Les entreprises familiales, discrètement plus vertes

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June 14, 2023

Paul-Olivier Klein, Maitre de Conférences en Finance, iaelyon School of Management – Université Jean Moulin Lyon 3

Marcin Borsuk, Research fellow, University of Cape Town

Nicolas Eugster, Lecturer in Finance, The University of Queensland

Oskar Kowalewski, Professor of Finance, IÉSEG School of Management

Toutes les entreprises partagent-elles le même souci environnemental ? La littérature en finance d’entreprise révèle que la volonté de léguer une affaire pérenne à ses enfants fait grandir un souci du long terme au sein des entreprises familiales. Les groupes familiaux ont également tendance à accorder plus d’importance aux enjeux non financiers. Il est d’ailleurs plus facile de s’en préoccuper dans les entreprises familiales car les propriétaires y sont souvent dirigeants ou bien les uns et les autres sont-ils issus du même arbre généalogique.

C’est pourquoi, dans une étude récente, nous explorons l’hypothèse qu’une entreprise détenue par une famille et transmise de génération en génération enregistre des niveaux de pollution plus faibles. Nous évaluons ainsi l’impact de différents systèmes de propriété et de gouvernance sur les niveaux de pollution des entreprises. Cette recherche permet d’offrir des éléments de réponses à un phénomène encore mal compris par la science économique : pourquoi observe-t-on des niveaux de pollution différents d’une entreprise à l’autre lorsqu’elles exercent dans le même secteur, au sein d’un même pays et qu’elles présentent des caractéristiques financières similaires ?

La réflexion est cruciale. Les experts du Groupe d’experts intergouvernemental sur l’évolution du climat (GIEC) ne cessent de nous alerter : le changement climatique constitue un problème pressant, menaçant le bon fonctionnement des sociétés et mettant des vies humaines en danger. Parce que la pollution est conséquence de l’activité économique, la science économique a un rôle clé à jouer pour éviter le pire.

12,8 tonnes de CO₂ par million de dollars de revenus de moins

La propriété familiale est la forme de propriété la plus répandue dans le monde. Les entreprises familiales vont de la boulangerie locale à l’entreprise multinationale et la France en abrite des plus connues. La famille Mulliez, par exemple, possède plusieurs chaînes telles que Auchan, Decathlon, Boulanger ou Leroy Merlin. Ce groupe multigénérationnel est souvent citée comme un exemple typique de modèle de propriété familiale. Robertet SA autre exemple, est un fabricant de parfums et d’arômes fondé en 1850. Il est détenu par la famille Maubert, qui représente 67,5 % des droits de vote.

Nombre de ces entreprises sont directement dirigées par des membres de la famille qui agissent en tant que PDG ou occupent des postes de direction. Chez Hermès International, un grand nombre des positions clés sont occupées par la sixième génération des descendants De Seynes et Dumas du fondateur Thierry Hermès.

Pour comprendre leur rapport à l’environnement, nous employons des données sur 6 610 entreprises de 44 pays différents entre 2010 et 2019. Il ne s’agit pas de déclarations des entreprises, mais de mesures précises estimant leurs niveaux d’émissions de carbone. Nous pouvons suivre leurs émissions au cours des dix dernières années et les comparer aux niveaux de pollution des entreprises non familiales au cours de la même période.

En moyenne, dans notre échantillon, chaque million de dollars de revenus génère 124 tonnes de CO₂. Notons que cela ne correspond qu’aux émissions directes : les chiffres se trouvent plus élevés lorsqu’ils incluent les émissions indirectes. Néanmoins, quand les émissions s’élèvent à 144 tonnes de CO₂ par million de dollars de revenus pour les entreprises non familiales, elles ne sont que de 83 tonnes pour les entreprises familiales. La différence est conséquente, statistiquement significative et c’est une constante tout au long de la décennie observée.

L’écart reste observable même lorsque l’on regarde à l’intérieur d’un même secteur et d’une même aire géographique : en moyenne, les entreprises familiales polluent systématiquement moins que les entreprises non familiales.

Les différences d’intensité des émissions pourraient néanmoins s’expliquer par des caractéristiques différentes des entreprises familiales et non familiales. Les premières sont en moyenne plus petites et possèdent moins d’actifs corporels. Dans ce cas, les différences observées pourraient n’être qu’un artefact statistique.

Pour s’assurer que c’est bien le type de propriété qui explique les différents degrés de pollution entre les deux types d’entreprises, nous avons effectué une analyse dans laquelle nous contrôlons plusieurs caractéristiques des entreprises. Lorsque les différences entre les entreprises sont prises en compte, les entreprises familiales émettent encore 12,8 tonnes de CO₂ par million de dollars de revenus de moins que les entreprises non familiales. Nous constatons également que cet effet différentiel est particulièrement marqué après l’Accord de Paris de 2015, les entreprises familiales suivant alors une tendance distincte. Cela confirme le rôle de ce changement d’orientation en termes de discours public.

Une vision de long terme

Trois phénomènes tendent à expliquer ce résultat. Premièrement, ce sont les entreprises familiales qui parviennent le mieux à réduire leurs niveaux d’émission car leurs conseils d’administration ont une durée de mandat plus longue. D’après nos estimations, ses membres devraient siéger en moyenne huit ans pour que l’entreprise commence à expérimenter une réduction significative de ses émissions de CO₂. Cela donne du poids à l’idée qu’une vision à long terme contribue à la lutte contre le changement climatique.

Deuxièmement, nous observons que ce sont les entreprises familiales dirigées par des membres de la famille qui affichent des niveaux d’émission plus faibles. C’est notamment le cas lorsque le PDG appartient à la deuxième génération ou à la génération suivante. Des études récentes montrent notamment que les valeurs familiales gagnent en importance au fil du temps.

À l’inverse, les entreprises dirigées par des PDG recrutés, c’est-à-dire non membres de la famille, connaissent une augmentation de leurs niveaux de pollution. Cela confirme que les valeurs familiales et la transmission familiale jouent un rôle central.

Troisièmement, nous observons que les entreprises familiales ont commencé à investir davantage dans la recherche et le développement à la suite de l’Accord de Paris de 2015, suggérant que des investissements technologiques plus importants sous-tendent cette différence.

Des bons résultats ESG, un signal trompeur ?

Notre étude met également en avant un paradoxe inattendu : bien que moins carbonées, les entreprises familiales affichent des scores environnementaux, sociaux et de gouvernance (ESG) plus faibles, y compris les scores uniquement environnementaux. Elles s’engagent également moins publiquement à réduire leurs niveaux d’émission. Les entreprises qui polluent le moins sont ainsi aussi celles qui affichent le moins ce résultat, ce qui peut s’interpréter comme une moindre tendance au greenwashing.

Les entreprises familiales changent néanmoins de comportement lorsqu’elles font appel à des PDG recrutés. Elles commencent alors à obtenir de meilleurs scores ESG et à s’engager publiquement à réduire leurs émissions. Rappelons que c’est également avec un PDG recruté que la pollution des entreprises familiales augmente.

Ce résultat apporte des conclusions importantes : l’affichage environnemental peut donner un mauvais signal de l’impact réel. Les investisseurs, ainsi que les régulateurs, devraient préférer s’appuyer sur des données d’émission concrètes à des déclarations environnementales non contraignantes, au risque de n’avoir que peu d’effets climatiques réels.

Cet article est republié à partir de The Conversation sous licence Creative Commons. Lire l’article original.

Main photo by Quang Nguyen Vinh on Pexels.

Charles Telfair Centre is an independent nonpartisan not for profit organisation and does not take specific positions. All views, positions, and conclusions expressed in our publications are solely those of the author(s).

It’s not just climate – we’ve already breached most of the Earth’s limits. A safer, fairer future means treading lightly

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Charles Telfair Centre

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June 8, 2023

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Steven J Lade, Resilience Researcher, Australian National University

Ben Stewart-Koster, Senior Research Fellow, Griffith University

Stuart Bunn, Professor, Australian Rivers Institute, Griffith University

Syezlin Hasan, Research Fellow, Griffith University

Xuemei Bai, Distinguished Professor, Australian National University

People once believed the planet could always accommodate us. That the resilience of the Earth system meant nature would always provide. But we now know this is not necessarily the case. As big as the world is, our impact is bigger.

In research released today, an international team of scientists from the Earth Commission, of which we were part, identified eight “safe” and “just” boundaries spanning five vital planetary systems: climate change, the biosphere, freshwater, nutrient use in fertilisers and air pollution. This is the first time an assessment of boundaries has quantified the harms to people from changes to the Earth system.

“Safe” means boundaries maintaining stability and resilience of our planetary systems on which we rely. “Just”, in this work, means boundaries which minimise significant harm to people. Together, they’re a health barometer for the planet.

Assessing our planet’s health is a big task. It took the expertise of 51 world-leading researchers from natural and social sciences. Our methods included modelling, literature reviews and expert judgement. We assessed factors such as tipping point risks, declines in Earth system functions, historical variability and effects on people.

Alarmingly, we found humanity has exceeded the safe and just limits for four of five systems. Aerosol pollution is the sole exception. Urgent action, based on the best available science, is now needed.

This illustration shows how we’ve breached almost all the eight safe and just Earth system boundaries globally.
Author provided

So, what did we find?

Our work builds on the influential concepts of planetary boundaries by finding ways to quantify what just systems look like alongside safety.

