global change, small island state response ... - Wiley Online Library

Journal of International Development J. Int. Dev. 25, 92–107 (2013) Published online 17 May 2011 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/jid.1784

GLOBAL CHANGE, SMALL ISLAND STATE RESPONSE: RESTRUCTURING AND THE PERPETUATION OF UNCERTAINTY IN MAURITIUS AND SEYCHELLES† UMA KOTHARI 1* and RORDEN WILKINSON 2 School of Environment and Development, University of Manchester, Manchester, UK 2 Brooks World Poverty Institute (BWPI) and School of Social Sciences, University of Manchester, Manchester, UK 1

Abstract: This article examines the forms of economic restructuring recently undertaken by Mauritius and Seychelles in response to recent changes in the global economy, which have a fundamental impact upon their socio‐economic landscape. We argue that both Mauritius and Seychelles have recently embarked upon programmes that do not actually attenuate their exposure to the vagaries of international trade but continue a historic pattern of development that addresses ailing economic performance by refining and then replacing one small set of industries with another. The latest phase of restructuring is merely the most recent instalment in this pattern. Copyright © 2011 John Wiley & Sons, Ltd. Keywords: global restructuring; economic liberalisation; Indian Ocean; small island states; Mauritius; Seychelles

1 INTRODUCTION This article responds to recent analytical and empirical demands to investigate and explain patterns of change within contemporary processes of global capitalism. Our purpose is to contribute to understandings of the impact of structural change and increased global competition on the development trajectories of small island states. The article examines how Mauritius and Seychelles, societies on the periphery of the world economy, are *Correspondence to: Uma Kothari, School of Environment and Development, University of Manchester, Arthur Lewis Building, Oxford Road, Manchester M20 6BW, UK. E‐mail: [email protected] † During typesetting, an error was introduced into the title of the article. An earlier version of the article was published on 17 May 2011 with the word ‘preparation’ in the title in place of ‘perpetuation’. This error has been corrected in this version.

Copyright © 2011 John Wiley & Sons, Ltd.

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responding to recent changes in the global economy, which have a fundamental impact upon their socio‐economic landscape, namely declining overseas development assistance (ODA), the phasing out of preferential treaties and increasing competition in core sectors. The article focuses on the forms of economic restructuring that these states are adopting and the consequences of these strategies for their national political economies. We argue that both Mauritius and Seychelles have recently embarked upon programmes designed to meet the challenges confronting them and to develop their economies further. However, we argue that rather than attenuating their susceptibility to global downturn, these strategies, forged in response to a groundswell of received wisdom (academic and practitioner) on how best to reorganise their economies, have not attenuated their exposure to the vagaries of international trade. Rather, what has resulted is the continuation of a historic pattern of development that addresses ailing economic performance by refining and then replacing one small set of industries with another but which does not, nonetheless, mitigate their susceptibility to global downturn. The latest phase of restructuring is merely the most recent instalment in this pattern. In developing our argument, the article unfolds as follows. We begin by reviewing briefly the literature on small island states. Our aim here was to draw attention to received wisdom on the challenges confronting small island states and the kind of policy responses commonly advocated. We then explore the development and nature of the Mauritian and Seychellois economies in the post‐independence period highlighting how successive reform efforts have installed a process of development that relies on the refinement and/or replacement of a small set of declining industries with another. Thereafter, we examine the changed global context in which Mauritius and Seychelles find themselves. Here, we explore the restructuring strategies that each state has recently pursued illustrating how the policies that have been and are being pursued actually offer little more than short‐term fixes which fail to address the fundamental precariousness of their economies. In the final section, we offer our concluding comments.

2

SMALL ISLAND STATE DEVELOPMENT: EXISTING WISDOM

Much of the research on small island states has tended to construct them as conceptually ‘fixed’ (Lee and Smith, 2010, p. 1092)—that is, as a distinct, analytical category sufficiently similar in political and economic character to allow the production of generalisable conclusions (see, e.g. Briguglio, 1995; Armstrong and Read, 2003; Winters and Martins, 2004; Feeny and Rogers, 2008; Read, 2008). These accounts—largely economic‐driven and policy‐driven pieces on development, smallness and vulnerability that make up the lion’s share of the literature—make a number of assumptions about size, resource endowment, isolation, productive capacity, vulnerability to environmental and natural disasters, and diversification (see World Bank, 1994; Commonwealth Secretariat, 1997; Winters, 2005, 2006; Winters and Martins, 2005; Borgatti, 2008; McGillivray et al., 2008) that are then used to generate data sets and determine various indexes into which small island states are inserted and compared. These overly deterministic accounts not only ignore the social and cultural diversity and inequalities within, and between, small island states but problematically articulate a single idea of development and associated set of policy prescriptions. These policy prescriptions include the following: the promotion of labour market flexibility; the liberalisation of barriers to entry in trade and financial markets; fiscal reform; the rationalisation of government; the rolling back of state intervention in markets; the privatisation of key Copyright © 2011 John Wiley & Sons, Ltd.

