International trade in outermost Europe: a comparative analysis of Mayotte Island and French overseas departments.

• Author: Candau, Fabien
• Position: Report

1. Introduction

   Our aim is to help the outermost regions to become more self-reliant.

   --Johannes Hahn, European commissioner, 20 June 2012

   Situated throughout the Atlantic and Indian Oceans, the Caribbean Sea, and in South America, the outermost regions of Europe account for more than 4 million inhabitants and represent a particular challenge for European integration. These regions--defined by their remoteness, economic dependence on a few products, small size, and insularity (2)--include the four French overseas departments of French Guiana, Guadeloupe, La Reunion, and Martinique; the Portuguese regions of Azores and Madeira; and Spain's Canary Islands. Mayotte Island will join this group in 2014. With this study, we seek to analyze the trade integration of these regions, which is a central focus of European policy. Because extended trade data are not available for the Spanish or Portuguese regions, we investigate French overseas departments during 1990-2011. Very few studies analyze these regions; (3) no previous studies have considered Mayotte.

   Mayotte belongs to the Comoros Islands archipelago (4) and has a long history with France. As a component of the French colonial empire, starting in 1840, Mayotte became an overseas territory in 1946, along with the other islands of the Comoros: Grande Comore, Anjouan, and Moheli. In December 1974, a referendum on the independence of the Comoros Islands was organized, involving consultation with the population, island by island. Among the four islands, only Mayotte refused independence, with a 63.8% majority. In early 1976, the population of Mayotte again confirmed overwhelmingly that it wanted to remain French (99.4%). A law passed 24 December 1976 thus granted it the status of territorial collectivity; in 2001, that status changed to a "departmental collectivity," though Mayotte did not become an actual department. The law prompted the transfer of executive power from the Prefect to the President of the General Council. Finally, on 21 February 2007, another new law shifted the status of Mayotte, in view of its possible transformation into an overseas department. On 31 March 2011, it thus became the fifth overseas department and 101st French department overall, and on 11 July 2012, the European Council recommended that it take the status of a "ultra-peripheral region" (UPR) of the European Union, starting on 1 January 2014. Considering its unique characteristics, remoteness, and insularity, Mayotte can expect to receive significant EU structural funds of approximately 475 million Euros during 2014--2020. These funds will help it complete priority projects to improve sanitation, roads, ports and airports, electrification, and education--projects for which the costs are likely to exceed 1 billion Euros.

   With an estimated 2009 gross domestic product (GDP) per capita of 6570 Euros (INSEE, economic accounts), Mayotte differs considerably from mainland France, as well as in relation to other overseas departments, at both economic and social levels. Specifically, its GDP per capita is approximately two times lower than that of France's other overseas departments and four times lower than that of the mainland France. But Mayotte Island represents a rich region for its immediate surroundings. Its GDP per capita is ten times higher than that of the Comoros Islands and Kenya and twenty times higher than in Madagascar, Mozambique, or Tanzania. (5)

   Its location at the entrance of the Mozambique Channel also makes Mayotte a potential point of passage for maritime trade across South Asia, the Indian Ocean, Africa, and Europe. Historically, Mayotte has served as a port of call and supply port, as have Reunion and Mauritius. Although Mayotte seemingly should be open to foreign trade and seek to take advantage of its position, its openness rate, measured as the ratio of trade flows (exports plus imports) to GDP, is actually very low and similar to that of struggling countries such as Rwanda, Sierra Leone, and Somalia. The increasing openness to trade in the past two decades indicated in Figure 1 is due to imports. The steady increase in imports and low contribution of exports emphasizes the poor competitiveness of Mayotte's economy. To suggest potential means to address these challenges, we analyze the nature and volume of foreign trade of this overseas department, focusing on trade at the product level over the period 1990--2010, through the use of panel estimates of gravity equations for both imports and exports.