Importantly, the safe and just boundaries are defined at local to global spatial scales appropriate for assessing and managing planetary systems – as small as one square kilometre in the case of biodiversity. This is crucial because many natural functions act at local scales.

Here are the boundaries:

1. Climate boundary – keep warming to 1℃

We know the Paris Agreement goal of 1.5℃ avoids a high risk of triggering dangerous climate tipping points.

But even now, with warming at 1.2℃, many people around the world are being hit hard by climate-linked disasters, such as the recent extreme heat in China, fires in Canada, severe floods in Pakistan and droughts in the United States and the Horn of Africa.

At 1.5℃, hundreds of millions of people could be exposed to average annual temperatures over 29℃, which is outside the human climate niche and can be fatal. That means a just boundary for climate is nearer to 1°C. This makes the need to halt further carbon emissions even more urgent.

2. Biosphere boundaries: Expand intact ecosystems to cover 50-60% of the earth

A healthy biosphere ensures a safe and just planet by storing carbon, maintaining global water cycles and soil quality, protecting pollinators and many other ecosystem services. To safeguard these services, we need 50 to 60% of the world’s land to have largely intact natural ecosystems.

Recent research puts the current figure at between 45% and 50%, which includes vast areas of land with relatively low populations, including parts of Australia and the Amazon rainforest. These areas are already under pressure from climate change and other human activity.

Locally, we need about 20-25% of each square kilometre of farms, towns, cities or other human-dominated landscapes to contain largely intact natural ecosystems. At present, only a third of our human-dominated landscapes meet this threshold.

3. Freshwater boundaries: Keep groundwater levels up and don’t suck rivers dry

Too much freshwater is a problem, as unprecedented floods in Australia and Pakistan show. And too little is also a problem, with unprecedented droughts taking their toll on food production.

To bring fresh water systems back into balance, a rule of thumb is to avoid taking or adding more than 20% of a river or stream’s water in any one month, in the absence of local knowledge of environmental flows.

At present, 66% of the world’s land area meets this boundary, when flows are averaged over the year. But human settlement has a major impact: less than half of the world’s population lives in these areas. Groundwater, too, is overused. At present, almost half the world’s land is subject to groundwater overextraction.

4. Fertiliser and nutrient boundaries: Halve the runoff from fertilisers

When farmers overuse fertilisers on their fields, rain washes nitrogen and phosphorus runoff into rivers and oceans. These nutrients can trigger algal blooms, damage ecosystems and worsen drinking water quality.

Yet many farming regions in poorer countries don’t have enough fertiliser, which is unjust.

Worldwide, our nitrogen and phosphorus use are up to double their safe and just boundaries. While this needs to be reduced in many countries, in other parts of the world fertiliser use can safely increase.

5. Aerosol pollution boundary: Sharply reduce dangerous air pollution and reduce regional differences

New research shows differences in concentration of aerosol pollutants between Northern and Southern hemispheres could disrupt wind patterns and monsoons if pollutant levels keep increasing. That is, air pollution could actually upend weather systems.

At present, aerosol concentrations have not yet reached weather-changing levels. But much of the world is exposed to dangerous levels of fine particle pollution (known as PM 2.5) in the air, causing an estimated 4.2 million deaths a year.

We must significantly reduce these pollutants to safer levels – under 15 micrograms per cubic metre of air.

We must act

We must urgently navigate towards a safe and just future, and strive to return our planetary systems back within safe and just boundaries through just means.

To stop human civilisation from pushing the Earths’s systems out of balance, we will have to tackle the many ways we damage the planet.

To work towards a world compatible with the Earth’s limits means setting and achieving science-based targets. To translate these boundaries to actions will require urgent support from government to create regulatory and incentive-based systems to drive the changes needed.

Setting boundaries and targets is vital. The Paris Agreement galvanised faster action on climate. But we need similar boundaries to ensure the future holds fresh water, clean air, a planet still full of life and a good life for humans.

We would like to acknowledge support from the Earth Commission, which is hosted by Future Earth, and is the science component of the Global Commons Alliance.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Main Photo by Catherine Sheila on Pexels.

Charles Telfair Centre is an independent nonpartisan not for profit organisation and does not take specific positions. All views, positions, and conclusions expressed in our publications are solely those of the author(s).

Event Proceedings: The Role of Small Island States in the Geopolitics of the Indian Ocean

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Charles Telfair Centre

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May 30, 2023

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Madvee Jane Moteea-Sewlall, Editorial Assistant at the Charles Telfair Centre

Back in February, the Charles Telfair Centre and Curtin University organised an international open forum on “The Role of Small Island States in the Geopolitics of the Indian Ocean.” With 150 guests gathered on the grounds of the Charles Telfair Campus, the event was an opportunity to engage on a most pressing topic for the region. Small Island States (SISs) of the South-West Indian Ocean region are emerging as important security partners in the geopolitics of the Indian Ocean Region for the larger countries in the region. Within a context of contemporary geopolitical and legal competition at sea and institutional fragmentation for governing high seas, SISs find their position to be both an advantage as well as a constraint as they navigate the different geopolitical interests of the great and emerging powers.

On the day, our keynote speaker, Ambassador (Prof.) Anil Sooklal and the panelists, Dr. Roukaya Kassenally and Jean Claude de l’Estrac unpacked the complexities faced by SISs of the South-West Indian Ocean region by exploring the challenges and opportunities faced by SISs in the complex geopolitical landscape of the Indian Ocean and the growing capacity and interest of great powers and emerging powers in playing a greater role in the Indian Ocean. They explored the role SISs can play in securing their interest in building safe, secure, and sustainable seas while leveraging from great power politics.

Amb. Sooklal started his talk by reminding us of the words of Abdullah Shahid, the Maldives Minister of Foreign Affairs: “We cannot deny that Small Island Developing States are exceptionally vulnerable, but I don’t believe that we are powerless.”

In his keynote, Amb. Sooklal addressed the Indian Ocean SIS’s awareness of the importance of their geography and identity as islands in the face of major power rivalry and competition in the region. He noted that these states, due to their strategic locations, are significant for geopolitical competition. While diverse in size, economic and social characteristics, SISs share similar challenges and vulnerabilities, including high exposure to natural disasters, climate change, and low economic diversification. They also face increasing tensions due to major power competition within the Indian Ocean, leading to escalating maritime disputes, and concerns about trade, security, military, and geopolitical dynamics in the region.

Viewing the Indian Ocean through the lenses of the Indo–Pacific construct

The Indian Ocean’s amalgamation with the Pacific Ocean to form the ‘Indo-Pacific’ singular regional construct has been driven by foreign policy stakeholders, think tanks, and academic scholars. This concept, created due to security concerns arising from China’s increased influence, has resulted in shifting power dynamics in the Indian Ocean. Amb. Sooklal highlighted: “The Indian Ocean has become central to the geopolitical aspirations of both the major as well as emerging powers with vested interest in the region.”

Strategic competition, which had been on the margins of the Indian Ocean region, has now come to the forefront of global geopolitics. The SISs of the Indian Ocean are strategically significant for geopolitical competition, but they face numerous challenges and vulnerabilities. They are increasingly caught in the middle of major power competition, with tensions escalating due to the growing rivalry between the USA and China. While the major powers view them as important role players in the region, Amb. Sooklal argued that their vulnerabilities and challenges suggest that they need to be viewed as critical stakeholders in the security and stability of the region, rather than just pawns in the geopolitical competition.

From unipolar to multipolar global order

Amb. Sooklal stressed that the China’s Belt and Road Initiative (BRI) is altering the balance of power in the region, while India and the USA are increasing their interactions with the SISs to protect their interests. The SISs have choices to address their development and security needs, but these new opportunities come with a cost factor. The strategic autonomy of SISs is becoming increasingly challenging to maintain, as they are hesitant to fully engage and align with a particular country to avoid being entangled in great power politics.

In Amb. Sooklal’s words: “The transition from both a bipolar and unipolar world towards a multipolar global order has seen other major players seeking primacy in the region together with China and the USA.” A multipolar global order entails there will be various axes of power in different region of the world with not only one major hegemon. The Indian Ocean, through the lenses of the Indo-Pacific, is already witnessing these changes, with multiple countries investing in different countries, but none of them being able to claim to be the hegemon in this area. This will further complicate the Chinese and American rivalry in the Indian Ocean because the SISs in this region are ready to engage with both China and USA and their respective allies, without displaying outright alignment with any of the two countries.

Amb. Sooklal concluded his keynote saying: “It is critical, […], that the Indian Ocean remains a zone of peace. It should not become a political theatre at the centre of major power rivalry. The littoral states of the Indian Ocean region as well as the global community must work in a cooperative spirit, in spite of differences, to ensure that the Indian Ocean is not “captured” by a few who seek to control and shape the region in a divisive manner rather than ensuring that it is inclusive, open, and free.”

Spheres of influence and soft power

During the panel discussion moderated by A/Prof. David Mickler, Jean Claude de L’Estrac and Dr. Roukaya Kasenally joined Amb. Sooklal for further deliberations. Dr. Kasenally highlighted the shift in power dynamics in the Indian Ocean region is due to the confluence of hard power and soft power approaches. Referring to soft power, Dr. Kasenally explained the use of soft power in the Indian Ocean region as a form of influence and argued that there is an ongoing shift in power relations in the region: “The Indian Ocean is being the theatre of confluence between hard power (for example, military bases) and soft power approaches (for example, the rise of Confucius Institutes).”