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U. Kothari and R. Wilkinson

public services; the creation of an environment sufficiently attractive to overseas and domestic business interests alike; co‐operation between, or even the combining of resources with, others in the geographic proximity; and, at the extreme, the movement of populations to less populated and/or more economic viable lands (see Benedict, 1961; Streeten, 1993; Connell and Conway, 2000; Royle, 2001; Winters, 2005). These policy ideas have consistently been presented as pathways for action through formal structural adjustment programmes, bilateral and multilateral trade and aid negotiations, and visits of IMF and World Bank officials, among others, as one‐size‐fits‐all models of development (consider, for instance, the similarities between World Bank, 1994 and IMF, 2010). Yet, although these programmes fit well within the logic of a global division of labour, they seldom account for the specific problems that specialisation brings for small island states. We show how subsequent reform programmes based on these precepts have, through the pursuit of specialisation and the replacement of a small set of ailing industries with another, actually perpetuated rather than attenuated the precariousness of Mauritius and Seychelles.

3 DEVELOPMENT IN MAURITIUS AND SEYCHELLES Since independence, Mauritius and Seychelles have adopted development strategies based on the pursuit of competitive advantages in the production of a limited range of export‐ orientated goods and services. The Mauritian economy is centred on the three pillars of sugar, tourism and garment sectors with significant recent investment in the development of information and communication services as well as of a seafood hub. The economy of Seychelles is now largely based on tourism and fisheries with recent investments being made in the re‐exportation of oil/petroleum. Both countries have also been attempting to develop offshore financial sectors. Although the benefits of these strategies have often been unevenly distributed reproducing and creating new (and often hidden) forms of social and economic inequalities, overall, this specialisation has imbued them with per capita GDP levels consistent with those of middle income countries and enabled them to develop extensive and elaborate welfare systems, placing them high up (albeit with significant fluctuation) the human development index (see Tables 1 and 2). Yet, although both countries have made remarkable development gains, they remain highly susceptible to changes in demand for their goods and services and heavily reliant on key import and export markets (see Table 3). Prior to independence in 1968, Mauritius was an agrarian monocrop economy that depended almost exclusively on the export of sugar to Europe and to the UK in particular. However, by the late 1950s, the sugar sector had begun to stagnate causing unemployment levels to rise, which, in turn, exacerbated poverty and fuelled social unrest. In 1960, the Meade report (Meade, 1961) was commissioned to find ways to break the cycle of poverty and social unrest in Mauritius perpetuated by the sole reliance on sugar exports. The report outlined a framework for development based on import substitution and the protection of infant industries. The subsequent development of a manufacturing sector, primarily food processing, and the production of beverages, fertilisers, footwear and furniture, however, was only partially successful in establishing a broader industrial base. Most new industries were capital intensive and employed few workers. Unemployment remained high, GDP grew at an average annual rate of only 1.75 per cent and the trade balance remained negative leading to shrinking foreign exchange reserves. As a consequence, the government promoted an export‐oriented strategy through the establishment of a country‐wide export Copyright © 2011 John Wiley & Sons, Ltd.

J. Int. Dev. 25, 92–107 (2013) DOI: 10.1002/jid

Global Change, Small Island State Response Table 1.

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Mauritian and Seychellois human development index rankings 1990–2007/2008 Ranking

Year

Mauritius

Seychelles — 63 58 63 83 62 60 52 56 66 53 47 47 36 35 51 47 50 57 Not classified

a

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007/2008 2009 2010

49 47 48 56 60 60 54 61 61 59 71 67 63 62 64 65 63 65 81 72

Source: Human Development Reports 1990–2010. Ranking of Mauritius in the 1990 index was actually 81 (out of 130 countries), but the order of ranking was reversed; hence, our score has been recalculated to be consistent with subsequent human development index scores. a

Table 2.

Mauritian and Seychellois per capita GDP (PPP$)

Year

Mauritius

Seychelles

1997 1998 1999 2000 2001 2002 2003 2004 2005 2007a

9310 8312 9107 10 017 9860 10 810 11 287 12 027 12 715 11 296

8171 10 600 9974 12 508 17 030 18 232 10 232 16 652 16 106 16 394

Source: Human Development Reports 1999–2009. Data for 2006 were not available as composite report produced for 2007/2008 and reporting is at two yearly lags.

a

processing zone (EPZ). The key objectives of this strategy were to create employment, attract foreign direct investment and increase net foreign exchange earnings, as well as to diversify the economy away from the overdependence on sugar production. Export processing zone activities were heavily concentrated in clothing, and growth in the EPZ was initiated primarily by Hong Kong capital and other East Asian businesses keen to take advantage of Mauritius’ preferential access to Western markets under the Copyright © 2011 John Wiley & Sons, Ltd.

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U. Kothari and R. Wilkinson Table 3.

