of the credit delivery system needs to be given hie. priority. Such a study should itself give particular emphasis to the development of effective buyers' markets facing exporters seeking the various forms of finance useful to their export production operations. It wil be up to such a study to propose specific actions that would facilitate the workings of the various markets. Such a study should focus on, for example, the provision of equipment leasing for which there is presently only one supplier owned by four of the banks, the provision of longer-term project capital which appears to be distorted by continuing implicit controls on pricing and alocation of bank credit and the widely-advertised but narrowly-available subsidized funds from the Development Bank of Mauritius, and the lack of variety in instruments and suppliers (e.g., merchant banks, private longer-term finance houses, and venture capital funds). The study would also cover the provision of competitive forward foreign exchange cover, the option to borrow for working capital in foreign exchange, the provision of letters of credit services by banks which appear to be exceptionaly costly in Mauritius, and the provision of export credit guarantees and insurance, which should allow banks to move from the present collateral-based lending for export working capital towards lending based on firm orders. Worker Motivation 4.12. Increasing automation will require increasing shift work to achieve high utilization rates on expensive equipment. Increasing automation will also require more flexibility with regard to overtime work wh - needed. There must also be a willingness to adjust to more flexible working practices, if the benefits from automation are to be realized. However, it is evident that firms are already finding it difficult to motivate workers to work regularly even on single shifts without overtime, let alone motivating them to make these variou adjustments. One indicator of poor motivation is high absenteeism rates. Figures as high as 25-35 percent have been reported by some firms with absenteeism on Mondays consistently higher. 4.13. The core problem appears to be that, having achieved their basic food and clothing needs plus a few luxuries (for example, a television and a video cassette recorder), all within just a few years, there is no clear affordable and attractive incentive to motivate factory workers to make these next adjustments. There was a widespread feeling among employers that the most attractive next step wo1 ' be affordable housing for workers. For a variety of reasons, this is at p ,sent unavailable. Key building materials are ire short supply, partly because of the rapid expansion in construction activity during the past few years and partly because of the existence of monopolies, both state and private, that control their importation. Moreover, the provision of workers' hN sing has been presumed to be a 74 MaurMtss: Expandin Hoilrons government task and has been entrusted to the Central Housing Authority, which is said to be ineffective. The availability of loan finance for housing is constrained by the same problems in the financial sector that have already been discussed. What is urgently needed, therefore, is an effective market in affordable housing for factory workers and their families. The facilitation of such a market could have a substantial impact on the willingness of workers to make the necessary work- related adjustments that wiU increasingly be demanded by automation. Furthermore, it would enable Mauritian workers to gain real benefits in terms of their quality of life from the automation process.51 4.14. A secondary underlying problem is in the provision of transport to and from work, with commuting time along certain corridors being as high as two to three hours per day. The density of vehicles on the roads has increased from 44 per kilometer in 1986 to 86 per kilometer in 1990; traffic congestion in certain places has resulted, with increases in commuting time of up to 40 percent on certain inter- urban routes. Again, the detailed reasons that the public transportation market does not operate efficiently are not entirely clear. Indications are that the bus licensing system is not entirely effective in achieving such a market. Minibuses are not able to assist with peak rush-hour longer-distance loadings because of their lack of comfort, inconvenience to passengers and the economics of their operation; bus operators opting for larger buses can carry more passengers and hence increase their revenue without significantly increasingly their fixed costs. A large number of minibuses, however, are licensed Ls contract buses for the conveyance of industrial workers and tourists. The large bus companies have traditionally operated on a regional basis; this geographical concentration has become entrr.nched over time. More than 300 contract buses have been licensed to meet the transport needs of industrial workers, both during normal working hours and for overtime work. Industrial operators reportedly instruct the.r drivers not to leave the terminals during rush hours until the buses are full, implying long waits for passengers at the terminals, and even longer waits for passengers attempting to join already-full buses at later stops. If workers are to be motivated to work overtime, or on shifts, or to arrive for work fresh rather than exhausted, they need effective and fast transportation to and from work. In spite of efforts to redirect bus services to overcome inadequacies along certain routes, the present situation in public transport is not conducive to increasing worker productivity, and needs detailed examination so as to make this particular input market more effective. D. Constraints Within Existing Industries 4.15. The apparel industry presently dominates the Export Processing Zone (EPZ), and the degree of concentration has increased with time. Whereas in 1983 wearing apparel accounted for about 44 percent of firms and 80 percent of employment, in 1990 they accounted for 60 percent of firms and 84 percent of A In order to address this situation, the Govenmment established in 1991 the Mauritius Housing Development Company, a private sector organization which will facilitate the provision of affordable housing for Mauritians. 4: Marwfactbwed and Service Exports 75 employment (see Table 4.2). Consequently, given its size and importance, the most important direction for possible gains in produc';vity and exports are within apparel production itself. Table 42 MAURITIUS: Percentage Distribution of EPZ Enterprises and Employment 1984 to 1991 1984 1985 1986 1967 1988 1989 1990 1991 ENTERPRISES Prduct Grou Flowers 82 6.6 5.1 53 4.7 5.9 7.6 8.4 Food .. .. 2.9 2.1 1.9 2.3 2.3 2.6 Textiles 5.6 45 4.4 4.3 4.6 5.3 5.6 6.1 Wearing Apparel 52.3 60.0 67.6 685 69.0 63.8 59.7 56.7 o/w Pullovers 19.0 152 13 11.5 10.8 10S 9.9 8.7 Gloves 33.3 44.8 54.7 57.1 58.2 53.3 49.8 4D.0 Late Prods/Footwear 3.1 2.4 2.2 2.3 2.0 2.0 2.3 19 Wood, Funiture, Paper 3.6 3.1 2.5 2.4 2.5 25 2.6 3.4 Optical Goo.ds 1.0 1.0 0.7 0.8 0.7 0.7 1.1 1.0 watches (z Cocks 3.1 2.1 12 1.1 1.0 1.1 1.1 IA Jewelv 5.6 4.5 2.2 2.3 2.4 3.0 3.3 3.2 Fshing Tackles & Flies 2.1 1A 1.0 0.6 OS 0. 0.0 0.0 Toys & Camival Articles 3.1 2.4 15 1.3 1.2 1.2 IA IA Other 12.3 12.1 8.6 9.0 95 11.7 13.0 14. Total 100.0 lOO 0 100.0 100. IOO 10. 100.0 Number 195 290 408 531 591 563 568 586 EMPLOYMENT Paudct Group: lowers 05 0.4 03 OA OA 0.5 0.6 0.7 Food . .. 0.7 0.8 0.8 1.0 1.3 1A Textiles 4.0 3.3 32 3.8 4.3 4.8 5.3 5.6 Wearing Appael 82.8 86.3 88.3 880 86.7 842 842 84.1 o/w Pulloves 50.7 46.7 42.6 39.A 355 33A 32.Q 30.1 Gloves 32.1 39.7 457 48.7 512 51A 52.2 53.9 Leather Prods/Footwear 1.1 0.8 1 1.0 12 1.4 1S IA Wood, Furituwe, Paper 2.6 1.8 .. 0.5 0.6 0.6 0.6 0.7 Optial Goods 0.6 05 05 0.7 0.6 0.7 0.6 0.6 Watches & cocks 12 12 O 0.8 1.0 1.0 0.9 0.8 Jewelry 2.1 1.6 1.3 IA 1.7 1.9 1.5 1.6 1g hin l es& Flies 1.3 0.9 0.8 02 0.2 0.2 02 0.0 Toys & Camnivai Ankles 1.7 13 0.9 0.8 0.9 1.0 1.1 1.1 Other 2.2 1.9 1.3 1.6 1.6 2.0 2.1 2.2 Total 100. 100.0 100. 100 100.0 100.0 100.0 100.0 Number 37,532 53,951 74,015 87,905 89,V' 88,650 89,906 90,861 Source Statistiaal Appendix Tabbk VI.-4 4.16. The apparel sector is dominated by two rather different production activities; eawu of these contains promising immediate directions for increasing 70 Mawttus: Expand& Honzons labor productivity. First, Mauritius is particularly strong in the export of knitted items, achieving sufficient added value locally to satisfy the rules of origin and qualify for ACP preferential entry into the European Community under the Lomb Convention. This small island is now the third largest knitwear exporter in the world, with knitwear exports amounting to US$293 million in 1989. Knitwear production has excellent opportunities for steadily upgrading production machines and methods so as to achieve improved labor productivity. The other important activity is the export of quota-Umited garments to the US, mainly items sewn from imported cloths. In this, Mauritius functions essentially as a subsidiary source of quota for marketing operations based in Hong Kong. Although sewing has less potental for increasing productivity, since even the best machines require one operator for each machine, improved workirp methods can achieve dramatic improvements in labor productivity. Moreover, productivity gains can be achieved by moving steadily into higher-value garments. Thus, there would appear to be substantial scope for productivity enhancement in this area as well. Access to Capital 4.17. A substantial proportion of knitwear exports is still based on simple hand- operated flatbed knitting machines, with an average output of around four garments per worker-shift. The latest Japanese knitting machinery, which allows one operator to look after three machines, achieves output levels of around thirty garments per worker-shift. This gives some indication of the potential for increasing labor productivity within this particular direction. A steady shift away from simple flatbeds is what is now required in order to continue productivity improvement within this business. While this shift has already begun, the investment requirements will be substantial and will necessitate knitwear manufacturers having effective access to loan capitaL In addition, changes in the target markets are already putting pressure on working capital. Suppliers are under increasing pressure to offer open-account credit terms instead of letters of credit. As competition from new sources increases, Mauritian exporters will need to stay competitive in the credit facilities they offer. Thus, for these potential productivity gains to be exploited, exporters must have effective access to a competitive market for longer-term investment borrowing as well as working finance borrowing. Undevaluing Outside Expertiw 4.18. It is quite clear that there is substantial scope for increasing productivity through improvement in production systems, particularly in knitwear, but also in wovens. However, this in turn will usually require bringing in outside experise so as to introduce the latest systems ideas from higher labor-cost countries, and to train Mauritian labor on the new systems. Large forward-looking firms are already investing substantial resources and employing the best foreign know-how in production systems. However, at present, this process is still relatively slow, and it is this blowness that constrains export growth. 4: Mantfactured and Se&rce Exports 77 4.19. It is quite typical for exporters in developing countries to undervalue the benefits to be gained from systems improvements; they are put off by the seemingly high costs of buying expertise from higher-income countries. Unless active encouragement from the outside is giver, Mauritius will be slow in reaping the productivity benefits available. The core problem appears to be that the present scheme for encouraging this process is inadequate in coverage, and so far is having very little of the desired motivating effect. Although the Government has made a positive start by collecting the one percent levy on wages to cover assistance through the Industrial and Vocational Training Board (IVTB), some exporters are still unclear as to what activities, if any, qualify for assistance under the new scheme. Some are still unaware that assistance could be available for in-company training. In addition, there are complaints about the degree of .sed tape involved in obtaining assistance from IVTB, and about the initially unrealistic restrictions imposed on the coverage of the scheme; this reflected IVTB's slow start-up and is beginning to improve with time. 4.20. Consequently, there is a very real need to re-orient this scheme in order to widen and improve its motivating effect. Assistance in the form of cost-sharing grant-,, in addition to the double taxation relief, serve to motivate currently unprofitable firms, as well as profitable ones; thus, all firms should have access to the grants irrespective of profitability. Eligibility criteria should be simple and clearly stated, with eligibility based primaTily on the expected impact of productivity, with coverage otherwise very wide. The choi2e of source of expertise should be left to the user firm and the approval process should be easy and fast. In time, coverage could be extended beyond training into all uses of outside expertise that go towards increasing labor productivity. Ladc of a Transfer Market in Quotas 4.21. A special problem exists for firms exporting under quota to the US market. In the quota year ending September 1990, several quota categories were less than 50 percent utilized, including some that are currently fetching high premia on the Hong Kong quota transfer market. This represents a serious loss of potential revenue for Mauritius. At the moment, US quotas are allocated mainly on past performance, and cannot be officially transferred. As the process of adjusting to higher productivity levels gathers momentum, not all existing firms will be equally able to make this adjustment. Consequently, this arrangement for quota allocation will increasingly constrain the pace of adjustment itself. 4.22. What is required is an active market in quota transfers. Such a market will enable those exporters who hold quotas based on past performance that they are unable to utilize to sell this "right to export" to the highest bidder, and to do so early enough in the quota year to make this attractive to the quota buyer. Such a quota transfer market will also increase the pressure on the individual exporter to increase unit value. Irt this way, it will further assist the process of productivity improvement. The Government should be aware, however, that such a move is likely to be resisted by holders of large past performance quotas. They will rightly 78 Mawitus: Expandng Hortzons suspect that the move to a quota market will mean that they will have to pay a market rate for at least a proportion of what they presently obtain free of charge. This opposition is understandable, but should not detract the Government from initiating a system that will, firstly, speed the process of productivity improvement and, secondly, mininmze the under-utilization of valuable quota entitlements. The other argument likely to be used against a quota transfer market is that it x,ould concentrate quotas in the hands of a few large producers. If indeed it turns out that a few large exporters are able to make significantly better unit returrLs in all quota categories, then a transfer market could indeed concentrate quotas in their hands. But that would not mean that smaller producers would have no place in the market. On the contrary, it is very likely that their future as specialist suppliers and sub-contractors would be more assured than at present. Besides, there is no evidence that a few large producers would indeed be able to bid higher in all categories. And, if that were the case, then the Government would have to balance considerations of fairness to less efficient smaller exporters against the desirability of increasing unit realizations and quota utilizations. The latter are surely more important considerations in the present situation. 4.23. The introduction of a quota transfer market is likely to require expert assistance from seconded officials with relevant experience elsewhere. The best- known quota transfer market is that operated by Hong Kong, which has developed by experience a complex and sophisticated system to regulate the market. It would be sensible to learn from the experience of the Hong Kong Trade Department when introducing this innovation. E. Constraints Affecting New and Emerging Industries 4.24. Outside the wearing apparel industry, there are as yet few significant export flows. The only non-textile items achieving over Mau Rs 200 milion of exports in 1991 were fish and fish preparations, watches and clocks, and pearls, precious and semi-precious stones (see Table 4.3). However, based on field investigations of these and other emergent export activities, it would appear that there is substantial potential for extending the presently limited existing investments in higher- productivity export activities outside apparel. This potential exists primarily in the following two directions: (a) "precision assembly", i.e., starting with jewellery, sunglasses, and watch movements, and developing later into a range of other more sophisticated mechanical, optical and electronic assembly operations; and (b) "brain-service exports", i.e., starting with slow-turnaround data entry, developing later into telecommunications-based data entry, computer software, translation services, digitizing of maps and drawings, and eventually professional cokisulting services. Precision Assembly 4.25. Lack of Local Sub-Contractors and Parts Stockists. Much of the precision assembly so far attracted to Mauritius appears rudimentary. Watch movement 4: Mantufactured and service Export8 79 Table 4.3 MAURITIUS: Main EPZ 3xportb by Main Commodities, 1988-1991 (In milons of Mau Rs) 1988 1989 1990 1991 Fish and fish preparations 173 190 142 296 Textilet' yarn, fabrics, made-up articles 180 361 498 480 Pearls, pecisous and semi-precious stones 302 325 354 392 Artiles of apparel and clothing accessories 6,446 7,038 9,085 9,621 Optical goods 88 133 124 145 Watches and ciocks 563 500 616 550 Toys, games and sporting goods 85 91 126 121 69 80 139 156 273 340 390 375 Total EPZ Exports 8,179 9,058 11,474 12,136 Soures: Quarterly External Trade Statistics. assembly is undertaken on an "assembly fee" basis, with no involvement in sourcing, product design, or marketing. Assembly of the electronic elements of watches is Just beginning. Attempts to attract more sophisticated assembly operations have come up against the problem of a lack of local support facilities on the island. 4.26. In electronics, for instance, substantial potential exists in low-volume assembly of items such as laboratory equipment and instruments. But such operations depend on the local availability of flexible sub-contractors and their ability to produce to specification key custom-made items such as printed circuit boards, metal chassis and precision irnection-moulded plastic casings. Local production of printed circuit boards has already begun, but neither precision metal nor precision plastic fabricating is apparently available yet to serve such needs. A similar problem exists for firms using moulded plastic components. Because there is apparently no local toolroom able to make and repair moulds for plastic moulding machines, these are presently being imported from as far away as Italy. For more standardized components and materials, precision assembly operations depend in a similar way on local stockists of such items. As with custom-made parts, there is as yet very little of this kind of stock-holding, and apparently none able to supply free of duties and taxes to EPZ plants. 4.27. There are two core problems. First, without a few key sub-contract functions available, as mentioned above, precision assembly, particularly in electronics, is unlikely to take off. Second, without a simple and fast mechanism that will encourage stockists and converters of imported raw materials and components to stock for duty-free sales to EPZ exporters, these important support services will not develop. 4.28. To solve the first problem, a more detailed study to specify those sub- contract activities most likely to stimulate investments in precision assembly is 80 MaurUitus: Expandig Hortzons urgently required. This could lead to a highly specific incentive scheme to stimulate the development of these activities, ahead of expected demand. To solve the second problem, elimination of the remaining import duties and stamp duty on all raw materials and components likely to be of interest in assembly operations would be desirable. These duties serve no protection functio.%i and they are counter-productive as a means of raising revenue.52 In addition, positive incentives could be extended to stimulate the development of local stock-holders serving assembly operations. 4.29. Red Tape. This continues to hold back foreign investment. It might be tempting to bedeve that, with fuU employment now achieved, foreign investment no longer needs to be actively encouraged. This belief might possibly be justifiable within the core industry of garment production. But, if Mauritius is to attract higher-productivity assembly operations, and thus diversify its export base, then foreign know-how and market links will be vital. The new precision assembly and "brain-service" activities are likely to be predominantly foreign-owned or joint ventures. 