Theoretically, industrial economies are cyclically sensitive as such when it expands, factors including employment, sales, prices and profits will rise. However, when it contracts, downturns are inevitable and significant (Nazaria, 2003). When our national economy is in recession, many firms and companies are close down, it will cause unemployment rate to increase.
The financial crisis that started in mid 1997 has affected the Malaysian economy. The impact was evident with the economic growth measured in real GDP began to slow down and registered the first negative growth since 1985 of -7.4 per cent in 1998. Table 1 depicts real GDP growth, labor force and unemployment from 1996 -2003 (UKM Juru Perunding, 2002). The contraction in real GDP affected the labor market resulting in slower employment growth, increased in the unemployment rate and also retrenchment. Labor force registered negative growth of 2.1 per cent and employment declined by 2.8 per cent in 1998 compared to a positive growth of 4.9 and 4.6 per cent in 1996 and 1997, respectively. In the same year, unemployment, on the other hand, experienced a slight increase standing at 3.1 per cent. Retrenchment soared to 83,865 workers in 1998 compared to approximately 19,000 in 1997 (EPU, 1999).
Table 1: Real GDP Growth, Labor Force, Employment, Unemployment, Labor Force Participation Rates, 1996-2003
Sources: Nazaria B., 2003: Working paper of Unemployed Graduates: Pre and Post 1997
Okun’s Law, stated that there is a negative relationship between unemployment rate and real GDP. Okun (1962) found that a deviation of 3 per cent in the GDP will produce a rise by 1 per cent in the unemployment rate. Besides that, Zaleha, Norashidah
An Exclusive Economic Zone Economics Essay
INTRODUCTION Background information Mauritius is a maritime state with an Exclusive Economic Zone (EEZ) of about 2.3 million km2. In line with its policy of economic diversification, the government of Mauritius has recently reoriented its approach to tap its marine resources more effectively with the aim of making the country an oceanic state. The Mauritian Economy is based on exportation of Sugar, Textile, Tourism and Fisheries. The Fisheries sector contributes about 1.3% of the GDP through export earnings and employment creation. 90% of our fish and fish products exported constitute of tuna (Statistics Mauritius, 2010). The sugar industry and the textile industry which have been the backbone of the Mauritian economy for decades have now contracted significantly. Given the country’s large EEZ, it has the potential to develop its tuna industry into a strong sector. It could help the economy to resist any future possible instability which could arise from the Sugar, Textile and Tourist sectors.
HISTORY OF TUNA Tuna fisheries are among the oldest in the world with Phoenician trap fisheries for bluefin tuna occurring around 2000 BC (Ravier and Fromentin 2001). They are the largest and commercially the most important of all fisheries (Collette and Nauen, 1983) and are one of the major products in seafood international trade which accounts for about 9% of export value. They are in growing demand throughout the world market on account of their excellent meat quality (Chang and Lin; FAO, 1997). Schorr (2004) noted that about a billion people in the world depend on fish for their livelihood. Developing countries are the major supplier of fish to developed countries. Developed countries rely a lot on imports for seafood products as their local fishery productions are inadequate to keep up with the rising demand.
One third of production is exported as fresh, chilled or frozen fish (Paquotte, 2003). The European Union (EU), USA and Japan markets alone accounted for more than half of the total import value. The main final market for tuna in general is the USA, Japan and the EU (Paquotte, 2003). But, the market for canned tuna is in Europe and the main exporting countries are Thailand, Philippines, Ivory Coast and Spain (Paquotte, 2003). The species of tuna marketed are albacore, bigeye tuna, atlantic bluefin tuna, pacific bluefin tuna, southern bluefin tuna, yellowfin tuna and skipjack tuna (FAO, 2012). The tuna industry contributes significantly to the economy of various countries including Mauritius. Seafood products represent the leading export commodity for Mauritius with tuna being the most dominant. Mauritius has consistently being ranked among the leading exporters of canned tuna to the EU. The government has taken advantage of the thriving world market for tuna in the bid to raise employment, increase standard of living and contribute to economic growth through revenues from export.
