Mauritius, one of Africa’s most open economies, is suffering from Europe’s woes. But rather than attempting to isolate the country, its finance minister is trying to diversify its export markets and develop new industries.

Back in the 1960s, Mauritius was seen as a basket case by its critics. A tiny, isolated Indian Ocean island with fewer than 1 million people at the time, and no natural resources, they predicted a bleak future for the country.

Today, Mauritius can count itself as one of Africa’s successes. With a gross domestic product (GDP) of $9000 per capita, the country far exceeds most others on the continent. Its tourism industry is world class and such is the strength of its finances and banking sector that it was upgraded by Moody’s in June to the equivalent of BBB+ (a level that only South Africa and Botswana can match among other African countries). In the World Bank’s latest Ease of Doing Business Survey, Mauritius came 19th worldwide, higher than Germany and Japan.

Mauritius’s achievements are in no small part thanks to its open economy. It has long encouraged inward and outward foreign investment and, in a region traditionally known for its trade barriers and currency restrictions, kept its current and capital accounts fully convertible.

European input weakens

This very openness is, however, now causing problems. Having grown almost 6% in 2007 and 2008, GDP has since slowed, although it will still rise 3.4% this year. The blame lies with Europe’s crisis. “The situation is difficult,” says Xavier Luc Duval, the Mauritian finance minister and vice-prime minister. “We’re an export-orientated economy. More than 60% of our exports go to Europe and more than 60% of our tourists come from there. And so does a large part of our foreign direct investment.”

But Mauritius has no intention of isolating itself. Instead, it is trying to broaden its exposure to markets beyond Europe. And while tourism, textiles manufacturing and sugar production will remain crucial, it wants to turn into a regional IT and education hub. “The strategy for Mauritius is diversification, of markets and industries,” says Mr Duval. “Our tourism from Europe has fallen, but it has increased from the rest of the world. With textiles, we’ve made good inroads [exporting] to South Africa. We are moving very fast into IT. That’s employing 15,000 people and already accounts for about 10% of GDP.”

A major element of Mr Duval’s plan is to boost ties with the rest of Africa. In the past, the mainland was not a priority for Mauritius, given its instability and economic backwardness. But that is changing amid Europe’s weakness and sub-Saharan Africa’s buoyancy. “It has been difficult to do business in Africa, for us and everybody,” says Mr Duval. “It was easier, maybe, to do business with Europe. But now, the development in Africa – the governance and democratic situations are much better – is making [business] possible. We see ourselves as very fortunate to be so close to Africa.”

Gateway to Africa?

The Mauritian government plans to establish itself as an investment gateway to Africa, partly through the use of double-taxation treaties. These have served it well in other parts of the world – Mauritian-registered companies were the source of 40% of foreign direct investment in India in the 2000s. This year Mauritius has signed treaties with Nigeria, Kenya and the Republic of Congo. It has also loosened visa requirements for almost 30 African countries and announced it will boost its diplomatic presence by appointing honorary consuls in all major cities on the continent.

The finance minister hopes that all of these measures this will turn Mauritius from an $11bn economy today into one of $30bn by 2030. Much will depend on how quickly growth picks up to pre-2008 levels, however.

Mr Duval admits this might not happen in the next two years. “We have to be realistic,” he says. “We’re an economy orientated towards Europe. We want to shift. But when the ship turns, it loses a bit of speed. How fast we [recover] depends on the speed at which we can penetrate these new markets.”

The government has avoided any urge to revive growth via a spending binge. The budget deficit for 2012 will be 2.5% of GDP, less than the 3.8% predicted at the start of the year. In 2013, it will fall to 2.2%, while Mr Duval aims to cut the country’s debt-to-GDP ratio from 54% to 50% by 2018.

The finance minister is, however, worried about the strength of the Mauritian rupee. One of the few African currencies to appreciate against the dollar last year, the central bank has long been under pressure from exporters to weaken it. Shortly after his interview with The Banker, Mr Duval, in a controversial move some analysts said encroached on monetary policy, announced that the finance ministry would buy $100m of foreign currency to weaken the rupee, which has anyway depreciated about 5% versus the dollar this year.

“The IMF said recently that the rupee was overvalued by 12% to 15%,” says Mr Duval. “The central bank, after that report, started acting to make some corrections, with limited success. To my mind, we need to protect jobs and the liquidity of companies. The overvaluation of the rupee is a source of concern for us. There’s a long way to go.”

Nonetheless, while Mauritius’s economy may have slowed from five years ago, relative to the West it is in rude health, with GDP forecast to rise 4% in 2013. “I’m very satisfied with the performance of the economy,” says Mr Duval. “And I’m proud of our private sector and our people to have managed to maintain such a reasonable rate of growth despite being one of the most exposed economies. Mauritius has no resources, no minerals. It has only got its people.”


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