4.30. Setting up an industry in Mauritius is stiU a long, frustrating and complex process, particularly for foreigners. The Mauritius Export and Development Investment Authority (MEDIA) and private consultants do their best to help new entrants through the maze, but stiU this major constraint remains. Higher-tech operators, for instance in electronics, are less likely to be tolerant of such impediments than the early entrants, who were attracted then by the more obvious benefits of quota-free US entry, or ACP preferences. Even after the establishment of the enterprise, the red tape problem continues. Obtaining the various permnits and clearances to import a piece of equipment for production is said to take typicaUy three to five weeks. For example, customs clearance of a customer's countersample recently took three weeks, even though it had deliberately been made unusable, and thus had no commercial value. One new exporter estimated that dealing with the various regulatory departments of Government involved him in an average of around four phone caUls each day while another exporter had to abandon a particular export expansion plan because he could not get work permits for two key foreign individuals vital to the process. 4.31. The reality is that no one element of red tape dominates. But, when taken together, aU the various controls and regulations add to the costs, delays and uncertainties of doing business in Mauritius. The core problem appears to be a continuing excessive reliance by the authorities on regulation, as opposed to facilitation. This reliance on regulation is increasingly inappropriate, as Mauritius seeks to increase productivity and chase the "Tigers" of East Asia. What is required is a thorough review of the various controls, concentrating on those facing new investors, both during and after the process of business establishment. The aim of this review should be simple. For those investors offering genuine gains in Mhese issues are being addressed in greater detail by thc joint UNDP-World Bank Trade Expansion Program study. 4: Manufactured and Service Exports 81 exportable productivity, the costs, delays and uncertainties involved in starting up should be minimal. Conditions should be superior to those in the other new NICs, with which Mauritius is competing for these kinds of new business, and which do not have its location disadvantage. Brain-Service Exports53 4.32. Higher Education. As living standards improve and parents can afford to educate their children better, the demand for "white-collar" employment by Mauritians is likely to increase. As Mauritius seeks to continue export expansion via productivity improvement, export industries of all sorts will demand higher education levels of their employees. As yet, it would appear that higher and further education has not begun to meet these significant challenges. Software firms complain that very few of the private software training companies provide the quality of training required by the industry. Firms in other fields complain that very few school-leavers obtain Advanced Level qualifications. Firms recruiting graduates are even worse off, being still mainly dependent on the few who return from expensive college education overseas. 4.33. The core problem appears to be that the educational system is not yet geared to meeting the demands of the changing industrial environment. Only about 30 percent of the Ordinary Level students proceed to Advanced Level education and although the pass rate at the Advanced Level has been going up over the years, it was still only 56 percent in 1990. This represents a serious under- utilization of the educational, and thus the export productivity, potential of the country's youth. The Government is making efforts to expand Advanced Level facilities and to improve the pass rate further through better staff training and the provision of facilities and materials. The vocational sclvjols, on which industry depends for its supply of mechanics, technicians, and so on, are roundly criticized by industrialists as being too theoretical, and inadequate for the task. The private software schools that have sprung up to fill one particularly serious gap are not properly supervised by an accredita'ion body, with recognized examination standards. The local university has only just started courses in subjects like economics, engineering, accounting and computer science. Financial assistance is apparently not available for those wishing to take degrees abroad which are not available locally; around a hundred scholarships are offered each year under bilateral and multilateral agreements. In short, the building blocks needed for the development of higher-level brain-service exports are not yet in place. The Ministry of Education has prepared an Education Sector Master Plan which addresses these various elements of the problem. 4.34. As has already been mentioned, the Government has started a program whereby th3 IVTB has been assigned the responsibility of administering the industrial and vocational training program, for which a orne percent levy on wages 53 The discussions on red tape and the undervaluation of foreign expertise also apply to this category of expnrts. 82 Mautlus: Expanding .orzons is collected. At present, there is still an ongoing debate about the scope of the program and its coverage stemming from the need to distinguish clearly between pre-vocational training to be provided by the formal education system and hence funded out of taxation, on the one hand, and employment-specific traising, for which partial or total funding by employers can be obtained, on the other. The training levy from employers should only be used to fund employmen'-specific training, along with other firm-specific activities aimed at productivity improvement. In addition, if IVTB is to continue administering this levy fund, it should not itself be a provider of employment-specific training services. It should leave the choice of the training service provider tc the individual firm, and restrict its involvement to partial funding. If, on the other hand, IVTB is nevertheless to become a major provider of employment-specific training services, these services should be provided at fully commercial rates, and IVTB should give up to some other body its administration of the levy fund. 4.35. Finally, the effectiveness of a centralized approach to the provision of industrial training, Is is planned by the IVTB, is seriously questionable. Centralized state institutions have a clear role to play in the provision of higher and further education. But in the area of industrial training, such institutions may not be the answer, particularly in the type of training that industry is expected to pay for, at least in part. F. Proposed Action Plan 4.36. The recent achievement of full employment represents a wonderful and unique opportunity for the Government to take bold initiatives that will stimulate and speed the next stage of export growth in the manufacturing sector. 4.37. As a first step, there is a great deal of analytical work that will be necessary to provide fhe underpinnings for the actions necessary to usher in the next phase of industrialization. A rumber of key input markets are not functioning effectively as buyers' markets, and are thus constraining export expansion. The Government needs first of all to understand in detail why this is so, and what would need to be done to facilitate '.hese markets. The following actions would be involved in this first stage. i Commission an in-depth review of the credit delivery markets facing exporters, giving special attention to the adequacy of the pruvision of the following financial services to exporters: equipment leasing, longer-term project capital, forward foreign exchange cover, working capital in foreign exchange, letters of credit and export credit guarantees and insurance. n Commission an expert study on the workings of the market in affordable housing for factory workers. i Commission an expert study on the workings of the public transport market. 4: Manu4factured and Service Eh:orts 8 W Determine what sub-contract services and what stock-holding services are most likely to stimulate new investments i i precision assembly. W Carry out a thorough review of the various controls and regulations facing new investors, both before and after establishment. Determine how to create entry conditions superior to those in competing NICs. 4.38. With the above studies and reviews completed, the Government would enter the second phase of the program where it would be in a position to spell out in detail how it intends, over the next two to three years, to achieve effective buyers' markets for the various key inputs identified in this report as presently holding back the second phase of export-led growth. During this second stage, it would also be possible to initiate actions in some areas where quick and simple actions are called for. This would be useful in giving a clear signal to the business community as to the seriousness of government intent. The particular actions initiated at this stage would, of course, depend on the findings of the various studies, but the following examples look promising at this stage. n The licensing of bus routes could probably be modified quickly and relatively simply, so as to stimulate real competition in that particular market. a Import and stamp duties on standard parts for precision assembly could be removed in stages, so as to begin the process of stimulating local parts stockists. a Positive and attractive investment incentives could be introduced for a few obvious sub-contract services, such as making chassis and plastic casings for electronic assemblies. n The employment levy scheme could be quickly expanded to cover cost- sharing grants for all forms of technical assistance at the fimn level which are aimed at increasing productivity in export production. a Quotas could be made transferable, initially under close supervision, so as to begin the development of a market in quotas. a After publication of the Education Sector Master Plan, specific actions aimed at boosting the education level of new entrants into the job market might also be included. 4.39. The aim would be for the Government to have facilitated successfully within three years the operation of effective buyers' markets in all the various inputs indicated in this report. It would also have improved its facilitation of entry by foreign investors, by changing over to a regime viewed by such investors as being superior to those in competitive NICs. 84 Maurwlus: Expanding Horlzons 4.40. As the economy becomes more and more liriked to continued export expansion, particularly in manufacturing and services, the existing high-duty regime will become less and less appropriate. High duties on production equipment may have made sense in colonial times, e.g., to protect industry in the United Kingdom, but they make little sense now. High duties have remnained, not for purposes of protection, but as a convenient way of raising revenue. As export production gradvAlly becomes more dominant in the economy, the Government would be wel! advised to take up the idea, already put forward locally, of turning Mauritius eventually into a Free Port. This would require tariff elimination in stages, with revenue generation shifting to other less obstructive forms of taxation, such as perhaps a value-added tax. The positive impact of such a move, however, could be dramatic. It would substantially increase the attractiveness of Mauritius as a base for more sophisticated production activities. It would attract industries and services serving the nearby East African markets. It would also eliminate at a stroke many of the red-tape problems. It would free up labor resources, and enable many of the staff involved in controlling imports and collecting duties to transfer to directly productive tasks. 4.41. This could be part of a longer-term vision for the economic future of Mauritius: a duty-free country, gradually moving up the labor productivity and thus the income ladder; moving steadily from a start in flatbed knitting into more and more sophisticated and skill-intensive processes; and following the example of another island state, Singapore, by becoming the wealthiest country in its region, and an advertisement for sustained export-led growth. 5 Tourism A. Introduction 5.1. Since 1988, Government's statrd policy towards tourism in Mauritius has been to emphasize low-impact, hig}-spending tourism and, by maintaining the island's upmarket profile, to increas ! expenditure per tourist and per tourist night. The argument is that a move dow-nn arket could create unacceptable environmental and social pressures and seriously damage Mauritius' image as a luxury beach holiday desdnation. Thus, the 1 %8 White Paper on Tourism sets clear targets on the number of tourists based on the ratio of tourlsts to population of 1 to 3, restricts high-rises on the island, and puts a limit on the maximum size of each resort hotel complex at 200 rooms.54 5.2. However, two recent developments have already undermined this stated policy and will conitinue to do so in the absence of prompt action on the part of the Government. First, Government's applied policy has been at odds with its 1988 stated policy, to the extent that hotel certificates granted imply a hotel capacity which is totaUy out of line with the stated targets for tourists (see Section C). Second, there tas been a gradual shift downmarket, as evident in the increase in the number and share of tourists using informal accommodatioi; this in turn may be partly a response to the relatively high room rates of Mauritian hotels (see Section B). 5.3. These developments pose a serious and urgent dilemma for the Mauritian Government and zaise several issues about the appropriate strategy for the tourism sector in Mauritius. First, there is likely to be strong downward pressure on hotel room rates, causing average eamings per tourist to fall. Second, if this decine in prices results in a shift towards lower-end tourism, there could be adverse effects on the environment. Third, lower prices could in turn lead to a rapid increase in tourist arrivals which will put even greater demands on an already stretched infra- stru-cture. Finally, trainiing needs will have to rise to meet the demands of the additional hotel facilities and the quality of hotel services will deteriorate if training cannot keep up with demand. 5.4. In order to pursue successfully its stated poicy of encouraging high-end tourism, the Governmant will have to decelerate drastically the growth in the totz I M Ministry of Tourism, White Paper on Tourism, Mauritius, 1988. 80 MauUtlus: Epandtng HorHzons number of tourists visiting the island and ensure that downmarket tourists are discouraged; the policy instruments at its disposal include revoking hotel certificates already granted, scaling back on incentives given to the hotel indubry, limiting air access, and taxing tourist arrivals and activities (tariffs on airline tickets, hotel charges, restaurants, etc.). This is obviously not without costs to at least ..e Mauritians and even then it is not clear how successful the Government can be in keeping out low-end tourists. Alternatively, in the absence of government intervention, the trend downmarket may continue and the Government will then have to face up to the erosion in the island's image at some point in the future. The predicament for Mauritius today is whether to tackle the emerging problem at a relatively early stage or postpone it till a later date. 5.5. This chapter first analyzes the trends in the demand for, and supply of, hotel rooms (Sections B and C respectively). i-Joting the emerging imbalance between projected demand and supply, it goes on to discuss the necessity for planning in the tourism sector and for weighing the trade offs between permitting more-rapid-than-planned growth of the sector and promoting high-end tourism (Section D). Promotion and diversification of tourism are discussed h. Section E; the issue of how to increase net ea,nings per tourist in Section F; and the supporting infrastructure for tourism in Section G. B. Tourism Demand Characteristics of Tourism in Mauritius 5.6. Mauritius is overwhelmingly a holiday destination; this accounted for 90 percent of all arrivals excluding those in transit in 1990.55 And, apart from most of those staying with friends and relatives (9 percent of the total in 1986), it is also almost entirely a beach holiday destination; 95 percent of tourist accommodation is on or fairly near the beach. For European tourists, who probably account for over 60 percent of all tourist spending, it is essentially seen as an "exotic" distant beach destination, rather more exotic and unspoilt than the Caribbean (with which it is fairly comparable in terms of price), and definitely upmarket of beach resorts in Kenya, the Gambia and Sri Lanka. Beach holidays in Bali, Malaysia and Thailand lack the tropical island image, but are seen as having more to offer in terms of sightseeing and cultural image; they are also, of course, considerably cheaper (see Statistical Appendix Table VII.5). The Maldives, Seychelles and much further afield Pacific destinations such as Fiji and Tahiti are also direct competitors, but attract many fewer European visitors, presumably because of the great distances involved. Non-European travel to Mauritius is heavily dominated by visitors from Reunion and South Africa (Table 5.1). For these it is essentially a convenient, rather than an exotic, beach holiday destination; they tend to stay for shorter periods than Europeans, and those from Reunion are relatively low spenders per night. 55 The proportion may be slightly overstated because of those who believe that frontier formalities may be easier for tourists. O.,: 7bwLsm 87 Table 5.1 MAURnTrIUS: Characterdtics of Touists from Main Origin Countries In 1988 Percent of Average Percent Expendltuaw total length of staying In per nd6ht in nighbs In stay AHRIM MauuitRS) Arrivab Mauridtlus nghts) hotebs * (NLr 3s)b France 21.0 21.6 12.5 55.9 636 Germany 63 7.8 15.0 79.9 828 UK 5.8 7.9 16.8 83.9 616 Italy 6.2 5.6 10.9 82.5 592 Switzerland 3.8 4.5 14.6 67.0 807 Total of above 43.1 47A 134 68.0 728 Rdunlon 23.8 18.1 93 21.3 490 South Africa 15.0 13.7 11.1 79.8 666 AUl others 18.1e 20.8 1W9 35.8 597 World total 100.0 100.0 122 52.8 649 a Around 85 percent of al tourist arrivals in hotels are in those which are members of Asomiation des H6teliers et Restau teurs ine Maurice (ANRIM). b 1986. Total gross tourist receipts per night i the cwntry were 29 percent higher i 1988 than in 1986, but expenditures per night for individual origin countries probably all grew at much the same pace. c 6.4 percent were from the nearby African countries, 1.8 percent from India, 14 percent from Japan and Singapore and 1.0 percent from Australia, probably most of the remainder (7.5 percent) were from minor European origin countries. Sours: Cintnl Statistical Office and AMsodation des HOktiers et Restaurateurs lle Maurice (AHRIM. 5.7. In terms of average expenditure per night while in Mauritius, European tourists are clearly the most valuable to the country; this reflects the very high proportion, other than those from France, who stay in hotels. Moreover, they stay relatively long. South Africans are also quite high spending. The highest-yielding group of all consists of those from Japan and the new industrial countries of the Far East, but their numbers are still small. Visitors from Reunion and from other neighboring African countries and India are low spenders and mostly stay in relatively low-cost informal accommodation. There are two big distinct groups of French visitors: those who stay in large hotels, usually not for very long, and are high spenders, and those, frequently travelling on cheap fares via R6union5', who mostly use low-cost informal accommodation and stay much longer. 