The Mauritian economy has held up well against the persistent global economic turbulence, although its growth momentum has eased, with the real GDP growth rate estimated at 3.3% in 2012 down from 3.8% in 2011. Forecasts for 2013 and 2014 show a gradual recovery with growth rates rising to 3.8% and 4.2% respectively.
Public Finance Management (PFM) systems and institutions are generally strong but more reforms are needed to address emerging challenges related to public sector efficiency and recent transparency concerns.
Social and human capital development is high; and supported by robust economic freedoms and a strong social welfare system. Nonetheless, further improvements in education quality and relevance are needed to enhance the country’s competitiveness.
The Mauritian economy has remained resilient in spite of the recession in the euro area that has weakened its external demand. At 3.3% in 2012, the real gross domestic product (GDP) growth rate remained positive although it continues to ease after growth rates of 3.8% and 4.2% in 2011 and 2010 respectively. Growth was anchored by strong performances in the financial services, information and communications technology (ICT) and seafood sectors. The 2013 outlook is positive, but may be tempered by downside risks if external demand remains timid. Growth is projected at 3.8% and 4.2% for 2013 and 2014, respectively, driven by continued expansion in the financial services, ICT and seafood sectors. The Cost Price Index (CPI) inflation steadily declined from 6.5% in 2011 to 4.1% in 2012 as the base effects were absorbed and global prices trended downward. As risks to growth outweighed price stability challenges the Key Repo Rate (KRR) was cut by 50 basis points to 4.9% in March 2012.
Prudent macroeconomic management underpinned fiscal performance in 2012 with budget outcomes showing a 6.5% growth in total revenue to MUR 73.74 billion (Mauritian rupees) (USD 2.43 billion) and a 0.8% fall in spending. Consequently, the budget balance narrowed to -2.9% of GDP from -3.2% in 2011, although the lingering recession in the euro area should test the authorities’ resolve to maintain budget austerity. The 2013 budget aims to support growth while maintaining medium-term fiscal consolidation objectives. The current account balance narrowed marginally, but remained wide at -10.6% of GDP in 2012 down from -11.0% in 2011, as the merchandise trade deficit continues to deteriorate due to persistent bottlenecks to trade competitiveness and weak external demand. The current account balance should continue to narrow gradually in 2013 and 2014 as the government slowly addresses the terms of trade shocks emanating from the soft euro area economy. Plans to reduce the fiscal deficit, as well as improve skills and infrastructure, should help address these bottlenecks.
Public finance management and other structural reforms remain important to continuing strong governance outcomes and to enhancing competitiveness. A fall in the Transparency International Corruption Perception Index ranking from 39 in 2011 to 43 in 2012 (out of 183 countries) indicates a lack of public confidence in the government’s anti-corruption efforts; particularly as prosecution of public figures charged with corruption have dragged on in 2012. On the fiscal front, Moody's Investors Service upgraded the government bond ratings of Mauritius to Baa1 from Baa2 on the back of sound macroeconomic management. Although Mauritius moved five places from the 2012 ranking of 24 to 19 out of 185 economies, in the World Bank report Doing Business 2012, it still holds the highest position among African countries. As a strong reformer, Mauritius has achieved notable structural transformation from a single-crop economy dependent on sugar to an economy driven by textiles, tourism, financial services, ICT and recently, real estate and seafood.
Figure 1: Real GDP growth 2013 (South)
Table 1: Macroeconomic indicators
|Real GDP growth||3.8||3.3||3.8||4.2|
|Real GDP per capita growth||3.2||2.8||3.2||3.7|
|Budget balance % GDP||-3.2||-2.9||-2.6||-2.4|
|Current account % GDP||-11||-10.6||-10||-9.5|
Recent Developments & Prospects
Table 2: GDP by Sector (percentage of GDP)
|Agriculture, forestry & fishing||-||-|
|Agriculture, hunting, forestry, fishing||4.5||3.5|
|Electricity, gas and water||1.5||1.8|
|Electricity, water and sanitation||-||-|
|Finance, insurance and social solidarity||-||-|
|Finance, real estate and business services||11||9|
|General government services||-||-|
|Gross domestic product at basic prices / factor cost||100||100|
|Public Administration & Personal Services||-||-|
|Public Administration, Education, Health & Social Work, Community, Social & Personal Services||5.6||5.9|
|Public administration, education, health & social work, community, social & personal services||-||-|
|Transport, storage and communication||20.2||23.5|
|Transportation, communication & information||-||-|
|Wholesale and retail trade, hotels and restaurants||20.6||18.9|
|Wholesale, retail trade and real estate ownership||-||-|
The Mauritian economy has held up well against the global economic downturn, although the growth momentum has continued to moderate. A persistent sovereign debt crisis and record level unemployment in the euro area continue to pose downside risks to the domestic economy, particularly in the export sector. Estimates for 2012 show a real GDP growth rate of 3.3% down from 3.8% for 2011 as external demand and investments remain muted.