She stressed on the cultural forces of Confucius Institutes and other language institutes such as the French Institutes, Hindi Speaking Unions amongst others, as potent vehicles to propagate the values and principles of the respective countries. Dr. Kasenally also highlighted that privacy of national data has emerged as a key concern for Indian Ocean islands and remains a contentious issue whereby emerging/major powers wish to access confidential national information, putting at stake the sovereignty of the state. It can be argued that data has emerged as a new form of currency and influence in foreign policy negotiations.

During the panel discussion, Amb. Sooklal shared that none of the SISs and countries engaging with the emerging powers, are at the losing end in their engagement with these new players in the region. Their foreign policy is guided by their country’s national and priority needs. To a certain extent, it can be argued that SISs lack the adequate foreign policy expertise and may, inevitably, remain stuck in the donor-recipient relationship with emerging powers. Undeniably, the SISs will not be able to preserve their strategic autonomy on the long run in this climate of geopolitical contestation and competition which may pose serious threats to their sovereignty, development, stability, and progress. The resulting strategic competition in the Indian Ocean makes the Indian Ocean SISs seem like pawns in the geopolitical gamut of geopolitical influence.

While Amb. Sooklal was more optimistic for SISs’ current and future ability to negotiate with powers on their own terms, Jean Claude de L’Estrac argued that in the current geopolitical climate of the Indian Ocean, there are major threats to peace and prosperity for SISs due to the increasingly assertive approaches adopted by major powers such as China, France, and India to protect their interests in the region. The SISs may have to act accordingly to the demands of the great powers who are offering extensive assistance to them; and this highly jeopardises the sovereignty of the islands on the long run. The panel closed on the recommendation that in order for SISs to engage as stakeholders, they must come together as one single unit force to put forward their agenda, priorities, aspirations and vision for the Indian Ocean in front of emerging and interested great powers.

Main photo © Charles Telfair Centre.

Charles Telfair Centre is an independent nonpartisan not for profit organisation and does not take specific positions. All views, positions, and conclusions expressed in our publications are solely those of the author(s).

If AI is to become a key tool in education, access has to be equal

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Charles Telfair Centre

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May 24, 2023

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Sam Illingworth, Associate Professor, Edinburgh Napier University, Scotland

The pandemic forced many educational institutions to move to online learning. Could the rise of chatbots, including OpenAI’s ChatGPT and Google’s Bard, now further improve the accessibility of learning and make education more obtainable for everyone?

Chatbots are computer programmes that use artificial intelligence to simulate conversation with human users. They work by analysing the context of a conversation and generating responses they believe to be relevant. They have been trained on massive data sets of human language, allowing them to generate responses to a wide range of questions.

Chatbots like ChatGPT and Bard can be used in a variety of educational settings, from primary and secondary schools to universities and adult education courses. One of their greatest strengths is in promoting individualised learning.

For example, they can support students in research and writing tasks, while also promoting the development of critical thinking and problem-solving abilities. They can generate text summaries and outlines, aiding with comprehension and organising thoughts for writing. They can also provide students with resources and information about specific topics, highlighting unexplored areas and current research topics, thus enhancing research skills and encouraging agency in learning.

Similarly, research has shown that chatbots can help to maintain students’ motivation and involvement, in part by promoting self-directed learning and autonomy. This means they they can potentially be used to help address low engagement in education that has been made worse by COVID-19 and the move to remote online learning.

Digital poverty

While chatbots have the potential to enhance learning, it’s important to acknowledge the dangers they might also pose in relation to digital poverty and the digital divide. Students who lack reliable internet access or other resources needed to participate in online classes may not have access to chatbots or other digital learning tools.

Results from the 2021 census show that in January to February 2020, 96% of households in Great Britain had internet access, up from 93% in 2019 and 57% in 2006 when comparable records began. However, these statistics do not tell the whole story.

A 2020 Ofcom Survey found that before COVID-19, 9% of UK households with children lacked a laptop, desktop or tablet, and 4% had only smartphone access. A higher percentage of children in lower-income households were affected by lack of access to digital devices. Specifically, 21% of households where the main earner held a semi-skilled or unskilled occupation had no access to a laptop, desktop or tablet for their children’s education at home.

This situation is clearly worse in countries where access to any form of internet provision is much lower than it is in the UK. Recent statistics from the US Central Intelligence Agency (CIA) for example, highlight that in many African countries, less than 10% of the total population has access to the internet at any speed.

Likewise, while ChatGPT is a publicly available tool that users do not need to pay to use, there is a paid version which unlocks privileged access. Similarly BARD, also free to use, is currently only available in certain countries. Put simply, like any other technology, chatbots have the potential to worsen pre-existing inequalities if they are not implemented carefully.

Fixing the problem

To address this, educational institutions must take proactive measures to ensure that all students have equal access to chatbots and other digital resources. Another challenge is ensuring that students understand that not everyone has the same access to digital tools as they do. Educators can help to promote this understanding by incorporating lessons on digital poverty and equal access into their curriculum.

Here are five tips for educators to ensure equity in the use of chatbots in educational settings:

Provide equal access to chatbots
Educational institutions should ensure that all students have the same access to digital resources by providing loaner laptops, offering free or discounted internet access, or providing offline options for students with limited internet access.
Partner with community organisations
Universities and schools can link up with community organisations that provide internet access or lend computers to students in need.
Offer technology training
Some students may not be familiar with using chatbots or other technology tools, so schools and universities should offer technology training to help students develop the skills they need.
Provide support for students with disabilities
Students with disabilities may face unique challenges when it comes to accessing and using chatbots. For instance, visually impaired students may face difficulties reading chatbot text, while students with cognitive disabilities may require additional support to understand and use chatbots effectively. Educators should ensure support is available for students who require extra help.
Raise awareness of digital equity
Educators can also help ensure equity in the use of chatbots by educating students to understand that not everyone has the same access and privileges in a digital setting. By encouraging empathy and awareness of digital poverty, students can learn to be mindful of their peers who may face challenges in accessing and using chatbots. This can be done through class discussions, assignments and activities that encourage students to think critically about digital equity and social justice.

Chatbots have the potential to revolutionise learning. However, educational institutions must address the potential dangers posed by chatbots with regards to further deepening the digital divide, and instead foster a culture of empathy and understanding for those who need training and supported access to the technology.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Main Photo by Mohamed Nohassi on Unsplash.

Charles Telfair Centre is an independent nonpartisan not for profit organisation and does not take specific positions. All views, positions, and conclusions expressed in our publications are solely those of the author(s).

Unlocking Mauritius’ potential by reducing the external financing gap

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Charles Telfair Centre

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May 16, 2023

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Paul Baker, Founder and Chairman of International Economics Consulting Group

Ria Roy, Economist at International Economics Consulting (Mauritius)

Ibrahim Malleck, Managing Partner at Ebonia Capital Ltd, Mauritius

Mauritius has been running current account deficits consistently since 2004, which have been growing in recent years. This results from a savings-investment gap that is not only structural but also pulling down investments due to the low savings rate. While capital inflows have partially offset the accumulation of deficits, most of the Foreign Direct Investment has not been in productive sectors, and the remaining portfolio investment flows are highly volatile. In this article we briefly explore the structural bottlenecks such as import dependency, high debt levels and low savings rate leading to the country’s current account deficit. Despite healthy international reserves, Mauritius has reached debt servicing levels far higher than other middle-income countries. Meanwhile, the structural deficit in the current account is becoming unsustainable in the medium-term horizon.

Despite enjoying relatively high economic growth and prosperity levels, Mauritius has experienced persistent current account deficits in recent years. A current account deficit occurs when a country imports more goods and services (and a few other marginal items) than it exports, leading to a net outflow of foreign currency. Most significantly, the trend has been that the current account deficit increases by 0.25% of GDP on average every year since 1985. As of quarter 3 of 2022, the external current account deficit has been estimated at about USD 399 million, almost a 30% increase from a deficit of USD 314 million in the same quarter of the previous year. There are three main structural reasons behind Mauritius’ current account deficit, namely the country’s import dependency, high debt levels and the declining savings rate. All these have implications for the economy.

Structural bottlenecks

One of the main reasons behind Mauritius’ current account deficit is the country’s high dependency on the imports of goods. Mauritius has a relatively small domestic market and a highly developed tourism industry, leading to significant demand for imported goods for consumption. The country also imports many intermediate goods for its manufacturing sector. More importantly, Mauritius has experienced endemic levels of savings, which has led to a net dependence on investment from overseas. This reliance on foreign borrowing to finance the appetite of Mauritius (public and private sector) has increased the country’s external debt and contributed to its vulnerability to economic shocks.

Figure 1: Mauritius Current Account Balance (% of GDP)

The country’s high level of debt is another reason for the current account deficit. Mauritius has a relatively high level of government debt, which has been increasing in recent years. In the second quarter of 2022, Mauritius’ public sector debt stood at MUR 385 billion, which has been steadily increasing, resulting in MUR 410 billion debt at the end of 2022. Historically, the share of foreign denominated debt was under 20% of the national debt stock with long maturities. While the share of external debt stood at 17% of the total debt stock in 2020, this has increased to 26% in 2021 and 24% in 2022 leading to a rise in the use of international reserves for current and future debt repayment (servicing). The recent use of quasi fiscal operations through the establishment of Special Purpose Vehicles (SPVs) [1] has made it more difficult to measure the full extent of Mauritius’s exposure to foreign debt.

