When Conglomerates Become Ministries
Key Takeaways
- Measurable thresholds exist: Banking HHI above 2000 or CR5 above 80% indicates systemic risk. Mauritius banking sector sits at 80 to 85% concentration (top 5 banks), approaching this threshold.
- The concentration stability trade-off: Research shows higher concentration correlates with financial stability but reduced competition, a common dynamic in small economies.
- Import corridors shape inflation: When 2 to 3 importers control over 70% of food staples or fuel (as in Mauritius), market power in essential corridors becomes price formation mechanism.
- Single point failures compound: Mauritius operates a single-port economy (Port Louis, 600,000 TEUs annually). When infrastructure lacks redundancy, corridor control translates directly to systemic vulnerability.
- Policy thresholds identified: Concentration ratios above 70% CR3 or HHI above 1800 should trigger regulatory oversight. Beyond HHI 2000, concentration introduces material systemic risk.
When the Bank of Mauritius releases its annual financial stability report, a single table reveals the economy's structural architecture. The top five banks control between 80 and 85% of total banking assets. This concentration ratio, whilst not extreme by small island standards, positions Mauritius at a regulatory threshold: high enough to raise systemic concerns, stable enough to avoid immediate crisis, concentrated enough that banking sector decisions function as de facto economic policy.
This pattern extends beyond banking. Mauritius Telecom and Emtel combine for over 90% market share in broadband and mobile services. The State Trading Corporation operates as import monopoly for fuel. Port Louis functions as single-port economy, processing 600,000 twenty-foot equivalent units annually with no meaningful port competition. These are not isolated market outcomes. They represent an institutional structure where a small number of entities control the corridors that determine price levels, delivery timelines, and business survival.
This is the private sector state. Not a conspiracy, not always corruption, but an equilibrium that emerges when formal regulatory capacity is thin and the economy is structurally narrow. In such settings, firms that control energy, logistics, finance, telecommunications, and essential imports begin to function as informal ministries. They do not require official titles. Their leverage is embedded in daily economic life.
When Does Concentration Become Systemic Risk?
Market concentration can be measured. The Herfindahl-Hirschman Index (HHI) and concentration ratios (CR3 for top three firms, CR5 for top five) provide quantitative thresholds for assessing when market structure shifts from competitive to oligopolistic to systemically concentrated.
Research across small and emerging economies establishes empirical benchmarks. Moderate concentration typically shows CR5 ratios between 40 and 70% with HHIs between 1000 and 1800, suggesting oligopolistic but competitive markets. High concentration, defined as HHI exceeding 2000 or CR5 above 80%, introduces systemic risk and materially reduces competitiveness, particularly in small or insular economies.
Sources: Bank of Mauritius Financial Stability Report (2023), Mauritius Ports Authority, telecommunications regulator data, peer-reviewed research on banking concentration in small economies (Nyangu et al. 2021, Chunikhin et al. 2019).
Higher concentration improves financial stability but reduces competition. East African Community banking study found this trade-off is common in small economies: concentrated banking systems show lower default risk and greater institutional stability, but also higher lending spreads and reduced credit efficiency.
Comparable small markets define thresholds. Studies from Serbia and Bosnia (economies similar in scale to Mauritius) show HHIs of 1200 to 1500 and CR3 ratios above 60% define loose oligopolies that balance risk and competitiveness. Beyond these levels, market power effects dominate efficiency gains.
Mauritius sits near the threshold. With banking CR5 at 80 to 85%, the economy benefits from stability but faces reduced competitive pressure. The question is not whether concentration exists, but whether regulatory oversight matches the systemic importance of concentrated nodes.