56 Currently around Fr4,500 return, about two-thirds of the cheapest official fare. 88 Mawlus: Espanding Horuzons Demand Trends 5.8. Mauritius has, in recent years, substantially increased its still tny share of total world tourism and of total long-haul beach tourism. While this growth in tourist arrivals is still well above the worldwide figure, it has slowed since 1988. Data indicate 298,510 foreign tourist arrivals in Mauritius in 1991, staying an average of 12.0 nights in the country - a total of 3.6 million nights - and yielding Mau Rs 3,875 million in total gross receipts. As Table 5.2 shows, from 1n89 to 1991 there was a considerable slowdown from the exceptionally rapid growth achieved in 1987 and 1988. Indeed, if hotel receipts per bed-night sold and hotel room rates are taken as the most appropriate indication of tourist prices (around 70 percent of gross expenditure goes to hotels), real receipts per arrival and per night appear to have declined in 1989. Of course on a longer-term basis, growth rateF remain well above the worldwide tourism growth rate of about 6 percent a year in terms of arrivals (World Tourism Office estimate). In terms of its own market segment too, essentially long-haul beach tourism, Mauritius performance has also been relatively good. 5.9. Temporary slowdowns in growth rates of tourism, even falls, have from time to time been experienced by most destinations around the world. In the case of Mauritius, there appears to be two main reasons for recent trends. First, as shown in Statistical Appendix Table VII.6, the slowdown has been mainly due to sharply reduced growth rates in travel from France, one of the three most important individual origin countries for travel to Mauritius. Travel from South Africa picked up in 1990 after a slowdown in the previous year, and travel from Reunion has continued to grow relatively rapidly. While travel from Germany and the United Kingdom performed well in 1990, arrivals from Italy decreased slightly. To a large extent these reflect worldwide trends in travel from individual origin countries. In particular, the persistent weakness of the rand has made all travel abroad from South Africa increasingly expensive, while economic problems in France have had a general depressing effect on French travel abroad. The second major factor which has slowed the growth of travel to Mauritius is cost. Mauritius has long been a relatively expensive beach holiday destination. For most Europeans, staying predominantly in the better class hotels, only the Caribbean is comparable in cost as a long-haul beach destination. But, while prices of inclusive tours in some competitive destinations (notably Bali, Malaysia and Thailand) have stabilized or even fallen in the last few years, prices for Mauritius have risen sharply, reflecting both the lack of truly concessionary air fares57 and a very substantial increase in hotel prices (see later). A comparison of inclusive tour prices available from the United Kingdom5! appears in Statistical Appendix Table VIII.5 57 Apart from cheap fares via RAanion, of which tourists other than from France are largely unaware; in any case few are prepared to change aircraft twice during the course of a flight. so Inclusive tour prices are for half board in comparable grade accommodation in each destination (typically the aLverage clharged in five different hotels, of three and four star grade) using scheduled flights. 5: lbuwlsm 89 and a similar comparison could be made for other European origin countries. A final factor affecting Mauritius' market share has probably been the relatively meager spending on promotion at a time when many competitive destinations have been stepping this up. A Shift to Informal Accommodation 5.10. The especialy rapid growth in travel from Europe in recent years (notably from Germany and the United Kingdom which continued to perform wenl in 1990) in itself implies a shift upmarket; but this is offset by the stagnation of what used to be almost equally high-yielding traffic from South Africa. Moreover, there is evidence of a general shift away from the expensive hotel sector to more modestly priced accommodation, such as bungalows, guest houses and rented private rooms. In consequence gross tourist receipts in 1988 and 1989 rose appreciably more slowly than the rises in nights spent plus hotel price increases imply (Table 5.2). It is also notable that the average length of stay in the country (12.0 nights i 1991) is nearly double that in hotels (6.3 nights for aUl hotels, including those which are not members of the Association des Hoteliers et Restaurateurs Ile Maurice (AHRIMi) the figure for AHRIM hotels only is 7.6 nights (Table 5.3)). Thus long-stay visitors are heavily concentrated outside the hotel sector. Some, of course, are Mauritians living abroad visiting friends and relatives. But there does seem to be a clear trend for the hotel share of the remainder to shrink. It would indeed be surprising if this were not the case in view of the shawp increase in prices. Consequently, only about half of aU tourist nights spent in t'te country are spent in tourist acccimmodation. Of the remainder, of some 1.62 million nights in 1988, about 0.58 million were by Mauritians living abroad; perhaps some 85 percent of these were staying with friends and relatives and half the remainder in hotels. The balance of 1.04 million nights implies the existence of 5,400 beds used by tourists in non-hotel accommodation in 1988 even at 50 percent occupancy (probably on the high side as much of the travel by those using informal accommodation, especially from Reunion, is very seasonal). Yet the capacity of bungalows and beach area boarding houses listed with the Mauritius Government Tourist Office (MGTO) amounted to only 1,000 beds. There consequently could be as many as 5,000 beds in commercial accommodation regularly used by tourists which are not listed with MGTO. Both the absolute number and their share of all tourist nights appear to have rien in recent years. Prices 5.11. As already noted, Mauritius has long been a relatively expensive beach resort destination. And, it has been becoming relatively more expensive as prices in Mauritius have escalated while those in some competitive destinations have been stable or even declining. In particular, South East Asian destinations have become relatively cheaper owing to the easier availability of cheap air fares and some excess capacity in beach resort hotels. Partly reflecting a shortage of hotel capacity (occupancy rates rose quite rapidly from 1986 to 1988, but then declined in 1989), revenue per bed night in AHRIM hotels was pushed up by 21 percent in 1987 and 90 Maurwtlu: ExpandiW Horlzors Table 5.2 MAURITIUS: Growth Rates In Foreign Travel to Mauritius, 1986-90 (Percent) 1986 1967 1988 1989 1990 1991 All arrivals 11.0 25.6 153 9.8 11.0 2.4 Nights spent 8.0 26.1 26.6 6.7 11.2 0.6 Gross tourist receipts Current prices 40.8 50.1 333 17A 29.8 6.7 Constant prices* 31.3 41.0 21.1 42 14.1 02 Constant pricesb ... 28.6 7.4 0.4 ... ... Deflator as in national accounts data for aU restaurants and hotels, induding local use. b Deflatorfiom inreane In gross hotel revenue per bed night sold in A4IHRM hotels (1987 and 1988) andfrom increase in hotel room rates (1989). Source: Central Statistical Office (CSO), National Accounts of Mauritius, Association des Hdteliers dt Restaurateurs He Maurice (AHRIM) and Mauritius Government Tourist Ofice (MGTO). Table 53 MAURrTIUS: Popostion of Foreign Visitor Stays in Hotels 198691 1986 1987 1988 1989 1990 1991 Nights Total tourist nights in country (million) 1.88 2.37 3.00 3.20 3.56 3.58 Hotel beds avaUlable (mid-year) 5,671 6,187 6,W563 7,196 8,743 10,02? Hotel bed occupancy by tourists wrent) 472 54.0 57.4 55.3 54.3 47.1 Hotel nights by tourists (mrn) b 0.98 1.22 1.38 1.45 1.73 1.72 (% of aU tourist nights) 52.1 51.5 46.0 45.3 48.6 48.0 Stays Total tourist arrivals ('000) 165 208 239 263 292 299 Estimated average stay in hotels (nights) 7.76 7.74 7.62 7.60d 7.60" ... Tourists staying in hotels (000) 126 158 181 191 228 ... (5 of al arrivals) 76.4 76.0 75.7 72.6 78.1 ... a Average of year beginning and year end. b Beds x bed oca*pancy x 365. ' Average stay in AHRIM hotels x 1.21 (matides 76.4 percent who stayed in hotels in the 1986 tourist expenditure survey). Asumed. Night0/stay. Sources: CSO and AHRIL 32 percent in 1988. These increases far outstripped the depreciation of the rupee against the currencies of most tourist origin countries (though the South African rand has been even weaker), and price rises in other destinations. So hotel prices in Mauritius have become relatively much more expensive for tourists from abroad (Table 5.4). The sharpest past rises and the greatest pressure on current rates are in medium-sized and smaller hotels. They certainly largely explain the shift away from the hotel sector. Comparable data reflecting actual prices paid are not as yet 5: 7bwtsm 91 available for i989, but a weighted average of nominal hotel room rates showed a rise of 19 percent. Hnwever, 1990 room rates were only about 6 percent up on the 1989 level, and it seems that discounts on normal rates granted to tour operators increased in 1990 and 1991. Table 5A Percentage Increases in Average Mauritlan Hotel Prices Adjusted for Exchange Rate Change. For residents of: 1987 1988 1989 France (including Reunion) 11 25 12 South Africa 14 41 21 Germany 5 24 12 United Kingdom 14 16 14 Switzerland 5 25 16 Italy 10 27 10 Source: Mission estimates. Seasonaiity and Length of Stay 5.12. Overall seasonal peaking of travel to Mauritius is not particularly pronounced. Arrivals in the high months (August, December and January) are typically only around two-thirds higher than those in the low months (une and February). For many competitive destinations, peak-month arrivals are more than double those in the low months. Seasonal peaks in Mauritius vary by country of origin. For European-origin countries they are in October and November, while for Reunion there is a very big peak in August (20 percent of the annual total) and a less pronounced one in December/January. Travel from South Africa peaks in September and December (see Statistical Appendix Table VIII.7). Thus the peaks for different countries tend to cancel each other out. But this is less of an advantage than might be thought, because tourists from different countries do not use the same facilities. In particular, those from Reunion tend to stay in much more modest accommodation than Europeans, with the partial exception of French tourists. Ncr can airline capacity be switched from long-haul to short- or medium- haul routes. The not-very-pronounced peak in December as a whole also disguises a very big peak over the Christmas/New Year period. And, as Mauritius is primarily a holiday destination, there is a heavy concentration of flights on weekends. 5.13. Linked to seasonality is length of stay. The overall average of 13-15 nights for European tourists, as against 9 for those from Reunion and 11 from South Africa, disguise a tendency for most stays to be of either one week (especially from Reunion and South Africa) or two weeks (though Germans, particularly, often come for three), while a small minority, many of them Mauritians living abroad, stay for a month or more at a time. Inevitably, too, length of stay reflects flight timings. When Air Mauritius flights to Europe are used, the tendency is for stays in Mauritius to be of 12 nights, or 19 nights, when the tourists concerned might weli 92 MaurUtus: Expanding Horizons have preferred a full two or three weeks' stay; this is particularly evident for Swiss tourists. Use of European-based airlines, which turn round back-to-back flights in Europe rather than in Mauritius, thus has favorable effects on length of stay and overall hotel occupancy (a hotel relying primarily on European traveUers carried on Air Mauritius tends to be half empty two nights a week). C. Hotel Supply Growth In Hotel Rooms 5.14. At the end of 1990 Mauritius had 75 hotels with a total of 4,603 rooms and 9,572 bedspaces. Around 40 percent of this capacity was in high-grade hotels (nominal tariff for two occupying a room in the main season in excess of Mau Rs 3,000 a night, half board), and about another 15 percent was in reasonable-grade hotels (Mau Rs 2,000-3,000 a night). Many of the remaining hotels offer only modest facilities and several charge under Mau Rs 1,000 a night for two, half board. Accommodation inMGTO-registered bungalows amounts to only about 500 rooms; some of these offer facilities, including restaurants, comparable with those in reasonable-grade hotels. Accommodation in registered beach area boarding houses amounts to only about 100 rooms. But, as already noted, there may be as many as 5,000 beds, or say 2,000 rooms, in non-registered commercial accommodation regularly used by tourists. Though some of these, mainly bungalows, are of reasonable quality, a great many are not. Some rooms with basic facilities are let for extremely low prices. Rates per night in these may be less than one-tenth of those in high grade hotels - an unusually large differential by intemational standards. The 1990 estimates referred to above include some of the 24 new hotel projects involving 2,358 rooms that are currently under construction plus some 380 rooms in extensions of existing, predominantly good grade hotels. 5.15. Rather over half of the new rooms were scheduled to have been completed in 1990, and all except 200 rooms of the balance in 1991. But construction delays (largely responsible for pushing into 1990 some completions originally expected in 1989) have pushed the schedule back significantly. Some projects are also believed to be running into problems and, in view of the impending overcapacity situation, may well be frozen or even abandoned by promoters at this late stage. Nonetheless, there was an increase of over 25 percent in room capacity in 1990, an implied increase of a further 15 pezrent in 1991, and 10 to 15 percent in 1992. Thus, by 1992 probably around 2,000 to 2,300 extra hotel rooms are likely to be in existence, or some 60 percent more than at the end of 1989. Around two-thirds of these are in fair-sized hotels (over 100 rooms) and about two-thirds, predominantly the same ones, are planned to be of reasonable or good quality (projected investment per room, often in practice substantially underestimated, in excess of Mau Rs 650,000). Though somewhat downmarket of Mauritius' best existing hotels, the focus of the new construction is thus significantly upmarket of the current hotel sector as a whole. This projected capacity means that Mauritius could accommodate well over 400,000 tourists per year by 1992, compared with the targets set in the 1988 White Paper on Tourism of 325,000 in 1992 and 400,000 by the 9: burtsm 9e year 2000. Thus Government's applied policy is already putting its 1988 stated policy in jeopardy. From 1993 to 1995, a further 15 to 20 percent increase appears to be in the pipeline. Even allowing for a few closures of existing hotels, this implies a capacity of between 6,500 and 7,000 rooms in 1995, not far short of double the existing number. 5.16. In addition to these hoteb' under constructior, development certificates have been granted to a further 19 projects (1,565 rooms), but construction has stiUl to start. In addition, a further number of large projects are in the pipeline. While projects now under construction, like Mauritius' existing hotel industry, are dominated by Mauritian-owned concerns, these new projects appear to have a greater involvement by international groups. They also show a further trend upmarket. In March 1990, the Government announced a temporary freeze on all projects where construction had not started. However, it now appears that this is to be relaxed, at least for the larger projects where substantial funds have been committed in advance of construction. It is also appreciated that to go back on authorizations already granted would affect Mauritius' reputation for straight- dealing with investors, both local and foreign, especiaUy in relation to the EPZ sector. Moreover, a significant proportion - probably at least a quarter, possibly half - of these projects are in any case likely to be abandoned by investors, in view of the rise in investment costs and the evidence that it may become increasingly difficult to fill a greatly expanded hotel capacity at worthwhile charging rates. 5.17. The bulk of the increase would be in reasonable quality hotels well suited to "inclusive" tourists, notably from Europe. The increase in nationwide tourist room capacity would be a good deal less, though, as the growth in bungalows and rooms in informal accommodation is likely to slow - partly because the main growth in demand should be by higher-spending tourists, and partly because the more modest hotels wiU be forced to become more price competitive. Though price cutting in hotels should mean that these attract a higher share of visitor-nights, especially by Europeans, non-hotel commercial accommodation is bound to continue to dominate travel from Reunion and from most African and some Asian origin countries. Moreover, many will continue to stay with friends and relatives. Overall, the share of total tourist-nights spent in hotels seems likely to rise only fractionally from the 1989 level (47 percent). Hotel Costs and Profits 5.18. In part, the escalation of hotel prices has reflected mounting costs. In particular, staff costs have clearly increased very rapidly; but they typicaly account for only about a quarter of aU operating costs. Most other costs are local, notably food and drink and, for some hotels, quite substantial rental charges; these have risen a good deal more slowly. Especially with the increase in occupancy up to 1988, total costs have been rising appreciably more slowly than hotel charges. The resulting boost to profits was undoubtedly a major factor in the current boom in hotel construction. Rough estimates based on first returns to the hotel survey 94 Maurtus: ExpandL Horwzons (Table 5.5) indicate generally healthy profits, though there are obviously wide variations. Margins are appreciably larger in the more e pensive hotels, mainly because of higher accommodation charges; lower price hotels depend far more on revenue from food and drink. Breakeven bed occupancy levels are generally a good deal higher in the lower-priced hotels. A rough estimate puts the average breakeven level at 57 percent in the lower-priced hotels, against only 46 percent in the higher-priced ones. Table 5.5 Estiated Hotel Receipts and Operatng Costs per Bed Night Sold (Mau Rs) Higher price hotels^ Lower price hotels Total Gross receipts b 1,229 615 11009 of which: for accommodation 718 358 589 Staff costs 232 114 190 Other operating costs C 750 405 626 cross margin 247 96 193 * Gross receipts per bed night in excess of Mau Rs 800. b Net of discounts. P Purdiases ofgoods and servies, induding rent, insurance, commissions, promotion aosts, and repairs and maintenance. Bejbre depredation, intrst payabe and profits tax. Source: Mission estimates based on preliminary returns to Ministry of TourismJCSO Hotel Survey (period covered varies, but typialUyfrom mid-1988 to mid-1989). D. Tourism Planning 5.19. The rapid increase in hotel capacity has resulted from individual investors responding to mounting profitability of existing hotels and a case-by-case approach to granting development certificates. Many within the industry now feel that certificates were granted too easily. For the large number of hotels now under construction, little account appears to have been taken of the risk of overconcentration in some areas, or of the problems posed for water supply and the road network. Some also feel that certain developments are overlarge or inappropriate for the particular sites in question and will damage the general image of Mauritius as an uncrowded, relaxed tourist destination. Above all, it does seem that more new developments were authorized in the mid-to-late 1980s than the market could realistically be expected to support. Essentially, developments have been granted on an ad hoc, case-by-case basis rather than in the context of an overall tourist strategy or a spatial plan. 5.20. There are a number of externalities which would argue strongly against leaving the decision of whether and where to build hotels to the private sector. With limited financal resources, infrastructural facilities cannot be laid on wherever & burlsm 95 development takes place. As a minimum, it has to be made clear which are the preferred areas where necessary infrastructural facilities will be laid or. Furthermore, it is arguable that orn a small island some stretches of prime coastline should be left free of all building (though there should be road access) and so be earmarked primarily for day visitors. Moreover, development in the most popular areas should not be allowed to continue to the point where there could be serious environmental damage. This would drive foreign tourism to Mauritius downmarket (as has happened in some Mediterranean resorts). Individual investment decisions would therefore impose costs on other parts of the economy. 5.21. AU the above implies a need for long-term strategic planning for the tou-L-t sector as a whole and for linked broad spatial planning (see also paragraph 5.25). Priorities and objectives have to be clearly spelt out. The growth in hotel capacity should be related to the carrying capacity of the island, as well as a realistic appraisal of market potential and of aircraft capacity. Promotional plans, staff training and infrastructural needs will have to be developed accordingly. In the tourist sector, the knowledge and necessary skills already largely exist in Mauritius. It is coor-dination which is needed, both of the planning exercise as a whole and of the necessary decisions to be taken and implemented by different government departments. Nor should the strategy be rigid. It must be able to respond continually to changing circumstances and be indicative, rather than prescriptive, in its application to particular projects. By developing an appropriate long-term strategy, the need would be eLiminated for stop-gap measures such as the recently announced freeze on new hotel projects (in practice it seems already partially lifted). Strategy Issues 5.22. The first key issue to be addressed is how large an annual inflow of tourists is acceptable. This is ultimately a political decision which only Mauritians can ma. z; there is no hard-and-fast rule that can be applied. Comparisons with competitive destinations are interesting and informative but still do not provide the answers for Mauritius. While it is true that the current level of tourism relative to total population is still far below that in some other destinations (see Statistical Appendix Table VIII.8), this does not mean that Mauritius would want to continue to allow increasing numbers of tourists and follow the pattern of tourism development in these resorts. If there is a problem of absorptive capacity, it probably lies in the social impact of tourism on Mauritius' traditional established way of life. The 1988 Whik Paper on Tourism has set guidelines on the basis of a ratio of tourists to population of 1 to 3, based on what Mauritians feel is the tourist carrying capacity of the island. 