The government has been financing its debt in part by borrowing from abroad (denominated in foreign currencies), leading to a net outflow of foreign currency and contributing to the current account deficit. Additionally, with higher debt comes higher debt servicing costs, with the country’s high level of external debt leading to a significant demand for foreign currency to repay debt, further contributing to the current account deficit. Debt servicing refers to the payments made by a borrower to a lender, which includes interest (which has recently increased significantly) and principal repayments. When debt servicing levels are high, it becomes difficult for a country to manage its financial obligations and finance its development. It is noteworthy that the debt service payments in Mauritius have now significantly increased (as a percentage of export revenues) while those of its peers are decreasing (see Figure 2).

Figure 2: Debt Service in Mauritius and Middle-Income Countries

Historically, countries with greater savings rates have had quicker economic development than countries with lower savings rates. Capital accumulation increases a country’s output and productivity by offering an extra income stream for nations like Mauritius. However, Mauritius has witnessed a decline in the savings rate since 2000, which has resulted in an investment gap that negatively impacts the country’s current account (see Figure 3). The current account deficit reflecting the gap between national savings and investment (both public and private) might suggest either a low level of national savings relative to investment or a high pace of investment—or both. The gross savings rate in Mauritius [2] stood at 13.4% in September 2022, which was the same as the previous quarter. In comparison, the savings rate peaked in the early 2000s, reaching as high as 29%. Savings rate in Mauritius remained well above 15% until 2009; however, following the financial crisis of 2008-09 savings have continued to fall. The country’s high level of household debt, as well as the low interest rates in Mauritius, are one of the main reasons for this. Over the last decade, the external imbalance has been driven by a decline in national savings, including private savings [3].

Figure 3: Gross domestic savings rate since 2020

Despite the persistent current account deficits, foreign currency reserves remain significant, and Mauritius is in no immediate danger of a crisis. However, the current trajectory looks increasingly unsustainable in the long term. Nevertheless, Mauritius had enough reserves to cover around fourteen months of imports in 2022, down from a peak of nineteen months in 2009. While it historically always enjoyed a much better performance than its peers, in 2021, it was on par with other Middle-Income countries (Figure 4). As per CEIC data, Mauritius’ foreign exchange reserves stood at USD 5.7 billion in January 2023, representing a decrease from the previous month’s reserves of USD 6.7 billion.

Figure 4: Reserves of Mauritius and Middle-Income countries

Sustainability and Risk

A major concern with the persistent current account imbalances and drawing down on reserves is the fact that portfolio investments and FDI are highly volatile, even erratic. Figure 5 highlights the swings on a yearly basis in these flows, exacerbated by the fact that the great majority of investments are merely passing through Mauritius, rather than being invested in Mauritius.

Figure 5: Mauritius Current Account, FDI and Portfolio net flows

Over the past decade, Mauritius benefitted from portfolio flows which transited through Mauritian banks for onward investments into India on the back of the previous Double Tax Avoidance Agreement (DTAA) signed in 1982, which boosted incomes in the financial sector. The situation changed with the termination of the India-Mauritius DTAA, amended and in force since 2016. Several disruptions followed, starting with the Grey-listing of the Mauritian jurisdiction by the EU in 2020 and the continued disinvestment of foreign investors on the Stock Exchange of Mauritius since the initial Covid lockdown.

Although Mauritius has been since removed from the Grey list (announced by the FATF in October 2021), the outflow of currency resulting from share disinvestments, as well as pressure of governance parameters in the Global Business and International banking sectors, has not allowed Mauritius to mitigate the downturn in terms of tourism receipts. These combined effects have increased pressure on foreign exchange inflows, negatively impacting the current account.

Mauritius’ current account deficit is a complex issue influenced by several factors, including high imports, high debt, and low savings. The structural characteristics of the current account deficit have significant implications for the economy, including a deteriorating net investment position with the rest of the world, pressure on currency realignment, and a reduced outlook for economic growth. To address the current account deficit, the country must focus on improving its competitiveness in international trade, reducing its reliance on foreign borrowing, and increasing its levels of national savings.

Mauritius managed to maintain its international competitiveness on the back of a number of trade preferences. Both traditional export sectors, namely Sugar and Textiles, benefitted massively from protective and preferential trade regimes (initially from the EU Lomé Conventions and the WTO Multi-Fibre Agreement, then the EU Cotonou Agreement, then EPA, and US AGOA agreement). The challenge today is different – Mauritius faces increasing competition from third markets. It must show resilience as an exporter of goods and services, mainly on the back of improved productivity levels (both labour and capital). The Africa Continental Free Trade Agreement (AfCFTA) might, in the future, compensate to some extent for any losses in preferential margins.

A country will finance its deficit through borrowing (or investments) from abroad. Foreign Direct Investment (FDI) is a crucial determinant in most countries for economic growth and job creation. In Mauritius, the distribution of FDI across various sectors has been of concern because most investments in the last decade were not directed towards productive sectors. The largest share of FDI has been in real estate, which absorbed over 50% of flows in 2021 – with finite resources and no build-up of business capacities. This negatively impacts the country’s outlook for economic growth and competitiveness. The government should focus on creating a favourable investment climate in the manufacturing and service sectors to attract foreign investment. This will help create jobs, encourage skills transfer, increase exports, and improve the country’s competitiveness in the global market. Moreover, the government, as well as financial institutions, should also provide continued support and expertise to small and medium-sized enterprises in these sectors, as they are crucial for job creation and economic growth [4].

The debate around increased international competitiveness and higher savings rates can only happen if there is a structural shift underpinned by a strong framework driven by both the government and private entrepreneurs equally. The fiscal consolidation approach for the government must be carefully adjusted in order to reconcile pandemic recovery with long-term fiscal and debt sustainability. Adherence to fiscal rules is crucial in the medium term to maintain fiscal sustainability and decrease debt vulnerabilities, particularly given that the national debt has risen as a result of the Covid epidemic. If the economy continues to improve, revenues should rise thereby creating more fiscal space for government expenditure, which together with a targeted pension reform, will put debt on a downward trend in the medium term.

Policy areas for consideration:

Fiscal consolidation is anticipated to be hampered in the short term by double-digit inflation and in the long term by the rising weight of pensions and the country’s limited tax mobilisation capabilities. The need to implement a comprehensive fiscal consolidation strategy to restore budgetary flexibility and sustain public debt is crucial.
Targeted transfers to vulnerable groups may be done in order to sustain the food and oil crisis as well as the increasing import bill.
Pursue structural transformation that promotes diversification and competitiveness in order to put Mauritius on the path to a sustainable and resilient economy powered by knowledge and technology.
The new monetary policy framework of the Central Bank of Mauritius should be fully implemented such that it establishes the required capabilities and institutional structures to track a medium-term inflation target, thereby increasing policy credibility and resilience to shocks.
Focus on increasing public awareness of the importance of savings, thereby encouraging private savings.

[1] The current account balance is a record of transactions between one country and the rest of the world for trade in goods, trade in services, investment income and government and private transfers.

[2] The primary goal of the Mauritius’ Special Purpose Fund from 2021 was to provide promoters and investors with a tax-exempt vehicle. However, it failed to pique the interest of investors due to the 2013 Rules’ restrictive provisions, which require an SPF to: invest only in nations that do not have a tax agreement with Mauritius; or invest primarily in assets whose returns are tax-free.

[3] IMF (2019). Staff Report for the 2019 Article IV Consultation: Mauritius. IMF Country Report No. 19/108. April.

[4] According to the Bank of Mauritius, in 2020, SMEs in Mauritius contributed to 44% of the total employment, 35% of the total domestic Gross Value Added (GVA) and 10.3% to the country’s total domestic exports. Statistics on the SMEs in Mauritius can be found here.

Main Photo by Ibrahim Boran on Unsplash.

Charles Telfair Centre is an independent nonpartisan not for profit organisation and does not take specific positions. All views, positions, and conclusions expressed in our publications are solely those of the author(s).

How dirty old used cars from the US and Europe carry on polluting … in Africa – podcast

By

Charles Telfair Centre

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May 12, 2023

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Daniel Merino, Associate Science Editor & Co-Host of The Conversation Weekly Podcast, The Conversation

Mend Mariwany, Producer, The Conversation Weekly

The typical car will go for its last drive sometime between its 10th and 15th year on Earth. At this point, the vast majority are sent to be recycled or sold for parts. But for a few autos, a second lease on life awaits, as a significant percentage are exported from richer nations to developing nations for a few more years on the road.

In countries across Africa and Latin America, old used cars from places like the U.S. and Europe provide vital access to transportation to people who would otherwise be unable to afford their own vehicles. While this process extends the lives of these cars, the practice is not without problems, in particular with regards to pollution and passenger safety.

In this episode of The Conversation Weekly, we speak with two researchers about why richer countries export used cars, what impacts they have in developing nations and whether import restrictions are effectively stemming the rise in pollution and accidents caused by this practice.

Paul Bledsoe is adjunct professorial lecturer at the Center for Environmental Policy at the American University in the U.S., where he specializes in energy, natural resources and climate change.

He says that “the process of retiring still-functioning cars off the road is going to speed up as electric vehicles become cheaper to buy and operate. And so when that happens, you may see a huge influx of used combustion-engine vehicles hitting the secondary market.” Bledsoe is concerned that, without the adequate policies in place, developing nations could see pollution skyrocket over the next decade as a result.