Representing 71.0% share of GDP in 2012 and growing at 4.9% (up from 3.4% in 2011), the tertiary sector continues to drive growth. Growth was anchored by strong performances in financial services, ICT and seafood sectors, which grew by 5.5%, 9.3% and 13.3% respectively. The financial services sector benefited from a robust performance in banking services. Economic activities in the hotels and restaurants sector stagnated in 2012 following a 3.5% growth rate in 2011. Reflecting a weak economic environment in source markets, tourist arrivals were estimated at 965 000 in 2012 down from 980 000 in 2011. Double-digit growth of tourist arrivals from Asia and Africa partly compensated for the weak demand in the euro area.
Accounting for 25% share of GDP, activities in the secondary sector continued to slowdown, growing at 1.4% in 2012 down from 1.6% in 2011 as the euro area oriented sugar and textile sectors continued to perform below par. Manufacturing expanded by 1.9% in 2012, up from 0.7% in 2011 driven by the strong performance of the food sector and countered by a 6.4% contraction and a stagnation of the sugar and textile sectors, respectively. The construction sector contracted by 2.9% and 2.0% in 2012 and 2011, respectively, mainly due to delays in public sector road projects.
Sugar dominates the primary sector with sugarcane occupying about 90% of total land under cultivation. Representing 3.5% share of GDP in 2012, the primary sector contracted by 0.2% as sugarcane production fell by 7.0%.
A decomposition of aggregate demand in 2012 shows that, notwithstanding cautious consumer spending relative to pre-crisis levels, final consumption expenditure expanded by 2.6% to reach MUR 300.5 billion (USD 9.88 billion). This was driven by growth in household consumption, which has an 85% share. Investment, as measured by Gross Domestic Fixed Capital Formation (GDFCF), declined by 1.8%. The decline was due to a 3.8% contraction in private investment in major construction projects, as those under construction were completed. Moreover, business confidence remained muted. Private sector investment accounts for 76% of GDFCF. Overall, the investment rate is estimated to have fallen from 24% in 2011 to 22.8% in 2012. Exports of goods and services grew by 4.8% to reach MUR 189.6 billion (USD 6.24 billion) with imports expanding at a slower rate of 1.6% to MUR 230.6 billion (USD 7.59 billion). To this extent, the current account balance narrowed marginally, but remained wide at -10.6% of GDP in 2012, down from -11% in 2011 reflecting deterioration in external demand and underlying structural bottlenecks to trade competitiveness.
Foreign direct investment (FDI) showed some slowdown after a peak of MUR 13.9 billion (USD 0.46 billion) in 2010. In 2011, FDI declined to MUR 9.4 billion (USD 0.31 billion). For the first nine months of 2012, they amounted to MUR 6.2 billion (USD 0.20 billion) of which about half went into real estate. About 40% of total FDI into Mauritius was from Africa, driven by FDI from South Africa, which has more than quadrupled since 2007. FDI should remain muted in the near term as the euro area crisis continues evolving.
In the short to medium term, weak external demand is expected to continue slowing the pace of export sector growth, particularly in the textile and tourism sectors. Subdued export sector performance and weak investments should combine to reduce the country’s prospects for a quick return to robust pre-crisis growth. Nonetheless, the government made concerted efforts to penetrate new markets in Africa and Asia, supported by an accommodative monetary policy should help anchor growth while the euro area economy stabilises. The government is also motivated to contain the unemployment rate, which averaged 8.0% in 2012, up from 7.9% in 2011. Projections show that the economy will pick up in 2013 with real GDP growth rate forecast at 3.7%. A modest recovery in the tourism sector and continued resilience of the financial and insurance services sector will drive growth; growth will also be supported by the emerging sectors of ICT and seafood. The number of tourist arrivals in 2013 is projected to improve slightly to stand just above the 1 million mark, which is expected to accelerate growth in the accommodation and food activities sector to 3.5% from near stagnation in 2012. Financial and insurance services are expected to maintain a growth rate of 5% as in 2012, while textile manufacturing is expected to grow by 2% following a no-growth in 2012. Projections show that sugar production will continue underperforming, falling by 3%. The construction sector will fall by 2% due to implementation capacity bottlenecks in the public sector and low expected private sector infrastructure investments.
