Cost Structure

A similar exercise can be done with the cost structure. Several key attributes of the Mauritian economy can be viewed through the production cost assessment as a percentage of total supply for each sector. The intermediate, labor, and capital inputs, the aggregate

value-added, and the total indirect taxes net of subsidies will be displayed as a percentage of total supply. Table 5 reports the cost structure of each sector. It is as follows:

Table 5: Cost Summary of Mauritius (As a Percentage of Total Domestic Supply)¹²⁵ Sector Intermediate

Please note that the sector abbreviations above are as follows: Sugarcane (SUG), Other Agriculture (OAG), Sugar Milling (SMI), Export Processing Zone Manufacturing (EPZ), Other Manufacturing (OMA), Electricity, Gas and Water (EGW), Construction (CON), Wholesale and Retail Trade and Repairs (WRT), Restaurants and Hotels (RAH), Transport, Storage, and Communication (TSC), and Other Services (OSR). The column entitled “Value-Added” is included as a column to show the percentage of total costs comprised by labor and capital input usage jointly, even though it is calculated separately. Also, the indirect taxes net of subsidies negatives are maintained for addition purposes (i.e. for each sector the row totals equal 100.0%).

In reviewing Table 5, there are several characteristics displayed concerning the Mauritian economy in 1997. First, the intermediate usage cost dominates in the economy, with its share of total supply of 47.5%. Second, the capital input costs dominate labor input usage for the economy, with the percentage of total domestic supply of 27.2% and 22.1% respectively. So, Mauritius is a capital-intensive economy in 1997. Third, indirect taxes net of subsidies are all taxes on products, not including tariff revenues (the imports of goods and services are gross

125 Author’s calculations.

import tariff revenue), and subsidies comprise only 3.2% of total costs of production (total supply).

Presenting the dominant share holder of the total domestic supply, inter-industry inputs, the Sugar Milling sector, the Export Processing Zone Manufacturing sector, the Construction sector, and the Electricity, Gas, and Water sector rely heavily on intermediate inputs as a percentage of their total production cost (83.4%, 66.8%, 62.7%, and 59.8% respectively). In particular, the Input-Output Table shows that the Sugar Milling sector’s inter-industry inputs primary flowed from the Sugarcane sector, which only sells into the SMI sector, and comprises 82% of its total intermediate input cost. But, this is expected given that sugarcane is the primary product used to produce sugar (raw or refined) and sugarcane is the only product of the Sugarcane sector. But, the Sugar Milling sector has 11% of its total intermediate input cost derived from the Transport, Storage and Communication sector. However, this is logical because of the usage of shipping, docks and stevedoring services by the Sugar Milling sector for export of sugar (as previously stated, 88.3% of its total domestic supply is exported in 1997).¹²⁶ Thus, the Sugar Milling sector’s intermediate input usage is primarily from the Sugarcane sector followed by the Transport, Storage, and Communication sector.¹²⁷

The EPZ sector’s intermediate-input cost is dominated by its own usage. It supplies 73%

of its own inputs used in production (73% of intermediate input costs). The 1997 Supply and Use Table can readily explain this through the goods usage as illustrated. The sector produces the yarn and thread that it uses in its woven and tufted textile fabrics, knitted or crocheted

126 Central Statistics Office, http://ncb.intent.mu/medrc/natacc/tabcon/part2.htm, accessed on February 26, 2003 shows the TSC sector’s production. It is the Author’s speculation on how the Transport, Storage, and

Communication goods are employed by the SMI sector.

127 See Appendix D for the 305 Rs Thousands rupees movement to the EGW sector on the TSC row of the IO Table.

This amount was a hundredths of a percent discrepancy. Therefore, the share numbers across inputs adjusted very little.

fabrics, and wearing apparel.¹²⁸ The Export Processing Zone Manufacturing sector buys 22% of its inputs from the Other Manufacturing sector as well.¹²⁹ In particular, the EPZ sector buys basic chemicals and fabricated metal products, except machinery and equipment from the OMA sector. Thus, the chemicals may have been bought for the dyeing of textiles produced by the EPZ sector or zippers may have been purchased for wearing apparel, leather and leather products, or even footwear produced by the EPZ sector.¹³⁰ So, the Export Processing Zone Manufacturing sector’s intermediate input cost is overwhelmingly from its intra-industry purchases, followed by the Other Manufacturing sector as a percentage of its total input costs of production.