5.23. Although Mauritius would have little difficulty in physically absorbing greater numbers of tourists, the policy of emphasizing higher spending and so predominantly long-haul visitors shoild be continued. Indeed, if possible it should be reinforced, especially in view of the recent shift to more modestly priced accommodation (with consequent adverse effects on Mauritius' image and on the 906 Maowus: Expandirg HorHzons environment) and the continuing strong performance of tourism from R6union and the lower-value segment of French tourism. But there are several steps that need to be taken to implement this policy. It would almost certainly be impracticable to squeeze out low-value tourism; the numerous, inexpensive flights between Reunion and Mauritius are an obvious reason. But the cheaper end of the market can be upgraded to yield more in terms of net eamings, which in turn might discourage some. More acceptable accommodation in the moderate price bracket (say between Mau Rs 500 and 1,000 per night for a double room) is needed. This does not necessarily imply a greater number of modest price hotels or bungalows. There is also considerable scope for reasonable quality rented holiday apartments - preferred as holiday accommoda.- -~n to hotels by many French in particular. Suitably sited developments should be encouraged. At the same time, there could be greater control on informal accommodation. T.he MGTO could require a license for the letting of accommodation upon payment of a license fee and after getting approval for meeting quality standards by the MGTO or some other agency. The Govenmment could also impose a tax on imputed income and mandate periodic checks on sanitary conditions and waste disposal. By publicizing those bungalows, apartments and rooms which have been approved, by allowing an official sign to be displayed, and by prosecuting or fining those found operating without licenses, the MGTO could also make it increasingly difficult for other operations to compete. Finally, a squeeze on camping by foreigners could be exercised by requiring advanced booking and allowhi.g this only on designated sites with appropriate wsvaste disposal facilities. 5.24. The question also arises of the value of the present system of hotel development certificates. Though it probably has helped Mauritius escape very large and visually obtrusive (especially high-rise) hotels which have spoilt resorts in some other parts of the world, ordinary building regulations could achieve this equally well. The system has not prevented an overconcentration of hotels in some areas, or overbuilding on some sites, or the development of sites which may be inappropriate on wider planning grounds. Nor has the permitted expansion of capacity been linked to any overall appraisal of market potential. As even Singapore has found, it is in practice very difficult, perhaps impossible, to use hotel supply limitation to keep demand and supply in balance. Finally, the present system is open to abuse. 5.25. Arguably what is needed is not just control of hotel development but overall land use planning for all coastline areas with touristic potential." Low- quality, creeping uxbanization and villa building along the coast are probably equaUy serious problems for the environment, for Mauritius' tourist image and even for the provision of infrastructural services than is hotel development as such - as has also been the case in nmany Mediterranean resorts. But land use planning could be used to ensure that hotels are only built in appropriate places on sufficient land to prevent overdense developments and without encroaching too closely to 59 While this does imply projecting probable hotel capacity growth, it would nonetheless be consistent with the scrapping of development certificates. 5: 7ourtm 97 the beache or to existing buildings. Such a system would encourage the upgrading or rebuilding of existing lower or mid-range hotels to higher standards. 5.26. Especially in view of the likely hotel oversupply situation over the next few years, air access policy represents another major issue. As discussed in Section E, air access policy is an instrument that Government can use to influence the number and composition of tourists coming tr, the island. The question is how to design air access policy in such a way that the right numbers of upscale tourists visit Mauritius without encouraging perverse reaction which undermines the Government's policy. This may in fact imply that there should be a more positive attif de to traffic rights negotiations with foreign carriers, which should be given more freedom to operate in the manner which suits their commercial interests best.62 5.27. As also discussed in Section E, the main potential for increased tourism to Mauritius lies in Europe, including some origin countries of only very minor significance at present (e.g., the Netherlands and Scandinavia). And, it is in Europe that promotional efforts should be concentrated. The MGTO needs a substantial increase in its budget; a close coordination of the promotional programs by the MGTO, Air Mauritius and the mnain hotel groups is desirable. Planning and Implementation Capabilities 5.28. As noted in paragraph 5.21, the knowledge and skills for long-term strategic planning of the tourist sector already largely exist in Mauritius. Capabilities for ge.teral land use planning of tourist areas are possibly rather less adequate. The main problems lie in coordinating the process of both tourism strategy planning and land use planning, in reaching agreement on measures to be taken by different government departments and in inplementation. 5.29. It is evident that both the Ministry of Tourism and the MGTO need strengthening. In the MGTO, a core of perhaps two or three additional professional staff should be recruited to plan and use increased resources effectively both in Mauritius and abroad. The Ministry of Tourism also needs more full-time professional staff. In addition, there is need to build up the Ministry's capabilities to analyze tourist trends in both origin countries and competing destinations, and to coordinate the technical aspects of long-term strategic pianning for the sector. The Government also needs to be able to draw on advice in relation to aviation policy, especially in negotiations on air traffic rights. 60 Some hotels are built so close to the sea and are so aggressively protected by guards that the beach becomes effectively private; ordinary Mauritians cannot easily or comfortably exert their legal right to access. 61 The preference which many tourists have for using tneir own national airlines, increased promotion of MAauritius by these airUnes, and the favorable effects on hotel occupancy and average length of stay of using aircraft based in Europe rather than in Mauritdus, are also important reasons for allowing an increased market share to foreign airlines. 98 Mawrtus: 1pandlng Hor/sons 5.30. Finaly, a key element in the strategic planning for the tourism sector is to get close involvement of the industry. The Industry should be consulted in major decisions affecting the sector's development. And its colaboration in matters such as promotion is essential. A National Tourism Board, as was proposed in the 1988 White Paper on Tourism, would be an appropriate mechanism by which this could be effected. The Board might comprise perhaps eight to ten members drawn partly from the government departments orimarily affected, plus representatives of the hotel industry, tour operators and Air Mauritius. Meeting possibly once i quarter under the chairmanship of the Minister of Tourism, it should be primarily concerned with strategy and policy issues and should be able ~o make recommendations for consideration at the Cabinet level. If it were decided to retain the system of hotel development certificates (probably unnecessary - see paragraphs 5.24 and 5.25), decisions on these could probably most suitably be taken by this National Tourism Board, excluding the hotel representatives; spreading responsibility fe. such decisions implies that the system would be less open to suspicions of possible abuse. E. Promotion and Diversification 5.31. It is very important so maintain, and if possible reinforce, Mauritius' upmarket image as a beach holiday destination. Beach holidays, particularly in South East Asia, have become increasingly price competitive for Europeans and now overlap with the more expensive Mediterranean hiolidays, while prices in the Caribbean have also become relatively lower. It is, therefore, necessary to pay far more attention than in the past to attracting the right kind of tourists and to making it easy for them to get to Mauritius. The availability of convenient flights from Europe particularly is a major potential problem. Moreover, coordination of promotional strategies and country programs between Air Mauritius, the hotel industry, and tne Mauritius Government Tourist Office (MGTO) is needed. This, of course, implies agreement on priority markets. Promotion 5.32. Given the Government's overall policy towards tourism, the Government's budget for tourivm promotion at this point in time should be directed towards attracting tourists from upscale destinations rather than increasing the numbers of tourists as such. The MGTO 1989/90 budget of Mau Rs 35 million (US$2.3 million) is, by international standards, modest for a relatively small, but upmarket, beach holiday destination. Several comparable destinations spend around US$20 million annually, two to three times as much per visitor or as a percentage of gross tourist receipts. Some, such as Tahiti, spend far more still. A comparison appears in Statistical Appendix Table V11.9. Inevitably, small destinations have to spend relatively more than major ones. Though the promotion budgets of larger countries such as Hong Kong, Singapore and Thailand are roughly ten times that of Mauritius in absolute terms, they are smaller per visitor or as a proportion of gross receipts. The point is that it is difficult to make a real impact in a number of 5: 2bwsm 6W differen destinations with a total budget of under US$15-20 million. Indeed, the US mnarket alone can easdy absorb spending on this scale. Moreover, inevitably, a large part of MGTO spending goes to general expenses, rather than to advertsing and public relations in Individual markets. Even the larest advertising budget, of Mau Rs 2.2 mIlion in France, is far too small to havL any real effect. 533. In commont with many other destinations, the bulk of the promotion of Mauritius is by airlines, hotels and tour operators. Air Mauritius and the two main hotel groups spend around Mau Rs 150 miLlon between them on marketing and promotion abroad. But this is far less than some other national airlines are in a position to spend (compared, for Instance, to the massive campaigns mounted by Singapore Airlines and Thai Interational). The featuring of Mauritius in foreign tour operators' brochures probably represents the largest single element in promoting the destination and a large slice of MGrO efforts go to persuading operators to give sufficient prominence to Maurntius. However, in contrast with some other destinations, foreign airlines do relatively little to promote travel to Mauritius. This is partly because air traffic agreements give little incentive to those who operate joint services with Air Maurtius to push the island. It also reflects the lack of joint promotional campaigns between foreign airlines and the MGM). Some beach holiday destinations, in the Caribbean for hista¢ce, need to do little in the way of promotional activities because foreign airlines, and foreign travel journalists, do it all for them. 534. In the increasingly competitive market for long-haul beach tourism, and especally in view of the need to emphasize an upmarket image, it is clear that a major increase in the MGTO's budget is nee4ed& However, there is little point in doing this until clearly defined plans have been developed in conjunction with Air Mauritius, the hotel groups and the Ministry of Tourism for allocating the increase. Limited funds should be concentrated in a very few priority markets so as to make maximum impact i these, even at the cost of ignoring some promising secondary markets. Cost effectiveness - the anticipated promotional cost per additional visitor - should be an important criterion in selecting these priority markets. Once this strategy begins to yield results, additional priority markets could be added. Within a very few years an MGTO budget in excess of Mau Rs 100 million should prove worthwhile. To compete effectively with other upmarket beach holiday destinations, it could well be significantly more. 5.35. To use increased resources effectively, the MGrO clearly needs strngthenhip both domestically and abroad. More professionals with a real understanding of promotion are needed. While full-blown tourist offices abroad in prestigious locations would certaindy be excessively expensive, continued reliance primarily on modest retaincrs to public relations concems cannot be expected to produce much, an intermediate approach is indicated. More attention also needs to be given to the promotion of touist activities after their arrival in Mauritius. They should be made more aware of the full range of attractions on the iand, including special interests which operators' tours cannot cater to. As in other destinations, well preseted, illustrated brochures should be placed in hotel 100 Maulrs: E :pandng Hortzons bedrooms and could also be available at the airport. As Hong Kong, Singapore and Hawaii, for example, have shown, widening the "menu" of attractions to tourists stimulates spending, increases the likelihood of repeat visits, and tends to leigthen the average length of stay. Market Diversification 5.36. Current policy puts cons;derable emphasis on market diversification. Clearly Mauritius has been excessively dependent on three main markets - France, Reunion and South Africa. The last of these has little growth potential at present, in view of the country's many problems and the weakness of the rand, while tourism from Reunion and a fair proportion of that from France yields relatively low returns per visitor-night. So diversification is needed. But it will always be difficult to get much traff £ from countries from which no direct flights are available. Moreover, each new market requires a substantial addition to promotional spending. So diversification should not be carried too far. Furthermore, Mauritius' share, even of the French long-haul beach holiday market, is still quite small; so there is not the same urgency in diversification which faces some other destinations. 5.37. As is widely appreciated, market diversification and air access are two sides of the same coin. Hence current emphasis has been on building up travel from origin countries with which traffic rights have recently been established, especially in the Far East. However, it must be appreciated that Far Eastem travellers have a wide choice of nearer and cheaper tropical beach holiday destinations, both north and south of the equator. Australia, Fiji, Hawaii, Indonesia, Malaysia, New Zealand, the Philippines, Tahiti, Thailand and many small Pacific islands are competing for the same market, for under half the price of a holiday in Mauritius. Moreover, the facilities in these destinations are generally tailored to the needs of Far Eastem holidaymakers, with heavy emphasis on extensive shopping facilities and with a wide range of modestly priced gourmet restaurants. Shopping and eating are the major holiday pursuits of most Japanese and Chinese travellers. Finally, Japanese travellers, particularly, tend to favor large Japanese owned and run hotels (which have consequently come to dominate areas of the Australian and Hawaiian coasts); their poor linguistic skills are a major factor. And, keen though they are on golf, it is doubtful whether this would be the major draw which some in Mauritius believe; even closer tropical destinations have found it difficult to tap a substantial part of this market. For all these reasons, it is doubtful whether Far Eastern travellers will ever constitute more than a very small proportion of visitors to Mauritius. The honeymoon market is perhaps the most promising market segment. An additional problem is the lack of direct flights from Japan. Lack of airport capacity in Japan until at least the mid-1990s poses serious problems; nor is the use of Hong Kong as a hub a satisfactory solution, because of shortage of capacity there and the preference for direct flights. Australia possibly represents a more interesting market as the distance from Western Australia io Mauritius is competitive with that to popular Pacific island destinations and there is a strong tradition (in contrast to Far Eastern origin countries) for pure beach holidays. 5: Tourtsm 101 Traffic rights remain, however, a long-standing problem; until this is resolved, Australia will be only a minor market for Mauritius. 5.38. Consequently, the main growth potential remains in Europe, and it is there that the vast bulk of promotional resources should continue to be focussed. Attracting European tourists, preferably with a shift away from the low-spending French tourists coming in through R6union, would be consistent with the focus on upmarket destinations. As was seen in Section B, European tourists stay relatively long and are high-spending. Mauritius has done relatively well in attracting tourists from France; around 1.7 percent of French long-haul tourists worldwide go to Mauritius. Linguistic affinity and relatively good air access (including cheap flights via Reunion) are the main reasons, but France also absorbs the largest single share of promotional spending. For no other European origin country, except Switzerland (around 1.0 percent), does Mauritius' share reach 1 percent of the long- haul total. Even for relatively important origin countries such as Germany, Italy and the United Kingdom, only about 0.4 percent of all long-haul travellers go to Mauritius. The Scandinavian countries and the Netherlands, which between them account for considerably more long-haul beach holiday travel worldwide than does France, are perhaps the most obvious almost-total gaps in terms of travel to Mauritius. Air access is, of course, a major reason. Air Access 5.39. Air access policy is one of many tools that the Govenmment can use to further its overall objectives in the tourism sector. However, such a policy can only be determined in the context of a clearly articulated government policy concerning the number and type of tourists that Mauritius wants to attract. Under the current stated policy, the Government could use air access policy to limit the total number of tourists while encouraging a move upmarket. This implies a strategy which does not go after numbers of tourists as such, but rather those from selected upscale destinations. However, if the Government were to decide that it cannot reverse the existing boom in hotel construction, for example because of pressure from the hotel industry, then it may well want to use air access policy to support the additional tourist traffic. 5.40. Umiting Air Access. Air Mauritius currently dominates air transport to the island; a large majority of traffic is either on Air Mauritius flights or on joint Air Mauritius/foreign airline flights operated with Air Mauritius equipment. Indeed, Air France, British Airways, Singapore Airlines, and South African Airways are the only important carriers operating wholly independently. This contrasts with the situation in most other long-haul beach destinations, the bulk of traffic to which is by airlines of the passenger's own country of residence. Reasons include the weakness of many developing country airlines, the strong preference which most passengers have for travelling either by their own national airlines or in other big carriers with an international reputation ior quality and safety, and the policies of many tourist destinations which have given priority to developing tourism as a 102 Maurfl: Expanding Hortgons whole rather than to the interests of national airlines. This last is, in some cases, reflected in a large share of charter operations. 5.41. In the conditions which have operated to date, with relatively limited numbers of passengers comning long haul from individual countries of origin, Air Mauritius has clearly served the island weLL It plans to continue to do so and a study is currently in progress on the strategy it should pursue in the 1990s; this will of course have to be part and parcel of the Government's overall tourism strategy. 