Mauritius and Seychelles principal trading partners Mauritius

Export partners

Import partners

UK France USA Italy UAE Belgium Madagascar India France South Africa China

(25.55%) (16.89%) (9.51%) (5.68%) (5.47%) (4.93%) (4.11%) (24.5%) (14.02%) (8.55%) (8.17%)

Seychelles UK France Italy Mauritius Japan Spain

(24.84%) (18.53%) (9.45%) (9.03%) (6.98%) (4.92%)

Saudi Arabia India Spain France Brazil Singapore

(16.44%) (8.33%) (7.49%) (6.39%) (6.07%) (5.07%)

Source: CIA World Factbook January 2011.

Multifibre Arrangement (MFA). Together with a recovery in the price of sugar cane and the rise of a luxury tourism market, the performance of the EPZ drove an impressive economic recovery. Expansion in the 1980s led to near full employment and increased wages, and by 1988, the EPZ had outstripped the sugar sector as the economy’s primary engine of growth. What Naipaul (1972) once called an ‘overcrowded barracoon’ had become, by any measurement, a middle income country. As Gibbons wrote, ‘the development of the textiles industry… helped Mauritius to move from an underdeveloped poverty‐ridden economy with mass unemployment to one that by 2000 employed 13% of the population and generated 25% of GDP’ (Gibbon, 2000, p. 3). Moreover, the development of the textiles industry helped Mauritius evolve from a low income, heavily agricultural economy with mass unemployment and a per capita income of about $700 in 1970 to a middle income economy with a per capita income of $12 715 in 2005 and a ‘medium’ human development index for 2007/2008 of 65. The objective therefore of lessening the economy’s dependence on sugar by diversifying exports was to a large extent realised, and, with a few peaks and troughs, the clothing sector continued to prosper until the phasing out of the MFA in 2004. However, by at least as early as the beginning of the 1990s, the Mauritian economy came under renewed pressure from intensive overseas competition. The consequence was to usher in a perceived need to diversify its industrial base. In 1992, with ongoing assistance from the World Bank, the United Nations Industrial Development Organization and the United Nations Development Programme, the government introduced a series of incentives to enable firms to upgrade their products and technology. Investment was geared towards the setting up of an Informatics Park equipped with state‐of‐the‐art satellite and telecommunication services. The development of skills was also promoted through the setting up of the Industrial and Vocational Training Board, and the government provided information and support through the Pioneer Status Enterprises Scheme granted to firms subscribing to a technological content highly needed on the island. With the view to adding a new dimension to its export and investment promotion policies, Mauritius joined the Common Market for Eastern and Southern Africa (COMESA). This renewed investment strategy underpinned an increase in the value of exports to the COMESA region from RS 11m in 1986 to approximately RS 1.5bn in 1996 (Bunwaree and Peedoly, 2006). Copyright © 2011 John Wiley & Sons, Ltd.

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The story of Seychelles’ development is quite different, although some similarities are apparent. Seychelles approached independence in 1976 clinging to the production of a traditional range of crops while at the same time beginning to develop its tourist industry. Like Mauritius, for much of its history, Seychelles relied heavily on the export earnings derived from the production of one crop, in this case, copra. By the mid‐1950s, copra exports had been hit by increased domestic coconut consumption fuelled by a rapidly growing population and the decimation of coconut palms by the melitomma beetle. Equally problematic was the highly unequal distribution of income and wealth. For the duration of the colonial period, only a handful of elite families benefited from Seychelles’ economic activities. The remainder of the population existed on a subsistence and often desperately poor basis. With significant population growth, little (and not‐particularly‐ productive) agricultural land, a persistent failure to develop a fisheries industry and an increasing trade deficit, poverty and social unrest in the islands increased markedly. As a result, the economic and social condition of Seychelles in the run‐up to independence was general and growing impoverishment and sharply increasing social tensions (Scarr, 2000; McAteer, 2008, pp. 93–95, 97). These factors underscored the need to develop a broader and more sustainable industrial base. The answer came in the form of tourism. Tourism was first touted as a serious venture for Seychelles in the 1950s. The expansion of the sector was, however, hampered by the lack of easily accessible communications links. In 1970, a mere 1622 people visited Seychelles, the large majority of whom travelled to the islands by boat from Mombasa. This was hardly enough to sustain a population of roughly 54 000. In 1971, the opening of an international airport fuelled an expansion in tourism and the flow of tourists increased dramatically to 78 852 in 1979 before suffering at the hands of, among other things, global recession, renewed cold war tensions and an infamous failed mercenary coup in 1981 (led by Mike Hoare). Tourist numbers plummeted to 47 280 in 1982 and did not recover to their 1979 level until 1989. Two aspects of this phase of Seychelles’ development are noteworthy. First, the rapid growth in tourism generated significant income for Seychelles and provided much needed foreign exchange that was used to part fund Seychelles’ post‐independence development. It also enabled the government to maintain a commitment to social equity manifest in transfer payments of approximately 5.5 per cent of GDP targeted at poor Seychellois. That said, the extent of poverty in the islands was such that after more than 20 years of tourist‐ led development and a sustained programme of transfer payments, poverty persisted at worrying levels. In 1993, a World Bank report estimated that 20 per cent of Seychellois were living in poverty, with 7 per cent of the population existing in absolute poverty. Moreover, the report suggested that the distribution of income remained ‘highly unequal’ (World Bank, 1994, p. 4). Second, although the movement away from copra as the mainstay of the country’s export earnings reduced Seychelles’ susceptibility to changes in demand for that product, the switch to tourism merely replaced one source of vulnerability with another. The severe drop in tourist numbers after 1979, again in the early 1990s (following the first Gulf War) and in the early 2000s (following 11 September 2001), and the impact this has had on national income illustrate this amply (see Table 4). The post‐independence development of both Mauritius and Seychelles benefited greatly from international treaties that gave their key products preferential treatment and access to the markets of industrialised and developing countries. These not only protected both states from competition from larger producer countries but, particularly in the case of Mauritius, attracted investors from East Asia. Furthermore, the Africa Growth and Copyright © 2011 John Wiley & Sons, Ltd.

