The Weaver’s Tale: Diversification

What does Mauritius have in common with Mallorca? Apart from the fact that both are islands and begin with an “M”, their populations are not dissimilar in size and the economies of the two islands are roughly similar in size. Historically, both had an economic reliance on the land: Mallorca on crop farming, Mauritius on sugar.

Tourism came later to Mauritius than to Mallorca, and it was a different type of tourism. In the 1970s a predominantly luxury style of tourism, based on resort hotels, came into being. It was one that benefited the economy in general, but because it was aimed at a more exclusive end of the market and later became all-inclusive, a bar and restaurant sector did not complement the hotels. As a consequence, while the island’s macroeconomic status flourished, the local population saw very little evidence of this.

At the same time as Mauritius’s tourism was taking off, the government was setting in motion a process of economic development and diversification. Principally, this was a way of shifting the country’s emphasis away from the land, i.e. sugar, but the unevenness of the benefits derived from tourism gave the process an added momentum. Furthermore, the government recognised that tourism can be fickle and subject to economic shocks or competition.

Sugar is today far less important but still more important than agriculture is to Mallorca. Tourism and services account for some 70% of GDP. And while industry has fallen back, the process of diversification did reap rewards.

The Mauritian government, through a combination of trade agreements, tax incentives and advantageous investment conditions, created, virtually from scratch, a textile industry. Despite a downturn over recent years, it represents some 7% of GDP. It employs a skilled workforce, it turns out quality product and it supplies the likes of Next and, a Spanish connection, Zara. The industry, and it has contributed as much as 14% to GDP, was built without the island having the natural resources to supply it and so was totally dependent upon the importing of raw material. Nevertheless, it worked.

Where similarities between Mallorca and Mauritius fall down is that one possessed a political class with the foresight to understand the risks inherent to an over-reliance on certain industries. Mallorca, essentially still a single-product island, has never been blessed with governments with sufficient vision to appreciate the dangers posed by a virtual mono-economy. Rather, they have been blinded by the success of tourism and continue to consider it the principal means of economic growth.

Mallorca can boast some textile expertise. Martí Vicens created remarkable textile designs in Pollensa, and they are still evident today. The island doesn’t, however, have a great tradition of textiles. There again, neither did Mauritius. I am not advocating that the regional government suddenly weaves a strategy based on textiles, but whether it is skills which do exist in Mallorca or new skills that need to be acquired and new types of business formed, the time is long overdue for a genuine strategy of economic diversification to be put in place.

If there is one thing, and one thing alone, that the new government of President Bauzá should be addressing, it is the economic future of Mallorca and the Balearics, and one that isn’t so obsessed with tourism.

There has been some success in diversification, notably with new technologies, but it has been a very small step. A strategy for innovation going forward to 2020, dreamt up by the last administration, has achieved comparatively little, hampered by economic crisis but also by a lack of real energy.

Mauritius shows how with energy and vision a mixed economy can be developed. Textiles were not the only diversification. The island is also a financial centre and has a decent IT industry, one that Mallorca would bite its hand off to have. A small African nation of comparative size to Mallorca has demonstrated how it can be done and how economies do not have to be reliant on tourism and to accept the fate of the consequences of a primary industry, agriculture, in almost terminal decline.

Are the next four years likely to yield anything in respect of real strategic development in Mallorca? You wouldn’t bank on it. There may be more of the desperately slow crawl of technological evolution, but something akin to Mauritius’s textiles revolution is required. And it won’t happen.

(I would like to thank John in South Africa for pointing out the Mauritius experience.)

Any comments to andrew@thealcudiaguide.com please.

White Heat Of Technology: Mallorca’s future

There are thirteen new commercial projects in Mallorca, the consequence of the raising of the moratorium on their building. Let’s all celebrate. Evidence of recovery, evidence of confidence in Mallorca as a place to invest. If only.

What are these projects? They are ones being undertaken by Mercadona and Lidl. Ever more supermarkets. The others are a commercial centre and a Chinese-bazar hypermarket. Why not add a few more? All McDonald’s, and then the picture would be complete and appropriate. “McJob”, low-paid employment and short-term construction work on commercial buildings that rise up quickly. The new projects are not evidence of a suddenly reinvigorated economy. They are the opposite: a response to the economic crisis-led demand for lower prices.

The director-general of trade at the Balearic Government’s trade and industry ministry believes that these projects represent a “good rhythm” of investment. They are not unwelcome, but equally they are not diversification or wealth-generation. Their arrival has more to do with the ending of the moratorium than with real investment. Moreover, they can be seen in the context of what has been happening to the island’s industrial estates. New ones come along, and are under-utilised, while old ones are abandoned by smaller businesses because of high rents or are given over to car showrooms and entertainment centres. Mallorca’s industrial, manufacturing and skills base is marginalised in favour of the unnecessary and frivolous.