About 60% of fish consumed in the EU are from outside EU waters to meet the demands of its market both in terms of canned tuna and tuna loins. In addition, it contributes towards investment and employment. This has been possible due to the fisheries relations between the EU and third countries, notably the African, Caribbean and Pacific (ACP) countries signatory to the Cotonou Agreement (Lomé Convention). Two types of fisheries access agreements have been signed between the EU and ACP countries, the tuna agreement for tuna and tuna like species and the mixed agreement. Thus, ACP countries benefit from preferential market access compared to others and are not affected by tariff barriers. This means that ACP countries have unrestricted duty-free access to the EU market for their exports.
Economic outlook of the Fisheries Sector Increased competition worldwide coupled with the erosion of preferential trade agreements and exacerbating rise in oil prices have encouraged the diversification of the economy by promoting sectors and activities liable to contribute to growth. The marine sector offers high potential to contribute significantly in the economic development of the country by boosting economic growth and creating more jobs.
Fish being an important source of protein in the population’s diet, had a per capita consumption of 21.7 kg in 2010 (Statistics Mauritius, 2010). The fisheries sector represents a major sector for Mauritius economically, socially and nutritionally. Although local production is not enough to cover market needs, it provides direct employment to around 12,000 persons including those involved in fishing, canning, other related activities, distribution and marketing. The canneries and processing plants are also key sector employers. The fisheries and seafood sector contribute about Rs 16 billion to the national economy whilst the local fish production sector is valued at about Rs 1 billion. The total supply of fish and fish products for direct consumption is about 18,000 tons, whereas 92,000 tons of processed fish and fish products produced mainly from imported raw materials are exported. (Ministry of Fisheries Annual Report, 2010)
From a trade and support services viewpoint, it is also important for its links with the Rs 40 billion per annum tourist industry of Mauritius. Total local production is small at about 9,000t per annum. Mauritian fish processing and export sector dominates seafood activities. These activities are concentrated in the seafood hub in Port Louis and in 2009 the businesses that comprise the seafood hub had a turnover of approximately $283 million. The seafood hub of Mauritius is a cornerstone of the seafood and fishing business in the Indian Ocean. It comprises ten companies that make Mauritius a leading choice in that sector. It engages mainly in Shipping Agencies, Fishing Vessels, Reefer Vessels chartering for the transport of tuna from the certified fishing zone, private Quays in the port together with unloading and cold storage facilities, tuna processing of cooked loins, cans, tuna processing of raw frozen fish, fish meal manufacturing and a fully equipped shipyard for ship building and ship repairs. In the same vein, Mauritius Port Services amount to an annual turnover $ 250 million. The total turnover of the fisheries sector was around $ 600 million. The first quarter of 2012 has brought about a 35.1% increase in the total export of fish and fish products. (Ministry of Fisheries Annual Report, 2010)
TUNA FISHERY IN MAURITIUS The tuna fishery is a major industrial fishing activity in Mauritius. It forms the basis of important local fish processing industries. Mauritius is an important tuna transhipment base in the South-West Indian Ocean. The temperate tuna fishery based on the albacore tuna is fished mainly by foreign longliners which tranship their catch in Port Louis. In Mauritius, the tuna fishery forms the basis for local fish processing industries and is a valuable contributor to its social and economic development. Tuna transhipment at Port Louis is another important fish valuable related activity since several decades (NPOA-IUU, 1995). An artisanal tuna fishery has also developed around Fish Aggregating Devices (FADs) placed around Mauritius. The economic contribution of tuna and tuna like species stands at â‚¬250 million and there is the potential for such contribution to be further increased.
The fishing methods adopted for tuna fishery in Mauritius include purse seine, longline and FADs. Tuna is exported to our main market which is the EU. Mauritius benefits from several agreements such as Mauritius EU fishing Agreement, Fishing Agreement with the Federation of Japan Tuna Fisheries Cooperative Association, Fishing Agreement with Seychelles and Memorandum of Understanding with Mozambique. These agreements help Mauritius to enjoy preferential market access.
In each ocean, there are Regional Fisheries Management Organisations (RFMO) which manage tuna and tuna like species. In the Indian Ocean, it is the IOTC which ensures the conservation and optimum utilization of stocks.