J. Int. Dev. 25, 92–107 (2013) DOI: 10.1002/jid

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Headline tourism statistics for Seychelles (1970–2006)

Year

Number of visitor arrivals

Average length of stay (days)

Visitor nights (000)

Tourism expenditure (SR million)

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

1622 3175 15 197 19 464 25 932 37 321 49 498 54 490 64 995 78 852 71 762 60 425 47 280 55 867 63 417 72 542 66 782 71 626 77 401 86 093 103 770 90 050 98 547 116 180 109 901 120 716 130 955 130 070 128 258 124 865 130 046 129 762 132 246 122 038 120 765 128 654 140 627

42.3 28.5 13.1 10.5 10.2 11.1 11.5 11.0 9.6 9.1 9.0 9.6 9.7 10.7 10.8 11.0 11.7 11.4 11.0 10.7 10.1 10.5 10.2 9.6 10.1 9.5 9.7 10.3 10.5 10.4 10.4 10.4 10.1 10.1 10.0 9.7 9.8

69 90 199 204 265 414 570 599 624 718 646 580 459 598 685 798 781 816 851 921 1048 945 1005 1115 1110 1147 1270 1340 1347 1299 1352 1350 1336 1233 1208 1248 1378

— — — — — — — — 243 295 331 289 223 233 283 336 347 380 440 522 646 526 600 607 510 466 524 612 584 596 600 651 707 729 818 824 885

Source: Seychelles National Bureau of Statistics.

Opportunity Act, the Generalised Systems of Preferences, the Lomé and Cotonou Conventions, membership of COMESA, the Southern Africa Development Community and the Indian Ocean Commission gave both countries easy access to American, European, Australian, Japanese, Eastern and Southern African export markets. Moreover, the financial assistance provided under the Lomé and Cotonou conventions of the European Union (EU) helped the growth of Seychelles’ tuna industry such that by 2000 it was contributing approximately $150m to national GDP (albeit that only approximately $25m remained in the country), employing 1300 Seychellois and capturing 11 per cent of the EU market. What we see, then, is significant development in Mauritius and Seychelles in the post‐ independence period. This development resulted from the deployment of distinct industrial Copyright © 2011 John Wiley & Sons, Ltd.

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strategies designed to address the unemployment, poverty and social unrest that had characterised both countries in the run‐up to independence. Textile production in Mauritius joined sugar as the mainstay of the economy, whereas the development of tourism and, to a lesser extent, fisheries led Seychelles’ development drive. Both strategies would not, however, have been possible without the preferential access and financial assistance provided by a range of international treaties and significant government intervention. That said, it is worth noting that neither country prospered through the development of a broad industrial base. What occurred instead was the replacement and/or refinement of ailing industries. It is also worth noting that both countries were also able to fund part of their development through the receipt of substantial amounts of ODA—a point to which we return in the succeeding section.

