Lecture 1 & 2 Issues in Mauritian Economy 15.07.24 PDF

ISSUES IN MAURITIAN ECONOMY Lecture 1 & 2: INTRODUCTION S.S.GOOKOOL Lecturer/PhD Researcher  Lecture 1: Introduction to Mauritian Economy Learning Objectives: Describe the Mauritian Economy; Define economics; Distinguish betwe...

ISSUES IN MAURITIAN ECONOMY Lecture 1 & 2: INTRODUCTION S.S.GOOKOOL Lecturer/PhD Researcher  Lecture 1: Introduction to Mauritian Economy Learning Objectives: Describe the Mauritian Economy; Define economics; Distinguish between needs and wants; Explain the key components of production process; and Describe the terminologies in economics.  “Economy”? Economy? Complex system of interrelated production, consumption & exchange activities which determine how resources are allocated. The production, consumption & distribution of goods and services combine to fulfill the needs of those living and operating.  Studying Economies The study of economies and the factors affecting economies is called economics. The discipline of economics can be broken into two major areas of focus: microeconomics & macroeconomics.  What do you understand by “Mauritian Economy”? “Mauritius”, a small island nation with a population of 1.3 million people, has one of the most successful and competitive economies in Africa.  What do you understand by “Mauritian Economy”? Mauritius is a beacon of economic success in the sub Saharan Africa, having evolved from a low-income sugarcane dependent nation in the 1960’’s to an upper middle income economy country (World Bank, 2023).  Gross Domestic Product (GDP) Key economic indicator that measures the total monetary value of all goods and services produced within a country's borders in a specific time period (usually annually or quarterly). Broad measure of a nation's economic health. Use: Assess and compare the size and growth of economies.  What do you understand by “Mauritian Economy”? The country’s Gross Domestic Product (GDP) was $11.5 billion in 2021, while per capita GDP was $9,106. In July 2020, the World Bank classified Mauritius as a high-income country based on 2019 data. Impacts of COVID-19, Mauritius reverted to upper-middle income country status in July 2021 (ITA, 2023). Key Aspects of “Mauritian Economy”? 1. Diversification: Mauritius has moved away from its traditional reliance on agriculture (particularly sugar production) towards a more diversified economy. Contributors: Tourism, financial services, textiles and apparel manufacturing, and ICT. Key Aspects of “Mauritian Economy”? 2. Tourism: Major pillar of the Mauritian economy, attracting visitors from around the world to enjoy its beaches, resorts, and natural beauty. Key Aspects of “Mauritian Economy”? 3. Financial Services: Mauritius has developed into an offshore financial hub, attracting foreign investment due to its favorable tax regime and business- friendly environment. The financial services sector includes banking, insurance, and offshore company registration. Key Aspects of “Mauritian Economy”? 4. Manufacturing: Textiles and apparel manufacturing have been historically important sectors in Mauritius, though there has been a shift towards more sophisticated manufacturing and export- oriented industries. Key Aspects of “Mauritian Economy”? 5. ICT and Business Services: The government has invested in developing the ICT sector, positioning Mauritius as a regional hub for business outsourcing and call centers. Key Aspects of “Mauritian Economy”? 6. Agro-Industry: Agriculture, particularly sugar production, remains important, although its relative contribution to GDP has decreased over the years. Key Aspects of “Mauritian Economy”? 7. Infrastructure and Connectivity: Mauritius has invested in developing its infrastructure, including ports, roads, and ICT infrastructure, to support economic growth and attract investment. Key Aspects of “Mauritian Economy”? 8. Trade: Mauritius has trade relations with various countries and trading blocs, including preferential access to European and African markets through trade agreements. Mauritius has successfully leveraged its strategic location, political stability, educated workforce, and pro-business policies to develop a diverse and resilient economy.  “Mauritian Economy” 1. Mauritius National Government Debt reached 9.9 USD bn in Mar 2024, compared with 10.2 USD bn in the previous quarter (CIEC, 24). 2. Total unemployment rate increased by 0.2 percentage point from 6.1% in the fourth quarter of 2023 to 6.3% in the first quarter of 2024 (Statistics Mauritius. 24). 3. Year-on-year (Y-o-y) inflation worked out to 4.9% in March 2024, compared to 9.1% in March 2023 (Statistics Mauritius. 24).  What is Economics? The word economy originates from the Greek word ‘oikonomos’. It means "one who manages household.“ Economics – the study of how individuals and societies make decisions about ways to use scarce resources to fulfill wants and needs.  Economics A family makes many decisions. It decides which members do which tasks and what each member receives in return: Who cooks dinner? Who will water the plants? Who will drive a car? How will you go to school or college? Who will get gifts? Who will earn money and so on?  