The authorities have announced a number of budget measures aimed at stimulating domestic demand and harnessing long-term competitiveness. They have reduced taxes and have expanded the on-going small- and medium-sized enterprise (SME) financing scheme by MUR 0.25 billion (USD 8.22 million) and doubled the value added tax (VAT) registration threshold to MUR 4 million (USD 0.13 million) to bolster small businesses. Public infrastructure investment is expected to reach MUR 28.6 billion (USD 0.94 billion) in 2013, almost double that of 2012. Other measures include strengthening trade links with the rest of Africa and accelerating investment in ICT development. To consolidate diversification in the tourism sector, the government plans to increase the frequency of weekly direct flights to China and introduce a weekly flight to Russia.
Consistent with the overall macroeconomic framework, the authorities’ fiscal policy continues to underpin their efforts to bolster the domestic economy and reinforce public service delivery and social protection. Following a series of fiscal stimulus measures since the onset of the crisis, the Government of Mauritius has strengthened its resolve to return to a more sustainable fiscal position.
The 2012 budget performed well with outcomes showing a commitment to fiscal consolidation while supporting resilience to the global economic slowdown. Although total revenues at MUR 73.74 billion (USD 2.43 billion) were 4% lower than the budget estimates, they marginally increased to 21.5% of GDP from 21.4% in 2011. Tax revenues stood at 18.3% of GDP, thus reaching the 2012 target. They were buoyed by expanded tax audits and registration of 14 090 new taxpayers. The authorities reigned in spending, with total expenditure and net lending declining to 24.4% of GDP from 24.7% in 2011 as interest payments fell.
Estimated at MUR 91.8 billion (USD 3.01 billion), the 2013 budget aims to support growth while maintaining sound macroeconomic management. Spending is in line with national priorities and fits within the government’s medium-term expenditure framework objective. As the authorities accelerate implementation of their USD 10 billion infrastructure programme, capital budget spending is expected to increase by more than 50% to MUR 28.6 billion (USD 0.94 billion); although under spending is likely to occur due to capacity bottlenecks. The public sector wage bill reached MUR 26.89 billion (USD 0.88 billion) in 2012 representing 5.6% of GDP. An increase in public sector wage by about 1.3% of GDP is expected as the government implements the recommendations of the Pay Review Bureau during the 2013 fiscal year. At MUR 39.7 billion (USD 1.31 billion) in 2011, spending on oil imports accounted for 9% of GDP and 19% of the total import bill highlighting the country’s vulnerability to terms of trade shocks. Falling to 54.2% of GDP in 2012 from 56.8% in 2011, public sector debt is trending down and remains within the legal limit. In line with the authorities’ medium-term fiscal consolidation plans the fiscal deficit and the public sector debt are projected to fall further in 2013 to 2.6% and 53.7% of GDP respectively.
Table 3: Public Finances (percentage of GDP)
|Total revenue and grants||22.3||21.9||21.4||21.5||21.2||21|
|Total expenditure and net lending (a)||26.1||25.1||24.7||24.4||23.7||23.4|
|Wages and salaries||6.1||5.9||5.6||5.6||5.4||5.3|
Monetary policy has been broadly appropriate, responding to both growth risks and price stability challenges as the global slowdown evolved. The CPI inflation slowed down from 6.5% in 2011 to 4.1% in 2012 as base effects were absorbed. Moderate inflationary pressures allowed the authorities to pursue an accommodative monetary policy. As risks to domestic growth intensified with the euro area crisis, the Monetary Policy Committee cut the KRR by 50 basis points to 4.90% in March 2012. Following movements in the KRR, the weighted average rupee lending rate declined from 9.27% at end 2011 to 8.48% at end 2012. Similarly, the weighted average rupee deposit rate declined during the period from 4.32% to 3.64%, keeping the real interest rate on savings deposits broadly negative. Domestic factors including the depreciation of the rupee, the Bank of Mauritius (BoM) Operation Reserve Reconstitution (ORR) and the expected public sector pay rise should increase the upside risks to inflation which is projected at 6.0% in 2013 before moderating to 4.6% in 2014. Monetary policy should remain accommodative in light of continued downside risks to growth. The authorities are expected to remain vigilant to undertake quantitative tightening should price stability become at risk.
