Mauritius : Beyond beaches and palm
trees
Oct 16th 2008 | PORT LOUIS
From The
Economist print edition
An isolated island continues to reinvent
itself and confound the sceptics
THE 1.3m people of Mauritius love to prove famous
people wrong. On independence from Britain in 1968, pundits such as a Nobel
prize-winning economist, James Meade, and a novelist, V.S. Naipaul, did not give
much of a chance to this tiny, isolated Indian Ocean island 1,800km (1,100
miles) off the coast of east Africa. Its people depended on a sugar economy and
enjoyed a GDP per person of only $200. Yet the island now boasts a GDP per
person of $7,000, and very few of its people live in absolute poverty. It once
again ranks first in the latest annual Mo Ibrahim index, which measures
governance in Africa. And it bagged 24th spot in the World Bank's global ranking
for ease of doing business—the only
African country in the top 30, ahead of countries such as Germany and France.
How does it pull it off?
The country has come a long way from relying
exclusively on sugar cane. It has become a popular destination for tourists
craving sun, palm trees and good service, with more than 100 hotels, up from a
single decent one at independence. Since then it has built a textile industry on
the back of preferential market access. Although there were plenty of sceptics
when it tried to become an offshore financial centre, the island now hosts 19
banks, including foreign heavyweights such as HSBC; and the introduction of
Islamic banking has brought petro-dollars from the Gulf. Thanks to some helpful
double-taxation treaties, Mauritius became a low-tax gateway for investment into
other countries, especially India.
That rosy outlook might have darkened in 2005 with
the end of the Multi-Fibre Arrangement that had restricted Chinese textile
exports. As Mauritian factories closed, about 30,000 jobs were lost. Europe also
started dismantling the sugar preferences it granted to its former colonies,
which used to guarantee above-market prices. Local farmers were
squeezed.
Instead of moaning, Mauritius's government moved
swiftly to embrace global competition. It simplified and cut taxes, slashed red
tape and lowered or dropped tariffs. The government tightened its purse-strings.
Last month it brought in a new labour law, making it easier to hire and fire.
The authorities and the private sector, working hand-in-hand for years, promote
Mauritius as a business destination.
This has paid off. Unemployment is down, from 9.6%
in 2005 to 7.6%. So is the budget deficit. Raju Jadoo, the dynamic head of the
Board of Investment, says that more foreign money has been invested in Mauritius
in the past three years than in the previous two decades. Long a gateway for
investment into Asia, Mauritius now promotes itself as a stable jumping-board
for investment into Africa. The government has persuaded China to select
Mauritius as one of the five African destinations—and the only one with no oil or minerals on
offer—where special investment zones will
be set up. The Chinese will spend about $700m to build offices and factories
north of the capital, Port Louis, for their companies keen to export to
Africa.
Not everything is positive. Mauritius imports most
of its food and energy, so rising world prices are pushing up inflation. Much of
the economy remains concentrated in the hands of a few local conglomerates,
often owned by descendants of French settlers who made their original fortunes
out of sugar. The government has promised to spread the benefits of a growing
economy more widely, but the so-called "sugar barons" still wield much
influence. The imminent creation of a competition commission, together with the
development of new industries, may help loosen their grip.
A recession in rich countries will hit the
country's tourism and exports. But Mauritius has weathered previous storms. Its
prime minister, Navinchandra Ramgoolam, says its success has depended on regular
changes of government at the ballot box. An independent judiciary helps, as does
the fact that the three main parties all agree on the broad direction of policy.
The island's people are a mix of Indian, European,
African and Chinese. Religious, ethnic and cultural differences run deep. But Mr
Ramgoolam says the island has avoided the "poison of communal divisions". The
fact that Mauritians were all immigrants also helps; some were colonials, many
were indentured labourers. "All of us came on different ships from different
continents," says the prime minister. "Now we're all on the same
boat."