The study of economics Macroeconomics – The big picture: growth, employment, etc. Choices made by large groups (like countries) Microeconomics How do individuals make economic decisions  Economics: 5 Economic Questions Society (we) must figure out WHAT to produce (make) HOW MUCH to produce (quantity) HOW to Produce it (manufacture) FOR WHOM to Produce (who gets what) WHO gets to make these decisions?  Economics definition There is no universally accepted definition of economics (its definition is controversial). This is because different economists defined economics from different perspectives: a. Wealth definition, b. Welfare definition, c. Scarcity definition, and d. Growth definition  Economics definition The following statements are derived from the above definition. Economics studies about scarce resources; It studies about allocation of resources; Allocation should be efficient; Human needs are unlimited The aim (objective) of economics is to study how to satisfy the unlimited human needs up to the maximum possible degree by allocating the resources efficiently.  The rationale of economics There are two fundamental facts that provide the foundation for the field of economics. 1) Human (society‘s) material wants are unlimited. 2) Economic resources are limited (scarce). The basic economic problem is about scarcity and choice since there are only limited amount of resources available to produce the unlimited amount of goods and services we desire.  What are resources? Definition: The things used to make other goods  BUT, there’s a Fundamental Problem: SCARCITY: unlimited wants and needs but limited resources  Choices, Choices Because ALL resources, goods, and services are limited – WE MUST MAKE CHOICES!!!!  Why Choices? We make choices about how we spend our money, time, and energy so we can fulfill our NEEDS and WANTS. What are NEEDS and WANTS?  “Wants and Needs, Needs and Wants” NEEDS – “stuff” we must have to survive, generally: food, shelter, clothing WANTS – “stuff” we would really like to have (Fancy food, shelter, clothing, big screen TVs, jewelry, conveniences... Also known as LUXURIES “Wants and Needs, Needs and Wants” VS.  Trade-Offs You can’t have it all (SCARCITY – remember?) so you have to choose how to spend your money, time, and energy. These decisions involve picking one thing over all the other possibilities – a TRADE-OFF!  Trade-Offs, cont. IN YOUR JOURNAL: What COULD you have done instead of come to school today? These are all Trade-Offs! Thanks for being here!  Opportunity Cost OPPORTUNITY COST = The Value of the Next Best Choice (Ex: Sleeping is the opportunity cost of studying for a test)  Opportunity Costs This is really IMPORTANT – when you choose to do ONE thing, its value (how much it is worth) is measured by the value of the NEXT BEST CHOICE. – This can be in time, energy, or even MONEY. Then I If I can’t buy a afford pizza… the movies… Q: What is the opportunity cost of buying pizza?  Production So how do we get all this “stuff” that we have to decide about? Decisions, decisions…  Production, cont. Production is how much stuff an individual, business, country, even the WORLD makes. But what is “STUFF”? STUFF – Goods and Services. Goods – tangible (you can touch it) products we can buy. Services – work that is performed for others.  Factors of Production So, what do we need to make all of this Stuff?  4 Factors of Production LAND – Natural Resources Water, natural gas, oil, trees (all the stuff we find on, in, and under the land) LABOR – Physical and Intellectual Labor is manpower CAPITAL - Tools, Machinery, Factories The things we use to make things Human capital is brainpower, ideas, innovation ENTREPRENEURSHIP – Investment $$$ Investing time, natural resources, labor and capital are all risks associated with production  THREE parts to the Production Process Factors of Production – what we need to make goods and services. Producer – company that makes goods and/or delivers services. Consumer – people who buy goods and services (formerly known as “stuff”). Which Came First? Production Process  Capital Goods and Consumer Goods Capital Goods: are used to make other goods. Consumer Goods: final products that are purchased directly by the consumer.  CHANGES IN PRODUCTION Specialization – dividing up production so that Goods are produced efficiently Nike makes shoes not hamburger Hardees make hamburger not shoes  Changes in production Division of labour- different people perform different jobs to achieve greater efficiency Changes in production  Changes in production If we INCREASE land, labour and capital, we INCREASE production. -Many entrepreneurs invest profit back in production. If we DECREASE land, labour and capital, we DECREASE production. BUT WHY should we DECREASE production? The Circular Flow Model  Production Cont. Again A measure of the production of an entire country in one year is GDP The total price value of ALL final Goods and Services produced in a country in a year (Gross Domestic Product). World GDP Costs and Revenues  Costs and Revenues Cost – the total amount of money it takes to produce an item (to pay for ALL Factors of Production).  