Mauritian Economy: Behind The Facade

By Dr Sen Narrainen

Economist | Former Senior Economist of the Government of Mauritius

Economic operators in Mauritius are confused about the country’s financial and economic health. While some official statistics suggest progress on several fronts, there is a popular perception that the economy is in a state of precariousness and even in an abyss. What can explain such a divergence between perception and statistical evidence?

Among the various reasons behind such a divergence is the fallacy of averages which suggests that it is wrong to compare individuals of two different groups based on the averages of the groups. In his book, The Flaw of Averages: Why We Underestimate Risk in the Face of Uncertainty, Sam L. Savage gives the example of a statistician who drowns while crossing a river that he calculates is, on average, three feet deep. 

Averages can act as a façade that gives the impression that all is fine while concealing serious problems and dangers. This is commonplace in countries with dual economies. Mauritius is one of them. There is duality in Mauritius in the sense that there is an advanced economy for the rich and wealthy (Group 1, where some 20 per cent of the population operate) and an underdeveloped economy for the others – the poor, low and middle-income individuals (Group 2).

During the past three decades, the economy of Group 1 has been developing faster than that of Group 2. The growth and development of Group 1 economy are embodied in the mushrooming of smart cities and shopping malls, the surging sales of luxury cars, as well as the increasing number of private schools, universities and hospitals, among others. The Group 1 economy has been pulling up the country’s GDP growth, giving the impression that all is well at the national level. It is clear that the national GDP growth rate in Mauritius is an average of the expansion rates of two groups which are worlds apart from the perspective of standard of living and quality of life. 

The level of income per capita: a deceiving average

Besides the economic growth rate, there are other averages that policy makers should be wary of. The two most prominent are the level of income per capita and the consumer price index (CPI).

The level of income per capita has been and is still a rather misleading average when used as an indicator of the level of development and standard of living in Mauritius. During most of the three decades ending in 2023, income inequality has been increasing, resulting in a built up of the feeling of exclusion and alienation among a large segment of the population. That is why the news about the rise of Mauritius to high income status in 2019, which should have been celebrated as a major economic achievement, was instead received with cynicism by the population. 

Applying the latest published income distribution statistics to the nominal gross national income (GNI) data of 2023 (a rounded-up figure of some MUR 690 billion) and a population estimated at 1.3 million, leads to the following observations:

• the per capita GNI for the richest 20 per cent of the population is close to ten times higher than for the poorest 20 per cent;
• the per capita GNI for 80 per cent of the population is far below the national average;  and 
• within the different income quintiles, there is acute inequality – a reality that is more perceptible at the top and bottom quintiles. At the top quintile, very few individuals receive most of the income. In the bottom quintile, close to half of the population live in relative poverty, which is defined by Statistics Mauritius as income which is below half median income.

The distribution of wealth is also highly unequal. Broadly defined, wealth includes financial and physical assets, along with productive resources such as capital, land and labour.  Human capital, which is crucial to wealth creation and distribution, is also exceedingly concentrated. Only around 20 per cent of the Mauritian labour force have post-secondary education – a situation which is attributable to a blatantly exclusive education system.

The consumer price index – another misrepresentative average

The consumer price index (CPI), from which the headline inflation/deflation is computed, constitutes another average that can be misrepresentative in a dual economy. The CPI, being a weighted average of a basket of goods and services consumed by the typical consumer, does not adequately reflect the incidence of inflation on low-income individuals. The CPI basket assigns a weight of only 25 per cent to food and non-alcoholic beverages, whereas in any given year, a large share of the Mauritian population spends more than 50 percent of their income on food. The annual headline food price inflation rate computed from the CPI basket was close to 15 percent in 2022, as well as in 2023. A similar rate was recorded for the one-year period ending in March 2024.

Policy implications of fallacious averages

The realisation that averages are a façade has 3 main implications for the policy-making process:  

1. The entire process for the annual tripartite must be reviewed to ensure that low-income workers get the cost-of-living adjustments that they ought to. Traditionally, the employees are categorised according to their annual income levels. Then, the quantum of cost-of-living adjustments is decided on a discriminatory basis usually in favour of those who are in the low-income groups. But a full adjustment to the CPI inflation rate does not necessarily protect the real wages of employees in the low-income groups, because, as argued above, the CPI inflation rate generally underestimates the actual inflation for low-income individuals. In some years, government, sensing that the CPI for low-income individuals may have been higher than the headline inflation rate, gave them higher compensation than the CPI inflation rate. But these decisions had a political tinge. 

Greater objectivity can be injected in the tripartite process by using more than one measure of inflation to determine the compensation rates. A CPI must be computed for the workers in the low-income group, another one may be required for the middle-income group, and the headline CPI inflation used for the remaining groups. This will help to ensure social justice in the country’s development.

2. The development model itself must become more inclusive. The central objective of any new model must be to raise the standard of living and quality of life of the bottom 40 percent of the population, rather than on maximising the economic growth rate. To this end, a careful policy-balancing act is required, since the economy is still functioning in a trickle-down mode which is deeply rooted in the country’s economic history. The trickle-down mode cannot be changed overnight or even in the medium term without running the risk of accelerating the decay of the economic situation. In the short to medium term, we must accept to be in a trickle-down mode while taking actions to increase the downflow of benefits. There must however be a clear long-term strategy for economic democratisation, which should become a perennial feature of Mauritius’s development endeavour.

3. The political pathology of satisfying the greed of a few – a pathology which has climaxed in recent years – rather than advancing the collective interests must be cured. 

To conclude, it must be stressed that the fallacy of averages is but one of the explanations to the divergence between statistical evidence and the perception of the population. Another reason may be the trimming and cooking of data – a deliberate façade building strategy.  An honest review of the ways that data are collected and published should take care of that issue. The credibility of the main sources of official statistics, in particular Statistics Mauritius and the Bank of Mauritius, must be re-established.

Yet another reason behind the divergence may be the manipulation of perception for political gains. It is important that all policies are done in a very transparent way and that the communication policies are depoliticised. In recent years, there has been an excessive dosage of political considerations in policy making. This reality has been made worse by political pathologies where the common good has been discarded to focus on the interests of a few.

It is time to change course.