The Construction sector’s inter-industry input costs are driven by the Other Manufacturing sector in 1997. 63% of its total intermediate input costs are derived from the Other Manufacturing sector. But, stone, sand and clay flow into the Construction sector from the OMA sector (i.e. to produce concrete, asphalt, bricks, etc.). Likewise, glass and glass products as well as other non-metallic products are purchased from the Other Manufacturing sector (i.e.

glass for windows). Also, basic metals are purchased from the OMA sector (i.e. aluminum for aluminum siding).¹³¹ In addition to purchasing from the Other Manufacturing sector, the Construction sector also purchases 20% of its total inter-industry inputs from itself (i.e. builds its

128 Please review goods 17, 18, and 19 in the Use Table in Appendix A under the Manufacturing-EPZ Manufacture of Textiles, Manufacture of Wearing Apparel, and Other columns. The usage of the goods purchased by the Export Processing Zone Manufacturing sector is the Author’s conjecture.

129 Please note that the to remove supply and demand discrepancies, 848,073 Rs Thousands is moved from the OMA column to the EPZ column and 270,617 Rs Thousands from the OAG column to the EPZ column. The discrepancy itself is only 4% of the total EPZ sector’s supply in 1997. Please see Appendix D for discrepancy treatment.

130 In Appendix A, for further detail, please review goods 24 and 31 under the Manufacturing-EPZ Manufacture of Textiles, Manufacture of Wearing Apparel, and Other columns. The actual usage of goods purchased by the EPZ sector is the Author’s conjecture given that there is limited visibility into the actual usage of said goods in the industry.

131 Please review the Construction column in the Use portion of the 1997 Supply and Use Table (Appendix A). See product lines 9, 27, and 30 specifically. As stated in the previous section, the actual usage for the goods purchased from the OMA sector is the Author’s conjecture.

own office buildings, employs concrete maker to pour the foundation for masonry work to begin, etc.).¹³² All in all, the majority of the intermediate input purchases for the Construction sector are from the Other Manufacturing sector, with lesser purchases from the Construction sector itself.¹³³

With the Electricity, Gas and Water sector, the total intermediate input costs are dominated by the Other Manufacturing sector. 59% of the total intermediate input costs come from the Other Manufacturing sector as well. The EGW sector buys the coke oven products;

refined petroleum products; nuclear fuel from the Other Manufacturing sector (i.e. oil to produce electricity). The Electricity, Gas, and Water also gleans 17.4% of its total intermediate input from the Transport, Storage and Communication sector, using its water and air services (i.e.

ships to transport coal, cargo handling to process imported coal, and air travel of business executives, helicopter usage to check power lines, etc.).¹³⁴ Thus, total intermediate costs for the Electricity, Gas and Water sector is primarily derived from the Other Manufacturing sector, with some dependence on inputs from the Transport, Storage, and Communication sector as well.

On the other hand, the Sugarcane, Other Agriculture, Wholesale and Retail Trade and Repairs, and the Other Services sectors have a relatively low intermediate input cost but considerable primary input cost. Within the low intermediate input cost, but considerable

132 Author’s conjecture concerning the actual usage of the Construction sectors own products in the Construction sector.

133 252,363 Rs Thousands is moved from the Construction sector column to the Electricity, Gas, and Water, Restaurants and Hotels, and Other Services sectors’ columns to remove the supply and demand discrepancy, which amounted to only 2.10% of its total supply. See Appendix D for more details.

134 The 1997 Supply and Use Table reports the specific goods’ usage information for the Electricity, Gas, and Water sector. Please review product numbers 44-45 under the Electricity and Water column in the Use section of the Table. Also, to remove the discrepancies in the row and column totals of the EGW sector, 155 Rs Thousands is moved from the Sugarcane sector column and into the EGW column; 305 Rs Thousands from the Sugar Milling sector’s column to the EGW column; and 1,093 Rs Thousands from the Construction column to the EGW column.