4

GLOBAL CHANGE

Since the early 2000s, Mauritius and Seychelles have been facing serious economic and social pressures precipitated in part by three significant external developments. First, both countries have experienced significant decreases in ODA. Second, both are facing increased competition in tourism, garments and fisheries. Third, and perhaps most significantly, both have suffered from the erosion of preferential market access through changes in and the phasing out of the Generalised Systems of Preferences and Cotonou regimes. These developments have threatened the competitiveness of core sectors in Mauritius and Seychelles and are compounded by other pressures including environmental concerns, rising food and oil prices and competition from other producers. We unpack each of these challenges in turn. Since the early 1990s, Seychelles and Mauritius have experienced significant decreases in the amount of ODA that they have received. This downturn is all the more significant for Seychelles as it was more dependent on ODA than Mauritius for its development, the servicing of its foreign debt and the purchasing of imports. In 1990, ODA to Seychelles peaked at $21.46m but had fallen by 60 per cent by 2002 before recovering slightly to $11.15m in 2005. As a percentage of GDP, Seychelles government figures put ODA at 9.8 per cent in 1990 and just 3 per cent in 2000 (Seychelles National Assessment, 2004, p. 6) (see Table 5). During the Cold War, Seychelles benefited considerably from Soviet, Cuban, French, British and American assistance. Inevitably, the fall of the Berlin Wall brought with it a fall in this assistance. And, although Seychelles remains strategically important, particularly as it is within a few days sailing of the Arabian Gulf, it is not a key state in the current ‘war on terror’ and as such does not benefit directly financially. ODA to Mauritius has also fallen over the period. However, it has been subject to much greater fluctuation. In 1980, the total ODA stood at $24.01m. Thereafter, the amount of assistance flowing into the country generally rose reaching a peak of $47.68m in 1995. During the 5 years that followed, the amount of assistance almost halved before rising again to $43.25m in 2004. Besides the decline in ODA, both countries have been experiencing increased competition and other pressures in their tourism sectors. New entrants to the tourist market, including other African small island states such as Cape Verde and to a lesser extent São Tomé and Principe, have eroded a measure of the uniqueness of both states as holiday destinations. New destinations have also emerged in the Middle East, Caribbean Basin and northern South America as well as in parts of the Mediterranean that have only recently developed their tourism sectors (such as Croatia and Slovenia). Environmental Copyright © 2011 John Wiley & Sons, Ltd.

J. Int. Dev. 25, 92–107 (2013) DOI: 10.1002/jid

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Total overseas development assistance (US$ millions)

Year

Mauritius

Seychelles

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

24.01 34.47 24.26 22.62 21.72 22.26 35.83 40.88 32.85 38.64 44.21 35.75 32.33 33.31 32.84 47.68 36.31 38.21 31.2 29.69 24.61 26.91 36.3 33.28 43.25 39.71 41.49

13.41 11.93 12.39 13.74 13.31 18.02 15.54 15.6 14.71 15.9 21.46 17.99 20.78 20.86 14.83 15.87 17.44 12.81 14.09 12.35 14.64 13.15 8.61 8.89 10.41 11.15 11.02

Source: OECD.

change, and attitudes towards it, has also brought challenges for Mauritius and Seychelles. These include their susceptibility to natural and environmental disasters (the tsunami and abnormal rainfall in December 2004, for instance, cost the tourism industry in the Seychelles an estimated $15m) and increasing consumer and industry awareness of the adverse environmental impact of tourism and the contribution of air travel to global warming (see UNEP, 2003). These have had an adverse effect on the long‐haul destination market, which was compounded by price increases following huge rises in the price of oil for most of the 2000s. Concerns about terrorism and security in the wake of 11 September 2001 have had both short‐term and long‐term impacts upon the number of tourists choosing far‐flung destinations. And the increase of ‘pirate’ activity off the coast of Somalia has affected tourist flows to Seychelles. By the end of 2010, Seychelles’ Minister of Foreign Affairs Jean‐Paul Adam had put the total cost of piracy to the Seychelles economy at 4 per cent of GDP, with antipiracy operations alone accounting for more than 3 per cent of the total government budget (Adam, 2010). The sugar and garments sectors in Mauritius and fisheries in Seychelles have also faced considerable challenges. Since the conclusion of the Uruguay Round of General Agreement on Tariffs and Trade, the preferences that each country has enjoyed have steadily been put under pressure. Mauritius historically benefited from the sugar protocol of the EU, but the decision to impose a reduction of 36 per cent on African, Caribbean and Pacific sugar prices during 2006–2010 put the Mauritian sugar sector under severe pressure. Copyright © 2011 John Wiley & Sons, Ltd.

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A similar situation has confronted Mauritius in textiles and clothing. The impressive growth of the garment sector has depended largely on exports of textiles and clothing to preferential markets in Europe where Mauritius enjoyed duty and quota‐free access. However, the dismantling of the MFA at the beginning of 2005 exposed the textile sector to severe competition from other, larger, low‐cost developing countries such as India and China. Although Mauritius had previously captured global capital and investment that facilitated the development and expansion of the clothing and garment sector and although its economy had become connected and integrated into global and regional production networks through a matrix that has intensified and extended its activities across borders (with a highly concentrated export structure wherein 80 per cent of manufactured exports coming from clothing alone), it has been particularly vulnerable to changes in global regimes that reduced its access to, and involvement in, networks of production. In addition, the lack of product and market diversification has increased the vulnerability of export firms to external shocks. And although it is true that, from the early 1990s, shifting demands of global retailers who source their goods from low wage economies and the ongoing difficulties associated with its geographic isolation from major markets and the longer time and high costs of transport that this entails have resulted in Mauritian garment production and exports becoming less competitive, it is the loss of preferential access to Western markets through the phasing out of the MFA that has presented the most serious threat to the Mauritian garment industry. Likewise, the fisheries sector in Seychelles has come under significant pressure. In 2006, fears of a near collapse in the country’s tuna industry were averted when Heinz sold its 60‐per cent share in the Seychelles tuna cannery to Lehman Brothers. The respite was, however, only temporary as the collapse of Lehman Brothers in 2008 threw the fishing industry again into turmoil with stability coming only through the selling off of Lehman assets (and in particular MW Brands). In addition, overfishing in the Indian Ocean has seen Blue Fin tuna stocks fall by as much as 15 per cent, and maritime piracy has reputedly led to a 30‐per cent drop in fishing revenues over the period 2009–2010 (VOA News, 2010). Thus, although both Mauritius and Seychelles have enjoyed considerable economic growth in the post‐independence period, this growth has come on the back of the development of a narrow industrial base. However, in recent years, competitive pressures in their core sectors, combined with the erosion or preferential trading regimes and falling ODA, has forced both countries to undertake a further phase of restructuring. It is with the response of Mauritius and Seychelles to these pressures, and the consequences of restructuring, that we now turn.

