A move from tourism and textiles to financial services, a focus on Asia and Africa instead of Europe, and the election of a new business-friendly government have seen Mauritius' economy change direction in recent years. And the early signs are that these shifts are paying off.

Over the past few decades Mauritius’ traditional growth model, one based on textiles, tourism and the sugar industry, has served it well. Together with strong ties to continental Europe, this economic foundation produced enviable gross domestic product (GDP) growth rates until the early 2000s. Yet, as the global economy has changed, so too have the prospects for Mauritius’ economic growth. The financial crisis, ongoing challenges in the eurozone and global competition in the textile and sugar industries are weighing heavily on the country’s economic outlook. 

As such, political and economic change is afoot in the country. On the political front, the landslide victory of Anerood Jugnauth, an octogenarian veteran of Mauritius’s political scene, in the December 2014 general election came as a surprise to most observers of the country’s politics. Mr Jugnauth and his Alliance Lepep coalition defied the opinion polls to sweep aside an incumbent administration that held power for the best part of a decade.   

Just as surprising have been the accusations levelled at the previous administration, a centre-left grouping fronted by Navin Ramgoolan, of governmental corruption. Serious allegations of conspiracy, money laundering and nepotism, linked to the highest orders of government, have emerged with alarming frequency in recent months. Many of these cases have only come to light due to the vigorous anti-corruption drive pursued by the government of Mr Jugnauth. 

Such incidents are an historical anomaly in a country renowned for its political stability, free press and business-friendly operating environment. Yet, these allegations, accompanied by the arrest of the former prime minister and the former governor of the Bank of Mauritius in February on charges they deny, have cast a shadow, at least in the short term, over a country that has developed a reputation as being a centre of legal and regulatory excellence.  

All change 

On the economic front, Mauritius is undertaking the slow-burn task of a recalibration away from Europe to higher growth markets in Asia and Africa. “Mauritius is still going through a reorientation to Africa and Asia. In the next three years we will see a significant change in terms of trade and economic relationships,” says James Benoit, chief executive of Port Louis-based AfrAsia Bank. 

In addition, serious investments in advanced sectors, including the life sciences and information and communication technology (ICT), are being pursued as a means of diversifying the economy and stimulating employment generation. 

As such, Mr Jugnauth’s election victory and the new government’s promise to reinvigorate the economy have been broadly welcomed by the country’s beleaguered private sector. The new government has acted swiftly to lay out its new vision of economic development through the 2015-16 budget. This vision is structured around three key concepts, including sustainable growth, employment generation and equitable sharing in terms of social welfare. It also emphasises the need to position the country as the go-to destination for business and investment opportunities across sub-Saharan Africa and Asia. 

“It is important that the resilience of the economy to external shocks be strengthened, while concurrently reinforcing our ability to take due advantage of growth-enhancing opportunities globally. At the same time, necessary measures are warranted to position us as a competitive hub for trade and investment flows transiting between the Asian and African continents,” says Antony Withers, chief executive of Mauritius Commercial Bank, the country’s largest lender.

Growth story 

Indeed, under this new economic vision the Ministry of Finance and Economic Development has projected a significant, if ambitious, uptick in real GDP growth in the coming years. From 3.5% in 2014, the ministry expects growth to hit 5.3% in the financial year 2015-16, before accelerating to 5.7% and 5.5% in the subsequent fiscal years. These expected growth rates partly mirror anticipated investment rates, which will climb from 19.4% in 2014 to 24.8% in the fiscal year 2015-16, before reaching 25.2% in 2016-17. 

The development of eight so-called ‘smart cities’ are the standout feature of this government-backed investment programme. According to the Mauritius Board of Investment, the country’s inward investment promotion agency, each city will be based around a theme – transport and logistics, for example – be environmentally friendly and follow a mixed-use development model capable of generating its own resources. These cities will be accompanied by five ‘technopoles’, focused on the development of advanced industries in the country. 

