Economy and Trade
Mauritius, an Indian Ocean island of 1.3 million people, is one of Africa’s most prosperous and stable economies. It has a diverse population: descendants of workers from India, who were brought to work in the sugar-cane fields, account for about 70% of the population; the remainder includes Africans, Creoles, Chinese, and Europeans. At independence in 1968, the country was poor, with a per capita income of around US$260. However, the government has successfully diversified the economy into textiles, tourism, and financial services. In recent years, information and communication technology (ICT), particularly business-process outsourcing, and seafood have emerged as important sectors of the economy. The US State Department estimates 2008 GDP at market prices at US$7.99 billion (official exchange rate) and per capita income at US$12,074 (purchasing-power parity), one of the highest in Africa. The country has benefited from its political stability (it is a multi-party parliamentary democracy), and ethnic tolerance.
Economic Policy over 12 Months
The Mauritian economy has been affected by changes to the world trade regime. The World Bank says that, according to one estimate, the ending of the Multi Fibre Arrangement (MFA), which governed world trade in textiles and garments, in January 2005, and the phasing out of sugar preferences in 2008 could cost Mauritius as much as 8–9% of GDP, 20% of exports, and 40% of government revenue. Increasing living standards were already undermining the country’s competitive position in labor-intensive sectors such as sugar and garments.
Rising world commodity prices, especially for food and petroleum products, have also affected the island. As a result of these external shocks, export growth has dwindled and the current account deficit deteriorated to an average of 4% of GDP in the period 2004–2007. Real GDP growth has also fallen during the current decade, averaging 3.6% between 2001 and 2007, compared with 4% in the 1990s and 5% in the 1980s.
However, the government that took office in July 2005 embarked on a bold economic-reform program aimed at moving Mauritius from reliance on trade preferences to global competitiveness. The reform strategy, outlined in the past three government budgets, covering the fiscal years from 2006 to 2009, was designed to improve the government’s finances, liberalize the economy, facilitate business, improve the investment climate, and mobilize foreign direct investment.
The government has also sought to restructure the textile and sugar sectors, develop the ICT sector, and promote Mauritius as a seafood hub in the region, using existing logistics and distribution facilities within the free trade zone located at the port and the airport. The government is seeking to diversify the economy by encouraging development in the following sectors:
the land-based oceanic industry;
hospitality and property development;
the healthcare and biomedical industry;
agro-processing and biotechnology;
the knowledge industry;
In 2008, disagreements over how to counter the global economic slowdown and near double-digit inflation developed between the central bank and the finance ministry. While the finance ministry has sought to focus on maintaining growth, controlling inflation has been the central bank’s foremost priority.
However, falling international commodity prices have eased the inflationary pressures and, in December 2008, the central bank cut its benchmark interest rate by 100 basis points, to 6.75%. During the same month, finance minister Ramakrishna Sithanen unveiled a 10.4 billion rupee (US$316.5 million) stimulus plan to bolster growth, protect jobs, and maintain purchasing power. The government hopes the package will encourage spending, and spur the struggling manufacturing and construction sectors.
Economic Performance over 12 Months
Prior to the global financial crisis, the government’s efforts to restructure the economy were having a positive impact. Tax reform, together with improvements in the business environment and investment initiatives, spurred foreign investment to unprecedented levels and accelerated growth to between 6.5% and 7.0% in the fiscal year 2007–2008. Growth was broad-based, but it was especially strong in tourism, banking, construction, and services, according to the International Monetary Fund (IMF).
The IMF added that rising government revenues and efforts to contain government spending had cut the government deficit. Public-sector debt had also fallen. The current account was on a downward trend, caused largely by investment-driven import growth, which would eventually translate into greater export capacity.
Although the global economic slowdown has taken a toll on investment and export growth, the economy expanded by a highly respectable 5.2% in calendar 2008, down from an original prediction of 6% made at the start of the year. The government expects the economy to expand by 4% in 2009, but independent analysts believe this figure is too optimistic. Tourism is certainly feeling the effects of the global credit crunch. Tourism revenues fell by 27% in November 2008, compared with the same month in 2007. In December 2008, textile firms reported that orders had fallen by up to 15%.
The construction sector is expected to grow by just 2.5% in 2009, after recording 11.0% growth in 2008, according to a report issued by the Central Statistics Office (CSO) in January 2009. The CSO also anticipates that private-sector investment growth will fall from 24.0% to 9.2% in 2009, as investment in commercial building, hotels, luxury villas, and the financial and manufacturing sector tumbles.
Surging global commodity prices fuelled inflation on the import-dependent island in 2008. Inflation peaked at 9.9% in October, due to a sharp increase in the cost of oil and foodstuffs. However, inflation subsided in the final months of 2008 as falling global growth cut demand for commodities. By January 2009, inflation had eased to 9.3%, from 9.7% in December 2008. Unemployment fell to 7.8% in 2008, from 8.5% in 2007.
Support for Inward Investment and Imports
The World Bank 2009 Doing Business Survey ranks Mauritius first in Africa and 24th in the world for ease of doing business. The government’s objective is for Mauritius to rank among the 10 most investment- and business-friendly locations in the world.
The Board of Investment provides advice and information on investing in Mauritius. The Ministry of Finance and Economic Empowerment can provide advice on the country’s import policy, import tariffs, and customs regulations.
Mauritius is moving away from tax incentives and exemptions and towards the adoption of a low tax regime. The rate of corporate income tax in Mauritius is currently 15% on chargeable income, having been reduced from 25% as of 1 July 2007. Foreign investment is encouraged, and a wide range of incentives and facilities are offered in various sectors of the economy: manufacturing and light processing; textile and fashion; logistics and distribution; seafood and marine industry; hospitality and property development; the biomedical industry; the knowledge industry; and financial services.
GDP growth: 5.2% (2008, government figures)
GDP per capita: US$12,400 (2008, est.)
CPI: 9.3% (January 2009, government figures)
Key interest rate: 6.75% (December 2008)
Exchange rate versus dollar: Mauritian rupees (MUR) per US dollar—27.973 (2008, est.)
Unemployment: 7.8% (2008, government figures)
Current account deficit/surplus −US$982 million (2008, est.)
Population: 1,274,189 (July 2008, est.)
Source: CIA World Factbook except where stated