5.42. Assuming that the Government reaffirms its policy to limit the total number of tourists and to encourage low-impact, high-spending tourism, there would not be great pressure to increase the seat capacity to Mauritius as such. Air Mauritius' policy of restricting the operations of other airlines and keeping air fares to the island high also serves to keep down the total number of tourists visiting the island. Certainly there are foreign airlines that feel that in traffic rights negotiations the Government has favored Air Mauritius and that they have accordingly been forced into accepting joint operations on Air Mauritius terms. On the other hand, certain foreign airlines with rights into Mauritius have chosen not to operate because they have other priorities or they find the route unprofitable. Other carriers which started operations decided to withdraw their services or to operate jointly with Air Mauritius, for example, Qantas, Alitalia, Air India and Lufthansa. Generally, of course, the volume of traffic has not so far been sufficient to support separate operations by two carriers. It is also true, however, that conditions have been imposed, for instance on the mi-x of different classes in flights, which have a significant effect on the viability of operations by independent airlines. Certain specific arrangements also turn out to be of clear benefit to Air Mauritius; for instance, the royalty which British Airways pays Air Mauritius for the carriage of fifth freedom traffic (a usual practice in the industry) on every tourist brought from the Middle East (where there are no Air Mauritius services) clearly deters traffic by increasing the cost advantage of holidays in the Seychelles and South East Asia - of particular interest to expatriates and their families. 5.43. Air Mauritius has also shown an interest in keeping fares to Mauritius relatively high; it considers that its fares are in line with the high standards that it sets and with the Government's policy of selective and high-spending tourism. Other airlines serving Mauritius have likewise shown little interest in pushing for lower fares as this would neither generate much traffic nor take any substantial part of the market share away from Air Mauritius. As Statistical Appendix Table VIII.10 shows, though official fares to Mauritius are not dramaticaly different in terms of US cents per kilometer to those on other long-haul routes, discount fares are substantially less attractive (except from France via Reunion). Rates paid to airlines by tour operators for travel to Mauritius are also unusually high - more than the all-inclusive cost of one-week holidays from Europe in some competitive destinations. There are some legitimate reasons why fares have to be fairly high. Though peak load factors are high, year-round load factors are not. There is little, normally highly profitable, first class and business class travel which on many J: Towlsm 108 routes subsidizes the concessionary fare and inclusive tour passenger. Crew costs are high because the long flight necessitates a crew change and low frequency necessitates long crew stopovers. Whatever the reasons for Air Mauritius' policy concerning fares and the operations of other airlines, it has clearly helped to keep down the total tourist traffic to the island which is consistent with the Government's stated policy. The issue for the Government is whether the de facto monopoly rents should accrue to the country as a whole instead of only Air Mauritius as is the case at present. 5.44. Nevertheless, the existing situation has some shortcomings in relation to the goal of encouraging high-end tourism. First, current arrangements give little incentive to foreign airlines to promote Mauritius as a destination, thus depriving the island of some high-spending tourists who should be targeted, including those from Europe and Australia. Moreover, German tourists, for instance, who have booked on a Lufthansa flight are sometimes disconcerted to discover that in practice it is, in essence, an Air Mauritius operation. 5.45. Second, when Air Mauritius equipment is used in flights to and from Europe, hotel occupancy is reduced because beds are often unoccupied for two nights a week in each fortnight's holiday when back-to-back flights turn round in Europe (paragraph 5.13). It almost certainly also reduces the average length of stay. This is not, of course, the result of any Air Mauritius strategy, simply the consequence of its market domination. 5.46. One of the problems facing airlines serving destinations like Mauritius is that the bulk of their fleets of long-haul aircraft are too large in capacity for a fairly low-volume destination. Although the economies of using these long-"-"'i dircraft on flights to Mauritius will become more worthwhile as traffic volume in-reases, the availability of a suitable 200-seater aircraft would make it easier in the meantime to step up frequencies and thus the choice available to travellers. Delivery delays for these aircraft are substantiaL however. 5.47. Improving Air Access. If, however, the Government cannot resist the pressure from the hotel industry to limit, or even curtail, hotel capacity, then it will also come under pressure to improve air access. If the incidence of peaking and average length of stay remain unchanged, fairly conservative estimates would suggest a need for around 1,200 extra seats a week by 1992 and 2,750 extra by 1995, based on the projection of hotel capacity. This includes estimated arrivals from minor origin countries and those coming via Reunion. But even if half the additional French visitors, plus a small proportion of those from other European countries, travelled via Reunion, this would only cut the additional number of long-haul seats required between Mauritius and Europe by between a fifth and a quarter. 5.48. To cater for even half this additional traffic Oess than its current share) plus the increase in its traffic from other areas of origin, both long haul and short/medium haul, Air Mauritius would need to expand its long-haul fleet from 104 Maurtis: Expandbn Horlzons six aircraft to seven by 1992 and certainly eight, possibly nine, by 1995. However, this may be difficult, given that manufacturers' order books for suitable aircraft are now full until around 1997. With many other airlines around the world also desperate to acquire new capacity, secondhand and leased aircraft are becoming Increasingly difficult and costly to obtain. Financing a major expansion in its fleet and building up staff and related facilities could also pose problems for Air Mauritius. 5.49. Under this strategy, if Air Mauritius will not be in a position to put on the bulk of the additional capacity needed, then other airlines, especially European airlines, will have to be encouraged to build up services to Mauritius. Particularly in view of the capacity constraints these are also facing and the relatively low priority most give Mauritius (a fairly small and not especially profitable destination), these possibilities will need to be explored seriously. 5.50. In the event, the question also must be posed whether charters should be permitted. It is natural that airlines now serving Mauritius should be opposed to these. Charters would siphon off traffic in peak months, while not operating in the low season. They thus make the economics of a low-volume route even more difficult for scheduled services. They could also imply a move downmarket; the upper-income tourists, whom Mauritius is particularly keen to encourage, generally have a preference for scheduled flights. However, it is only the French market which is likely to be large enough to support a viable charter operation in the next few years. As many French visitors to Mauritius are already coming on charters to Reunion, little would be lost by allowing direct services. It is recognized that, once in Reunion, tourists cannot be effectively discouraged from coming on to Mauritius. The competition opened up would also restrain prices charged to tour operators by scheduled carriers (who would otherwise be tempted by the general shortage of capacity to boost rates). 5.51. There is some disquiet at reported plans to develop Reunion as a regional air traffic hub served by a regional airline. Mauritius would appear to be better placed to perform this role, being linked to a wider range of destinations and with a more substantial and more diversified economy. The main potential for a regional hub is in relation to travellers from outside the region. Apart from the well developed flow between Mauritius and R6union, the scope for intraregional travel is more limited. Mauritius should actively seek to develop the island as a regional tourism center and pursue cooperation with nearby islands. Action is needed to sell the region as a whole. As in the Caribbean, "island-hopping' tourism could be encouraged, and Mauritius could be the starting and finishing point for Indian Ocean fly-cruises and yacht charters. 5.52. Finally, increased tourist traffic would soon necessitate an increase in the terminal capacity at the airport. At peak periods it is already under some pressure, though there is room for changing this through modest improvements to facilities. With the heavy predominance of tourist traffic and an emphasis on travel from 5: ¶buflsm 105 Europe, bunching of arrivals and departures and a high proportion of weekend traffic is, of course, inevitable. 5.53. To conclude, it needs to be clearly understood that air access policy must serve the Government's overall objective in the tourism sector. Limiting air access through high prices and restrictions on the operations of airlines other than Air Mauritius is quite consistent with the current stated policy, although it does lead to some problems in being able to attract tourists from certain targeted markets. However, there are tremendous pressures to allow an expansion of hotel cape city and hence on increasing aircraft seat capacity. The latter policy is consistent with an overall strategy of expanding tourism, not one of moving upmarket and encouraging high-end tourism. F. Increasing Tourist Earmings 5.54. One of the effects of the surplus of hotel space which is already emerging wil be that nominal rupee hotel rates will stabilize (a decline in real terms) and discounting increase. Up to 1993 at least, this will probably more than offset increased emphasis on typically high-spending tourists from Europe. Mauritius' quality image has also naturally attracted many who are unable or unwilling to pay the high rates charged by hotels, when far cheaper accommodation is available outside the hotel sector. This is the main reason why real expenditure per tourist night after a rapid rise up to 1987 has declined slightly since. The trend for a substantial and rising proportion of tourist nights to be spent in informal accommodation will be difficult to reverse. Some possible means, however, have been discussed in Section B. 5.55. Although average spending on accommodation, food and drink per tourist rnght may well fall in real terms in the years ahead, there is scope for a substantial increase in other areas of tourist spending, especially on shopping and on tours. The latest available tourist expenditure survey (for 1988) indicates that accommodation, food, drink and related gratuities absorbed about 66 percent of all tourist sgending, while shopping absorbed 16 percent and car hire and tours 10 percent. There has probably been little change since.3 By international standards this is a low proportion of spending on items other than accommodation, Q2 These numbers refer to tourists not on package tours. For tourists on package tours, the share of expenditure on accommodation, food, drink and related gratuities was about 71 percent, for shopping ft was 13 percent, while car hire and tours accounted for about 10 percent of expenditure. e3 On the one hand, there has been the shift to informal accommodation which implies relatively more spending on internal tansport and shopping. On the other hand, there has probably been a rise in the proportion on all-inclusive tours (certainly more come from Europe, travel from which is dominated by inclusive tourists). Though in absolute terms the average inclusive tourist spends more on shopping, but less on transport than the average independent traveller, the proportion of total spending going to accommodation, food and drinks is considerably higher. 106 Mawilis: Expandrg Horizons food and drink. In 1989, the average visitor to Mauritius probably spent only around US$70-75 on shopping, plus US$65-70 on transport and other elements apart from accommodation, food and drink while on the island. In contrast, in nany Far Eastem destinations the typical tourist spends US$300-400 on shopping alone on visits averaging well under a week; in Hong Kong and Singapore, over half of all tourist spending goes to shopping. Obviously Mauritius cannot yet expect to approach this level. The type of tourist is very different, and there are still few Japanese and Chinese visitors for whom shopping is a major holiday pursuit. Nonetheless, there is scope for considerable improvement; data on spending by European tourists in some competitive destinations suggest that their shopping expenditure in Mauritius could be boosted to USM200 per visitor, while spending per head on transport and tours might be increased by half. Net Tourist Earnings 5.56. No recent estimate exists of the proportion of gross tourist earnings which is retained in Mauritius. The analysis of 1980 data in a World Bank-sponsored study' suggested that, when direct, indirect and induced effects were taken into account, only 9 percent of gross foreign exchange earnings were retained in Mauritius as net foreign exchange earnings. However, a large part - around a third - of additional imported goods and services were "induced" effects, resulting from a high import propensity among Mauritian households receiving remuneration on profits from hotels, restaurants and other tourist undertakings, or from enterprises operating as suppliers or contractors to these (e.g., laundry services and building firms). Such induced imports are, of course, an intrimsic part of the development process in all sectors. Thus, the results of this study are not as different as might at first appear from the unofficial preliminary results of recent work carried out within the Ministry of Tourism based on a breakdown of the 1981 national input/output table to give more detailed coverage of the tourist sector. This work estimates imports of the tourist sector plus those generated in industries supplying this sector as equivalent to 29 percent of its gross output. Probably another 5 percent were profits paid directly abroad, but most of the industry's gross operating surplus (36 percent of gross output) was retained within Mauritius. Excluding induced effects from higher incomes, this work implies that net tourist earnings were the equivalent of 60 percent to two-thirds of gross. 5.57. This is high by international standards for a relatively small island economy, especially one which at the time was stil at a fairly early stage in the development process. The main reasons were the quite substantial profits of a mainly locally-owned industry, with few hotels being run by foreign companies under management contracts and most construction being by M. aritian firms and financed locally. The contrast in these respects with the Caribbean the main competitor area as a long-haul beach holiday destination, is striking. Economkc Impact Study of Tourism in Mauritius by Brian Archer and Steve WanhiU, September 1981. 5: 7owusm 107 5.58. Moreover, it is probable that, since the early 1980s, the share of net export eamings has increased. The more developed state of the economy as a whole means that more inputs can be purchased locally. Owing in part to the EPZ, the range of Mauritian-made manufactures is wider and their quality improved, while construction and other skills are also better. The increase in the tax surcharge on hotel biUs to, in effect, 15 percent Is another factor. Profitability of an industry which is still predominantly locally owned has probably also risen as hotel occupancy has improved and room rates have been boosted. Relatively low imported inputs are also implied by the first preliminary returns to the 1988/89 Ministry of Tourism/Central Statistical Office hotel survey. Direct purchases of goods and services abroad appear to be equivalent to under 5 percent of gross revenue. A modest proportion of food purchases - especially meat - though bought in Mauritius, has also been imported, as have all fuel and a number of lesser material inputs. The imported component in services other than quite substantial rents to government and local property owners is probably higher than for goods, while a small part of staff costs is for expatriate salaries paid or transferred abroad. The substantial profits of the industry are generally either reinvested or accrue to local investors. Hardly any is transferred abroad. Overall, it seems that the local component of hotel receipts is about 80 percent of the total taking account of second-round effects (the imported component of goods and services bought locally) but not of induced effects. The local component could be higher stil for restaurants, but lower for local transport and tours (in spite of the high taxes on vehicle imports) and for shopping; even locally manufactured goods bought by tourists have a big import content. The implication is of a combined current local content for the whole tourist sector of around 75 percent. 5.59. There appears very little scope for increasing the already high local content within existing tourist sector operations. There are few examples of imported products being bought where equivalent quality local ones are now available. Indeed it is striking how keen a locally run industry is to maximize the use of Mauritian products. The contrast with some other destinations, such as the Caribbean, is very pronounced. Nor do there seem to be many imported products which could potentially be produced locally within the next five to ten years. Agricultural diversification should, however, improve the supply of locally produced foodstuffs, and industrial development through the EPZ should widen the range of manufactures available. On the other hand, the squeeze on hotel margins implies a decline in local content, as does the serious shortage of skiUled staff; for the next few years a higher proportion of key workers are likely to be expatriates. And, it is becoming so difficult for hotels and restaurants to obtain adequate supplies of fish that a rising share of imports seems unavoidable. Improving Shopping Opportuities 5.60. The single biggest way in which spending per tourist can be increased is by substantially improving shopping facilities. It will be appreciated that even imported, duty-free goods have a substantial local content - sometimes as much as 50 percent - because of high trade markups. The need for better facilities is 108 Mawutrus: ExpanZdg Horons already widely appreciated and a new venture, The Mauritian Shopping Paradise, plans to set up outlets in different parts of the island. The present shops in tourist areas, including hotel shops, offer only a meager range of generally low-quality goods of little interest to upper-income visitors. Handicrafts and cheap beachwear predominate. Many of these are not even local in origin - cheap handicrafts are largely from Madagascar. The prestige name, high-fashion articles, quality jewellery, and camera equipment readily available in or close to hotels in competitive destinations are noticeable only by their absence. Nor is the situation much better in the main urban centers of Mauritius. In any case, they are too distant and difficult to access for tourists who usually prefer to shop after a day on the beach, or only when the weather is poor. Consequently it is likely that the average tourist spends significantly less on shopping than originally envisaged when leaving for his or her holiday. 5.61. From the upper-income tourist's point of view, the ideal is a shopping complex with caf6s, restaurants and several shops of each type (fashion, shoes, cameras, etc.) so that goods and prices can be compared. There are two main problems in establishing profitable modem tourist-oriented facilities in Mauritius. First, the tourist population is relatively scattered. Even in Grande Baie, there is not a large number of potential shoppers staying within easy walking distance or a short taxi ride away. Consequently, shopping facilities would have to be on a more modest scale than in the big complexes in Far Eastem beach holiday desinations. Second, to have a good range of high-quality products available implies that most will have to be imported (exactly as they are in shopping centers in Europe and the Far East). And for these to sell to tourists, they have to be attractively priced, implying low or even no duties. lnevitably, many in the local population would also be attracted. This could stimulate imports and lead to a loss of tax revenue. 