Costs and Revenues Revenues – the total amount of peso a company or the government takes in. Comparative Economics  Traditional Economies Def: Economic Questions answered by Custom Predominately Agricultural Developing or “3rd World” Trade and barter oriented Low GDP & PCI (per capita  Command Economies Def: Economic questions answered by the government Very little economic choice No private ownership Communism Old Soviet Union, old Communist China, Cuba and North Korea  Karl Marx 19th century German economist Author of “Communist Manifesto” and “ Das Kapital” – Government should control economy and distribute goods and services to the people Founder of revolutionary socialism and communism  Communism Falls Market reforms in China in the mid 1970s. Fall of the Berlin Wall in 1989. Collapse of the Soviet Union 1991. Free Market Capitalism (w/ some Mixed Economies) the only show in town. Free Market (Capitalist) Economies Economic questions answered by producers and consumers Limited government involvement Private property rights Wide variety of choices and products U.S., Japan  Adam Smith 18th century Scottish economist Published “The Wealth of Nations” in 1776 Explained the workings of the free market within capitalist economies Invisible hand of the market  Adam Smith (cont.) Laissez-faire - Government stays out of business practices “hands off” to let the market place determine production, consumption and distribution. Individual freedom and choice emphasized.  Principles of Capitalism Competition – more businesses means lower prices and higher quality products for consumers (US!) to buy.  Principles of Capitalism Voluntary Exchange – businesses and consumers MUST be free to buy or sell what and when they want.  Mixed Economy/Socialism Government involvement and ownership and control of property, of decision making, and companies. Government control of business Social “safety net” for people Socialism Common in Europe, Latin America, and Africa  LABOUR Wages – what companies pay employees for their labor (usually based upon an hourly rate). Blue Collar Manufacturing, work with hands Usually the ‘labor’ in production Salary – the amount of pay a person gets over a year (especially for “professional” jobs). White Collar ‘Office’ jobs Usually control production  When Production Decreases Downsizing – laying off employees to save costs. Outsourcing – sending jobs and manufacturing overseas or contracting to outside companies to save money. Bankruptcy – government allows business to restructure it’s debt, but now all profits go to paying off debt rather than to the owners/ investors. Out of Business – lose all your business, money, and profits. The current trend in the U.S. is that manufacturing jobs are declining.  How does ‘Labor’ protect itself? Labor Unions: organization of workers who have banded together to achieve common goals – Wage protection – Workplace safety – Benefits – Job protection  Collective Bargaining and Strikes 1. Collective Bargaining – Representatives of the Union and the company negotiate a contract for the workers; usually they rely on compromise 2. Strikes – When an agreement can’t be reached, workers stop working to try to force the hand of the company  Collective Bargaining and Strikes 1. Collective Bargaining – Representatives of the Union and the company negotiate a contract for the workers; usually they rely on compromise 2. Strikes – When an agreement can’t be reached, workers stop working to try to force the hand of the company  Important terminologies Supply and Demand: The fundamental forces that drive market economies. Supply refers to the amount of a good or service that producers are willing to provide at a given price, while demand refers to the amount that consumers are willing to buy at a given price. Market: A place or mechanism where buyers and sellers come together to trade goods and services  Important terminologies Price: The amount of money or other goods/ services for which a product is exchanged in a market. Inflation: The rate at which the general level of prices for goods and services is rising, leading to a decrease in purchasing power. Gross Domestic Product (GDP): The total monetary value of all goods and services produced within a country's borders in a specific time period, usually a year.  Important terminologies Interest Rate: The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Monopoly: A situation where a single company or group owns all or nearly all of the market for a given type of product or service. Fiscal Policy: Government policy concerning taxing and spending. Monetary Policy: Actions taken by a central bank to manage the money supply and interest rates to achieve macroeconomic objectives.  Important terminologies Trade Surplus/Deficit: A surplus occurs when a country exports more goods and services than it imports, while a deficit occurs when it imports more than it exports. Capital: Financial assets or the financial value of assets, such as cash or goods, used in the production of goods and services. Economic Gr ow t h : An increase in the production of goods and services in an economy over time, measured by GDP.. S.S.Gookool Lecturer [email protected] 57921434