Five Infrastructures That Function as Informal Governance
Corridor power becomes visible when mapped across sectors. In most Global South economies, five corridors determine whether society experiences stability or fragility. The energy corridor includes fuel import contracts, storage infrastructure, and electricity generation and distribution. The logistics corridor encompasses ports, shipping services, customs clearance, warehousing, and trucking networks. The essentials corridor covers wholesale distribution for food, medicine, and basic consumer goods. The finance corridor includes trade finance facilities, payments infrastructure, and banking gatekeepers that determine working capital access. The telecommunications and data corridor increasingly determines who can participate in digital commerce.
When a single conglomerate or aligned group controls three or more of these corridors simultaneously, the economy experiences governance substitution. The state continues to exist. Elections occur. Ministries issue statements. But the effective capacity that determines price levels, delivery schedules, credit allocation, and business survival concentrates in private hands. This is when conglomerates begin to resemble ministries in function, even whilst insisting they operate purely as commercial entities.
Mauritius exhibits this pattern measurably. Banking consolidates at 80 to 85% (top 5), eliminating competitive pressure on lending rates and trade finance terms. Fuel imports channel through State Trading Corporation monopoly, centralising energy pricing decisions. Port Louis operates without port competition, making clearance times and dwell costs non-negotiable for all importers. Telecommunications concentrate above 90%, reducing infrastructure competition. Food staples flow through 2 to 3 dominant importers controlling over 70% of volume. These are not separate market outcomes. They represent integrated corridor control across the economy's critical infrastructure.
Not Always Corruption, Often an Equilibrium
Some versions of concentrated corridor control emerge through straightforward rent-seeking: manipulated tenders, captured regulators, contracts allocated as political payment. But the more common pattern, particularly in small island economies, is subtler. It represents an equilibrium built on market structure rather than conspiracy.
Small economies face structural constraints that favour concentration. Limited market size reduces the number of viable competitors in capital-intensive sectors like banking, ports, or telecommunications. Geography creates natural monopolies: a single island cannot support multiple competing port systems. Import dependency makes logistics and wholesale distribution central to economic function, attracting consolidation. Regulatory capacity tends to lag market complexity, allowing concentration to grow through quiet acquisitions and vertical integration rather than dramatic takeovers.
The equilibrium persists because it appears stable to participants. Governments gain delivery capacity they cannot build quickly through public institutions. Firms secure predictable returns and policy influence. Households receive continuity in essential services, at least until external shocks arrive. The arrangement functions until it does not.
Research documents this pattern empirically. Studies of small island developing states show banking concentration correlates with financial stability in normal conditions but amplifies contagion during crises. Import concentration in fuel and food reduces price volatility when global markets are stable but transmits external shocks directly into domestic inflation when commodity prices spike. Port monopolies deliver consistent clearance times until capacity constraints or labour disputes create bottlenecks that freeze trade.
The tragedy is that stability purchased through concentration proves brittle. It depends on informal arrangements and discretionary decisions rather than enforceable rules and competitive pressure. When shocks arrive, whether foreign exchange shortages, global price spikes, or refinancing stress, concentrated systems lack redundancy. Failure at one node cascades across the economy because alternative channels do not exist.
How Concentration Manifests in a Small Island Economy
Mauritius provides clear illustration because the corridors are narrow and the data is published. The banking sector shows CR5 concentration at 80 to 85% of total assets, positioning the economy at the empirical threshold where concentration begins to introduce systemic risk (HHI approaching or exceeding 2000). This means banking sector stress transmits directly to credit availability, trade finance costs, and foreign exchange allocation across the entire economy.
The telecommunications sector concentrates above 90% between Mauritius Telecom and Emtel. This duopoly structure reduces infrastructure competition and creates pricing power in digital services, which increasingly determine business access to markets. Without competitive pressure, innovation slows and costs remain above competitive equilibrium.
Port infrastructure operates as single-point system. Port Louis processes approximately 600,000 TEUs annually with average clearance times of 2 to 3 days. Whilst clearance performance appears reasonable by regional standards, the absence of port competition means delays or capacity constraints have no alternative routing. Every importer faces identical throughput constraints.