“In terms of the government’s major infrastructure projects, the development of these smart cities will provide a significant boost to the economy,” says Jairaj Sonoo, chief executive of the State Bank of Mauritius, the country's second largest lender. 

The Ministry of Finance and Economic Development expects these developments to consume close to 2400 hectares of land and attract about MRs120bn ($3.38bn) of both private and foreign direct investment. As these schemes are executed, the country’s construction sector is expected to be the big initial winner. 

In addition to these investments, a major transformation of the Port Louis harbour to a regional hub is under way. The eventual aim is to enhance the international and regional connectivity of the port through upgrades to its capacity, the extension of berths at the Mauritius Container Terminal, the development of a separate island container terminal, as well as positioning the port as a centre for bunkering, seafood, transshipment and petroleum development. 

“Work on the port upgrade should position it as the primary destination for transshipment traffic. We are more competitive than Durban [in South Africa] and with the piracy problem in Somalia we have gained an edge over Mombasa and Dar es Salaam,” says Mr Sonoo. 

These investments in hard infrastructure will be executed in partnership with initiatives to augment the country’s already thriving ICT, biosciences and tourism sectors, each of which have registered sustained growth figures over the past three years. In addition, the government is also keen to attract greater investment in the financial services sector.

IFC ambitions 

Under plans published in the budget, a dedicated Special Financial Sector Investment Scheme will be created, to encourage international asset and fund managers to relocate their front-office operations to Mauritius. This will go hand in hand with the reactivation of the Financial Services Promotion Agency to run global business campaigns with a particular emphasis on opportunities in Africa. 

At present, financial and insurance activities contribute just over 10% to the country’s GDP. More strikingly, the sector has enjoyed a year-on-year growth rate of about 5.4% since 2013, making it the third best performing sector in the country behind ICT and the advanced sciences. 

“I think Mauritius has arrived as a financial centre. It will continue to surprise people over the next few years. Many deals between African companies are now being struck in the country because they can enjoy the benefits of English law as well as the benefits of being part of the Common Market for Eastern and Southern Africa as well as the Southern African Development Community,” says Mr Benoit of AfrAsia Bank.

India focus

On this point, most senior figures in the country’s financial community agree. “Mauritius cannot compete with Dubai as a financial centre but we have our own niche. The country is focused on India and increasingly on opportunities in Africa,” says Mr Sonoo. 

Nevertheless, the government’s ambitions in this space have faced a challenge in recent times. A crucial component of Mauritius’ financial services sector is the so called ‘global business sector’ which covers the operations and activities of offshore companies in the country. 

Through a double taxation avoidance agreement (DTAA) signed with India in 1983, Mauritius quickly emerged as the preferred destination for offshore businesses to channel their investments into India – a set-up with benefits for both parties. Yet, detractors have long argued that many of these Mauritian-registered entities in fact belonged to Indians who were capitalising on the island’s low-tax environment to invest in their own country. 

At the time of writing, the governments of India and Mauritius were in talks to reach an agreement on a renegotiated version of the DTAA. Of particular concern to businesses operating in Mauritius is the renegotiation of Clause 13 of the agreement, which mandates that gains made by the sale of the assets of offshore Mauritian companies operating in India are taxed in Mauritius. 

With the absence of capital gains tax in Mauritius, the existing structure provides obvious benefits to these entities. While a final agreement is yet to be reached, any changes to the existing DTAA structure have the potential to impact Mauritius’ ambitions in the global business sector as it relates to India.   

Despite this challenge, and others, most private sector players are optimistic about the country’s prospects as domestic and foreign investment increases. “International investors are only just discovering that Mauritius is one of the most politically and financially stable countries in the world,” says Donald Ah-Chuen, managing director of Port Louis-based ABC Banking Group. With a new government in place, strong infrastructure investments and a long-term strategy to achieve sustainable growth, the momentum is certainly with Mauritius. 


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