5.62. To prevent Mauritians f.om using tourist shops, as some countries have sought to do, would naturally c:ause resentment and, as elsewhere, would be almost certainly ineffective, especial y with the planned abolition of exchange controls. Rebates of taxes on leaving the island might be practicable, but could prove an admiristrative nightmare, not least because of the temptations to issue falsely- inflated invoices to give the customer a bigger refund. The need to get refunds or the alternative of a dual price system (lower prices for goods delivered directly abroad or at the airport) would also significantly deter tourist purchases. The only way to give sufficient stimulus to shopping by tourists may therefore be to reduce sharply or eliminate tax on sales in Mauritius of the products concemed, on the presumption that tourists will in practice prove to be the main purchasers; if so, the local content of sales to tourists arising from trade markups should roughly equal, or even exceed, the import content of additional purchases by Mauritians. Duty- free local sales are already allowed for EPZ products. There would obviously be some risk in this approach, though there would be compensating benefits to the local populationL The key may lie in carefully defining a limited range of products of particular interest to tourists which would benefit from the tax cuts. The more 5: 7buwlsm 109 limited range of goods would also mean that centers would not have to be overly large. Tours and Car Hlre 5.63. Tour operators beleve that around half of al visitors to Mauritius take one or more full or half-day tours while on the island. The proportion tends to be relatively high among first-time visitors, while repeat visitors, especially those from Reunion, are more likely to take taxis (highly competitive with organized tours in terms of price) or hire self-drive cars. Many take two or three tours while in Mauritius. Around half of all tours are boat excursions. The remainder are by bus, predominantly day trips visiting a range of inland attractions, plus a fair number of half-day shopping visits. Prices are very competitive, around Mau Rs 450 on average for a full-day, guided tour; but the local tour operator's take may be as little as Mau Rs 250 (hotels and foreign operators extract substantial shares). One of the problems is that local tour bus capacity is geared to what is needed mainly on weekends for transfer between the airport and hotels. Midweek, this capacity is largely unutilized, leading to intense price competition especially in sales to foreign operators. Moreover, the extremely heavy duties on small luxury buses make it impracticable to import them. This deters tourists from taking full-day tours (bad roads are perhaps an even more important factor in this, especially from east coast hotels), and means that there is no comfort distinction between bus tours and trips offered by taxis. Total tourist expenditure on tours is probably Mau Rs 100-150 million annually, half of which is for boat excursions, or between 3 and 5 percent of gross tourist receipts. 5.64. Taxis do, of course, provide a valuable and flexible service to tourists, though there is, perhaps, some justice in the complaints that safety and other standards are often lower than they should be. The volume of day and half-day trips in taxis, including the cheaper minibus taxis, can only be roughly estimated, but is clearly well below that handled by organized tour operators. There are believed to be around 25,000 car-hire contiacts a year, generally divided between two or more tourists and typicaUy for five days. Thus approximately 20 percent of aU tourists have a hired car at their disposal especially those staying in bungalows or informal accommodation some distance from the beach. Relatively smal vehicles, especiaUy the open Mini Mokes, are the most popular. Total gross revenue of car hire operators is around Mau Rs 125 million a year, or 4.5 percent of gross tourism receipts. 5.65. While the potential for boat excursions appears weU developed, there is considerable scope for increasing tourist spending on bus tours. Cost is not a constraint, as prices are modest for those spending considerable sums on a holiday in Mauritius. The lack of comfort in non-luxury buses traveLUing in a hot climate over, in some cases, very poor roads is a more serious problem. It limits the number taking excursions from some hotels. Bad roads also increase vehicle maintenance and repair costs and shortens their useful life. There is a case on grounds of equity to giving tour operators and car hire firms the same tax-free 1 10 Mawrus: E1paruLng Horwons privileges as other export concerns but, much as they would like this, it is doubtful whether they need it to attract many more tourists. It would also put taxi drivers, who currently pay considerably lower duties on vehicles, at a disadvantage. But import duties on buses, especially luxury types, are excessive. A substantial cut, to perhaps the same rate as on taxis, could be justified for both buses and rental cars.65 5.66. It is also important to make tourists better aware of the full range of attractions on the island, including those such as mountain walking, forest visits and special interests which commercial tour operators cannot cater to. The Mauritius Government Tourist Office (MGTO) needs to give more attention to promotion to tourists once in the country (paragraph 5.35). Tourists seem largely unaware of the scedki attractions away from the beaches. Many might also welcome the opportunity to visit some agricultural undertakings (few will ever have seent, for instance, a sugar estate and mill at harvest time). In short, especially in view of the quite substantial number of repeat visits to Mauritius, the "menu" of potential places to visit needs widening. To do this, road surfaces need improving in some areas, while at many attractions there is much that could be done to enhance tourist appeal and generate additional income at the same time. The ease of visiting Port Louis could be improved by parking facilities for coaches together with a meeting place. 5.67. Visits to Mauritius' inland tourist attractions generally need to be made more convenient, interesting and memorable. Cafe and restaurant facilities are often poor or even non-existent. Some could probably also support a tourist shop. The possibility of additional activities, such as mountain mule treks or swimuing in mountain streams, might be explored and introduced at suitable locations. All this would help to encourage visitors to stay longer and spend more. 5.68. Perhaps the prime example of an underexploited tourist resource is the Royal Botanic Gardens at Pamplemousses. An entrance fee could be charged to non-Mauritian visitors." Some refreshment facilities are needed. A shop could sell souvenirs, including pictures of plants and other specifically botanically- oriented items. Some of this additional revenue could go to improve the appeal of the gardens to tourist visitors. There should be more emphasis on flowers, especially orchids. (The orchid garden within the Singapore Botanic Gardens is a major tourist attraction). Tree and plant labelling and explanations of uses could be greatly improved (though the guide book is good). Possibly too, in time, a wider variety of trees and plants could be established to enable it to live up to its reputation as one of the world's prime tropical botanic gardens. The French e5 When vehicles are resold, the difference in duties could be levied on the secondhand value. 66 It is generally obvious which visitors are Mauritians. An entrance fee equivalent to Mau Rs 24 has had little impact on the massive flow of tourists, both foreign and British, to Kew Gardens in London, and in 1991 it was tripled. 5:7bwlsm III Government has already agreed with the Government on a management plan for the Gardens which will be implemented by the French. Sports Facilties 5.69. AU the leading beach hotels have good facilities, mostly free to guests, for water sports and many also have tennis courts. Facilities for yacht charter and deep-sea fishing are also weli established. Thek i are nine-hole golf courses at St Geran and Trou aux Biches, and deer hunting cam be arranged at Domaine du Chasseur. Though there is potential for mountahl walking and rock climbing in some parts of the island, few of those visitors who might be interested are aware of this in advance and it would be difficult to take advantage of them without preparation. 5.73. Many in Mauritius believe that there is a sufficiently good holiday market to be tapped to justify the construction of one or more 18-hole golf courses. Some doubts can be expressed as to whether this is the case. Few travel long haul for specifically golf holidays, as this is not necessary. Americans take winter golf holidays predominantly in the Caribbean, Europeans mainly in southem Spain, Portugal and Tunisia.'7 Europeans rarely take golf holidays in the Caribbean and Americans rarely in Europe. This is largely because, apart from distance and cost, Europeans have a tropical island image of the Caribbean (as they do of Mauritius) where golf does not fit, while, for Americans, the image of Spain and Portugal certainly does not suggest golf. Additionally, playing habits vary. Europeans play relatively rapidly, rarely use buggies and do not regard golf as a suitable hot- weather activity, while in the United States golf is played throughout the summer but is generally impracticable in the winter in many parts of the country. Of course some Americans play the odd round of golf whilst in Europe, while some Europeans take their dubs to the Caribbean. But this is generally only a minor element in their holidays. Golfers from Japan and the Far East are doser to Americans in speed of play and adaptability to hot weather; but few could be expected to come to Mauritius on primarily golf holidays when warm-weather golf can be found far closer to home during their winter. In short, the opportunity to play golf in Mauritius would for all except perhaps a tiny minority be secondary to the island's prime attraction as a beach holiday destination. In this context, and in a hot climate, it ic doubtful whether an 18-hole course is a much more substantial draw than a 9-hole one. G. Supporting Infrastructure Staff Shortages and Training 5.71. The increase in hotel capacity potentially implies an almost proportionate rise in the demand for trained hotel workers; though staff ratios are generous by 67 The undoubted benefits which Mediterranean region resorts draw from golf cours are in the winter season when hotel occupancy would otherwise be even lower than it now is. Golf cousses contribute litle to summer season occupancy. 112 Mawltfu: ExpandW Horlzons international standards, a substantial improvement in average skill levels would be needed to reduce significantly the number of staff per visitor. The immediate impact of the expansion in capacity could, however, be a lowering of standards, which would also affect Mauritius' reputation of high quality. Staff recruitment and training are clearly one of the most serious operational problems facing hotel managements. Shortages are particularly acute in the higher skill and supervisory grades. They have led to a sharp rise in staff costs. 5.72. The larger hotels have well established training programs for the more junior gradess, but only the two big groups, Beachcomber and Surn, and those with strong international links can attempt training in higher skills. Often, as with smaller hotels and restaurants, staff shortages are mitigated by poaching. The Mauritius Government Hotel and Catering Training School has long been starved of resources. Its facilities and staff are quite inadequate to supply the industry's needs in both quantitative and qualitative terms. If, as it seems, it has been decided to transfer responsibility for the school to the Industrial and Vocational Training Board (IVTB), this should be effected immediately. The IVTB envisages the establishment of an entirely new school with French assistance. It is recognized, however, that this cannot be operational for some years (both site and design have still to be finalized). Pending thuis, priority must be given to establishing a crash training program based on revamped existing facilities plus those which tie industry can make available. For the next few years significant numbers of trainers and some of the key personnel within hotels will clearly have to be recruited abroad. Tourism and the Environment 5.73. Many in Mauritius, both inside and outside the tourist industry, note that the current rapid expansion of hotel capacity and of tourism generally has gone ahead with little thought to environmental or social impact. There are even more widespread complaints of increaslng water and beach pollution in the main tourist areas, especially in the north of the island and particularly around Grande Baie. The coral reef is said to be seriously damaged and fish stocks affected. But it has not as yet been possible to take scientific measurements over a sufficient period of years to establish the extent of ecological damage or its likely causes. The creeping urbanization of some tourist areas, with resulting increases in discharges and solid waste, is, however, clear. While the visible signs of damage are on a minor scale compared with many resorts in other parts of the world, the "unspoilt tropical paradise" reputation of Mauritius will obviously evaporate without action soon. 5.74. Foreign tourism is not the sole cause of environmental damage. Industrial discharges and agricultural fertilizers and other runoff also appear to be important factors. Moreover, the greater mobility which rising prosperity has brought has encouraged an increasing number of Mauritians to move to the prime tourist areas or to visit them on weekends. Some of the development in the Grande Baie area appears completely unrelated to foreign tourism. So, much of the environmental damage which has occurred in Mauritius in recent years results from the general S: 7burtsm 118 development process. This does not, however, imply that it is an inevitable effect of economic development. Steps can, and should, be taken to mitigate It. 5.75. Following the World Bank environmental report for Mauritius," a number of projects are being initiated which will help reduce pollution and protect the coastline in the north of the island. Consultants have been short-listed for a nationwide master plan for sewage financed by the African Development Bank. An important subcomponent, to go ahead faster, is a special stud) -n the Grande Baie area. Two separate projects are involved in a master plan to restore and protect the coastline in the north, there are hopes of French aid. Finally, the Nordic Development Bank/Fund has expressed Interest in financing the implementation of a 10-year solid waste management plan, which is expected to be prepared by a technical assistance team from the Overseas Development Administration (United Kingdom). Infrastructure 5.76. The concentration of tourist development in the northem part of Mauritius puts an appreciable strain on water resources. In total, around two million cubic meters a year of water are used in tourist hotels. Like all communal users, hotels get piped supplies at subsidized prices (around 25 percent below the cost of supply). However, price increases are planned. But many hotels have to bring in a large part of their needs by road tanker, often from the Central Water Authority, at much higher prices. The great majority of hotels, especiaLly the larger ones, have water treatment plants and an increasing number of them are now re-using the waste water for hotel gardens and nearby agriculture. Residential units in tourist areas discharge their waste water into septic tanks; this can be a problem in areas where ground water levels are high because of seepage and eventual runoff into the sea. The studies shortly to be undertaken on sewage treatment should be considering the options, but there may well be a case for establishing, and encouraging hotels to establish, water recycling in major deficit areas. 5.77. AL oted in paragraph 5.65, road conditions are very poor in some tourist areas of t.te island, especially on the east coast, and this deters marny from seeing more of Mauritius, and consequently from spending more while on the island. Programs for road rehabilitation should give greater priority to needs in these areas, although it is doubtful that the volume of tourist traffic alone would provide economic justification for a road rehabilitation program. Other infrastructural facilities appear generally adequate, though the incidence of electricity supply interruptions, often due to cyclones, has forced most hotels and many restaurants to invest in standby generators. The World Bank, Economic Development with Environmental Management: Strategies for Mauritius, Report No. 7A524-MAS, November 1,1988. 114 MaudUus: Expadin Hortzons H. Action Plan 5.78. The above analysis suggests the need for consideration of an overall master plan for tourism in Mauritius. While the 1988 White Paper on Tourism gives a clear vision of how the Government would like to see the sector develop over the next few years, the analysis in this chapter points to areas where the stated objectives are being frustrated. The foliowing should be given considerationi W In light of existing and projected hotel capacity, review govemment policy on the target for the number of tourists with a view to clearly restating government policy towards the tourism sector. Ensure consistency between stated policy and actual hotel capacity. a Review the system of hotel certificates and make a decision on certificates already granted. Review incentives given to hotel developers in Ught of government policy a-.d targets. a Ensure proper and close coordination between tourism strategy planning and land use planuing. . Carry out a comprehensive review of air access policy to ensure that it is consistent with the policy of attracting upmarket clients. W- Explore and develop a plan for the regulation of informal accommodation, including licensing and e3tablishing standards for sanitary conditions and waste disposal. W Increase the budget for the Mauritius Governnent Tourist Office and review promotional strategy so as to direct resources at selected upscale destinations in an effective manner. O& Strengthen the institutior ' capacity of the Ministry of Tourism and the Mauritius Government Tourist Office. a Develop an action program '.:r increasing net tourist eamings, including shopping facilities, tours, sports, and inland activities. a Create a National Tourism Board as a forum for consultation in matters relating to the tourism industry. W Review the adeq-acy of the proposed arrangements for the Mauritius Government Hotel and Catering Training School in order to maintain Mauritius' upmarket reputation. In addition, devise a training plan for the interim period. 6 Synergy in Diversification 6.1. The economy of Mauritius is at a crossroads. The successes achieved during the 1980s, which exceeded even the most optimistic forecasts of the Government, have structurally transformed the country from an agriculture-based, mono-crop economy to one with a dynamic manufacturing sector and a rapidly growing tourism sector. There can be little doubt that the first phase of development has been achieved and the Government deserves a great deal of credit for laying the foundations for sustained, export-led growth. The country now stands poised to enter into the second phase of development, a phase which is likely to transform it into a Newly Industrialized Country (NIC). The situation today is much more complex than it was when Mauritius embarked upon its initial adjustment effort and, consequently, the path ahead wil be even more challenging. While pragmatic macro-management of the economy wil continue to be a prerequisite, the Government will have to focus more and more on policies aimed at enhancing the productivity of its factors of production. It wiU have to do this at a time when there are rapid changes taking place within the international economic envi onment which could have far-reaching implications for the Mauritian economy. 6.2. However, this process of increasing productivity and diversifying the production base of the economy does not necessarily imply competition among the major growth sectors. Rather, what emerges from this study is the feasibility of peaceful co-existence between the major sectors in the economy and, within agriculture, between sugar and nonsugar crops. Developments in one sector can generate backward and forward linkages in other sectors, thereby stimulating additional growth. 6.3. The recent rapid growth of the EPZ and tourism sectors has created a whole range of new opportunities which have directly affected the allocation of land, labor and capital. These sectors have provided new opportunities for investment and, in the process, have made the economy more diversified and more robust. They have also enabled agriculture to participate in, and contribute to, the boom for example, the increased profitability of sugar estates through diversification into other crops, the backward linkages into the packaging industry from the fruits and vegetables export industry, and the production of fruits and vegetables for the tourist industry, as well as for the export market. 6.4. Similarly, there are important linkages between "brain-service" exports, as discussed in Chapter 4, and, for example, the eradication of the fruit fly, as 116 MaurUtus: Expanding Horlzons discussed in Chapter 3. Mauritius has unique advantages in dealing with both of these areas. Having an educated and bilingual work force, it is quite easily capable of installing the information base and modelling techniques necessary for designing fruit fly intervention strategies. Indeed the development of an "informaticsN industry, ie., one that specializes in different types of information-providing databases, is already underway in Mauritius. Moreover, being a small island with many micro-climates, a range of agricultural activities, offshore reefs and fishing industries, Mauritius offers a "closed system" where studies can be made in isolation and tested for effectiveness, a marketing advantage few countries in Africa can offer. The informatics industry, by combining service roles with direct applications in Mauritius, could spawn a new service industry. Mauritius is already the leader in sugarcane training for the area. It could similarly take the lead in the development of informatics and transfer this technology to the African region. This is another example of synergy and complementarity between the EPZ and the agricultural sectors. Agricultural diversification also assists in offering many more opportunities for developing information management systems; in short, informatics is a growth industry. 