Fuel imports channel through State Trading Corporation, operating as designated monopoly importer. This centralises energy pricing decisions and eliminates competitive procurement. When global fuel prices spike, the entire economy absorbs the shock simultaneously with no market mechanism for alternative sourcing or hedging.
Food staple imports concentrate among 2 to 3 dominant wholesalers controlling over 70% of volume. This oligopoly structure in essentials creates pricing power at the wholesale level, which transmits directly to retail inflation that households experience.
Banking: Top 5 banks control 80 to 85% of assets (CR5), approaching HHI 2000 systemic risk threshold. Limited competitive pressure on lending rates, trade finance terms, FX allocation.
Telecommunications: Mauritius Telecom plus Emtel exceed 90% market share. Duopoly reduces infrastructure investment incentives and maintains pricing power in digital services.
Port infrastructure: Single-port economy at Port Louis, 600,000 TEUs annually, 2 to 3 day clearance. No alternative routing for import delays or capacity constraints.
Fuel imports: State Trading Corporation monopoly. Centralised procurement eliminates competitive sourcing. Global price shocks transmit directly to domestic prices.
Food staples: 2 to 3 dominant wholesalers control over 70% volume. Oligopoly pricing power at wholesale level transmits to retail inflation.
Combined effect: When the same groups or aligned interests control multiple corridors, economic stress in one sector compounds across others. Credit tightening affects import capacity. Port delays increase inventory costs. Fuel price shocks strain working capital. The system lacks redundancy.
Three Breakdown Patterns That Begin as Infrastructure Then Become Political
Concentrated corridor structures fail in predictable ways. The first failure mode is foreign exchange squeeze. When FX becomes scarce, import corridors transform into rationed corridors. If a small number of firms control shipping slots, customs facilitation, credit lines, and inventory priority, scarcity allocation becomes discretionary rather than market-based. Those with corridor access continue operating. Those without face delays, higher costs, or complete exclusion. This pattern appeared in Sri Lanka during 2022, where concentrated import channels meant FX rationing decisions by banks and state entities determined which businesses survived.
The second failure mode is refinancing shock. When large conglomerates carry substantial debt, interest rate spikes or credit market tightening translate directly into operational constraints. A bank facing capital pressure reduces trade finance. An importer facing debt service stress delays shipments. A port operator facing refinancing difficulty cuts maintenance spending, reducing throughput capacity. Because these entities operate as system infrastructure rather than individual firms, their financial stress becomes economic stress for all participants dependent on their corridors.
The third failure mode is compliance shock. When global standards tighten, whether on anti-money laundering enforcement, sanctions compliance, correspondent banking requirements, or environmental certifications, concentrated corridors can freeze. A single bank losing correspondent banking access disrupts trade finance for all clients. A port failing environmental audits faces shipping line boycotts. A telecommunications operator facing data privacy violations risks service suspension. In competitive markets, stress at one provider creates opportunity for alternatives. In concentrated markets, stress at the dominant provider creates system failure.
These failures share common structure: what begins as corporate constraint becomes national event because the economy lacks alternative channels. Research on small island developing states documents this pattern repeatedly. Caribbean fuel markets show how import concentration amplifies global price shocks. Pacific island banking concentration studies demonstrate how credit tightening at dominant banks freezes entire economies. The mechanism is consistent: concentration reduces resilience by eliminating redundancy.
What Works in Other Small Economies
Not all small economies suffer from corridor concentration equally. Singapore and Iceland provide instructive contrasts. Both are small island or island-like economies with structural import dependency and limited domestic markets. Both could easily develop concentrated corridor control. Yet both maintain competitive pressure through specific policy choices.