Festival Godwin Boateng is a research fellow at the Center for Sustainable Urban Development, at Columbia University in the U.S. He studies sustainable development in Africa through a postcolonial lens and has looked into the issue of old cars.

“Between 2015 and 2018 some 14 million used vehicles were exported from the European Union, Japan, and the U.S., with 40% of them ending up in African countries,” explains Boateng. “Just in Ghana, for every hundred vehicles on the road, 80 to 90 are used vehicles.”

While Festival recognized that used cars fill an important gap in providing transportation opportunities in Ghana, he says over 50% of used cars are over 15 years old. “So, they tend to be really old and highly polluting. And to make matters waste, they tend to do modifications to these vehicles, which make them even more polluting.”

In an effort to combat the harms of old cars, in 2020, Ghana passed a new law aiming to restrict the import of cars that are more than 10 years old. With exports of old cars expected to increase as electric vehicles take over Western markets, policies like the law Ghana passed in 2020 may become more relevant.

Listen to the full episode of The Conversation Weekly to learn more about how old cars get to places like Ghana, the mixed bag of benefits and harms they have once they arrive and the ways to improve this situation.

This episode was written and produced by Mend Mariwany, who is also the executive producer of The Conversation Weekly. Eloise Stevens does our sound design, and our theme music is by Neeta Sarl.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Main Photo by Tom Fisk on Pexels.

Charles Telfair Centre is an independent nonpartisan not for profit organisation and does not take specific positions. All views, positions, and conclusions expressed in our publications are solely those of the author(s).

La COI face aux défis des iles du Sud-Ouest de l’Océan Indien

By

Philippe Boullé

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May 2, 2023

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Philippe Boullé, former Director, United Nations Secretariat for the International Strategy for Disaster Reduction (UNISDR), and former Senior Technical Advisor for the ISLANDS Financial Protection Project, Indian Ocean Commission (IOC)

Bref rappel historique

L’importance stratégique des îles du sud-ouest de l’Océan Indien, situées le long de la côte sud-est du continent africain, est reconnue depuis le 18^ème siècle. Ces îles fournissaient un point de relais essentiel aux puissances européennes pour leurs activités commerciales vers la péninsule indienne. Le canal du Mozambique était alors une des voies commerciales le plus utilisée dans le monde. [1]

L’histoire de ces îles pendant deux siècles fut compliquée et mouvementée. En 1721, la France prit possession de l’Isle de France et de l’île Bourbon. Plus tard elle colonisa les Comores, un archipel qui avait déjà des liens commerciaux anciens avec les villes de la côte est de l’Afrique. En 1784, le sultan des Comores vendit une des îles de l’archipel, Mayotte, à la France. La Grande Ile, Madagascar, fut mise sous protectorat par la France au 18ème siècle. Quant aux Seychelles, occupées à l’origine par des pirates, les Français en prirent possession en 1743, mais furent délogés en 1794 par les Anglais, qui obtenaient ainsi la base stratégique qu’ils recherchaient pour contrer les ambitions françaises dans la région.

La belligérance constante et principalement maritime entre colonies fut arrêtée lorsque le Traité de Paix de Paris en 1815 fixa les positions coloniales entre français et anglais, et ouvrit la voie au peuplement important des petites îles de la région par l’esclavage (aboli en 1841), et ensuite par l’immigration venant principalement de la péninsule indienne. Après la 1^ère guerre mondiale, il y eut une tentative non aboutie de changer l’ordre des choses : la proposition de rétrocession de Maurice à la France. [2]

La Commission de l’Océan Indien (COI)

Après que Madagascar, Maurice, les Seychelles et les Comores soient devenus des états insulaires indépendants et que La Réunion (ex-Ile Bourbon) devint une partie intégrante de l’Etat français, la Commission de l’Océan Indien (COI), créée en 1982, fut institutionnalisée en 1984. La France/Réunion fait donc partie de la Commission. Il faut noter qu’après la passation par les Anglais de leur colonie de l’ile Maurice aux Mauriciens, l’archipel des Chagos resta sous souveraineté britannique.

La Commission est aujourd’hui solidement soutenue par tous ses membres. Elle participe activement depuis sa création aux activités de l’Assemblée générale des Nations Unies en sa capacité d’organisation régionale africaine. Elle est bien implantée sur les plans régional et national, avec un programme et des actions efficaces. A l’échelon continental, elle fait partie de la sous-région de l’Afrique de L’Est. En 2005, la Conférence Internationale des Nations Unies pour les petits états insulaires en développement (UNPEID), organisée à Maurice avec l’appui de la COI, adopta la Declaration de Maurice pour le développement durable des petits états insulaires. En 2015, la conférence plénière de l’Union Africaine pour la mise en œuvre du programme mondial de Sendai pour la réduction des risques de catastrophes eut lieu à Maurice.

Les défis importants confrontant aujourd’hui la Commission de l’Océan Indien

La pression géopolitique sur les Etats insulaires

La situation géopolitique qui affecte les pays membres de la Commission est le plus important défi du moment. Pour ces pays, la différence entre leur situation au 18^ème siècle et celle d’aujourd’hui est l’acquisition faite à l’Indépendance de larges espaces marins, aggrandissant ainsi la taille et l’importance de ces états insulaires. Ceux-ci sont donc devenus des territoires de grande superficie qui attisent les convoitises et qu’il faut savoir gérer, défendre et protéger. L’Ile Maurice, par exemple, contrôle une zone exclusive économique de 2,4 millions de Km². Les Etats concernés doivent donc ajouter la dimension de la gestion d’espaces maritimes à celle de leurs territoires terrestres.

Source: Adapted from the “Sea Around Us” project http://www.seaaroundus.org/data/#/eez

Une concurrence agressive s’est développée dans la région depuis de nombreuses années entre les grandes puissances maritimes qui recherchent des points d’attache possibles pour assurer la libre circulation de leurs navires et obtenir des bases d’opération pour leurs activités, notamment de télécommunications, de transport aérien et de surveillance des autres puissances.

Cette nouvelle situation géopolitique dépasse le cadre régional des états insulaires du Sud-Ouest de l’océan Indien, et interpelle principalement les grandes puissances concernées, tant du côté occidental (France, Grande Bretagne, Etats-Unis) que du côté asiatique (Chine, Inde, Japon). Individuellement, les pays membres de la COI n’ont pas le poids nécessaire pour résister aux pressions des grandes puissances, surtout dans le contexte très particulier où ces grandes puissances sont à la fois des pays amis dont ils sont largement dépendants et en quelque sorte des entités étrangères qui donneront toujours priorité à leurs besoins de positionnement géographique pour assurer leur influence dans le monde.

La diversité structurelle des différents membres de la COI, loin d’être un obstacle insurmontable pour s’attaquer au problème géopolitique du moment, peut au contraire faciliter la recherche de solutions difficiles, mais durables et acceptables.

Il faudrait pour arriver à cela faire appel aux dispositions de l’Accord de Victoria, révisé en 2020. Celui-ci confère au Sommet qui réunit les chefs d’Etat de la COI une place statutaire qu’il n’avait pas jusqu’alors. Ces dispositions permettent à la COI de « conduire une action collective en phase avec les enjeux actuels et avec les ambitions des États membres ». Cette proposition peut paraître difficile à mettre en œuvre puisque deux grandes puissances étrangères concernées, la Chine et l’Inde, sont membres observateurs de la COI et que la France, également grande puissance, est membre à part entière de la Commission. Pourtant, c’est dans un contexte élargi de ce type que la COI et ses membres doivent se projeter, avec l’objectif non négociable d’éviter de nouvelles situations comme celle de l’archipel des Chagos.

La protection de la population et l’économie de la région contre les catastrophes

Le second défi majeur et urgent confrontant la COI consiste à protéger efficacement la population et l’économie de la région contre l’impact dévastateur des catastrophes de toutes sortes qui pourraient bientôt frapper tout ou partie des 25 millions de personnes habitant la région. La population des îles augmente, le nombre de bâtiments d’habitation ou d’immeubles commerciaux augmente également, créant des espaces physiques de plus en plus vulnérables aux catastrophes du futur. Entre 1980 et 2013, la région a subi en moyenne des dégâts de 430 millions US$ par an en raison des catastrophes.[3]

Dans le monde de demain, l’instantanéité et la puissance d’une catastrophe peut causer en un coup la mort de 50 000 personnes- c’est-à-dire plus que la population totale de l’Ile Rodrigues, appartenant à l’Ile Maurice – ainsi que des dégâts matériels extrêmement élevés. Ce fut le cas récemment en Turquie et en Syrie, dans un environnement physique certes bien différent de celui de notre région. La « grosse catastrophe » ne se produit pas seulement dans le domaine de l’environnement ou du changement climatique. Cet exemple nous fait réaliser l’importance capitale pour nos populations d’anticiper et de prendre les mesures nécessaires pour réduire les risques qu’un aléa se matérialise en une catastrophe dévastatrice, par exemple un tsunami, une éruption volcanique, une submersion marine ou méga-cyclone. IL ne faut pas se voiler la face : aucun pays de la région ne dispose à lui seul des moyens nécessaires pour faire face à de telles situations.

