Steady growth but new challenges
The five pillars of Mauritius’s growth are sugar, textiles, tourism and hospitality, and the more recent expanding sectors—financial services and ICT. Together with Botswana, Mauritius has had the most impressive growth in GDP per capita from 1971 to 2010. Starting with a growth rate of –0.6% a year in the 1970s, GDP per capita climbed rapidly to 5.1% a year in the 1980s when Mauritius embarked on its transformation from a mono-crop sugar exporter to a textiles and garments exporter. Its GDP per capita (PPP 2005 US$) more than tripled from 1981 to 2010. Only Botswana among the ACET 15 did better over the period. Mauritius owes its remarkable economic performance to sound economic governance, steady reforms to sustain long-term growth, a favorable business environment, effective state-business relations, and proactivity of the state in supporting transformation, including attracting foreign investors and gaining access to foreign markets.
Unlike Botswana, Mauritius has combined steady growth with diversification of production and exports. The share of manufacturing in GDP rose from an average of 19% in the 1970s to 25% in the 1980s, but has since fallen to 17% in 2011. Through an export-oriented development strategy, Mauritius developed the exports of textiles and garments and tourism to complement sugar exports. With the expiration of the Multi-Fibre Agreement and the advent of China in the global textile market, Mauritius is now refining its strategy to find other sources of export growth. Services contribute a rising share of GDP particularly from financial services, tourism, and hotels and restaurants.
Mauritius’s success in promoting sugar, export processing zones for textiles, tourism, real estate development, and offshore financial intermediation lies in its institutions, flexibility, and responsiveness. It boasts a stable democracy, a good legal system, respect for and protection of private property, macroeconomic discipline, good exchange rate management, and streamlined regulation.
The Joint Economic Council, a coordinating body of the private sector, promotes the interests of business and shares business views on the government’s development strategy. The consensus is that government is a facilitator and provider of an enabling environment for private enterprises. There also exists a formal mechanism of interaction through tripartite wage negotiations, the submission of memoranda for the national budget, and representation in public- private committees. Mauritius has various institutional advantages, not least a transparent and well defined investment code and legal system, and a competitive and efficient tax system. Companies and individuals pay a flat income tax rate of 15%.
Mauritius has been improving its position in international indexes for the rule of law, investment, and ease of doing business. The island is first in Sub-Sahara Africa on the rule of law index. It has made progress on the ease of doing business, ranking 19th of 183 countries on the 2012 Doing Business Index, first in Africa ahead of South Africa (34th) and Botswana (59th). It also ranks 14th worldwide on the ease of starting a business and on the strength of investor protection— and 12th on the ease of paying taxes.
Mauritius’s economy so far has been dominated by the sugar sector, high-end tourism, and manufacturing of apparel. Three expanding sectors and potential growth boosters are financial services; tourism, hospitality, and property development; and ICTs and business process outsourcing.
Financial services. Mauritius’s financial center has international recognition as a safe and trusted jurisdiction. But there is need to move to the next stage in financial development. The offshore financial sector, though fairly well developed, is weakly integrated with the domestic economy. Recent measures to strengthen the anti–money laundering regime should mitigate vulnerability and reputational risks.
Tourism, hospitality, and property development. From 935,000 tourists in 2010, the government has set the ambitious goal of attracting 2 million tourists a year by 2025. Mauritius has always promoted high-end tourism, directed primarily at the high-spending European market. It is now moving beyond its traditional beach resort tourism into a broader phase of tourism development with hospitality and property development.
Hospitality encompasses hotels, leisure parks, green and medical tourism, restaurants, tour operators, training institutions, international conferences, and airline companies. Property development has the potential to attract a range of developers seeking cross-border opportunities. Major constraints include serious scarcity of beachfront sites for further hotel development and an ever-growing need for skilled manpower.
ICTs and business process outsourcing. Mauritius has progressed in network readiness with ICT prowess and leadership in Africa, displaying a first-class environment characterized by the ease for starting a business, a conducive regulatory environment for ICT development, favorable laws on ICT; and stiff competition among Internet and telephony providers.
Mauritius’s growth with depth
- Transformation—1st of 21. Mauritius has progressed from a “three pillar economy”— sugar, tourism, and textiles— into a modern strong economy revolving around agriculture, manufacturing, financial services, ICT, real estate, and hospitality. The country ranked 1st on the overall transformation index in both 2000 (1999–2001) and 2010 (2009–11).
- Growth. The promotion of textile and garment exports (in addition to sugar) through special economic zones and tourism powered Mauritius’s GDP growth at 5.2% a year from 1981 to 2000, while GDP per capita grew at 4.3%, taking the level in 2000 to more than 2.3 times the level in 1981. From 2001 to 2010 growth slowed to an average of 3.4% a year, while GDP per capita rose at an average of 2.8% a year.
- Diversification—1st. Mauritius was again 1st in diversification in both periods. The share of manufacturing in GDP fell from 23% in 2000 to 18% in 2010, which is still much higher than the 10% average in Sub-Saharan Africa. The share of manufacturing and services in total exports is very high— 87% in 2000 and 82% in 2010, while the top five exports make up 57% of exports— down from 70% in 2000.
- Export competitiveness—1st. On export competitiveness too (the share of exports in GDP relative the share for the world), Mauritius was 1st in both periods. The export competitiveness ratio, or the relative export intensity of production, was 1.85 in 2010. This was a fall from 2.90 in 2000, but still much higher than the comparator African countries.
- Productivity—2nd. Mauritius was 2nd on productivity in both periods. Manufacturing value added per worker rose from an average of $9,351 in 2000 to $15,307 in the 2010. Cereal yields are very high— 7,002 kilograms per hectare in 2000 and 7,425 in 2010, compared with the Sub-Saharan average of around 1,500.
- Technology—14th. Mauritius’s rank of 14th on technology in 2010 reflects the fact that a significant part of production and the bulk of exports are in garments, which are classified as low technology. The share of medium and high technology in both production and exports was around 8%. The rank of 14th in 2010 was a onestep improvement from 15th in 2000.
- Human well-being—1st. GDP per capita (PPP 2005 US$) was $12,289 in 2010, having risen from $8,774 in 2000. Though behind Gabon and Botswana in GDP per capita, Mauritius ranks 1st on human well-being in both periods due to its relatively higher level of formal employment for its labor force.