Percy S. Mistry, Investment Banker: “Mauritius has to export almost the size of its Gross Domestic Product”

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Percy S. Mistry, Chief Executive Officer of Oxford International Associates Ltd, a UK registered private unlisted company, will be the main speaker during a half-day seminar organised by Oxford International Mauritius. Due at Hennessy Park Hotel on friday the 16th January, it will be entitled “Mauritius at an inflection point : earning a living in an uncertain world”.

What is the purpose of your visit in Mauritius?

It is a sort of dual purpose visit. Nikhil Treebhoohun and I had started Oxford International in Mauritius. We thought that it can be worthwhile for people here, mainly in the corporate and parastatal sectors, to know that we now exist. We are here to do serious business. We both feel that once again Mauritius is at a turning point. This was much the same way about 10 years ago when Nikhil Treebhoohun was heading the National Productivity and Competitiveness Council.

We did what is known as the Competitiveness foresight. Many of the ideas that we proposed were not just those of a foreigner essentially expressing his views. It was rather a foreigner acting as a facilitator. His aim was to bring out and to tease views that a lot of very thoughtful people in Mauritius had. We tried to make them coherent. Representatives of the private sector and of the government as well were able to exchange views in a way they have never done before.

A consensus was found. We came up with a coherent plan. Between 2005 and 2009, this plan was followed much to Mauritius benefit. But perhaps due to the economic crisis that hit the world in 2008 and due to some domestic factors as well, we began to feel that Mauritius was going off the rail and has again come to a dead end of a brick wall and we better think where we go from here.

What should Mauritius do to earn a living in a world of uncertainties ?

It has to export almost the size of its Gross Domestic Product (GDP). Hong Kong and Singapore do even better because their exports exceed their respective GDP itself. Mauritius should not be satisfied with the actual situation with a $12 billion economy. It should be a $ 18 billion economy. Everybody has to be a bit more ambitious. Everybody should stand up to a plate.

There is something wrong with a growth of three and a half per cent. It is in my view under performing by at least 50%. 50% makes a big difference. If you are growing at 3.5 % a year, in real terms your per capita doubles every 20 years. If you are growing at 7% a year, your per capita income doubles every ten years. Essentially, even by growing at 3.5%, you are sacrificing a whole generation. Anyone who thinks that for an economy like that of Mauritius 3.5% is ok, I would seriously challenge that complacency. Mauritius economy ought to be much more nimble. For 30 years, China could grow at 10% and India for five or six years at 9% and for the last 20 years has grown to an average of 6%.

Even if you look at island economies who set an example for Mauritius, like Singapore, you see it now has a per capita income level of nearly $ 60,000. In 1960, Singapore’s per capita income was twice that of Mauritius. Today, it’s more than seven times. It is not that Mauritius has not done well, in relative as well as in absolute sense. It has done extremely well. But relative to the real stars, the small economies that are nimble, its performance leaves a lot to be desired.

You have been a keen observer of Mauritius for the last three decades. You are certainly aware that we have a new minister of Finance and a new government. In the electoral heat many promises were made, namely the increase of social benefits, the creation of 40,000 or more jobs, and above that a no-tax budget. Can these targets be realistically achieved?

In the present environment, one needs to be cautious. During a political campaign, people make a lot of promises. They try to do as much homework as they can before they make such promises. But there is something that always happens internally or externally which makes these promises somewhat difficult to achieve.

Everything doesn’t depend on you. An economy like that of Mauritius depends heavily on what happens in the rest of the world. Mauritius’ ability to deliver on job creation, which depends on investment, is going to be critically dependent on how well Mauritius reads and anticipates what is going to happen abroad and then adapt and adjust to opportunities.

Two things happen when a fast train is coming at someone: the latter can either jump on it and ride it or get run over by it. The metaphor depicts what is going to happen in Mauritius next. One has to be careful. Global economy can be compared to a train that is losing steam and power.

We have no knowledge of the direction it is heading for. This is quite an unusual moment in history. The developed world is diverging about substantially. The USA is the only major economy doing reasonably well. However, it is not carrying all the North America with it except for Mexico. Canada is suffering because of the lower rate of transformation from China. So is Australia.