L’étude exhaustive du « International Journal of Disaster Risk Reduction intitulée “Troubling partnerships: perspectives from the receiving end of capacity development” (2021) démontre clairement l’importance pour les pays en zones particulièrement vulnérables aux catastrophes de pouvoir s’appuyer sur leur propre capacité pour mieux connaitre les dangers spécifiques qui les menacent et déterminer les actions nécessaires pour réduire ou faire disparaitre ce danger. Les Seychelles ont participé à cette étude.

La COI possède déjà tous les éléments techniques, scientifiques et organisationnels pour mettre en place une capacité globale autonome pour protéger toute la région, terre et mer comprise. Le Bureau d’études canadien BAASTEL confirme dans son rapport « Building Capacities for Increased Public Investment in Integrated Climate Change Adaptation and Disaster Risk Reduction (2017) », que la COI, en association avec l’UNISDR et la Banque Mondiale dans le projet IFPP (ISLANDS Financial Protection Programme, IFPP), terminé en 2015, avaient réussi à créer un fondement solide et durable sur lequel construire un système de connaissance des risques futurs spécifiques à la région et de définition de politiques publiques appropriées. Ce projet a permis la mise en action de la méthode DESINVENTAR pour l’établissement d’une base de données sur les dommages causés par les catastrophes, de la méthode CAPRA pour le « probabilistic risk assessment » projetant les catastrophes naturelles possibles ainsi que l‘intégration dans les investissements publics des besoins combinés de la lutte contre le changement climatique et la réduction des catastrophes. Le projet de protection financière contre les risques de catastrophes et climatiques a produit un rapport exhaustif sur la région COI dans son ensemble ainsi que des rapports très détaillés sur Maurice, Les Comores et Madagascar.

Il faut donc utiliser les acquis de ce projet très novateur, qui n’a pas eu de suite, pour créer maintenant au sein de la COI cette capacité globale technique autonome pour les catastrophes. L’équipe aurait la tâche d’élaborer un plan directeur avec des objectifs précis à long terme pour la prévention et les secours en cas de catastrophes, incluant des étapes intermédiaires bien définies pour atteindre ces objectifs, et un budget détaillé pour les actions à mener. L ’équipe serait pérenne pour que le progrès du programme soit constant et continu, et basé sur les acquis des phases précédentes. Elle devra s’appuyer sur une « technical back up support capacity » extérieure, car le domaine de la réduction des risques est très spécialisé, touchant à de nombreuses disciplines qui ne peuvent toutes être représentées.

Dans cette optique, cette équipe pourrait travailler en étroite association avec le projet IRiMa du Bureau des Etudes Géologiques et Minières (BRGM, français) qui vient d’être lancé et dont l’objectif est d’ « élaborer une nouvelle stratégie de gestion des risques et des catastrophes et leurs impacts dans un contexte de changements globaux…et de pouvoir proposer des outils innovants pour détecter, comprendre, quantifier, anticiper et gérer les risques et les catastrophes ». Ce nouveau projet couvre toute la France et englobera donc un membre de la Commission, la Réunion.

Conclusion

Les états insulaires du sud-est de l’océan Indien, réunis au sein de la COI, doivent se montrer extrêmement vigilants pour préserver leur identité et leur indépendance, face aux demandes d’implantation sur leurs territoires des grandes puissances pour des activités tant commerciales qu’hégémoniques au niveau international. Leurs eaux territoriales font partie des éléments à protéger. La Commission de l’Océan Indien peut être un instrument important de support collectif pour suppléer ses états membres qui n’ont pas individuellement le poids nécessaire pour résister seules aux demandes exigeantes des puissances étrangères.

Parallèlement, en ce qui concerne le second volet de ses activités, dont l’importance ne devrait pas échapper à la COI, la Commission renforcerait son importance ainsi que sa capacité fonctionnelle et de représentation régionale en utilisant les acquis du projet IFPP pour créer une capacité globale technique pérenne, dédiée à l’anticipation et l’action contre les catastrophes. Il faut acquérir directement et s’approprier le bénéfice des nouvelles opportunités et capacités d’actions maintenant disponibles offertes par la révolution numérique mondiale, le progrès technologique et, sous conditions, l’intelligence artificielle.

Bibliographie

[1] Toorawa, Shawkat M, ed. (Year unknown) “The Western Indian Ocean. Essays on Islands and Islanders. Oriental Manuscripts Library and Research Institute », Hyderabad. ISBN- 978-99949-22-32-1

[2] Rivière, Lindsay. 2021. « Redevenir L’ISLE de France? La folle aventure de la rétrocession de l’Ile Maurice à la France ». Pamplemousses éditions, Ile Maurice ISBN -978-99949-980-1-2

[3] Indian Ocean Commission. 2015. “Creating the foundations for the effective reduction of climatic and natural disaster risks in the South-East Indian Ocean Region”. 2015. La Sentinelle Ltd. Mauritius. ISBN 978-99903-71- 07-9

Main photo by NASA Goddard Space Flight Centre on Flickr(Creative Commons).

Charles Telfair Centre is an independent nonpartisan not for profit organisation and does not take specific positions. All views, positions, and conclusions expressed in our publications are solely those of the author(s).

Mitigating the Debt-Climate Trade-off

By

Charles Telfair Centre

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April 25, 2023

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Hippolyte Fofack, Chief Economist and Director of Research at the African Export-Import Bank (Afreximbank).

CAIRO – The sharp, almost synchronized, pivot by most of the world’s major central banks in raising interest rates has highlighted the growth-inflation trade-off that most countries now face. But it has given rise to another significant macroeconomic challenge – the Herculean task of balancing debt sustainability with climate-change mitigation and adaptation. The challenge is especially formidable in the Global South, where the rising cost of servicing external debts has reduced countries’ fiscal space and ability to pursue climate action.

Global warming is intensifying, and its negative spillovers are disproportionately felt in low-income, climate-vulnerable economies. Although these countries have contributed the least to the looming climate catastrophe, they find themselves on the frontlines of a crisis that, by increasing the frequency and likelihood of large economic contractions, represents a major long-term development risk. For example, the economic and social costs of the floods suffered by Pakistan in 2022 resulted in an estimated output loss of 2.2% of GDP.

As aggressive monetary tightening pushes more developing countries into or close to debt distress, addressing climate change becomes even more daunting. Fortunately, innovative nature-based financial solutions that can help avert both climate and debt crises have emerged. Debt-for-nature swaps, for example, enable countries to restructure their debt at a lower interest rate or longer maturity, with the proceeds being channeled to carbon-abatement projects.

Interest in nature-based financial instruments reflects the global shift toward greater decarbonization commitments and the need to boost climate-related investment in low-income economies encumbered by sky-high borrowing costs. The fiscal space required for such large-scale and long-term investments is just not there – nearly 60% of climate-vulnerable developing countries are also at considerable risk of fiscal crisis.

For example, until recently, Ghana had been spending more than 50% of government revenues to service its external debt and has now defaulted. Ghana’s ten-year bond maturing in 2029 is trading at more than 28%, signaling that the country has been shut out of capital markets. More governments may face limited options for refinancing, which would greatly undermine their ability to respond to pressing development needs, including those triggered by the climate crisis, such as extreme weather-related disasters and food insecurity.

Low-income countries have it the worst. According to United Nations estimates, international finance flowing to developing countries to facilitate climate-adaptation programs is 5-10 times lower than what is needed. Moreover, the gap is widening, with annual climate-adaptation needs expected to reach up to $340 billion by 2030.

The good news is that nature-based financial solutions like debt-for-nature swaps and carbon credits, which broaden the intersection of sustainable development and debt sustainability, are gaining traction. Issuance of carbon credits from forestry and land-use projects increased by around 160% over the past year and accounted for more than one-third of total issuances in 2021, when global carbon-pricing revenues increased by almost 60%, to around $84 billion. And, by enabling creditors to provide debt relief, conditional upon governments’ commitment to fund conservation or green projects, debt-for-nature swaps create incentives for developing countries to address the climate crisis without undermining their quest for debt sustainability.

In the case of three climate-vulnerable countries, namely Barbados, Belize, and the Seychelles, these innovative financial instruments have boosted government revenues. Since 2016, debt-for-nature swaps have converted $500 million of debt into $230 million of money for conservation. Belize’s $553 million swap reduced its debt level by more than 10% of GDP while providing resources to protect the world’s second-largest coral reef.

The fiscal benefits of these swaps seem to have been significant enough to incentivize other developing countries contending with debt crises and the effects of global warming. The government of Gabon, for example, has signaled its plan for a $700 million debt-for-nature swap to fund marine conservation.

But the positive impact of these swaps on climate resilience and debt sustainability will be amplified if combined with carbon credits. Together, they would increase the flow of resources to climate-vulnerable countries and expand the intersection of climate resilience and debt sustainability, resulting in a more inclusive and environmentally friendly globalization process. Long-term projections show that Africa alone could retire 1.5 gigatons of carbon credits annually by 2050, which would mobilize capital totaling $120 billion.

In a clear signal to market participants, the International Monetary Fund is supporting countries adopting carbon pricing and recently revised its debt sustainability framework to include the impact of natural disasters and climate change. But more should be done to encourage the growth of these financial instruments, including developing secondary markets to minimize price increases as debt is bought back. Donor countries should extend partial guarantees to reduce the costs of financing debt buy-backs and channel more climate financing to the Global South.

More critical still is developing a robust regulatory and governance framework that fosters consistency, transparency, accountability, and traceability of carbon-offset transactions. Since the inception of carbon markets, market failures – most notably reflected in the proliferation of carbon-pricing schemes and market segmentation – have undermined their efficiency and development impact.