   In addition to Mayotte Island, we provide a detailed analysis of La Reunion Island. These two regions are particularly interesting in terms of development in Africa, because they illustrate that despite the presence of good institutions, competitiveness gains are hard to reach in markets marked by significant distances to external partners and small internal sizes. (6)

   The remainder of our article is organized as follows: Section 2 outlines the evolution of Mayotte's foreign trade since the early 1990s. In Section 3, we specify some variables that have played a significant role in its trade, including demographics and transportation. The estimates of the gravity equations appear in Section 4; we also present results for all French overseas departments. Finally, in Section 5 we offer some conclusions and recommendations.

2. Insular economies and Mayotte's foreign trade

   2.1 Brief review of literature on insular economies

   The Comoros are part of the official list of the 38 member countries of the United Nations (UN) that are categorized as Small Island Developing States (SIDS), though Mayotte is different. Despite its location within the archipelago of the Comoros, Mayotte voted against independence in the 1970s and now has the status of a French overseas department; it soon will obtain the status of being an outermost region of Europe. Despite the difference in its status, compared with SIDS, some similarities are notable as well.

   For example, Easterly and Kraay (2000) cite the handicaps faced by all small, developing countries, such as generating economies of scale and poor diversification, which leaves them vulnerable to external shocks. This vulnerability is a recurring problem for insular economies as well. As Kerr (2005, p. 508) notes, "island economies tend to be highly specialized, based around a small number of export markets. Primary and tertiary sectors dominate." Briguglio (1995), in explicating the disadvantages faced by SIDS (e.g., small market size, insularity, remoteness, natural disasters), proposes an indicator of vulnerability that features three variables: exposure to external shocks, remoteness, and exposure to natural shocks. He identifies the Comoros as among the most vulnerable islands. Combining economic and social factors, Pelling and Uitto (2001) suggest another indicator of vulnerability that includes the Human Development Index rank, debt service, public spending on health, adult literacy, and GDP per capita. Among all islands, the Comoros emerge as the most vulnerable. However, vulnerability also could depend on the capacity for adaptation to climate change and sea-level rise (Nurse et al. 2001). From this perspective, Guillotreau et al. (2012) investigate the exposure of fisheries for pelagic resources in SIDS to climate variability and change.

   Another research stream focuses on the related problem of sustainable development. Van der Velde et al. (2007), with particular reference to Tonga, show that increased pumpkin exports were accompanied by an increase in imports of chemicals, noting concerns regarding environmental damages. More generally, analyses of the sustainability of economic development in SIDS should include both natural capital and the potential for irrevocable losses in terms of tourism. More recent studies also seek to define new indicators of environmental vulnerability (e.g., SOPAC 2005). A UN (2005) report specifically highlights the difficulties and poor resilience of SIDS in this realm and emphasizes the importance of aid flows from bilateral development partners and multilateral financial institutions.

   However, Easterly and Kraay (2000) and Armstrong and Read (2003) argue that small countries achieve higher GDP per capita than other economies, because the high investment rates generate productivity gains. In a comparative analysis, Congdon Fors (2013) similarly shows that island states establish better institutions. With its close integration with France, Mayotte might be poised to gain better institutions and more investment, though the question of dependence remains problematic, considering the deficits in its commercial accounts.

   2.2 Mayotte's foreign trade

   Similar to other overseas departments, Mayotte's economic development is largely exogenous. Metropolitan France ensures the transfer of skills and jobs, along with a supply of goods--consumer goods in particular. In a small island economy, the possibilities for endogenous development are limited, because its isolation and distance from major industrialized nations increase the costs of transport. Its small size also represents an obstacle to investment, because it is difficult to achieve economies of scale. Its location makes the island vulnerable to natural shocks too. Finally, its small economy exposes Mayotte to external shocks, such as those related to commodity prices.

   Figure 2 exhibits a behavior common to island economies that depend on transfers of public funds from central governments, such as metropolitan France. On the one side, imports have increased steadily in the past 20 years; on the other side, exports remain nearly constant and very low. The coverage ratio (exports divided by imports) was 8% in 1991 and fell to approximately 1.4% in 2011. Not only does domestic production fail to meet domestic demand, but the productive apparatus of Mayotte also appears unable to generate any surplus of exportable goods. To clarify the situation, we...