It is very difficult to see what is happening in Europe. Mauritius is too Eurocentric. It is perhaps connected to the wrong part of the developed world. The situation is going to be sclerotic for at least six to seven years. We have to remember that between 2008 and 2014 the world has not been normal. A normal economy is only worked in the developing world. It has given up working in the developed world.

Will the new government headed by sir Anerood Jugnauth be able to repeat the economic miracle of the eighties?

The fundamental point is how Mauritius reads the signs, understands them, decides what are the relevant trends and issues that affect its own future. I was intrigued by the fact that one says that Mauritius has a new government.

Actually, when I looked at the result, the movie back to the future came to my mind. New faces in government after ten years, that’s true. But actually what we get is a very old government. It is a government of the past. True, the characters are in place now. They were very successful in what they did. The question mark does arise. They understood what was happening in the nineties and the eighties. Do they understand what is going on in the 21st century, this particular decade? Even this decade is very different from the last one. The world is moving geographically and technologically in a way very few people can get a handle on.

What is then the nature of this power that is rapidly transforming the world?

Two weeks ago, The Economist wrote a very good piece, I quote: “If people think that the major powers in the world today are the USA, China, and Russia,they are wrong. The major powers in the world today are Google, Amazon, Facebook”. We have to understand how these major powers are transforming the world.They are transforming it not just economically. They transform it politically. The difference is that Twitter has made instant feedback possible. That can potentially change the rules of the game. Those are the issues one hopes this government can try to understand and use to Mauritius’ advantage.

What are the challenges the country is poised to face and those opportunities likely to boost up its economic growth?

Mauritius is under investing in its physical capacity. Sooner or later, that’s going to catch up. Mauritius Gross National Product is about $ 12 millions a year. That wouldn’t even place it in the 300 list of fortune 500 corporation. It would not even list among the top 300 fortune 500 corporations in terms of its output. Given that reality, that enables it to be nimble unlike India and China, one a trillion economy and the other a two trillion economy. Those elephants are larger to turn around. This is not the case with Mauritius.

However, it is still too traditionally locked into tourism which was a growth factor after sugar, financial services and textile manufacturing. It is very hard to go upscale. The world of the future is IT driven. Instead of simply trying to grow up the scale in textile and textile alone, why has Mauritius not invested in high level, high technology intensive manufacturing? It has not diversified its manufacturing base. The big challenge that arises is where does Mauritius go from here? Where does its future lie? Mauritius can only add to the margin of tourism and that of the financial services. It can have transformative growth in non tourism related services.

I am not sure that Mauritius will be able to capture manufacturing as it should. It can and must go more heavily on marine services. But should avoid to take the same path it did before in the field of finance and tourism.

A lot of criticism has been made against the way certain companies belonging to the state have been or are managed. What is the recipe for such entities to perform as efficiently as any private enterprise aiming at making profit within the range of a strategic plan that promotes sustainability in the long run?

If the focus is to be only on efficiency and profitability, the first step is to put the shares of all the State-Owned Enterprises into a Sovereign Wealth Fund which should be statutorily separate from government and government ministries. The board and senior management of such a MRU/Sovereign Wealth Fund should be internationally recruited on a qualifications and merit basis. It should not be subject to political interference in their operations. Such a Sovereign Wealth Fund should be tasked with ensuring that every State-Owned Enterprise in its portfolio is run on purely commercial lines, free of political and bureaucratic interference.

Every State-Owned Enterprise should be permitted to recruit internationally to acquire the best expertise available. The Sovereign Wealth Fund should firstly evaluate exhaustively which State-Owned Enterprises should be restructured, recapitalized, transformed or shutdown. Secondly, it should require that every State-Owned Enterprise in its portfolio meet global standards of corporate governance and achieve profitability comparable to the best peers in that industry - whether they are other State-Owned Enterprises or private.

If any State-Owned Enterprise cannot do within five years, it should be closed down. When global standards of corporate governance and profitability are achieved, these State-Owned Enterprises should be privatized (preferably through management and employee buyouts).

The proceeds of such privatization should be invested in a National Fund for the Future (MRUNFF). The National Fund for the Future would be a professionally run global asset management company (possibly a continuation of the SWF in a different avatar) permitted to invest in MRU and around the world to achieve the highest possible (conservatively risk-adjusted) returns on its assets.

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