5

SMALL ISLAND STATE RESPONSE

In Mauritius, restructuring has focused simultaneously on improving the efficiency of, and income generated by, traditional sectors as well as shifting away from a labour‐intensive manufacturing and agricultural economy to one led by the service sector. Leading this restructuring is the development of information and communications services, financial services, education and medical services and the tourist sector. The main components of the economic reform programme introduced in 2006 are the following: (i) restructuring the sugar sector to exploit value‐adding co‐products of sugar thereby moving up the export value chain while reducing production costs; (ii) restructuring and modernising the textiles and clothing sector; (iii) consolidating the tourism and financial services sectors; and (iv) promoting Copyright © 2011 John Wiley & Sons, Ltd.

J. Int. Dev. 25, 92–107 (2013) DOI: 10.1002/jid

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emerging sectors such as the Integrated Resort Schemes (IRS) and the seafood hub. In addition, the 2006–2007 budget brought in a relaxation of the rules and regulations concerning the employment of foreign expertise and further investment facilitation in order to ease business start‐ups. To increase efficiency in the sugar industry, the current 11 sugar refineries are being consolidated into four larger ones and a Voluntary Retirement Scheme has been implemented. In the textile sector, the government is attempting to upgrade quality and to diversify markets. However, the decline of the textile and sugar industries has increased the importance and profile of tourism development. There are currently 900 000 tourist arrivals annually, with aims to increase this to 2 million by 2015. Tourism is being heavily marketed in order to diversify the tourist base to include Russia, Northern Europe and China, and a near‐blanket open skies policy has been introduced to allow more international airlines to operate flights to and from Mauritius. The tourist sector nevertheless remains heavily dependent on European trade, and the incursions into new markets have so far yielded little. Tax incentives and property buying allowances within the IRS is another way of attracting investors. These projects, for the construction and sale of luxury villas, have been introduced to allow foreign nationals to reside in Mauritius by investing a minimum of $500 000 in the acquisition of property. These residential enclaves have been constructed on land owned by Franco‐Mauritian sugar barons previously used for sugar production but which have been re‐zoned and allocated for IRS projects in return for changes in company legislation that enable restructuring in the sugar industry (largely to facilitate the move from 11 sugar refineries to 4 super‐sized ones, outlined previously). However, these IRS schemes employ few people and do not contribute sufficiently to addressing the problems of high unemployment following the restructuring and consolidation of the sugar industry. The government is also encouraging enterprise restructuring by implementing a programme of business partnerships with international private companies with strong growth prospects via equity participation instead of subsidised loans or grants. To increase foreign direct investment a single rate of income and corporate taxation has been introduced, legal procedures for setting up businesses have been rationalised, and a range of financial services have been established to the extent that they now constitute the single largest contribution to GDP. However, the offshore financial services sector is inhibited by the complex and extensive levels of legislation and reporting mechanisms required by the Financial Action Task Force. In line with this, like many small island states, Mauritius lacks sufficient local human resources to service the sector. One consequence of this process of restructuring has been the loss of 30 per cent of the work force in the garment industry and increasing unemployment in the sugar sector— losses for which the limited growth in tourist and financial services have not been able to compensate. Although continuing to focus on diversifying the economy to build up greater resilience to future external shocks, the government is also implementing an empowerment programme to cushion the adverse impacts of global competition on low income groups as well as negotiating temporary migration programmes that would enable Mauritians to build up their skills abroad and, on return, find employment in new sectors or start a business under the Small and Medium Enterprise schemes. However, many of those retrenched from the garment factories are excluded from the retraining programmes. As older unskilled women with little formal education, they do not meet the needs or fit the characteristics of the labour force requirements of the new service sectors. Indeed, with Copyright © 2011 John Wiley & Sons, Ltd.