The trade and industry ministry should be looking for investments beating to an entirely different rhythm to those of groceries and the fish and meat counter. The need for diversification away from the unsustainable tourism-centred economic model of Mallorca is, to be fair to the ministry and to the government, understood. A strategy for innovation and development is reaping some benefit, as evidenced by the number of businesses that have sprung up on Palma’s ParcBit technology park. Taken as a whole, they offer new employment opportunities and the prospect of business growth. Mallorca’s hopes of becoming a Silicon Valley or a silicon beach are fanciful, but this is not a reason not to follow a technological future.

The quest for an economy in Mallorca not so dangerously dependent upon tourism has been too long in the starting. The seduction of tourism has been understandable, but it has been proven to be built on the sands of shifting tourist demand and international competition. Its dominance has also reinforced the hugely unsatisfactory six-months-on, six-months-off work culture, itself unsustainable. The service model, based on tourism, supermarkets, the plethora of lawyers and architects and any number of unproductive public-sector pen-pushers, is not a solution for the long-term. A far greater mix with technology and industry founded on new technologies has to be the way forward for Mallorca.

To this end, there is some good news. In Inca, a company called Vent Illes is due to start production of wind turbines for the generation of electricity. It will create thirty jobs. Not a huge number, but it’s something. It is also indicative of the development of technology founded on local resources and know-how. Wind is very much a resource, but the Vent Illes turbines require very little wind. They are designed with the constraints caused by a limited resource – land – in mind. They are practical for locations where colossal wind farms would be untenable: other islands, for instance. It is the one eye on export possibilities that makes the Vent Illes scheme particularly interesting.

The home market, that in Mallorca, is too limited to offer local technology companies the scope for expansion and for creating significant employment opportunities. They need to be export-driven, just like Mallorca’s most successful businesses, its world-class hotel chains, have, irony of ironies, exported tourism know-how to competitor destinations.

The hope is that the incubation of new-technology businesses in ParcBit, together with the likes of Vent Illes, creates a momentum towards the clustering of further businesses, thus establishing a dynamic which, while it will not completely transform the economy, will at least send it down the road to a more diverse future. It will be one predicated on what Mallorca can do well, such as marine technology and its export, and it will mean far more than the few months of tourism employment or being a shelf-stacker at a new commercial project.

Any comments to andrew@thealcudiaguide.com please.

The Death Of The Hen: Diversification in Mallorca

“Mallorca vive una fantasía: el turismo no volverá a ser la gallina de los huevos de oro.”

I wouldn’t normally reproduce a newspaper headline, especially not one in Spanish, but this one deserves reproduction. If you do the native, then you’ll understand. If you don’t, you might get the drift. If the drift is not with you, then: “Mallorca is living a fantasy: tourism will not return to be the hen with golden eggs”.

The headline came from the “Diario” two days ago. The words are those of Jerry Mander, a “guru” and the director of the International Globalization Forum. He, along with other worthies, gathered together in Alaró the other day, in a meeting organised by Camper, the Inca footwear company. As befits a coming together of those with sound credentials of a “sustainable” nature, there was a fair bit about sustainability, that mantra of current-day tourism. But the key message, the key conclusion was that the island’s future lies in a diversification of its economy.

I should nominate myself as a guru. I couldn’t tell you how many times I have referred to the need for economic diversification on this blog over the years. The Balearic Government, some while back, looked to set in motion a so-called innovation and development plan (largely forgotten about), but otherwise I have, and I don’t wish to sound immodest, felt like a lone voice. You just never hear about economic diversification, or not in a way that addresses the subject seriously. Yet the need has been obvious for years.

Mallorca lives its fantasy because many of the people who live in Mallorca occupy a fantasy world – the absence of being in the real world, as I said two days ago. Perhaps it is something to do with the illusion or delusion of a “paradise island”, lulling them into a false sense of security.

Mander’s statement is, of course, inaccurate. Tourism hasn’t gone away. But the implication is that it will not return on the scale that it once was. Moreover, it cannot be grown in any meaningful way; there just aren’t the resources on a small area of land. It’s that sustainability again, but this time in terms of the environment. Even if it were to be grown, more hotels, more golf courses, more this and more that, who would come?

Forty or more years ago, Mallorca set itself on a strategic path to economic transformation through tourism. Its old industries, agriculture most obviously, were shunted into the background. Those attending the Camper meeting seem to think that there is a need for some going back to the future. But is agriculture really a solution? It is one that smacks of the idyllic meeting the more wacky end of economics. It wouldn’t represent diversification either. It has never gone away, just, in certain instances, such as almond-growing, been surpassed by superior technology and productivity elsewhere.

The general conclusion – that of diversification – is undeniably true, even if there might be disagreement as to the precise road-map for that diversification. What is staggering, though, is that the subject is even being discussed, as in being discussed now. It should have been on the table years ago.

Any comments to andrew@thealcudiaguide.com please.