Singapore addresses concentration through regulatory intensity and open access mandates. Banking remains concentrated (top three banks dominate), but regulatory oversight is rigorous and transparent. Port operations, whilst dominated by PSA International, operate under published service level agreements and throughput guarantees. Telecommunications infrastructure separates network ownership from service provision through open access regulation, allowing multiple service providers to compete on common infrastructure. Procurement for government contracts operates through transparent systems with published award criteria and contract variations.
Iceland, despite tiny population (under 400,000), maintains banking competition through foreign entry permissions and regulatory standards that prevent cross-sector concentration. Energy generation concentrates due to geographic constraints (hydroelectric and geothermal resources), but distribution operates under utility regulation with published tariffs and performance metrics. Import channels remain competitive through absence of licensing restrictions and customs transparency.
The common factor is not market structure alone, but regulatory framework. Both Singapore and Iceland invest heavily in competition authority capacity, procurement transparency, open access infrastructure regulation, and published performance standards. Concentration exists where natural, but discretion is constrained through enforceable rules.
The failures provide equally clear lessons. Sri Lanka's 2022 economic crisis revealed how concentrated import channels and banking sector stress compound when FX becomes scarce. Lebanon's prolonged crisis demonstrated how banking concentration without regulatory oversight creates sovereign-financial doom loops. Caribbean economies show repeatedly how fuel import monopolies transmit global price shocks with no domestic competitive buffer.
The research conclusion is consistent: small economies cannot avoid some level of concentration due to scale constraints, but concentration without robust regulatory oversight and open access requirements creates fragility that manifests during external shocks.
| Corridor | Concentration Metric | Mauritius Level | Regulatory Threshold | Risk Signal |
|---|---|---|---|---|
| Banking | CR5 (top 5 asset share), HHI | 80-85% CR5 (2023) | CR5 >80% or HHI >2000 | Approaching systemic risk threshold |
| Telecommunications | CR2 market share | >90% (Mauritius Telecom + Emtel) | CR2 >70% | Duopoly with pricing power |
| Port infrastructure | Single-port vs multi-port, HHI | Single-port (Port Louis only), HHI >2000 | HHI >2000 | No alternative routing, single point failure |
| Fuel imports | CR1 (monopoly share) | 100% (State Trading Corporation) | CR1 >50% | Monopoly, no competitive procurement |
| Food staples wholesale | CR3 (top 3 volume share) | >70% (2-3 importers) | CR3 >70% | Oligopoly pricing power in essentials |
Thresholds derived from empirical research on small economy concentration (Nyangu et al. 2021, Chunikhin et al. 2019, Radojičić et al. 2021). Mauritius data from Bank of Mauritius, Mauritius Ports Authority, telecommunications regulator, State Trading Corporation reports.
How a State Reduces Corridor Leverage Without Destroying Throughput Capacity
There is a naive response to corridor concentration: attack the firms. This fails because the economy still requires throughput. Dismantling concentrated entities without building competitive alternatives or regulatory capacity simply creates vacuum, often filled by less competent operators or informal arrangements that are even harder to regulate.
The serious response builds rules that convert private capacity into public reliability. The sequence begins with visibility. Publish procurement awards, contract variations, delivery performance metrics, and arrears in state entities. If corridors operate without auditable performance data, they will be captured through opacity rather than openly challenged. Mauritius, like Singapore, should publish banking concentration metrics, port throughput data, telecommunications pricing benchmarks, and fuel import costs in standardised quarterly reports accessible to public and researchers.
Targeted interventions replace blanket protections. Instead of universal fuel subsidies that create guaranteed rent for monopoly importers, implement direct transfers to vulnerable households through digital payment systems. This maintains protection for those who need it whilst eliminating windfall gains for corridor controllers. The fiscal savings can fund regulatory capacity.
Open access regulation applies where corridors function as essential infrastructure. Port facilities, telecommunications networks, electricity distribution, and payment systems should operate under published service level agreements with non-discriminatory access terms. Singapore demonstrates this model: concentrated infrastructure provision combined with regulated access prevents bottleneck exploitation.
