Mauritius has made enormous progress since gaining independence in 1968 and is currently classified as an upper-middle-income economy. The country is now planning to make the transition to a knowledge-based economy and away from its previous dependence on agriculture and tourism, argues Adrian Ashurst, CEO of WorldBox Intelligence.
The approach into Mauritius airport has been described as one of the most beautiful flying experiences on the planet. The plane slowly descends over coral-fringed beaches, lush rainforests, rolling hills, deep valleys and spectacular waterfalls. So, it is easy to see why this island in the Indian Ocean attracts so many tourists. Around 1.4 million people visited the country each year in pre-pandemic days – 200,000 more than actually live there. The tourism sector accounts for around a fifth of Mauritius’s GDP, so the pandemic-related travel restrictions imposed around the world hurt the country’s economy badly: it shrank by 14.9% in 2020.
However, Mauritius is now bouncing back. The government anticipates growth of 8% in the fiscal year 2023–24, and 5% the following year, as tourism and the export of manufactured goods recovers. Meanwhile, public debt could fall to the pre-pandemic level of 60% of GDP by 2030 – down from 79% in the fiscal year ending June 2023, and 99.2% in 2020 – as the economy grows and the budget deficit is reined in, Finance Minister Renganaden Padayachy recently said. Lower debt will provide the government with sufficient financial firepower to face future shocks, argues Padayachy.[1]
Figure 1: The pandemic badly affected Mauritius’s globally-oriented economy (GDP Gowth)
Aiming high
The island is classified as an upper-middle-income country by the World Bank, with a high Human Development Index, and is seeking to become a high-income country within the next decade. According to the IMF, GDP per capita (PPP) reached USD 29,164 in 2023, the second-highest in Africa after the Seychelles. The authorities have laid out a development strategy focused on spurring innovation through skill development, technological upgrades and improving the IT infrastructure to achieve their high-income goal.
The African Continental Free Trade Agreement and new trade agreements with China and India provide an important opportunity for diversification. Many investors view Mauritius as an ideal base from which to exploit the economic potential within Africa. The country benefits from greater political stability than most countries on the neighbouring continent, as well as a relatively strong rule of law. It was ranked in third place in terms of the rule of law in sub-Saharan Africa in 2021, behind only Rwanda and Namibia.[2] The country also fares well in terms of corruption compared with other countries in the region, according to Transparency International (TI). Only three African countries rate more highly in TI’s index: Cape Verde, Seychelles and Rwanda.
Mauritius ranked first in Africa and 13th worldwide in the World Bank’s 2020 Doing Business report, and is consistently ranked as the most innovative country in sub-Saharan Africa in the World Intellectual Property Organisation’s (WIPO) Global Innovation Index.
The island is home to many international banks and financial service providers, which can make it easier to access the capital needed to expand a business. In addition, the government offers a number of tax incentives to businesses that register as offshore entities.
Tax advantage
Mauritius’s corporate tax rate of 15% is low compared with most other African countries, where tax generally ranges between 25% and 35%. Moreover, the country has signed double-tax avoidance treaties with 45 countries, and that too encourages multinationals to use the country as a “one-stop shop” for investing across Africa.
Moreover, Mauritius boasts a skilled and bilingual labour force. Although English is the official language, a large portion of the population is fluent in French. The workforce is well educated, with a literacy rate exceeding 91%. The majority of workers possess undergraduate and postgraduate degrees, many of which are attained from reputable universities in Europe and North America.
Upgrading tourism
There is room to diversify the tourism sector, according to the IMF. It argues that, since two-thirds of tourist flows originate from only six countries, diversifying the customer base would make the sector more resilient. The IMF has called for an upgrade of Mauritius’s international marketing strategy to help it reach new markets, together with the resolution of structural problems that keep the country underserved in terms of international flights.
The organisation added that “embracing higher-value-added tourism products will also be key for the resilience and sustainability of the sector as tourists shift preferences towards low density, health- and eco-friendly tourism”.
Outsourcing and financial services hold huge potential
The island has built up a strong outsourcing and financial services sector, and there is significant scope for further progress. The outsourcing industry consists of over 500 IT firms, which provide IT outsourcing, software, and application development services to multinational corporations around the globe. Relatively low wages and a convenient time difference with most major jurisdictions, including Europe, Asia and Africa, are among the attractions to outsourcing businesses.
The financial services sector remained largely stable during the pandemic. Moreover, in October 2021 the country exited from the Financial Action Task Force list of jurisdictions under increased monitoring – known as the “grey list” – after making improvements to deficiencies in its regimes to counter money laundering and terrorist financing. It was removed from the EU and UK lists soon after. These developments should significantly boost investment in the sector.
Bridging the gap
Pravind Jugnauth, the prime minister re-elected for a second term in late 2019, has ambitions to turn Mauritius into the African equivalent of Singapore. So, just as Singapore has acted as a gateway into Asia, Jugnauth sees Mauritius developing as an investment hub for global investors looking for a base in Africa. Indeed, he argues that the island can serve as “the bridge between Africa, the continent, and Asia”. There remain considerable challenges ahead: very few countries manage to make the leap from upper-mid to high income. However, given Mauritius’s considerable achievements to date, that ambition appears realistic.
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[1] https://www.bloomberg.com/news/articles/2023-06-03/mauritius-expects-debt-to-fall-to-60-of-gdp-before-2030
[2] https://worldjusticeproject.org/sites/default/files/documents/Mauritius_2021%20WJP%20Rule%20of%20Law%20Index%20Country%20Press%20Release.pdf