In Mauritius, the export of tuna accounts for 90 % of total export value of seafood products. However, factors such as local catch, foreign catch, inflation rate, number of licences, transhipment, employment, foreign exchange, market price and imports affect the export. The industry can be a major pillar in the future only if Mauritius can ensure sustainability in its development.
The Mauritian Tuna Industry History Before 1979, tuna was fished in Mauritius mainly with longlines and pole-and-line. The longline fishery started in 1970, but stopped operations soon after. Two small longliners started again in 1980, but, their catch was too low and had to stop operations. By 1995, there was only one longliner from Mauritius. In 2004, three foreign owned vessels came to operate in the Mauritian water in longline fishery. Their fishing area was spread widely in the Western Indian Ocean. In 2007, the number of licences provided to longliners increased to 141, mostly from Taiwan, South Korea, Japan, Indonesia, Belize and Malaysia. In that year, a total of 15580 tonnes of tuna and related species were transhipped by these longliners of which 4268 tonnes were caught in the Mauritian EEZ. (NPOA-IUU, 1995)
The purse seine tuna started to operate in 1979 with the first Mauritian purse seiner ‘Lady Sushil’. It was operated as a joint venture involving Mauritius Tuna Fishing and Canning Enterprise and two Japanese companies. From then, it made pioneering fishery in the northern sector of the South West Indian Ocean and was one of the vessels to confirm the successful operation of purse seiner in the area. Eight years later, it was joined by a second vessel ‘Lady Sushil II’. A third purse seiner ‘Cirné’ started operation in 1991. Until 1997, they were operating for the local canning factory. However, due to financial problems and changes in the administration of the factory, the vessels were sold off in 2000 and the factories now rely on import of raw materials to meet its requirements (NPOA-IUU, 1995).
Role of the Tuna Industry in Mauritius Investment in the seafood hub in December 2005 amounted to Rs 2 billion. This sector is being promoted by the government in order to transform Mauritius into an impressive seafood hub for trading, warehousing, processing, distribution and export of fresh, chilled and frozen raw or value added seafood products (Bauljeewon, 2011). The Seafood hub is defined as “An efficient and attractive environment for the supply of value added processes and services related to the sourcing and marketing of seafood products (Ministry of Fisheries, 2011)”.
In the seafood hub, tuna occupies a significant role. The balance of trade in 2010 amounted to Rs 2,308, an improvement from that of 2009 which was Rs 1,932.9. It can be noted that tuna constitutes a high % in our fish trade. Processing of tuna contributes to Rs. 10.1 billion (7.8 processing and 2.3 re-export). Mauritius was found to be among the two biggest exporters of canned tuna to the EU market among the ACP countries. It ranks 3rd in terms of overall EU canned tuna external supply, 3rd in terms of volume of overall EU tuna loins external supply and in terms of value. (Ministry of Fisheries Annual Report, 2010)
At present there is no Mauritian vessel engaged in the industrial tuna fishery. All tuna fishing vessels operating in the Mauritius EEZ are foreign-flagged vessels which operate under fishing licences. Fishing licences are issued to purse seiners and longliners. Most of tuna fishing activities in the Mauritius EEZ is carried out by longline fishing vessels.
In Mauritius, there are two main firms which are engaged in the processing of tuna. They are Princes Tuna Mauritius Ltd and Thon des Mascareignes. Not only in terms of exports, the tuna industry also contributes in terms of employment and food security.
Princes Tuna Mauritius Ltd Tuna canning operation started in 1972 with raw materials from Madagascar and later from Maldives (NPOA-IUU, 1995). Since 2000, a modern new canning factory which is the Princes Tuna Mauritius Ltd was set up at Riche Terre. The factory is operated under a British-Mauritian joint venture. It has a processing capacity of 220 tonnes per day and a labour force of 2300 in 2010. The new factory satisfies all the norms and regulations for export to the European Markets.