These failures have also given rise to “carbon cowboys” who exploit loopholes at the expense of environmental causes and reinforce climate injustice in the process. Just as so-called vulture funds undermine the transition from debt distress to debt sustainability by preying on low-income countries, carbon cowboys subvert the transition to a net-zero economy and weaken the development impact of carbon credits and debt-for-nature swaps.

Despite the current risk of carbon leakage, nature-based financial instruments are increasingly emerging as a highly promising way to overcome the trade-off between climate action and debt sustainability. We cannot allow another market failure to undermine their unique ability to shore up developing countries’ climate resilience and reduce their debt burden.

Main photo by Milind Ruparel on Unsplash.

Charles Telfair Centre is an independent nonpartisan not for profit organisation and does not take specific positions. All views, positions, and conclusions expressed in our publications are solely those of the author(s).

Mangroves are essential for coastal livelihoods and local resilience – insights from Mauritius

By

Charles Telfair Centre

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April 18, 2023

2

Raphael Merven, Department of Biology and Ecology, Faculty of Sciences, University of Montpellier, France

Chandani Appadoo & F.B. Vincent Florens, Tropical Island Biodiversity, Ecology and Conservation Pole of Research, Department of Biosciences and Ocean Studies, Faculty of Science, University of Mauritius

Pricila Iranah, Department of Biology, University of Nebraska at Kearney, United States of America

Mangroves are coastal ecosystems developing in tropical and subtropical areas of the world, alongside coral reefs and seagrass beds. They ensure essential ecological functions, such as being a nursery for juvenile fish, sequestering carbon and mitigating tsunamis and cyclones. Nevertheless, due to anthropogenic stresses such as coastal landfill, pollution and clearing for aquaculture, mangrove ecosystems showcase one of the major impacts of anthropogenic change, with a global loss of 1.04 million ha between 1990 and 2020. This dramatic situation even brought scientists to consider the prospect of their disappearance worldwide within a century.

Mangroves support local communities by providing forest goods, supporting marine productivity and carrying cultural values. In Mauritius however, mangroves’ socio-economic and cultural importance is poorly referenced. On the island, they are fishing grounds for artisanal fisheries and mangrove plants have a historical use in traditional medicine, but these practices have declined due to lifestyle, income changes, and environmental legislation.

On the other hand, Mauritian mangroves are in the middle of social and environmental tensioning. While coastal development and tourism activities have brought employment and economic growth, they have also exerted increasing pressure on marine and intertidal ecosystems, especially wetlands and mangroves. Out of 209 coastal wetlands surveyed in 2011, most were exhibiting edge-related disturbances and more than half were fragmented. Another study reported that twelve out of the fourteen Environmentally sensitive Areas (ESAs) in Mauritius are at risk of degradation, with six coastal and marine ESAs types, including mangroves, being exposed to urban expansion and resource over-use.

Compounding development impacts, communities on the east and southeast coasts of Mauritius experienced an ecological disaster when the MV Wakashio, a bulk carrier vessel, ran aground on coral reefs and released some 1,000 tons of oil into the region’s lagoon on the 6^th of August 2020, with a portion of that oil depositing on rocky shorelines and in mangrove forests. While the impacts of the global COVID-19 pandemic were already affecting the coastal areas relying on tourism and fisheries, this oil spill is considered by many as the worst ecological disaster Mauritius has ever experienced since its independence in 1968, and has exacerbated socio-economic difficulties of many households of the region.

In this multiple crisis context, we investigated the socio-economic and cultural importance of mangroves for coastal communities in Mauritius, with a focus on the eastern coastal areas and using an Ecosystem Services (ES) framework. Building our approach on the criticism faced by the ES framework, mainly for its anthropocentric view of nature and its monetary-centred evaluation methods, our study also encompasses the linkage between local socio-economic context, ecosystem services dependency and the impact of internal and external events.

More specifically, we collected data through a household survey in four villages on the east-southeast coast of Mauritius: Bambous Virieux and Bois des Amourettes (grouped as the South-East region), Trou d’Eau Douce and Poste de Flacq (refer to Figure 1). These villages all presented numerous mangrove patches and fishing areas, and they were differently impacted by the Wakashio oil spill in respect to their distance from the oil spill site, providing relevant data for analytical comparison. In all villages, the local lifestyle is closely associated with fisheries and tourism. Around 300 households were investigated in person following a structured questionnaire approach, where we collected information on:

- respondent’s demographics;
- their perception of the impacts of the recent crises on their socio-economic situation;
- their activities related to mangroves and fisheries;
- their perception on the status and changes within mangrove ecosystems.

Mangroves Ecosystem Services in Mauritius

We found that Mauritian mangroves, despite occupying only 0.07% of the island surface, support coastal communities with a wide range of services. Ecosystem services provided by mangroves to the studied villages play a major role in terms of cultural values, food security, fisheries support, income generation, human health and well-being, and intangible heritage value.

Figure 1: The proportion of responses in % depending on the type of mangroves-related activity practiced in each village.

Recreational activities are the most cited mangrove-based activities in all villages (Figure 1), and therefore reveal a previously unreported cultural importance of mangroves on the east coast of Mauritius. Mangroves support leisure activities, like picnicking, leisure fishing or playing, as well as various social and cultural activities such as strolls, discussions and festivities. Even if not represented in the recreational activities survey results, the spiritual values associated to mangroves are physically embodied in the various shrines and other religious structures found in or near mangroves.

Figure 2: Photographs taken in Poste de Flacq (top) and Trou d’Eau Douce (bottom) highlighting the cultural values carried by mangroves.

The high proportion of respondents having recreational activities in mangroves suggests that even greater cultural services are provided by mangroves, as stated in other studies worldwide. Aesthetic values encompassed by mangrove landscapes likely play a role in the cultural services provided by the ecosystem, but more importantly support tourism for hotel scenery and tourist operators. Seafood collection in mangroves is practised by roughly a quarter of all respondents, and more than 10% of each village respondents collect fishing bait in mangroves, highlighting the crucial role of this ecosystem for local fisheries and nutritional support.

Mangroves plant parts collection is a minor activity in the surveyed area, and is practiced mainly for medicinal uses. The minimal use of mangrove plant parts in Mauritius is likely due to factors that include environmental changes and changes in lifestyle, in addition to the legislation meant to prevent such harvests as a means to protect remaining mangrove patches.

Socio-economic drivers modulate dependency on mangroves

To investigate communities’ dependency on mangroves ecosystem services, we performed statistical analysis coupling households’ socio-economic data and ecosystem services provided by mangroves to each household. Analytical models were used to understand the importance of each ecosystem services and to link them to household’s socio-economic situation. We found that nearly two thirds of all respondents have low to high dependency on mangroves ecosystem services. Given that this ecosystem only covers small patches in three out of four surveyed villages, our findings suggest a disproportionate contribution of mangroves to human well-being and livelihoods where they occur in Mauritius.

We also found that dependency on mangrove ecosystem services is strongly influenced by socio-economic parameters. Lower monthly incomes and the lack of assets like land, increase the chances for an individual to have a stronger level of dependency, as does a higher household size. On the other hand, higher education levels and being at least 60 years old increases the chances for individuals to have no dependencies on mangrove ecosystem services. These results suggest that limited livelihood opportunities lead to a stronger dependency on mangroves ecosystem services and natural resources.

Figure 3: Photographs taken in Poste de Flacq (top) and Trou d’Eau Douce (bottom) highlighting the fishing activities in mangroves.

Women have a higher chance to experience higher levels of dependency on mangrove ecosystem services as compared to men. This result may be explained by a higher preponderance of women collecting seafood other than fish in the east and south-east coast villages of Mauritius, a practice strongly associated with mangrove fisheries. In parallel to subsistence or artisanal mangrove-based fishing or seafood collection, women lack recognition for their contribution to the fishery sector, with only 35 out of 1,902 registered fishers listed as women.

Environmental changes and management implications

The economic losses felt as a consequence of the Wakashio oil spill and the COVID-19 crisis have resulted in the strong dependence on mangroves ecosystem services. These findings therefore suggest that mangrove ecosystems have a critical role in mitigating socio-economic and ecological crises in the studied area. Indeed, previous studies concur on the importance of ecosystem services during the COVID-19 pandemic, supporting our findings that mangroves are essential for local livelihoods. In return, the Wakashio oil spill had severe impacts on mangrove ecosystem and their related services.

Figure 4: The proportion of responses in % according to the perceived reason for mangrove cover decrease in each village.

When interrogating respondents in our study sites, the oil spill is the second highest ranked perceived reason for mangrove cover decrease in south-east villages. On the other hand, residents in both Poste de Flacq and Trou d’Eau Douce predominantly attributed declines in mangrove cover to residents’ activities and tourism development respectively. Globally, over half of the respondents perceived a decline in mangrove cover and 70% perceive a decline in seafood quantity in all villages. These results, even if influenced by subjective risk perception when facing extreme events, attest to a local apprehension regarding loss of mangrove ecosystems and their associated services at the national scale.