6.5. The growing tourism industry, combined with diversification in agriculture, creates new opportunities for tourist businesses. The scenic beauty of inland Mauritius can be combined with agriculture to develop agro-tourism. Centers like Le Val and Domaine du Chasseur which could be developed to offer stag huntin& beautiful scenery, ebony forests, kestrel birds, restaurants, and overnight accommodation are particularly attractive. The tourism and agriculture industries can both benefit from this sort of development. The economic benefits of these attractions need further study and market research, and a strategy needs to be developed to realize the tourist potential of agriculture and the natural interior beauty of the island. 6.6. In addition to the more obvious linkages between sectors, there are a number of issues which are cross-sectoral and further highlight the synergies generated by the diversification process. This report strongly recommends that, as the Government embarks upon this second phase of development, it explicitly incorporate such cross-sectoral linkages into its planning process. At this critical juncture of Mauritius' development effort, the Government needs to target its efforts at creating the kind of facilitating environment which will put scarce resources, be they land, labor, or capital to their most productive use. A. Land Resource Management 6.7. One area in which the Government will have to place major emphasis, and which has far-reaching cross-sectoral implications, is land resource management. Land provides the resource base for a wide range of pursuits. The interaction between land, climate, productivity, management practices and markets governs the allocation of land for agriculture, industry, tourism, and other uses. These interactions are exceedingly complex and a thorough understanding of their impact is required before an optimal allocation of land can be achieved. Given its peculiar 6: Synergy in Dvers caton 117 importance in the Mauritian context, the Govenmment needs to adopt the best technology available to assist it in making its decisions. 6.8. An extremely important tool that can assist in such alocation decisions is an integrated information system such as the Geographic Information System (GIS) referred to earlier (see paragraph 3.33). GIS is a powerful tool for integrating and analyzing data from diverse sources such as land ownership, land parcels, soil surveys, land suitability, irrigation surveys, land use topographic maps, climate regions and remote-sensed data. These geographic data are spatialy registered so that various types of data can be compared and analyzed together. The data can be "digitized" and stored in computers so that they can be manipulated, reconfigured, updated, compared, displayed and mapped in a format to meet management needs. Such systems are now widely used in several parts of the world; two of the largest applications are the Sydney Water Board and the Brisbane City Council and, although they are complex to set up, provide benefits which can far exceed the costs. Installation of such a system would greatly facilitate the analysis of the various altemative uses of land and assist the Govermnent when it decides whether to issue the necessary licenses and permits for industry, tourism development, or agriculture. 6.9. The Sugar Protocol, which sets quotas for sugar exports and hence production targets, has been one of the overriding concerns in the allocation of land in Mauritius. Sugar has traditionally been a major source of export income; the guaranteed EEC market, together with the institutional infrastructure, have dictated that sufficient land be devoted to sugar to meet production targets. With the growth of the manufacturing and tourism sectors, there has been a gradual erosion of the amount of land devoted to agriculture and increasing concem has been expressed by the Govemment on the need to manage land resource allocation more effectively. The need for a better information base has also emerged in discussions on the availability of suitable land for horticultural production. 6.10. These altemative land uses need nof be in conflict with each other but act synergistically. For example, agro-tourism could combine agriculture, natural scenery and tourism to create a new inland tourist industry. Similarly, as has been pointed out earlier, there need not be competition between sugar and other crops for land resources. A great deal of land is still available for other agricultural pursuits through sugar crop rotation, interline cultivation, use of marginal land better suited to other industries like deer farming or fruit orchards, and high-value intensive crops like anthurium which do not require large tracts of land and hence have little impact on sugar land. In some climatic zones like super humid or very dry regions, crops like tea or mangoes are better suited. Some of the sugar land which is marginal because of rockiness or lack of irrigation could in fact be derocked and irrigated on the basis of improved economic returns from high-value vegetable crops. Steep and excessively rocky land is also more suited to high- value orchard development. Using the cutting-edge of technology and developing the necessary database will greatly facilitate the Govenmment's task and assist it in designing appropriate interventions. 118 MalrUus: Expand& Horizons 6.11. The Ministry of Environment and Land Use is very conscious of the need for effective land resource management to service aU sectors of the economy. The development and use of an agricultural land resource database system (ALRDS) in Mauritius is well underway. The data already captured and stored within ALRDS comprise terrain characteristics, climatic factors, soils, land suitability, crop data, etc. These multiple data layers should now be able to provide, through a process of integration, different thematic maps on topics such as land areas suitable for food crop production, wetland and rocky areas affecting cane growth land areas which have not been derocked, land ownership and parcelling pattern, land areas for erosion control and the impact of cyclones in relation to terrain and windbreaks, etc. The development of GIS capability from the ALRDS is a natural progression and the only major constraint at present is the lack of appropriate computer software and some training in its use. Given the importance of land resource management in Mauritius, it is recommended that Uhis area be accorded high priority. B. Human Resource Management 6.12. The single biggest asset of Mauritius is its people. With a literacy rate of well over 90 percent, the people of Mauritius present a harmonious blend of different ethnic origins. Combined with the island's political stability, they have proved to be a magnet for foreign investment from all over the world. As Mauritius embarks upon the next phase of development, it will have to pay particular attention to further developing its rich human resource base. 6.13. Mauritius has a young population, of whom more than two-thirds are of working age. Most of this population is bilingua, fluent in English and French, which, over the past decade, has acquired considerable experience and knowledge about international trade and commnerce. The task of effectively managing this young, politically active, upwardly mobile population and channelling its energies in the right direction will be a challenging one for the Government. 6.14. At the heart of the challenge lies the Mauritian education system and its capability for delivering well educated, easily trainable, young men and women. Formal education is accorded a great deal of importance in Mauritius. Both primary and secondary education in Mauritius are free and the enrollment ratios of 105 percent and 53 percent in primary and secondary schools, respectively, compare favorably with those of other middle-income economies.69 However, the structural transformation of Mauritius into a more sophisticated economy has changed the traditional manpower requirements and created the need for technical and specialized skills. While participation in secondary education has increased from 26 percent in 1965 to its present level of 53 percent, this is still not sufficient to provide the intellectual foundations of a country that would want to move in the general direction of "brain-service" exports. In contrast, secondary school participation is 69 percent in Singapore and more than 74 percent in Hong Kong. 69 World Bank, World Development Report, 1991, pp. 260-261. 6: Syneitn D(veL4wVn 119 Between 1965 and 1988, Korea was able to increase secondary schnol enrollment from 35 perce-nt to 87 percentZ'0 6.15. With the increasing mehniation in agriculre, the potential growth of high technology industries in the EPZ, and d;velopments in the financial sector like the stock market and offshore banking, the demand for higher-level skills is bound to increase, calling for urgent action on the part of the Government. Moreover, In addition to facing competition from other developing countries like Sri Lanka, China and Indonesia, Mauritius now faces the spectre of increased competition from Mediterranean economies like Tunisia and Morocco and from the recently liberalized economies of Eastern Europe. It is therefore imperative that the Government establish an education system that will provide the average Mauritian with the necessary tools to respond effectively to the emerging competition. In May 1990, the Government embarked on the preparation of an Education Sector Master Plan, aimed at making the education system more responsive to the country's socioeconomic needs. As disncussed earlier (see Chapter 4), efforts are also underway to introduce a system for industrial and vocational training. This report strongly recommends that continued emphasis be placed on this vital area in order to prevent it from emerging as a constraint to future growth. C. Management of Capital 6.16. Despite the introduction of innovations such as offshore banking, the stock market, and a leasing company, the financial system in Mauritius has not kept pace with the developments in other sectors of the economy. The continued reliance on direct controls and credit ceilings has restricted competition in the financial system and has inhibited the development of capital and money markets. Several reports of the World Bank and the International Monetary Fund have documented these weaknesses and have proposed a reform program but implementation continues to be slown7 6.17. As discussed in Chapter 4, there are widespread indications that the financial system is fast emerging as a major constraint to the future growth of the economy. At a time when the two most productive sectors of the Mauritian economy, industry and agriculture, are in the process of upgrading plant and equipment in an attempt to shift emphasis from labor-intensive techniques of production to a greater reliance on capital, this weakness in the financal system can become particularly obstructive. For Mauritius to be able to compete successfully, the existing system will need to be overhauled. Ibi. See Interational Monetby Fund, Central Banking Department, Mauritius: Prps for Re/brm of te Framework of Monetary Control, June 30, 1988; and The World Bank, Mauritius: Mamaging Succea, Chapter 6, November 1989. 120 MawUus: Epanding Horizons 6.18. While the banking system is fairly well developed, it will be necessy to develop new financial markets, increase the competition for financial services, and increase the nunm,er of financial instruments. The Govenmment needs to review the present system of directing credit to the productive sectors of the economy and to promote dealers and money brokers with a view to develop secondary capital and money markets. As the demand for financial services grows, Mauritius will need to encourage the development of nonbank financial institutions (such as finance companies and mutual funds) and securities markets in order to broaden the range of services and to stimulate competition and efficiency. STATISTICM SPENDIX N_ I I I i. __._ . ___.. . _ i . | _ s - l _3ti - | | S_ _ i , _ _ _ l I _ - 3 - s | 3 __=" i X | _R R | _ | ! _ _ . _ _ . _ _ | s I _ - E 3 _ _ | i s 5 s E | _ __R _ | l N i N _ l_ | | | | _ _ | S = 3 s _ _ E __ = = a 3S r E E _ | _ | e The data h thSs appendLr rejlect their awU - Ulty as of Decen 31, 1091. MAURrrIUS TABLE 1.1 POPULATION AND VITAL STATISTICS 1/ 19S2 1962 1972 1983 1986 1987 1988 1989 1990 brland of Mauritiuo b0th 681rfcs to tho 9um.85 of 1,Ia re 096 mi2d-yea popultion male ral0 tofcrr 4o 4ho 49nb5r 0f de6,71 in a r 10r5 Female mi d r 471 Ilvand of Roduigues 1317.3 41"9 3102 355 36.57 3,453,46 3.8 Female 27, 1992 12499 16 5tf 1991a 1,8607 8 Other Islands56 48 50 50 $0 0 50 Male27 3 35 5 35 30 30 Feale for 1990 aro 1,05,00 15 150 1r do ho19 e rtc Total Population * do 01.134 badr 1,029 in t04 abv $ which 1n044d35 noreidnt Crude Birth Rate 2/ Island ofeMauritius th1 acg for 1951-50 Islandof Rodrigues 3/ 43 41 37 21 27 21 20 2. Crude Death Rate 2/ Jland of Mauritius 4 9r p651 6668. blmnd of Rodrigues 3l wer 93 yac 5 49 5 mi-er Inant Mortality Rate 2/ Island of Mauritius #1 * t 56 41 22 20 16 19 bSland ofRodrigues 3/ flco Dgs of 4emo424ph4c4S407c34 FertilitylRate 4/ 104.5 76~? 66 04 713 734 112 DefinItIon: Crude birth rate refers to the number of live-births In a year per 1,000 mid-year population. Crude death rate refern to the number of deaths in a year per 1,000 mid-year populton. Infant mortalit rate refers to dthe number of infant deaths, aged undemr one, in a year per 1,000 live-births during the year. Fertlity rate refers to the unumber of live births occurring in a year per 1,000 women aged 15 to 49 years at mid-year. I/ As of Marc 27. 199 population estmates for the State of Mauritius for 1991 are 1,078,072 and for 1990 are 1,065,990. These estimaes are based on the 199 censu rather rdathe tha on a 'do facto' badis (used In the above table) which Included non-residents but excuded residents who ware away. 2/ 1952 data refer to the averge for 1951-55. 3/ Except for 199, whIc refers to same-year data, rates have been calctlated by taking the average for three year to remove fluctuatins In yearly data. 4/ Islad of Mauritius; 199 dat are provisional. Nate: 1952, 1962, 1972, and 1983 were census year. Population estnimtes are mid-year. Source Cenra Statstical Office, Digest of Demographic Statstcs. 123 MAURniIUS TABLE 1.2 SOCIAL INDICATORS 1972 1983 1987 1988 1989 1990 Population ......,.:.:::::...:. .. Life Expectancy at Birth - Male Female 6 17.37 Cmude BirthRate 2 11 12 Crude Death Rate 7777 Infnt Modality Rate Labor Force Participation Rate -Male 10*138 Female20 2424434 Unemployment Rate Education Primary nrolmenthRatio (gross) Pupil-Teacher Ratio th n 2f lv 2l °1 Secondary Enrolment Ratio ()(gross) 444$4500 Pupil-Teacher Ratiot... Food, Health & Nutrition Per Capita Supply 2/ 10q12rm134 Proteins E / Doctor/Population Ratio 6/ 2 18 Hospital Bed/opulation Ratio 6/ . 3625 Housing Pearcmt Ower Occupied Percent with Electricity Percent with Piped Water9 9989 Percent with Telephone Energy Consmption per capita 7/ ....... DefinItkon: Crude birth rate refer to the number of live-births in a Iya pe 000 mid-yer population. Crudo death rawte rfers to the nuntber of deaths In a yea3rVpe 106mId-yar populaio. nno raity ratefd to the number of 1 nfant deiths, agd u one. in a year per 1.000 erlI~rate reesto th nmbrofle births occurring in a year per 1,000 women aged years at mid-year. I/ Ratio calculated on population ae61 ;formerly ago-group S-1Il was used. 2/ CalorIes as a percentge of Urmenq s 3/ Aveag o 1982,1983-ndl9u 4/ Etmtd 5/ Grams nor day. 6/ Per 10OG,000. 7/ Kg of oil equivalent. Soure: National Development Plan, 1988-90. MfInistry of Economic Plmaning and Development, Vol 1, p.26. 124 MAIJURrrlUS ___TABLE H..1 GDP BY SECTOR IN CURRENT PRICES, 1984-1991 In millions of Mau Rs Ro. Est. Est. 1984 1985 1986 1987 1988 1989 1990 1991 Primary Production 173632123 : 2 Agriculture 176 22W50 28 36 17 80 3 o/w Sugar1 Other 57 8 0 0 81 05 11 347 Secondary Production318 05 514 60 751 70 .O4152 Mining & Quarrying 1 2 22 2Z 2:. .. 4i Manufacsuing 21 2) J M' 484 olw Sugar Milling 276 5977 -~~~~~~- Export Processing Zone 86 33 10 58 0 0 4012 Other Manufacturing 99 "9 35 5ii95 226 50 28 construction 60 73 81 03 17) 13 20 27 Electricity, Gas, Water29 37 46 40 31 57 55 75 Hotels & Restaurants 30 30 45 55 60 85 12 11 Transport, Storage & Communication 132 10 175 07 0 28 41)46 Finance, Real Estates, tet25.10 23 42 22 20 33 25 olw Housing140 13 150 11 175 10 210 35 Government Services 3 17 160 05 60 27 391 70 other Services 65 70 7 5 01 20 18)18 GDP at Factor Cost 10018014016521125 10 56 olw sugar Sector 19 96 21 10 74 30 45 34 Net Indirect Taxes 21.1. 20 $8 62 59 20 60 Indirect Taxes 2$.74 $0 01 49 55 60)71 Subsidies45 4 5 90 61 34*0)* GDP at M-arket Prices 46... . ..........-.....-.-.. . Notw: Data refer to calendar year. Source: Central Statidical Office, Nattonal Acconab of Mauritus. 125 MAURITIUS TABLE II.2 GDP BY SECTOR IN CONSTANT PRICES, 1984-1991 In millions of Mau Rs C--- 1982Prices ---> <------ In 1987 hco8 ------> Rev. i-O. Eat Bat. 1984 1985 1986 1987 1987 1988 1989 1990 1991 Primiaty Production 14 42 15 61 28 72 21 79 28 s~~~~~~~~~~~~~~~~~~~~~~ ..... ......- Agriculture 1'4 4 10 284 0lw Sugar 86 10 1918 14 12 64 18 O Smendary ProducCk 6836 5942 4~ 9$7f 01 81 Mining & Quarrying 1 7 1 ~ 2 6 2 9 3 Mucanucring 1...08 45 1.44 ....... .. 47. 5.00 .6.. olw Sugar Milling 244 2 3 317 67 St, 3 $8 51F Export Procing Zone 62 Other Manufaring *7 90 90 I 18 2 *7 199 11 Construction 66 68 18 84 14 23 15 57 14 Electricity, Gas Water 6 31 34 36 49 S( $9 $7 61 Services 40 7473 60 144119186161.31 Hotels & Restaurants Trae lo3 11 r 56 22720 863)5 30 Transport, Storage & Comm. Finance, Real Estate, etc. 1872 Acn 13 Ma4rit4 03. olw Housing 1335 136 Government Services 3013 33 18 05 21w13 29)28 Other Services64 65 67 70 86 90 96 116 16 GDP at Factor Cost 104 16 26 394 99 -0 18 24` 41 olw Sugar Sectwr 12 31 16 46 20 52~1 4* 2 Other 92.93175.18 69 187190204204 Net Indirect Taxes A9 19620 264 8140 44 473 45 GDP at Market Prices iio~7. 87 97 Note: Data refer to calendar year. Source: Cctral Statstcal Office, National Accounts of Mauritius. 126 MAUIJRTIUS TABLE II.3 GDP BY EXPEiND1T(JRE IN CU]RRENAT PRICES, 1984-1991 * In~~ millions of Mau Rs ' ~~~~~~~~~~~~~~~~~~~~~~Rev. Dk H 1984 19~S 1986 1987 1988 1989 1990 1991 1/oDernment by3 avergin flsca cP72t accou. $elitupu to3 49*0...a ea Gross: Domaefertic Ianvesmen yea1r.9) 3* 9) #~94 45 i Fixred Cnetentr St95 Of0 3lcc, 509ona 79cunt of6 Mw1t4 oiw Private 1770 2~~10271 35 ~*49~ 5))** MAURrTIUS TABLE 1.4 GDP BY EXPNDiTURE IN CONSTANT PRICES, 19841991 In millions of Mau Rs <--Iln982Prices--> <----1n1987zices ----> Rev. Ea. Eat 1984 1985 1986 1987 1987 1988 1989 1990 1991 Consumption (C) R R : 1 , .1.. ......... ... Private . 929: 994 11904 1419 163 16 t ? 181: Goverment ,n 1727 1755 , 27' $ .D66 : ,RR. Gro Domestic Inveatment (I) S A ; 4 , , R 6944 4 R2 Fixed Investmrnnt 21023133 75 59077 Gm$2 9t olw Private 17 11 9021 3$ 1049 20 $3 Public . 77. Change in Stocks20 6 22 3 f 2 7 12 3Q Gross Domestic Expenditure (C+1) L ' 1 i7 3 Exports (G+NFS) '6504 2 9 olw Goods '2$ 41 22 '11 14L11615114~~86 Services $$ 18 20428 '16 42 54 $71 A? Imports (G+NFS) 47 01 90.115 111114140221 20# olw Goods4835475695 10.44 23 151A16 Services175 10 4436 340 96 44450 77 Import Capacity 65 7111. 29 53"1"2159)1# 1~2 Terms-of-Trade Adjustment (fTADJ) 9 Resource Balance (RB) 4 -2 $7 Discrepancy (DISC) 9 5. 2 '46' GDP at Market Prices (GDX+RB+DISC) 2 11180 46 1 Net Factor Service Income (FSY) 41 $4 -69 42 43 59 25'29 10 Net Cum.ant Transfers (NCT) 48 GNP (GDP+FSY) .1.. 105 2 Gross Domestic Saving (GDS) 1 fRi 216 2"' 64* ::R 4 74' 1 'f (GDP-C) -'+RB+DISC) olw Prin15 0)12 4* .5* %6 S6 1$ Public 1/ S 5 Gross Natiwl Saving (GNS) (GDS.FSY+NCI) X.26 12. 6~63% 49 17 73 olw Private PubicI/ ~21 -51 24 51 76 67 54 98 14 Gross Domestic Income (GDP+TTADJ) i _ 6 Gross National Income (GDY+FSY) 12 ' * . 4. . '396$.a 5.2 6' 1/ Deflated by Government consumption deflator. Note: Data refer to cdendar year. Source: Central Statical Office, National Accounts of Maurtus. 128 MAIIRITIUS TABLE .lIA BALANCE] OP PAYMENTS, 1983/84-1990/91 In millions of Mau Rs Rev . E 1983/84 19w844 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91 ExpoM ofGos&NS44 74*0k13N~10221& ~O 6 . ~ ~ .36* . 85 Import of C3oods & NFS 1 7290 290'81 09 53 MAbIJUrrTIUS TAiBLE m. 1B BALANCE<:l OF PAYMlIINlli, 19MR-1991 In milnons of Msau Rs V894 1985 1986 1987 1988 1989 1990 1991 Exprt of God & NS. Agg~~~g'. 130 MAURiTIUS TABLE 111.2 MERCHANDISE BMPORTS AT CURRENT PRICES (CIFP), 1983-1991 In millions of Mau Rs ITEM 1983 1984 1985 1986 1987 1988 1989 1990 1991 Food and Beverages 4 ..00 Wheat Flour 176 , 225 .4.... .5 ...1. 24 7 Meat & Meat Preparations n60) 14 14 0 1 20f2 6 Fish Fresh &Preserved76 9 8 1 9 10 13 29 Anumal &Vegetable Oil M.R.' 22~ 141 14$ 20 233 2 Milk &Cream 18 10 11 11 16 25 43 M 4 Frtuits & Vegetables 12 1 2$ 13 1 -20 25 28 7 Other Food ON 1 7 4 7 31 60 77 04 Beverage & Tobacco 23 2 6 3 1 6 7 Other Consumer Goods $43~' gw 3 2 14)10 164 10 2~ Petroleum Products #5 424 106 * 11 46 109 1392 Gasoline 14 56 16 1W 1 Distillate Fuels22 34 $6 27 Other Petroleum Products 5. 