Thon des Mascareignes A second processing plant, Thon des Mascareignes started its operation in 2005 and is a subsidiary of the IBL Group. This factory is presently involved mainly in the production of tuna loins which are exported both to European and non-European markets. It processes 30 % of Albacore, 30 to 40 % of Yellowfin and 30 to 40 % of Skipjack. It offers a wide range of products namely industrial, semi-industrial and finished products. The raw materials are imported mainly from Seychelles. The factory has a daily processing capacity of about 230 tonnes and a labour force of 1800. The total export of processed tuna amounted to 20,716 tonnes in 2011.
Thon des Mascareignes continuously upgrades its premium products which aims at a real discover in taste. A Chef keeps looking for new flavours and choosing the ingredients with care. The packaging changes according to needs with glass jars, doypacks and cans.
Methods of tuna fishing in Mauritius There are various forms of industrial tuna fishing namely purse seine, longline, Pole-and-line and troll. In the Indian Ocean, purse seine or longline ships and FADs methods are adopted. Tuna purse seining involves setting a large wall of net, approximately one mile in length to encircle tuna schools and entrap them (FAO, 2001). Longlining involves the use of line with baited hooks as fishing gears. It is made up of baskets which consist of a main horizontal line about 250 to 800 m long with 4 to 15 branch-lines each with a wire leader and a hook. FADs are floating objects that are designed and located to attract tunas. A FAD is made up of a large anchor, a heavy-duty mooring chain of about 30m long and a mooring rope. The rope and chain are joined by various shackles, rope connectors, splices and thimbles. A flag is attached to be able to locate them. They may be placed in shallow waters 50-100m or deep waters 500-1500m (NPOA-IUU, 1995).
International Agreements for Tuna activities. Mauritius has longstanding trade relationships with several economic partners including the EU, US and Japan. Under specific trade agreements, it benefits from unrestricted duty free access for its seafood products. It has also secured preferential access to many markets including EU through the Economic Partnership Agreement (EPA), with the US under the African Growth and Opportunity Act (AGOA), with Eastern and Southern Africa through the Common Market for Eastern and Southern Africa (COMESA) and Southern African Development Community (SADC). Mauritius also has fishing Agreements with the EU and the Federation of Japan Tuna Fisheries Cooperative Associations. These agreements allow the EU and Japan to fish in its EEZ provided they pay a license fee. Mauritian fishing vessels are able to fish in the Seychelles waters due to the bilateral agreements. Mauritius, Madagascar and Seychelles have benefitted from preferential access to the EU market which in turn has enabled them to invest more in their tuna canneries. In aggregate terms, the ACP share of production of canned tuna in the world experienced a rise of 5% to 12% during the years of 1976 to 2003 (Oceanic Development, 2005). To address tariff erosion, tuna processors in Mauritius have contributed significantly to form the African Tuna.
ACP-EU Fisheries Access Agreements Bilateral Fisheries Agreements between the EU and developing countries existed since long as the Common Fisheries Policy. These agreements show the goal of the EU to help the these countries in their development. There are 16 Fisheries Partnership Agreements at the moment. This enables EU fleet the right to use resources which its partners cannot or do not want to exploit. The EPA between the ACP and EU- the ACP-EU Partnership Agreement existed 2000 with the signing of the Cotonou Agreement (Technical Centre for Agricultural and Rural Cooperation, 2006).
The tuna fishing agreements gives European the ability to obtain license fee under each agreement. Each ocean has to be controlled by international management such Regional Fisheries Management Organisations (RFMOs) which are regulated under the Indian Ocean Tuna Commission (IOTC) for the Indian Ocean, International Commission for the Conservation of Atlantic Tunas (ICCAT) for the Atlantic Ocean and Inter-American Tropical Tuna Commision (IATTC) for East Pacific (ISSF, 2012). The agreements provide a legal framework for accessing these resources and the tonnage of tuna that may be caught in the water of the country concerned, is specified together with the number of vessels that will receive a license (ISSF, 2012).