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the economic transformation from a labour intensive to a services economy, there is little scope for the low skilled workers to find employment. Seychelles’ development and restructuring is overseen by the government’s 2017 Strategy (Seychelles Strategy, 2007) that sets out the broad targets necessary to ensure that Seychelles has a degree of risk insurance against global competition, pressures to liberalise, environmental disasters, preference erosion and so on. The broad aim is to double GDP by 2017 on the back of the further development and expansion of tourism and fisheries, and a diversification strategy designed to limit the exposure of Seychelles to the vagaries of international trade including the expansion of its nascent offshore financial sector and the further development of re‐exporting activities as well as an attempt to find oil within its exclusive economic zone. In the tourist sector, Seychelles is seeking to take the industry upmarket enabling it to charge higher prices and reap large profit margins as well as to double 2007 tourist numbers by 2017. Although expansion in, and the further development of, the tourism sector certainly has the potential to offset some of the competitive pressures that Seychelles is exposed to, it is not without problems. Occupancy rates are typically just 46 per cent (Seychelles Strategy, 2007, p. 12), and the sector is susceptible to changes in demand for long‐haul holidays, increased awareness about the effects of air travel on the environment, rising fuel costs and changes to the international security climate. Additionally, with Europe accounting for over 80 per cent of all tourist arrivals to Seychelles, any economic downturn in core European markets will affect the industry. As is the case in Mauritius, efforts are underway to market Seychelles as a tourist destination in Japan, China and the Middle East with, for example, the launch of a new Air Seychelles service to Bangkok (as an East Asian hub) and the expansion of flights routing through Dubai and Doha. These have, however, yet to bear significant fruit. Moreover, the extent of foreign ownership in the tourism sector and the use of expatriate workers means that relatively little of the foreign exchange earned from tourism remains in Seychelles. Expansion in the tourism sector is also hampered because the general condition of tourism facilities in Seychelles is relatively poor (although improving), yet costs are considerably above those of competitors in the Indian Ocean; and the growing homogenisation of the tourist experience in the Indian Ocean region ensures that Seychelles and Mauritius (as well as Maldives) are being brought into ever closer competition. Further expansion is also made problematic by the relative lack of infrastructure. Seychelles’ national infrastructure is already straining under the weight of the number of annual visitors to the islands. Water shortages and transport congestion are not uncommon features of daily life, and without significant further development, the post‐independence gains made by Seychelles in sanitation and living standards, among others, are likely to be threatened by the expansion of tourism. The second pillar of the Seychelles economy earmarked for further development is fisheries. Much like tourism, the development of the fisheries sector is designed to increase the capacity of the industry and the value of production. Unlike tourism, however, the strategy is also to develop a much larger market for a broader range of fish to serve the local Seychellois and tourist markets. The expansion of the fisheries sector is also tied in with the further development of the main port in Victoria. This expansion brings Seychelles into direct competition with Mauritius, which is attempting to develop a seafood hub, and Maldives, which is attempting to build a deep‐sea port. Furthermore, although there is an attempt to expand the range of species processed in the development of the sector, much of its expansion is centred on a significant increase in tuna fishing and Copyright © 2011 John Wiley & Sons, Ltd.

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the production of tuna and related products. However, with the loss of preferential access for tuna to key markets, and the threats to tuna fishing generally, it is unlikely that Seychelles will be able to compete with countries like the Philippines and Thailand, which are two of the world’s biggest exporters of canned tuna. Additionally, like tourism, much of the fisheries industry is foreign owned and relies increasingly on expatriate labour. Government officials in both countries are candid about the heavy transition costs of restructuring, although policies that really address the social consequences that are inevitably arising have yet to be put in place. That said, Seychelles is far ahead of Mauritius in retaining its post‐independence commitment to social equity albeit much more market orientated than in previous incarnations. First, much of the unemployment generated by restructuring is being addressed through improvements in and the extension of education. However, for many of those made redundant retraining is neither an option nor is it being offered. This is underlined by efforts in both countries to tailor their education systems to the skills required by the leading edge industries in restructuring programmes (but for which there will be a significant lag). In large part, the short‐term to medium‐term skills shortfall that both countries are experiencing is being met through the use of migrant labour. A second feature of the restructuring process in both states is that signs are emerging that inequality is on the rise.1 In Seychelles, the post‐independence gains in social equality are being reversed as the fruits of restructuring are distributed unevenly to foreign investors and a handful of already‐wealthy Seychellois (with the latter underpinning the re‐consolidation of old colonial hierarchies). In Mauritius, this has both a class and a community dynamic, with elite Franco‐Mauritians and middle class Hindu Mauritians being best placed to take advantage of the economic opportunities, whereas the Creole population fares worst. And in both countries, restructuring has been accompanied by a rolling back of social welfare provisions. Health care is increasingly being boiled down to primary delivery only, and private sector involvement in health provision is on the increase. Moreover, although education up to 18 years remains free, aspects of its provision have become privatised: such as the growing use of tutors to supplement shortfalls in teaching provision in secondary schools and the establishment of private universities in Mauritius, and the efforts being made in both countries to commodify education as part of a wider foreign exchange earning strategy.