19 519i w 57 .....:** ..= Intetmediate Goods $946 n# 1.7:4;41. ~O4 1 Crude Inedible M~ateria 27 26d 0 Fertilizers U 7 96. 4..7 4 1. 12 Chemicel Products 342 . ...... ....... . ~ 99 18.19 Textiles I 01, 10*4 075 250w $ 31 27 59 cement 10 17 .11 20t 17Z8 8 1 2 Iron &Steel 17 .91. 25 25 28 14 53 53 0 Manufactur of Metal 1 2 5 5 7 4 1 1 6 Other Intermediate 34 43 55 61 76 11 26 18 Capiata Goods64 75 114 11 2154$ 43 03 25 Machinery (wn--elec rc) Z~ 1 3 7 16 13 93 10 Machinery (electric) 5 8 27. '44:9 * Z3# 27 Trasport Equiip. & Parts 17 92 r :I4I14..26 Otk.er Capital Goods....<.....*.*. $. 09 . Total Imiports $5 4$.#2).99 25114221211 47 Source: Central Statistcal Offica, Quarterly External Trade Statstics. 131 MAURrrIUS TABLE 11.3 MERCHANDISE EXPORTS AT CURRENT PRICES (FOB), 1983-1991 In millions of Mau Rs ITEM 1983 1984 1985 1986 1987 1988 1989 1990 1991 Sugar 269 253 2871 , 46 :4942 52 Molasmaa6 2 1 07 . 6 l 9 Tea 7 * 14 # Fish &Fish Prcpartions 76g 4.gt3 1 1 6 Textiles ......67 759.1* ~K 3 3 9 Processed Diamoncds&Stones 49""' Wg g l7 ''1 "I1;1 3' 3 Clothfing1 Other Manufactured Goods 24 31 4& 4 ~7"'1 3 16 Other Domestic Goods S 0 7 :7 .47........x4 Total Domestic Exprs42 $6 2 1$lR W444 l~ Re-exports 13~4 W 3 S 3 2 5 6 Total Exports. Source: Central Statstcal Office, Quarterly Exter1a Trade Statistics. 132 MAUlRrlIUS TABLE mA EXPORTSAND IORTS OF MAIN 13P!Z CMOIS,198311991 !~~~~i n milionxs of Mau Re Ian- Sep 1983 1984 198S 19&C 1987 1988 1989 1990 1991 i ~~~EiWof (fob) _tLii__ E~~~~~~~~~~~~~5-,i NotEPZ~~~~~~~~~~~~~~~~I E-1 _=_ Souco C*" Sat Ofle,Quy ndT"o td 133~~~~~~~ MAURiTIUS TABLE IV. 1 FXERNAL DEBT, 1981-1990 In millions of US$ 1981 1983 1985 1986 1987 1988 1989 1990 TotalExternalDebt  561 629...6fl#13 #0 #35  I..oiig-'*l'eiuii )ebt  740 PublicandPubliclyGuaranteed 323 fl 396 449 581 643 634 739 PrivateNonguaranteed 24 14 15 2$ 46 66 106 147 UseOfIMP Credit .... IU 165 1 152 . 103 63 21 Short-Term Debt 39 49 51 31 33 .41. 32 30 Long-Term Debt: .. Debt Outstazidixig & [Jndisb,.uzsed  $91 68? . ),34 Public & Publicly Guaranteed 471 531 574 665 #20 811 124 917 Official Creditors $42 424 411 5$t 720 0* 491 1$9 Multilateral 192 269 281 125 419 $92 339 376 IDA 20 20 20. 20. . 19 19 19 19 JERD 100 10 . 164 205 241 $24 191 114 Bilateral 150. 154 195 $3 301 397 . $51 4$ Private Creditors . . 4)5 9 .  PrivateNonguaranteed 24 14 15 21 46 . 46. 106 147 Debt Outstanding & Disbursed t47............$31:: 413 471 E*9 Public&PubliclyGuaranteed 323 317 391 4* 581 643 634 139 OfficialCreditors 193 213 301 367 494 526 526 424 Multilateral 105 121 Ill 225 283 291 28* 30! IDA 20 20 20 29 19 19 19 .19 IBRD $5 412 117 141 193 190 115 1741 Bilateral 81 90 120 143 21) 228 242 323 Private Creditors 130 104 90 12 87 111 101 115 Bonds 0 0 0 9 9 00 0 Coizaniercial Banks  81 10 8 2Z231A Sn liers  2 4  OtherPrivate 0 0 0 0 0 8 PrivateNonguaranteed 24 14 15 21 46 46 106 147 Memo: Total Commercial Banks 150 11, 103 101 129 93 12 254 Commitments 53 IS 41 10 113 162 103 1341 Public & Publicly Guaranteed 53 85 41 109 113 162 103 136 Official Creditors 53 #3 35 12 11$ 71 #6 134 Multilateral 35 81 13 47 71 20 10 38 IDA 0 00 0 0 0 0.0 IERD 30 72 0 30 25 10 0 30 Bilateral 18 1 21 41 41 51 76 97 PrivateCreditors 0 1 4 21 0 91 17 * Bonds 0 0 0 0 0 0 0 0 CommercialBanks 0 1 6 18 0 0 0 0 Suppliers 0 1 0 2 0 91 0 0 - xx ::::::k::.. ,::::::::....X"' ....X..... .. St ........................--.- ....... .......-.. -- Other Private A Private Nonguaranteed . ............ Conduued 134 MAURITIUS TABLE IV. 1 External Debt, 1981-1990 - Continued 1981 1983 1985 1996 1987 1988 1989 1990 Puiblic & Publicly Guaraniteed ~ 3 7 4 0 0 2 9 Official Creditors 6 6 5 7~ 0 Z 8 Multilateral31 1 34 1 2 $ 159 IDA 0 0 0 00 IBRD 2 1 1 2 2 Bilateral32 I 19 1 53 4 36 6 Private Cre-ditors3 1 4 S 1 90 Bonds0 0 4 0 4 0 40 Commercial Banks 0 0 3 $ 1 suppliers 2 0 1 0 2 9 Other Private0 0 0 0 0 0 07 Private Nonguarateed 2 4 7 21 5 48 $ Memo: Total Commercial Bank-s 8 3 6 1 5 3 8 Principal Repayments2 1 4 9 0 2 $ Public &Publicly Guaranteed1.5 39 3 46 00 4 2 Official Creditors 6 1 6 2 2 3 0 3 Multilateral 3 7 9 1 9 2 2 2 I]DA0 0 0 0 0 0 EIERD 5 7 3 6 S 1 Bilateral 3 6 1 1 3 1 8 1 Private Creditors10 4 22 4 14 4 74 Bonds0 0 0 0 0 0 00 Commercial Banks g 4 2 1 4 5 Suppliers 0 0 0 5 50 Other Private0 0 0 0 0 0 00 Private Nonguaranteed 6 $ 4 3 $ 4 $ 1 Memo: Total Commercial Banks1 8 2 6 1 3 8 2 Net Flows 1 2 11 U 4 2 471 Public & Publicly Guaranteed 5 4 1 6 11 S $ Official Creditors57 2 37 1 54 7 12 4 Multilaterl29 1 2 1 6 IDA0 0 0 0 0 00 IBRD21 1 2 4 13 70 Bilateral 2 2 1 0 3 ~ 5 Private Crelditors 7 4 9 42 3 Bonds0 0 0 0 0 0 00 Commercial Banks -9 '4 0 4 4 5 - Suppliers1 1 1 0 I 1 . .~ Other Private0 0 0 0 0 07 Private Nonguaranteed 3 4 4 19 1 42 4 Memo: Total Commercial Banks 1 -5 2 - ~ 3 0 3 Con tinued 135 MAURrrIUS TABLE IV.1I External Debt 19l81-1990 - Continued 1981 1983 1985 1986 1987 1988 1989 1990 interest Payments35 2 28 3 34 2 42 4 Public &Publicly Guaranteed33 2 27 9 32 4 39 3 Official Creditors 8 1 5 2 5 3 9 3 MultilateralS 11 1 17 2 199 MDA 4 IIBRD 3 6 1 1 3 1. 4 1 Bilateral $ 5 6 U 102 Private Creditors2n5 1 0 1 Bonds0 0 0 0 0 0 00 Commercial Banks 2 5 1 Suppliers 4 ) 4 ) 4 Other Private0 0 0 0 0 00 Private Nonguaranteed 1 1 1 1 1 36 Memo: Total Commercial Banks2 6 1 9 1 9 6 1 Net Trnsfers 1 1 1 9 4 0 $ 5 Public & Publicly Guaranteed 1 7 9 2 3 6 4 1 Ofincial Creditors 4 1 2 9 3 1 1 Multilatera 4 3 4 1 1 6 2 IDA 0 4 . IBRD 1 4 1 1 2 Bilateral2$ 8 1 5 2 23* Private Creditors32 5 31 1 21 11 Bonds 0 0 4 Commercial Banks3 8 1 1 -2 - Suppliers1 1 1 83 30 Other Private 0 0 0 4 Private Nonguaranteed0 1 3 V 2 395 Memo: Total Commercial Bubs3.61 3 3 14. 2 3 Debt Service$7 8 71 9 3 46 9 10 Public & Publicly Guaranteed 49. 83 6 65 7* i1 6 7 Official Creditors 14 2 2 3 5 67 6 6 Multilateral7 1 4 6 6 4. 1 4 IDA4' 0 0 0 0 0 40 MRD 5 1 4 1 6 3 9 3 Bilateral.7 1 2 1 1 2 1 2 Private Creditors 3 9 3 2 2 4 1 Bonds 0 0 0 4 CommercialBanks3 $ 3 2 0 6 Suppliers .. 1..11. 1 Other Private 4 ) 4 ) 4 ) 4 Private Nouparanteed 8 6 5 * 4 5 9 2 Memo: Total CormercidlBanks42 6 39 5 5 7 1 0 Continued 136 MAURrTIUS TABLE IV..1 External Debt, 1981-1990 - Coantiued 1981 1983 1985 1986 1987 1988 1989 1990 Average Terms of New Commitments AU Creditors Interest(% 4 9 9 6 ~ 1 0 6 Maturity (Year)18) 16 64 1. 111 14 61 I$ Grace Period (years)4. 4Z 51 44 4 3 Grant Element ()1. -1 33 2~ 3 50 0 2. Official Creditors Tnterest()7 91 4 64 76 5 462 Maturity (years) S) 1S A I 171 16 69 18 Grace Period (ye8a rs) 4.5 4y. .1). Grant Element (%) ~$.$ -04 36.5 ,Z.9 13.S13 interest (%) 4 69 10 98 )0 . 7) 00 Maturity (Years)0.) 15 1.) 14 04 12 .120 . 0 Grace Period (years) I) 2. . 24 0 Z5 00 Grant Element(%04 18 12. 2 )) 4.13 00 ConcessionalALong-Term DOD(% 4 35) 3. 372 5.35 40 Variable Rate/Log-Term DOD () .~33 2. 06 1A 2. 12 3. Source: World Dank, Debtor Reporting System. 137 .. .. .. .. ... .. ..... . .... ............ MA I-A ,:K,: .... . ..... ...... ..... .......... .. ............. ...... ..... ... . ....... ... ...... rA 14 0 4.0 Zkk i Z.. 13 (30 MI L) MAURmTus TABLE V.2 CENTRAL GOVERNM[ENT REVENUES, 1985/86-991/92 In uMllons of Mau Rs Budget 1985/86 1986/87 1987/88 1988/89 1989/90 1990191 1991/92 Taxes on Not Income and Profits 3$ 59 14 90 13 37 12 Individuals 8 24 31 44 54 $4 60 Corprate . 24 39 55 66 84 90 Taxes an Property 20 33 33 49692 Laud uand Real Estate 2 Estate and Gift Finncial. Transactions 3 11. Taxes on Goods and Services77 91 16 152 *3 275 41 selective Excises 3 32 38 60 63 83 85 Taxes on Services 4 19 S 37 34 41 54 Taxesan Use of Goods 1 1 8 0 2 4 5 Sales Tax on Goods 739 .:~.Ž6 7 21 2 4 Taxes on Intermational Trade ..20 267 29 297 48 443 14 Import Duties *2 05 23 05 30 29 43 Customs Duties 18 35 13 03 23 81 36 Stamp Duties '3 70 94~ 2 16 48 17 Export Duties 49 5 1 1 7 3 0 Travel Tax 2 2 9 3 0 4 4 OtberTax Revenue12 1 24 4 34 35 1 Total Tax Revenue 30 36 51 66 78 09 92 Total Non-Tax Revenue39 2 62 5S 68 $1 99 Property Income27 43 47 34 44 22 74 Bank of Mauritius10 10 40 . . 010 Intuerestnd Royalties 10 * 3 7 DividendsI/ 2 7 9 5 9 Operating Surpluses 2 Rent and Other 1 6 2 0 4 AdmnitraioFeesw 0 1 31 25 0 6 Fines and Forfeits 1 4 18. 1 2 . 5 Government Pension Fund 2 $ 3 1 4 4 3 Other Non-Tax Revenue 1 5 2 7 1 Total Revenue 3k 44 611 24 833 90180 Foreign Giants 23 18 24 6 1 1 7 Total Revenue and Grants412 52 5% 2* *49 91195 I/ Includes subautmatal profit transer from Stat Trading Corporation on petroleum products. Source: Ministry of Financ. 139 MAIJRITUrRS TAdBLE! V.3 ECbONOMdIC CL,ASSIFICATrION OF7 E3PE3NDlITUIREMS. 1985/S6;-1991/9C2 In millions of Mrau I Budget 1985/86 1986187 1987/88 1988/89 1989190 1990191 1991/92 Toa urn xpedtr 2_59 : 1 56 5594 rc: o . Wags ad Slares138 * 919 25$ ~5$ . 241440 MAURrrIUS TABLE V.4 YUNICTIONAL CLASSIFICATION1OF EXPENDITURES, 1984/85-1989/9 In millions of Mau Rs 1984/85 1985186 1986/87 1987/88 1988/89 1989/90 Public Administration & Defence 73 16 82 12.~'16 General Public Services77 60 22 f5 141 84 Defens 6m 0 $ 1 1 Social Services6 6222 Education 590 605 623 194 1003 1194 Health & Sanitation$2 34 4 47 41 15 Social Security & Welfare5* 4 69 *3 90 19 Housing & Community Amenities 59 4 4 12 7) 24 Other Commnunity & Social ~7 8 2Ii Economic Services$7 $7 0* 19 108 O0 Agriculftur, Forestry & Fishimg 1 25 46 50 58 4$ Mining, Manuf & Construction .6 5 9 6 4 2 Transportation & Communication 12 19 40 52 24 27 Other 6 1 64 t 22 1% Other Purposes .3j 41 140 15 10 24 Public Debt Interest98 169 1* 149 .82 12 Transfers to Loca Government 15 10 14 27 6 31 Subsidy on Rice and Flour14 12 7 22 10 26 Development Works11 1$ 17 9 9 2 Other413 9 34 Total Expenditur 26 40 28m8 22 *8 Sourc: Minlatty of Fiunac. 141 MAURITIUS TABLE: V.5 CENTRAL GOVERNEN SUBSIDIES AND TRANSFERS, 1985/86-1991/92 In millions of Mau RB Dudgot 1985/86 1986/87 1987/88 1988189 1989/90 1990191 1991/92 2 dCurraggzdo gvment Subsidies adTraimsferse to1 127 18 o9xp31o. Sucondary Scofl 24 10 79 25 24 42. Education Institute . 14. 22 . 2.4 MAURIJUrIAS TAdBLE VI.1 M ONlETARi Y SUR]tVEY, 19S5i-lS91 In millions of M au Rs 1985 1986 1987 1988 1989 1990 1991 1991 Junco June J une June Jun. June J Im)oc Soaro:k of Mau.tius .2012 Rsp4W and St6ff R .7 P$ fl7 129 Commrcil Baks 29 ~ 49 ~ SZ . 1861431 MAURrITUS TABLE VI.2 INTEREST RATE STRUCTURE, 1985-1991 In percent 1985 1986 1987 1988 1989 1990 1991 Doc Doc Dec Doc Dec Doc Mar Lending Rates Dank of Mauritius Bankt R10 Redimcount Fagfcltes 1. 0 0 2 2 2 Commeuical Banks PrimeRate 10 10 10 10 10 10 1. Export Finance 1k1 1$2 111 1 $I$751.4. 2$7 Commerplcial Rtoden 1/ ml Sommrc l bul 6ss.54 54$ I-2 172 L.311.- Parastata Bodies14 11 Z.1 14 7P$ 14 24 Pesonal & Profesiona IS ud 15547 and 155-20 1a191w. Mauitius Cooperative Dank Crop Loon-Short Term 20 1.. 00 Credit UnIon/Co-opeantives153 5.1,-65 Medium-Term Loans 144 14.5 1F44 Housing SocIeis 4$ 14 .54 Deposi Rate SavIns84 84 8 5 20 10 1. Fixed Deposits Up to 3 Months ~SS 9-4 t-l -01 ~2$*..2 011. 3 to 6 Months 11 940 15.0 184. 0430.10 104 6 to 12 Months 1-05 I. 0. .-*..H h-$. -4 91 12 to 18 Months 3 .R1..1. .-13 1-L 1154 1."4.1.31 18 to 24 Month 051+ 05fl31,-1 01+3 1.-4 1A4A) 24 to 36 Months -1 1-1 0513 1.-1II1S 18-4 1.4 36 to 48 Months I$1 14 1-1 1,-1 1,4 181 101 Over 48 Months * 20 1. 1Il1+.H 14 343*34.. I/ ApplIcable to trader and sall commercial businesses. Source: Bank of Abraitius. Annua Report and Quarterly Revies. 144 -  - I- - I  - U,   C - Q'fl # In n thIn C I*fl i0 0   *.*.*...*.*.*g.* S   0 totn ti InA0O ClA C .*In 0 IA IA OOI  01  -' -- - I in,-. in - 3'* *1 0% _  intA IA in 01   e'.4 In o .:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.::::.::: 0 o 0 I o 0 a *1 U a Iji  I1 dd MAURJuTIS TABLE Vlll. 1 MAIN AGGRBEGATES OF THE INDUSTRUAL SECTOR, 1984-1990 1/ Units as sed below Rev. Prelim. 1984 1985 1986 1987 1988 1989 1990 Numbezrs " i~ Number of Establishmens$2 68 82 97 b1 ,5 ,6 Mining and Quarying4 4 4 4 55 Manufacturing 54 61 72 *0 93~0 .00 Electricity,Gas and Water2 2 2 22 Construction42 3 44 1 4*0 Numbers Employment (September) 3487,010471812120911261925 Minii and Quarrying16 6 19 18 4 21 20 Manufactuning 5S42631907006351290143 l,5S Electricity, Gas ar J Water 389 37 14 $$~34 .8 ~~M Construction 411 502~41 S7~937 9911,0 Mea Re aWmilos . Value Added at Currt Factor Cost *54 4 1 Mininand Quarrying 1 0 2 5 2 0 3 Manufactuing 18 .6 83 4 1 5,7 6,5 740 Electricity, Gas and Water 296 397 4f 490 517 577 54 Construction 490 1 76 Mau Rs ntmilios Investment at Current Factor Cost14 110 43 1,R 249 298 300 Mining and Quarin*g Manufacturing50 74 1,7 140 117 210 210 Electricity, Gas and Water 36 25 20 30 45 0 2 Constrution29 8 13 11 15 25 47 I/ Lg arge ablulmcaft. empiloying 10 or more pawsns Source: Central Statistica Office. Diges of Indusbria Statstics. 146 MAURrTIUS TABLE VIHI.2 LOCAL PRODUCTION OF SELECTE COMMODMTES, 1984-1990 Units as stated below Rev. PCim. 1984 198S 1986 1987 1988 1989 199 Sugar wrTong ........9 7683.9114* 3,2456,0 624M"0 Poultry wrens ,200 400 10::00 0,Q 1$0 Alcohol for Heat(Light H/Litres 2,643~~~~~~~~~~... I307. 4 .'63 414... .,0# 405 AnimaFeedWFvons ...05,00 5.0.70.~0 ~00 50 Iranne Bars wons 2-,_03 3,234 M,4 , Outer Garments '000 16,798 24.536 40,117 44~~~~~~~~~~~~~~011,11' 41 w..P.. Pnder GArmenshol0 HAL,trQ LS140,li~ 2.94.601 Electricity Generated Mn Kwh ~~~~~~~~~~~~~ 39t I~ .. ..54... 4 667 Source: Centrl StatisticalOffice, Diget of Industril Statistics 147' 4:,5 MAURrrIUS TABLE VI11.3 mAIN ECONOMIC AGGREGATES FOR EPZ ENTERPRISES, 1984-1990 Units as stated below Rev. Pn 1984 1985 1986 1987 1988 1989 1990 Numbers Number of Establishments (September) 11 7 4 6 6 5 7 2 Employment (Septe-mber) 1/3371 7,42 793 1254 732 70 810 Mau Rs mperons Compensation of Employees46 61 95 125 18 ,6 ,7 Valuje Added (Current Prices)86 133 180 2,5 12 340 407 Value Added (Constant 1982 Prices) 60 14 40 131 15 ,5 ,9 Exports211 ,23 451 ,57 S1 907 144 imports †,5 ,3 ,6 ,0 ,9 ,0 ,4 Investment (Current Prices) o1 340 St8 97 Percent G3rowth Rate of Value Added 39 30 39 2. 2 0 9 Ghrowth Rate of Exports33 33 40 22 2 10 9 Share of EPZ inGDP72 9 11 11 3 12 11 EPZ Exports as of Total Exports 32 4. 2 5 9 8 3 EPZ Impior~ts as %of T1otal I.import.s I/ Large establlsumaits employing 10 or more persons. Source: Central Statstcal Office, Digest of Industrial Statitics. 148 MAU rrIUIS TABLE VIII.4 EPZ ENTERPRISES AND EMPLOYMENT, 1984-1991 1984 1985 1986 1987 1988 1989 1990 1991 Product Group u o --ter ' . Flowers10 1 213 28 34 4 Food 1 Textiles 11 1-8 2 7 3 2 3 Wearing Apparel10 17 27 34 40 39 39 32 o/w Pullovers (5 Gloves & Other Garments (3300) .2 . Leather Products/Footwear 69 1 2 1 3 1 Wood,Furniture&Paper 7 9 1 Optical Goods 2 . Watches & Clocks 6 6 Jewellery 1 3 9 1 4 1 9 1 Fishing Tackles and Flies4 4 4 333 Toys & Carnival Articles 6 1 6 1 1i 8. 8 Other 24 546 4 Total 15 . Product Group Flowers 1 Food.57 73 49 91 111 16 Textiles109 171 234 331 ,'1 4,5 4,9 506 Wearing Apparel 1 4 o/w Pullovers ( (543,036) Gloves & Other Garments :f(12,03 2 9)(383 4,7)(4,0)(555 4,0)(906 Leather Products/Footwear 42 44 <2 6 ,0 ,4 ,3 5 Wood, Furniture & Paper 97.9 ......8.50 4 57 2 Optical Goods 1 28 32 61 57 87 50 '51 Watches & Clocks -454 631 58;74 82 '03 30 '664 Jewe-liery77 88 97 112 154 '72 1,0 141 Fishing Tackles and Flies 4 Toys & Carnival Articles 6 - 6 Total 7469 Source: Central Statistical Office. 149 MAURITIUS TABLE V11m.5 REPRESENTATIVE 1990 PRICES OF LONG-HAUL BEACH RESORT INCLUSIVE TOURS FROM THE UNITED KINGDOM In pounds sterling One Week Two Weeks Peak Season Mid-Season Peak Season Mid-Season Mauritius . 12. . .. .5.. 2 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.: :. i.. 7 - t:...:.: i.-. i :. ... . ..i.. Carribean Antigua 5,50 1,50Z5Q1,2 Barbados St. Lucia . . 4 ... :::. . ::7: . i-.- . Tf.:. - :. i.:. - :i-..:...::S: Indian Ocean Kenya-Mombasa95621,282 Maldives Seycheiles-Mahe 1,7 1 1,825 1,525 Sri Lanka1065$012 snLsh~~~~~~~~~~~ . . . . . . . . . . ... .. = .. :: . .s South East Asia Indonesia-Bali 1/ 10595 ~ ,5 Malaysia-Penangl/9595125120 hiailand-Phuket 1/ 1/ Includes estimate of expenditure on meals (quoted prices exclude these). Note 1: Inclusive tour prices are for half board in comparable grade accommodation in each destination (typically the average charged in five different hotels, of three and four star grade) using scheduled flights. Peak season prices are the highest charged in each destination (over the Christmas/New Year period). Mid-season prices are typically those charged in July and August, but timing varies. Note 11: Price comparisons for other European origin countries show similar differentials except where there are special factors (eg. cheap fares from France to Mauritius via Reunion). Source: Speedbird Holidays. 150 MAURrIIUS TABLE VIII.6 TRENDS IN TRAVEL TO MAURrTIUS BY MAIN COUNTRY OF RESIDENCE 1985 1986 1987 1988 1989 1990 1991 Arrivals '000 France 7. $2 442 0.2 2 . Germany ..7 2... United Kingdom 7. . 18 1. 66 21I 2.9. Italy 6.(4 22 150 1. 42 14. Switzerland Total for Europe 58 6. 0 02 13 17 13 Reunion36 40 48 56 65 7$ 77 South Africa AR Others World Total 1489 1262cc2 Nights '000 France34 37 52 62 7171 Germany 17 14 ~ 0 21 27 20 United Kingdom 12 4 0 3 1 7 Italy 7 0 3 6 7 5 Switzerland 9 1 2 3 6 6 Total for Europe11 88 120 32 164 169 Reunion33 34 39 52 5659 South Africa 29 26 35 39 31 44 ARlOthers34 38 46 60 6181 World Total 176 188 232 294 317 i~6 ,8 Source: Central Statitcal Office 151 MAURITIUS TABLE VIII.7 SEASONAL PEAKING OF ARRIVALS FROM MAIN ORIGIN COUNTRIES, 1988 Percent of Average Monthly Arrivals August 1/ December 1/ Other Highs France f :: . . :96:. -:: E . :-115 O 0 : 0 ctober 142 November:145 Germany . '1 October19 Nve 126 Italyv 144 121.-. Setme 13I...er12 Switzerland _4 f Oo 14 N United Kingdom 40 2 coe 12 Nvme 22~ Reunion aury South Africa 5 3SepteMbe.. 7O.be 1 AU Other 0 1. Api N 108'- Al Origin Countries 12$ 1 . 1/ The two peak months for all travel to Mauritius. Source: Central Statistical Office. 152 MAURITIUS TABLE VHI.8 TRAVEL TO MAURlTIUS IN 1988 COMPARED WrIT SOME COMPETITIVB DESTINATIONS Arrivals from Annual Total Tourist Total Europe Arrivals as % of '000 '000 Local Population Mauritius .-:239 105 Bahamas 1475 85 601 Barbados 451 19 175 Fiji 20O292 Indonesia 1,ul333 Jamaica 33649 0 27' Malaysia .1 1 2/ 20 Seycheles 7.. ...... 64: SriLnka4,2908 Tah1ti 3$ 40 / A78 Thailand --:,S^-g. 1/ Six main origin countries only. 2/ Estimate. Source: World Tourism Office, Pacific Asia Travel Association and CSO. 153 MAURrrIUS TABLE VIII.9 COMPARISON OF BUDGETS OF NATIONAL TOURIST OFFICES FOR BEACH RESORT DESTINATIONS Spending per Spending as % of Total Budget Foreign Visitor Gross Tourist USS mn US$ Receipts Mauritius 1989/90 ..... . ' Antigua 1986 16 93 10 Bahamas 1987 297 2 2- Grenada 1986 -49 Jamaica 1987 m 4 26 Malaysia 1989 3 Puerto Rico 1987 11112 St. Luciaa 1 86 _ Sri Lankatl988 9152 Tahiti 1988 2)74S Soureca: Various. 154 MAURITIUS TABLE VIII.10 COMPARISONS OF LONG-HAUL AIR FARES FROM LONDON (April 1990) Return Fares Pounds Sterling US Cents per Kilometer Cheapest Cheapest Normal Official Discount Normal Official Discount Destination Economy Rate Fare Economy Rate Fare Mauritius fro France, Bangkok T9e . ..e o . Barbados the.. d401: 41re. Hong Kong 204505012514 Los Angeles Airay G7u a6d T4l3d Mombasa ......... i 6.375 .1....1 0 44 Montego Bay 1~3 6 7 4 24 New York94382014592 Singapore 8$6045125 $ Note: For other European origin countries a broadly similar picture emerges, with the important excepton of a substantially lower discount fare to Mauritius from France, via Reunion. The fare component of Inclusive tours is typically roughly similar to the discount fare. Sources: ABC World Airways Guide and Trailfinders. 155 MAURITIUS TABLE IX. 1 CONSUMER PRICE INDEX, 1982-1991 January-June 1982=100 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 January 98.1.. 104.6 .109.9 119. 1 12.0 12.7 '127 ' 145.: 15.6 1-.7 February 99.8 1.IQ6,1 '''110.6 :2.7' 12 '124.2 25.0 :.26.9' 48.0 166.5 1885 March 100.0 .106.4 112.4 121.7 12.7 127.3 :126.614 .9 168.8' 86'. April 100.3 1067 113.2 121.0 '24... . . . .. .. May ~~~~~100.9, 1406.2 '.11512. 14. 125.8 129.6 1527 169. 825 June 100.9' . 105.8.. 113 121.2 1642.6126. 1 12.-133.8 . . 183.5 Fiscal Year Ending '96.7: 103.9 109.7 118.8 . .8.126. 14.9 .- i8'4 June 30 (Average) July 101. .11..6.4 4.0 .. 148 124.6 '17'.2 1. . . ' ' August 10. 0. 1. 227155A37121 5, 7. .8. September 10.170 174 142143138 152A5. 8. 8. October 10. A0. '18.i14. 124.0 124.6 4. 118.1. 8. November 1.02.2 0. 174 12.a2. 2. 45 199 8. 8. December 12. Calendar Year 100.9 1..on i 1.5at 12or1 119873 125 onwarts 1364 bn 7 17 4e 1 (Average)-.X Annual Rates of Inflation: Januiary 136 66 51 84 41 -. . 4.1 1.9.. 1.2.. February 1.7.. 6.3 4.2 9. .9 -0A6 1. ..6. 12..5 13. March 143 .4 .56-': 8`.42..0. 69 1. 0.2 April 14 6. 1 69 .0 01 32 10 10.:'99 May 137 53 69 67 28 10 30 1. 10 77 June129 49 70 71 28 12 ..4 .1. 86 Fiscal Year Ending i.4 7. . * 4. 0 5 10. .. June 30 (Average) July 114 49 7.1 '6.9 . .. '02 1..1.0 1. August 10.5':` .4.8> 85 61 23 14 1. 89 1. . September w`9.9w 58 97 58 01 04 72 83 1. . October 8.3 6.5 '9.2 z5.3 -. 77'76 1. . November .4 53 94 . -, 6 132 . 1. . December 68. . 00 46 00 1~1. 09 1 Calendar Year1. . . 9.2.1.6.3..7. (Average) Note: Beginning in July 1987, the base period for the CPI was changed to July 1986-June 1987=100, to reflect changing weights. For continuity, data for 1987 and onwards have bee-n adjusted to the 1982 base. Source: Central Statistical Office, Ann-aal Digest of Statistics. 156