Since the European Union (EU) accounts for some 60% of the ACP fishery exports by value, European market is an important player for ACP exports of fish and fish products (Gorez, 2003). Fisheries relations between ACP and EU are governed by various instruments like ACP National Fisheries Policies, EU Common Fisheries Policy, Development Cooperation Instruments and Bilateral Fisheries Agreements between the EU and ACP states (Gorez, 2003). The Bilateral Agreements facilitate access to fisheries resources through payment of access fees which generate income for ACP states together with joint venture activities (Gorez, 2003).
In 1975, the EU and ACP signed their first co-operation agreement in Lomé, Togo (Mensah, 2010). After four such Lomé Conventions, a broader partnership agreement was signed in Cotonou Benin, in June 2000 known as the Cotonou Agreement (Mensah, 2010). The objectives behind this agreement were mainly to achieve sustainable development and poverty reduction. Under the Lomé Convention, ACP countries such as Ghana, Cote d’Ivoire, Madagascar, Mauritius, Papua New Guinea and Seychelles which are among the main exporters of tuna to the EU market benefit from zero and unreciprocated tariff on their canned tuna since 1982 (Mensah, 2010). This preferential tariff has helped ACP countries to compete with Asian tuna producing nations such as Thailand, Philippines, Indonesia and Vietnam which face 24% of duty tariff (Campling, 2007). This agreement is indeed very important for ACP countries to promote and boost up their trade (Campling, 2007). Without this, tuna industries in Seychelles, Mauritius, Papua New Guinea and Ivory Coast would have been less competitive in the European market. The export performance of these countries hinges on, a lot on the preferential access enjoyed under the Agreement (Mensah, 2010).
In 2008, the Cotonou Agreement was replaced by EPA which is at the main economic and trade cooperation pillar of the Cotonou Agreement. The Economic Partnership Agreement (EPA) will slowly remove barriers to trade between the EU and the ACP countries (Campling, 2007). EPAs are based on World Trade Organisation (WTO) regulations and put EU and ACP trade on a secure and sustainable basis. The ACP countries are divided into 6 regions which are Caribbean, the Pacific, East and Southern Africa (ESA), the SADC, West Africa (ECOWAS) and Central Africa (CEMAC) which are negotiating their own EPA (Campling, 2007). EPA aim at integrating ACP countries in the global economy through reciprocal access to the two markets and regional integration with the emphasis on promoting sustainable development and contributing towards poverty eradication (European Commission, 2013).
EPAs make it easier for trade and investment to develop. With the Agreement, the ACP countries benefit from no quotas and duties on export of tuna to the EU (European Commission, 2013). This helps them to get access over a larger market, that is, European Free Trade Association (EFTA) including Switzerland and Norway. EU consumers will benefit from lower prices (European Commission, 2013). The removal of trade barriers enable ACP counties to compete with bigger Asian suppliers on the EU market.
By accessing the EU market, ACP countries are able to expand their industry. This help in boosting and strengthening trade and contributes positively in the diversification of their economies. As far as EU consumers are concerned, they benefit from a variety of tuna products and have greater choice (European Commission, 2013).
EPA agreement creates regional market. This contributes to the development of trade in ACP countries. With better techniques for tuna production, production capacity will increase. In the long run, trade will help ACP countries prosper and generate more income. The increase in demand for EU expertise will not only benefit ACP countries but will also generate jobs for the EU population. So, both will benefit.
Producers Association comprise of 6 countries namely Mauritius, Seychelles, Madagascar, Kenya, Ghana and the Ivory Coast and 8 processors. This is to try and ensure that the EU hears the African voice. The main concern of Mauritian processors is to keep market access to the European Union.
Preferential market access The EU has granted market access to the ACP countries since 1964 under the successive Lomé conventions and Cotonou Agreement (European External Action Service, 2012). Mauritius is a member of the Cotonou Agreement (European External Action Service, 2012). http://eeas.europa.eu/delegations/mauritius/eu_mauritius/trade_relation/index_en.htm The partnership agreement aims to promote and foster trade between the ACP countries and the EU. This enables ACP countries to benefit from zero and unreciprocated tariff on fish and fishery products exported to the EU by satisfying the required criteria and rules of origin (Mensah, 2010). Preferential access is also enjoyed in the USA under the GSP and the AGOA (Wong,).