Mangroves provide multiple underreported provisioning and cultural services to surrounding inhabitants and have a direct importance in building local and regional adaptation and resilience to global changes. Socio-economic, ecological and climatic crises are expected to worsen rapidly in frequency and intensity in the coming decades, and SIDS like Mauritius, which are disproportionally vulnerable to these events, have an urgent need to implement mitigation and adaptation strategies for coastal areas both because they harbour centres of economic importance (ports, tourism) and are often home to marginalised populations. Households that are the most vulnerable to crisis and mangrove degradation, as reported locally and as this present study suggests, are the ones with limited livelihood opportunities. Management approaches such as nature-based solutions and co-management may help take into account resource users’ and local inhabitants’ constraints and needs in management policies, as well as mitigating the impacts of multiple crises through co-constructed resilience scenario implementation.

Main photo by David Clobe on Unsplash.

Charles Telfair Centre is an independent nonpartisan not for profit organisation and does not take specific positions. All views, positions, and conclusions expressed in our publications are solely those of the author(s).

Digital Solutions for empowering women-led businesses and facilitating the transition to the formal sector

By

Charles Telfair Centre

-

April 12, 2023

0

Paul R Baker, Founder and Chairman, International Economics Consulting Ltd (IEC)

Taahirah Zahraa Boodhoo Beeharry, Policy Researcher, International Economics Consulting Ltd (IEC)

In the wake of the COVID-19 pandemic, informal workers and businesses in Mauritius were severely impacted. The COVID-19 pandemic further augmented the vulnerabilities that workers in the informal sector face. The informal sector comprises a diverse range of occupations, including subsistence farmers, domestic workers, industrial outworkers, and petty traders, among many others. During past economic and financial crises, the informal sector usually offered temporary relief to workers who lost their jobs within the formal sector, acting as a “buffer” that absorbs segments of the unemployed workforce.

However, with the prolonged lockdowns and the interruption of economic activity caused by COVID-19, both workers in the formal and informal sectors were cut off from their workplaces and many were left vulnerable and without the means to earn a living. As per the results of a survey conducted by International Economics Consulting Ltd. (IEC) in the context of a forthcoming publication from the UNDP [1], it was found that the revenue of nearly half of the respondents operating in the informal sector declined by more than 60 per cent during the pandemic.

Figure 1 Decrease in average monthly revenue during the COVID-19 pandemic, Source: IEC Survey 2022

Despite women making up a smaller share of Mauritius’s overall informal workforce, the majority, 53.5 per cent, were employed in the informal sector in 2022 and they tend to be the more severely impacted by crises, including the pandemic. The COVID-19 pandemic compounded the vulnerabilities that women face within the economy in the sense that they are more likely to earn lower salaries, face greater job insecurity and have fewer opportunities to improve productivity and access training and finance. Mauritius ranked 105th out of 146 economies in the Global Gender Gap Report 2022, with an even worse ranking of 111th globally with regard to economic participation and opportunity. Moreover, when assessing the drivers of the informal sector, it is found that women face a range of additional hurdles preventing them from gaining formal employment or formalising their businesses.

Figure 2. Informal employment in Mauritius by gender, Source: ILOSTAT (2021)

Access to Finance Gap

One of the principal issues facing many informal women entrepreneurs relates to the accessibility of finance and credit. When it comes to financial inclusion, Mauritius performs better that its Sub-Saharan African peers, with only a 6 per cent gap in account ownership between men and women. However, generally, women-led enterprises face additional difficulties in obtaining access to credit than men. There is widespread evidence on the gap that women led Micro, Small and Medium Enterprises (MSMEs) encounter when accessing finance, highlighting that women are either underserved or unserved. For example, the World Economic Forum (WEF) highlights that about 4 out of 5 women-led enterprises are not adequately served by the current financial system, creating a global financing gap of USD 1.7 trillion.

Figure 3 Financial Inclusion in selected African countries, Source: World Bank (2017)

During the pandemic, informal businesses encountered several issues in accessing credit facilities, loans, or other forms of financial support. Generally, most forms of formal financial support in Mauritius are solely provided to formal and registered businesses. The Development Bank of Mauritius (DBM) registered 14,802 requests for loans from 1 July 2020 up to 21 January 2022 [1]. Around one-third of these requests were not approved primarily because the businesses were not registered. Amongst the 313 respondents interviewed in our survey, 88 per cent indicated that they did not apply for financial support despite the challenges encountered during that period. Around 44 per cent of women-owned businesses that sought financial assistance were unsuccessful in obtaining any form of assistance.

In addition, women also encounter other challenges such as higher collateral requirements or additional documentary procedures that further hinder their access to finance, despite them having equal rights to access financial services. While many commercial banks in Mauritius have implemented microfinance initiatives, collateral security is required for most schemes, restricting women’s ability to make the most of these schemes[1].

The Global Partnership for Financial Inclusion advocates for the use of alternative data to assess creditworthiness. In this way, crowdlending platforms, such as Fundkiss Technologies Ltd. and FinClub, represent an important alternative for small businesses and especially women. Such platforms offer microfinancing and working capital loans without requiring any security. The eligibility for loans is instead assessed on the ability to repay the loan. Some platforms may also use personal bank statements as opposed to business statements to this end.

Digital platforms can support women-led business

Digitalisation of finance can support women-led business in three ways, namely through:

Easier access to finance
Promotion of business growth
Transition from informality to formal activities

Digital platforms and mobile money can also empower women in the informal sector, giving them greater control over their financial lives as well as an avenue to earn a living. While these benefits are true for all informal activities, such solutions are particularly relevant for women as they tend to be most involved in informal sector activities and face additional obstacles to enter the formal sector. Despite saving money on par with their male counterparts, a sizeable proportion of women globally save money through informal arrangements as opposed to formal financial services. In Senegal, the World Bank found that approximately 81 per cent of women’s savings were handled through informal arrangements, including merry-go-rounds, and saving clubs. These severely limit women’s access to loans and credit through formal institutions. By understanding the advantages of such arrangements, formal financial services can be better adapted to suit the needs of women. In fact, a study conducted in Zambia found that women predominantly used mobile money to store and save money. As such, through the uptake of mobile money and digital transactions, digital financial records can be used as a way of ascertaining creditworthiness, showing women-led businesses’ cash flow, enterprise performance or savings history. Such alternative approaches to determining risk can increase the accessibility and affordability of credit for women.

The COVID-19 pandemic accelerated digitalisation globally as well as in Mauritius. The Mauritius Commercial Bank Ltd. (MCB) witnessed a surge in the demand for digital banking, contactless payments, and mobile payments with its subscribers on the mobile platform, MCB Juice, reaching over 400,000 subscribers in August 2021, increasing by at least 60,000 new subscribers. Concomitant with the rise in digital banking, there has also been a significant increase in digital commerce activities and online purchases with many small businesses mushrooming on social media platforms such as Facebook, Instagram, WhatsApp and TikTok with women offering a range of services, including retail trade. In the survey conducted by IEC, 39% of informal women-led businesses indicated that the pandemic boosted the digitalisation of their operations [1]. It was also found that more than 3 out of 4 informal business owners use electronic devices such as mobile phones in conducting their businesses and over a third use social media platforms to market their products and services. Greater investment and assistance are, nonetheless, necessary, to further promote the uptake of digital solutions for businesses.

In Uganda, informal sector actors have also been able to partner with one of the largest e-commerce platforms in Africa, Jumia, to sell their products while in Ecuador, it was found that the emergence of gig platforms also facilitated the matching of informal workers to digital work, allowing many of them to formalise. However, given the diverse type of jobs that can be created by digitalisation, it is equally important to make sure that new opportunities provide security and stability regarding incomes and working conditions of informal workers and allow them to effectively transition to the formal sector.

Digital solutions are expected to play an instrumental role in financially empowering women in the informal sector to gain a stable source of income and improve their creditworthiness. Combined with the use of gender-sensitive indicators, mobile money can offer an important way of mitigating both the financing gap and the level of informality faced by women entrepreneurs by making it easier for financial institutions to assess the creditworthiness of women-led businesses. Digital data generated from transactions conducted online can provide an overview of the cash flow and performance of businesses, reducing the risk for formal institutions to lend money and thus decreasing the costs of credit for women as well.

Recommendations

Some suggested measures which could ease women’s transition to the formal economy include:

Improving access to finance and enhancing the environment for the evolution of digital payments;
Studying the impact and feasibility of the use of alternative data and the adoption of a gender-sensitive approach to financial borrowing; and
Encouraging female digital literacy as well as business literacy throughout the education system and through lifelong learning opportunities

In designing a policy response to the challenges of informality and access to credit, there are some important considerations for Mauritius to address:

How inclusive is the Mauritian financial sector, for example, how many women-owned businesses are currently underserved or unserved by commercial banks or other forms of formal financial institutions?
What are some of the major obstacles hindering women’s access to credit and should the gender-neutral approach to borrowing be replaced by a more gender-sensitive approach?
What are the main categories of alternative data available locally that can be utilised to assess creditworthiness, e.g., existing records of payment histories from retailers, government, and utility companies, among others?
How can cashless modes of payment be made more accessible to a wider group of individuals, especially small business owners?
How can the digital divide gap be eliminated and ensure that digital literacy training can facilitate the uptake of digital modes of payment and create new economic opportunities for vulnerable and marginalised groups in society?

[1] International Economics Consulting Ltd (IEC) (2022). A diagnostic study on the informal sector in Mauritius to facilitate post-COVID recovery. UNDP. Forthcoming

Main photo by RODNAE Productions on Pexels.

Charles Telfair Centre is an independent nonpartisan not for profit organisation and does not take specific positions. All views, positions, and conclusions expressed in our publications are solely those of the author(s).

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