6 CONCLUSION Mauritius and Seychelles are clearly facing fundamental challenges to their models of development. The loss of preferential access, growing global competition and declining 1

Data on inequality in Mauritius and Seychelles are hard to come by. A small increase in measureable inequality has been registered for Mauritius (from 37 in 1987 to 39 in 2006 on the Gini index), but these figures are estimates (see https://www.cia.gov/library/publications/the‐world‐factbook/geos/mp.html). No current figure is available for Seychelles, and the only estimate available is for 1986, which puts Seychelles at a much more unequal 47 (see World Bank, 1994, p. 8). In both countries, anecdotal evidence points to a strong feeling of increasing inequality, particularly among the poorest. This is supported by recent data for Mauritius that shows increases in the proportion of households below the half median monthly household income from 7.7 per cent in 2001/2002 to 7.9 per cent in 2006/2007, and, in the same period, an increase in the proportion of poor persons in relative poverty from 7.8 per cent to 8.5 per cent. The same data also show that when disaggregated to allow for regional variations the island of Rodrigues has suffered disproportionately greater increases in the incidence of poverty (see Ministry of Finance and Economic Empowerment, 2009, pp. 15, 21). No comparable data are available for Seychelles.


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ODA threaten to reverse the gains that both countries have made since independence. Moreover, the responses that each country have made to these pressures have produced strategies that rely on taking their products further ‘upmarket’ and by adding more value as well as attempting to develop competencies in financial services and education. These responses have not, however, mitigated the dependence of Mauritius and Seychelles to sell and source their goods and services on key markets. Both remain deeply susceptible to demand conditions in Europe—the primary market for their tourism, garment, sugar and fisheries products. Perhaps more worryingly, both countries have embarked on strategies that bring them into increasing competition with one another thereby potentially exacerbating their vulnerability further. The development of the sea‐food hub in Mauritius and the fisheries industry in Seychelles is one example. Tourism is another. Both countries also face challenges arising from a reliance on migrant labour, the necessity of, and their capacity to, re‐skill segments of their populations hit be restructuring, growing inequalities, and the consequences of rationalising and privatising aspects of their health and education systems. Perhaps more problematically, the continuing cycles of vulnerability that reform and restructuring processes have entrenched in Mauritius and Seychelles point to a worrying flaw with the literature on small island states. Although many of the policy options propagated by much of this literature offer solutions that insert Mauritius and Seychelles into a conceptually neat international division of labour, the small range of goods and services that each country has concentrated on producing actually perpetuate their vulnerability by extending their susceptibility to and dependence on demand from core markets. Neither country has been able to extend demand for their products beyond their traditional markets, and even if they were successful in doing so, they would still remain beholden to financial flows from export goods that have a high demand elasticity as much of their production targets luxury goods markets. Moreover, both states have been encouraged to develop export portfolios that are increasingly similar, thereby bringing them into closer competition with one another, and with other small island states in the region (such as Maldives) as well as elsewhere. What is needed, but what is missing in the literature, is a more nuanced set of policy recommendations that look beyond the apparent similarities of these countries, which explore their uniqueness as a way of developing distinct, tailored policy programmes designed not just to protect existing strengths and foster new growth but also ameliorates their dependence on the production of a small range of goods and services and, crucially, open up policy space to enable the state to intervene in instances of market failure. The corollary of this is that more detailed and extensive work is needed on small island states generally and the islands of the Indian Ocean more specifically.

ACKNOWLEDGEMENTS We gratefully acknowledge the British Academy (award SG47273) for funding this research as well as the Nuffield Foundation (award SGS/37599) for making the gathering of extra material possible. The findings presented here draw from interviews with political elites, private sector and civil society representatives and employees of international organisations as well as analyses of primary and secondary materials unavailable outside Mauritius and Seychelles. We are also grateful to Martin Minogue, Sylla Abdoulaye, Jean‐Paul Adam, Gerard Adonis, Sultan Gilbert Beaudoin, Bernard Elizabeth, Danny Faure, Steve Lalande, Rebecca Lalanne, Maurice Loustau‐Lalanne, Sir James Mancham, James Michel, Macsuzy Copyright © 2011 John Wiley & Sons, Ltd.

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Mondon, Michael Nalletamby, Audrey Nanon, Rolph Payet, Rondolph Payet, France Albert René, David Savy, Melanie Stravens, Roger Toussaint, Annie Vidot, Jean Weeling‐Lee, Gilbert Ahnee, Vinaye Ancharaz, Jitendra Bissessur, Constantine Chikosi, Lindsay Colleen, Jayen Cuttaree, Philippe Hein, Raj Makoond, Prem Nababsing, Idula Nababsing, Sandrasagarren Naidu, Andrew Neill, Mahendra Punchoo, Satinder Ragobur, Ajit Rambaree, Jayeraj Ramjada, Nigel Richards, Ram Seegobin, Rama Sithanen, Yusuf Sooklall, Riad Sultan and Mohamad Vayid for their time and assistance.

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J. Int. Dev. 25, 92–107 (2013) DOI: 10.1002/jid