This adjustment was only 0.05% of the EGW sector’s total supply. Please note, the key input sector shares do not adjust the ranking of inputs (dominance of one sector over another remains the same). Please see Appendix D for further details.

primary input cost sectors, the Sugarcane and Other Services sectors are labor-intensive with 45.4% and 35.3% of production costs from labor inputs respectively, while the Other Agriculture and Wholesale and Retail Trade and Repairs sectors are capital-intensive where 51.3% of total production cost from capital inputs for the OAG sector and 51.8% for the WRT sector. In fact, three of the four high primary cost sectors are dominated by one input or the other by at least 19.8 percentage points: the Sugarcane sector is labor-intensive by 19.8 percentage points, the Other Agriculture sector is capital-intensive by 22.0 percentage points, and the Wholesale and Retail Trade and Repairs sector is capital-intensive by 29.1 percentage points, with the WRT sector having the largest factor usage percentage difference across all sectors in the economy.

The Other Services sector is the only sector with a percentage margin as small as 4.7 percentage points, just making the sector slightly more labor-intensive than capital-intensive.¹³⁵ Therefore, the majority of the Sugarcane and the Other Service sectors’ production costs are derived from labor inputs, whereas the majority of production costs for Other Agriculture and Wholesale and Retail Trade and Repairs are derived from capital inputs.

In terms of the indirect taxes net of subsidies, the most heavily taxed sector is the Other Manufacturing sector with 17.7% of its total production cost accounted for by indirect taxes net of subsidies in 1997.¹³⁶ The Restaurants and Hotels sector is the second most heavily taxed sector with 7.7% of its total cost incurred through taxation. Only in the Other Agriculture and the Construction sectors do subsidies outstrip indirect taxation, and hence the indirect taxes net of subsidies reflect the negative numbers of –2.7% and –0.9%. From the Computed 1997

135 Author’s calculations.

136 Please note that indirect taxes net of subsidies might be understated due to the goods to sector matching mechanism used where the production of the good was assigned to the producer by the share of the good’s total output when the good was produced by more than one producer was not applied here. For production costs, no reallocation by supply shares took place as performed in calculating the intermediate input usage and final demand totals. For further details, see Appendix D.

Output Table (see Table 3), it is evident that the Construction sector is the second most heavily subsidized sector in the economy and the Other Agriculture sector is the third most heavily subsidized sector in the economy. Hence, the Other Manufacturing sector incurs the largest indirect tax net of subsidies levies, followed by Restaurants and Hotels, with the Other Agriculture and Construction sectors incurring the least amount of indirect taxation net of subsidies as a percentage of total supply.

Therefore, in 1997, Mauritius reflects intermediate input costs as the largest share of overall production costs. Also, Mauritius is marginally more capital-intensive than labor intensive. In terms of the cost structure, the Sugar Milling, Export Processing Zone Manufacturing, Construction, and the Electricity, Gas, and Water sectors have the highest percentage of their production costs allocated to intermediate inputs. The Sugar Milling sector’s usage is primarily from the Sugarcane sector and the Transport, Storage, and Communication sector. The EPZ Manufacturing sector’s intermediate input costs are overwhelmingly from intra-industry input usage followed by the OMA sector. The intermediate input usage by the Construction sector flows from the Other Manufacturing sector and its own production. The Electricity, Gas, and Water sector’s intermediate costs are dominated by the Other Manufacturing sector and the Transport, Storage, and Communication sector. On the other hand, Sugarcane, Other Agriculture, Wholesale and Retail Trade and Repairs, and the Other Services sectors have a high percentage of their cost driven by primary inputs. The Sugarcane and Other Services sectors are labor-intensive and the Other Agriculture and Wholesale and Retail Trade and Repairs sectors are capital-intensive in 1997. Lastly, the most heavily taxed sector is the Other Manufacturing sector, followed by the Restaurants and Hotels sector, whereas the Other Agriculture and the Construction sectors have their subsidies outstrip their indirect taxation in

1997, so they are the least heavily taxed sectors in the economy. Thus, a brief synopsis of the economy in 1997 has been established.