Mauritius EU fishing Agreement In November 1990, a fishing agreement was signed between the EU and Mauritius under which five protocols were set up. They defined the fishing possibilities, licence fees and financial compensation for the period 03 December 2003 to 02 December 2007 (European Commission, 2012).
Fishing Agreement with the Federation of Japan Tuna Fisheries Cooperative Association This agreement was signed in May 2000 to allow Japanese tuna long liners to fish in the Mauritian waters and is renewed on a yearly basis (Ministry of Agro Industries and Fisheries, 2007).
Fishing Agreement with Seychelles Two fishing Agreements were signed in March 2005 between Mauritius and Seychelles on a reciprocity basis. They defined the fishing possibilities for 12 purse seiners and 20 long liners in each other’s waters and the licence fees (Ministry of Agro Industries and Fisheries, 2007).
Memorandum of Understanding (MOU) with Mozambique A MOU in the field of fisheries was signed with Mozambique in Mauritius in March 2002. This was related to bilateral investment in fishing, aquaculture and fish processing (Ministry of Agro Industries and Fisheries, 2007).
Indian Ocean Tuna Commission It is recognized that the tuna industry in the South West Indian Ocean (SWIO) region is under pressure due to the decrease in production of the purse seine fleet as a consequence of piracy. There are different RFMO’s that are involved in the management of tuna and tuna like species. In the Indian Ocean and adjacent seas, the IOTC is responsible for the management of tuna and tuna like species (WWF, 2005). It is an intergovernmental organisation established by the FAO constitution under Article XIV (WWF, 2005). Its objective is to promote cooperation among its members and responsible for the conservation and optimum exploitation of stocks through appropriate management and encourage sustainable development of fisheries in Mauritius and its neighbouring areas (United Nations Conference on Sustainable Development, 2012). Mauritius acceded the IOTC on 10 October 1994 (Ministry of Fisheries, 2012). It adheres to all resolutions regarding the sustainable exploitation of tuna resources. In this respect, the National Plan of Action has been put in place to monitor and control fishing activities in order to combat IUU in the region.
Figure 2: IOTC Area of Competence Source: IOTC Factors affecting the development of the tuna industry Cost of inputs The major factors contributing to the operating costs are raw material, labour and fuel costs (Miyake, 2005). The most important input of the industry is the tuna fish itself. It is usually sold fresh, frozen and canned. The situation of the price of tuna is dynamic and therefore changes rapidly due to many factors (Pan, 2004). Seasonality – of both fishing (low production in the Indian Ocean occurs during the European summer) and markets (better prices occur in the EU because of increased demand during the European summer). Rising labour and fuel cost lead to a rise in operating costs thereby affecting the price of tuna. A rise in the price of tuna will increase cost of production of the processing industry and eventually reduce profit and future investment. Conversely, if tuna is cheap, cost of production will fall and the industry can increase production and supply at a lower price in the local and foreign markets to increase its competitiveness.
Technology The development of new technology in the tuna industry is identified by Miyake (2005b). Through more effective fishing techniques and more sophisticated vessels, there is an increase in the productivity and hence supply (Miyake, 2010). However, it is important that fishing entrepreneurs have access to the necessary financial resources to acquire these new techniques in order to carry out innovation in their activities. Also, improvements in terms of the use of many mitigation device and procedures such as circle hooks instead of J-hooks may affect the fishing efficiency (Miyake, 2005a). Apart from the traditional fishing gears such as long line and purse seine, today it is possible to locate schools of tuna at sea by using echo sounders and the support of satellite system (Dagorn, 2012). Further, innovation in canning techniques contributes to improve productivity and efficiency (Laxe, 2008).
Natural Influences The weather, cyclones and tsunamis affect the catch and supply of tuna. According to Schon (2000), Roberts and Sauer (1994), catch variability are linked with wind direction, turbidity, sea surface temperatures and oceanographic phenomena such as upwelling and climatic conditions. But, more important is global warming which changes the temperature of the sea and hence alter the current pattern and distribution of tuna. Generally, tuna schools are highly migratory species and they move in the Indian Ocean during summer season.