Competition authorities require meaningful enforcement capacity. Mauritius should conduct regular market studies of concentrated sectors, enforce merger review thresholds, and investigate anti-competitive conduct. The threshold should be explicit: any merger or acquisition that would push CR3 above 70% or HHI above 1800 in essential sectors (banking, telecommunications, ports, fuel, food staples) requires heightened scrutiny and possible structural remedies.
Central bank oversight must treat concentration as financial stability issue. When top five banks control 80 to 85% of assets, stress testing should explicitly model scenarios where dominant bank faces capital shortfall, refinancing shock, or compliance freeze. The results should inform capital requirements and liquidity standards. Concentration creates systemic importance; regulation must match that importance.
Procurement transparency becomes inflation policy in import-dependent economies. When state entities import fuel, medicines, food reserves, or infrastructure equipment, the terms should be published: supplier identity, contract value, delivery schedules, price benchmarks, variation approvals. This allows civil society, media, and opposition to scrutinise whether procurement reflects competitive pricing or corridor extraction.
The policy sequence matters. First, establish measurement and publication frameworks so concentration becomes visible rather than assumed. Second, implement targeted protections that reduce political pressure for blanket subsidies. Third, enforce open access in infrastructure bottlenecks. Fourth, strengthen competition authority capacity and merger review. Fifth, integrate concentration risk into financial stability oversight. This sequence builds regulatory capacity whilst maintaining economic throughput.
The point is not perfection. It is trust. When citizens can see procurement awards, track price formation, understand why protections go to specific households, and observe enforcement against anti-competitive conduct, they tolerate necessary adjustments. When they cannot see these mechanisms, they assume extraction. The private sector state thrives in darkness. It weakens when corridors become measurable, decisions become auditable, and leverage becomes contestable through enforceable rules.
Concentration as System Design Choice
Market concentration in small island economies is partly structural. Limited scale, import dependency, and geographic constraints create natural tendencies toward oligopoly in capital-intensive sectors. Mauritius cannot support ten competing port systems or twenty competing banks. Some level of concentration is inevitable.
But concentration level is not fixed by geography. It reflects policy choices about merger review, open access regulation, procurement transparency, and competition enforcement. The evidence from comparable economies is clear: Singapore and Iceland maintain concentrated markets in specific sectors whilst preventing concentration from becoming systemic leverage through robust regulatory frameworks. Sri Lanka and Caribbean economies demonstrate how concentration without oversight amplifies shocks and creates fragility.
Mauritius currently sits at a threshold. Banking CR5 at 80 to 85% approaches but has not clearly exceeded systemic risk levels. Telecommunications concentration above 90% indicates duopoly pricing power but not yet complete monopoly. Port Louis operates as single-port system but maintains reasonable clearance times. Fuel import monopoly exists but operates through state entity rather than private extraction. Food wholesale concentration above 70% creates oligopoly but not yet cartel behaviour.
The question is not whether these levels are acceptable today, but whether regulatory frameworks can prevent further consolidation and constrain discretionary power at current levels. Without active competition policy, merger review, open access mandates, and procurement transparency, concentration trends upward. With regulatory investment, concentration can be maintained at levels that balance efficiency and resilience.
The private sector state is not inevitable. It is a governance equilibrium that emerges when market concentration meets weak regulatory capacity. Strengthening capacity, publishing performance data, enforcing open access, and reviewing mergers can shift the equilibrium toward competitive discipline without dismantling throughput infrastructure. The choice is whether to measure corridor power and constrain its leverage, or to allow concentration to continue accumulating until external shocks reveal its brittleness.
For small island economies, this is not academic debate. It is operational reality. When banking HHI exceeds 2000, when import channels consolidate beyond 70%, when infrastructure operates without open access, the economy crosses from market structure into systemic vulnerability. The measurement exists. The thresholds are documented. The policy tools are available. What remains is institutional commitment to apply them.