L’express.mu, Mauritius
Certain proposals in the recent budget can have a devastating impact on certain sections of Mauritian industry and society. However, I wish to reiterate my belief and confidence in your able leadership and reaffirm that normally, your decisions are for the betterment of Mauritian economy in general.
You have proposed to reduce import duty on garments from Rs 50 to Rs 30. Such a proposal is likely to impart ONLY the following benefits:
1. Imported garments may become little cheaper in Mauritius. Although we may point out that importers may not pass on entire benefits of reduced import duty and keep part of it for themselves to enhance their profit margins.
2. It may encourage other existing business to indulge in garment imports.
3. Such a move can encourage even individuals (without any business set up or know-how) to import garments (but it leads to certain malpractices harmful to the economy).
However, it appears that you have not really had an in-depth study of the situation, as I would say “without looking at other side of the coin”.
Reduction in import duty on garments will have far-reaching consequences and wider ramifications, impacting large section of Mauritian society and business, which ultimately affect nation’s economy as well:
1. You will agree that Mauritius so far is predominantly a tourist economy. We do export sugar. However, it is not a big revenue earner. This apart, there are no big/huge exporting/manufacturing industries in Mauritius without importing raw materials. However, in today’s world, economies of various countries are becoming stronger, driven by a strong domestic manufacturing base, which not only caters for domestic needs but also becomes a major exporting hub.
There are countries like Vietnam, Bangladesh, Sri Lanka, etc., which are less literate and poorer compared to Mauritius. However, government has encouraged on a massive scale expanding domestic manufacturing base for domestic as well as global markets. In garments, very high grade skills are not required and even an illiterate/semi-literate workforce becomes expert (over a period of time). Since governments of countries like Bangladesh and Vietnam could not massively invest in a huge education infrastructure, these governments realised that the evolution of garment industry was the best way to gainfully employ the unemployed workforce and hence, these governments (instead of allowing cheaper import of garments) provided big incentives to the garment industry. In a short span of few years, these countries have become a major export hub to Europe and USA and giving tough competition to established and big economies like India and China.
2. Government has been talking about encouragement of SMEs, which really is a noble idea. The Development Bank of Mauritius has given small loans to many SMEs and roughly 70% of existing SMEs are in the garment making business. Last week, I personally heard something you said on Radio1 that SMEs directly/indirectly involve 100,000 people. Thus the garment industry is already at a disadvantage against China and other countries due to Mauritius being a high-cost island (See small mathematical calculation below). There is no doubt that reduction in import duty on garments will almost kill the SMEs engaged in garment manufacturing. You will also agree that importing countries don’t become strong economies. With rising import bills, currency has more chance in getting weaker and weaker.
3. If garment factories start closing down, due to above reasons, it will lead to massive unemployment, a workforce which may not be suitable for any other industry except trading on the roadside. It will affect the fortunes and future of thousands of families who depend on the garment industry for their livelihood.
4. Hundreds of entrepreneurs have invested huge amounts of their own hard-earned capital in these enterprises and even taken bank finance for expansion, etc. These entrepreneurs will suffer heavy losses and may not be even able to repay their bank loans. Banks will feel slowdown in their future business as loan disbursement to garment industry will vanish. Thus, national wealth will start getting eroded.
5. Every worker who is working for a SME, not mentioning the high rising cost of living, is expecting an increase in salary but at the same time, SME owners are thinking of how to compete with direct importers of garments and at a certain moment, they too land in closing down factories and get engaged in imports and sell on wholesale directly – but here again you will agree that the normal worker (machinist – supervisor – production manger – helper – those involved in packing / finishing / ironing, etc. – may not be able due to lack of money to follow the footstep of the importer.
5. For imports(avoidable imports), valuable foreign exchanged is being frittered away.
6.In my idea, your decision to reduce import duty is like “Robbing Peter to pay Paul”. Due to reduced import duty, government will be losing revenue which tantamounts to subsidizing other country’s businessmen. Foreign businessmen (China-India-Vietnam- Sri Lanka – who are exporting garments to Mauritius) will be flourishing at the expense of Mauritian businessmen’s miseries.
Even, global economy is becoming like a global village and international barriers are being reduced to encourage cross border business but no government does so at the expense of domestic population. Even the most developed economies like US resort to import restriction to protect local industry. And, our industry is still fledgling which needs to be incubated by government support/funds to become a globally renowned garment manufacturer in coming decades.
7. Quality: It is a widely acknowledged fact that in general Chinese garment quality is not very good. On the other hand, although the Mauritian garment industry is not so big, still we have maintained highest standards of quality and the “Made In Mauritius” label commands respect even amongst rich tourists from Europe to USA. One well known factory in Mauritius – “Aquarelle” – is one of the most reputed firms all over the world as far as quality is concerned .
8. Finally, these garment factories (SMEs including non-registered ones – I mean those who stitch at home and have 1 or 2 machines) meet their fabric requirements from textile houses/shops/importers of fabrics. Once, the garment industry starts closing down, business of textile businessmen will drop sharply. It is a certainty that in such an eventuality even textile businessmen will suffer to same extent as the garment industry.
9. Those who are in business of garment accessories (those who sells thread, buttons, zippers, labels, tags, plastic bag for packing, hangers, etc. ” Magasin fourniture”, as we say, will also witness complete erosion in their business and disappear in the near future.
Thus, in some, import duty reduction can generate massive unemployment, bankruptcy of thousands of well-established businesses and further weakening of our currency.
10. Lastly, I personally heard on Radio 1 last week regarding NPC – you had rightly urged private sector to increase salaries of the employees. Majority of entrepreneurs/businessmen believe in providing best possible compensation to the employees to win their loyalty and hard work. However, salaries are always proportionate to the earnings of the enterprise. In view of rising imports of Chinese garments, profit margins of garment factories are already under severe pressure, making further expansions unviable (thus wiping out chances of generating significant new employment opportunities).
In fact, several garment manufacturers have already started cutting down their own production and resorting to imports as they find imports more convenient, less cumbersome and more profitable. If this trend catches speed and higher number of garment manufacturers resort to such tactics, it will bring doom for the working community because a worker, a machinist, a designer, a supervisor, a helper at packing stage don’t have enough money to become an importer and won’t be able to emulate his employer. What will this bring to the working class force if not their doom’s day ? It automatically brings a chain of destruction for the simple reason that every SME, which closes down, brings disaster to the society.
Hence I sincerely implore you to study my submission thoroughly and to reconsider your decision of import duty reduction on garments. I plead with you, for the sake of thousands of working class, hundreds of entrepreneurs and nation’s economy, to revoke the proposal of import duty reduction and continue with the existing duty.
Shariff Muhammad TAKI