Broad money liabilities (BML) at MUR 351.62 billion as at end December 2012 accelerated at an annual growth rate of 8.6%, the highest pace of growth since 2008. This was largely attributed to an accelerated rise in both narrow money and quasi-money liabilities. As a counterpart to BML, domestic credit expanded at an annual rate of 10.9% explained by an accelerated rise in credit to the private sector, which grew by of 14.5% to reach MUR 348.83 billion. Construction and trade sectors drove the increase in annual growth to private sector credit contributing 53.4% and 13.9% respectively.
The rupee depreciated against the US dollar from an average of MUR 28.72 per USD in August 2011 to MUR 31.33 per USD in August 2012. At the same time, the rupee appreciated against the euro from MUR 41.19 per EUR to MUR 38.85 per EUR. Concerned with the misaligned rupee exchange rate, the BoM announced a Special Foreign Currency Line of Credit (SFCLC) amounting to MUR 0.6 billion aimed at minimising exchange rate risks for the export sector. They intervened regularly in the foreign exchange market to smooth excess volatility. Between August 2012 and December 2012, the rupee exchange depreciated against both the US dollar and the euro to stand at an average of MUR 30.75 per USD and MUR 40.33 per EUR respectively. Following introduction of the ORR initiative, gross international reserves have increased by 15% to reach USD 3.05 billion (about 5.3 months of import cover) against a target of six months.
Economic Cooperation, Regional Integration & Trade
Mauritius is keen to accelerate economic integration to reduce dependency on the troubled euro area. A comprehensive strategy on Africa has been announced under which the authorities have mobilised five like-minded countries within the Southern African Development Community (SADC) to co-operate on business and trade policy reforms. In 2012, they signed Double Taxation Avoidance Agreements (DTAA) with Nigeria, Kenya and Republic of Congo, and are currently renegotiating their DTAA with India. They are party to the Tri-partite Free Trade Area negotiations under the SADC, the Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC). They continue to negotiate favourable access for their exports to the European Union through the Economic Partnership Agreement (EPA) and to the US through the African Growth and Opportunity Act. The World Bank report Doing Business 2013 ranks Mauritius at 15 among 185 economies, while the World Economic Forum Global Competitiveness Report 2012-2013 ranks Mauritius at 27 out of 144 economies on “trading across borders” and on “prevalence of trade barriers” respectively. It is ranked first in Africa on both indicators.
Terms of trade shocks emanating from the euro area crisis and underlying structural bottlenecks to trade competitiveness are affecting external sector outcomes for Mauritius. The trade deficit widened by 19.4% in 2012 to reach 23.9% of GDP as the growth of imports outpaced that of exports. Mauritian exports to the European Union declined from 61.3% in 2011 to 58.9% in 2012. Exports to South Africa grew by 28%; this was driven by textile trade. India and China remain the main import source markets. Ongoing diversification efforts should help narrow the current account balance, albeit marginally, to -10% and -9.5% of GDP in 2013 and 2014 respectively. Fiscal consolidation must continue along with improvements to the skills base and infrastructure to strengthen the country’s competitiveness.
For the first nine months of 2012, FDI reached MUR 6.2 billion with South Africa as the main source. About half of the total FDI went into real estate. In 2011, FDI amounted to MUR 9.4 billion. In 2013 and 2014, FDI should remain subdued, but within the medium term range, as the euro area economy struggles to recover and the government takes reflective steps to monitor the impact of accelerated real estate sector growth on prices and rapid rental growth.
Table 4: Current Account (percentage of GDP)
|Exports of goods (f.o.b.)||30.3||21.8||23.3||22.8||21.3||20.7||20.4|
|Imports of goods (f.o.b.)||39.2||39.4||42.8||43.7||45.2||44.5||44.6|
|Current account balance||-1.8||-7.4||-8.2||-11||-10.6||-10||-9.5|
Public sector debt remains sustainable in spite of the expansionary fiscal stance pursued since 2008. At 54.2% in 2012, down from 56.8% in 2011, the total debt to GDP ratio declined and remained sustainable. It was also in line with the 2008 Public Debt Management (PDM) Act ceiling of 60%. The share of total external public sector debt to GDP is estimated to have increased from 15% in 2011 to 16.1% in 2012. Domestic debt stands at about MUR 140.14 billion representing about 46.1% of GDP of which about one third has a maturity of less than a year. The government is keen to deepen the domestic debt market and improve capacity for its management. In this context, a debt-management strategy is being finalised and the public debt management unit is being re-organised to delineate clearly the roles for the front, middle and back offices. The target for the government is to bring down the public debt ratio to 50% by 2018.
In 2012, Moody's Investors Service upgraded the government bond ratings of Mauritius to Baa1 from Baa2, citing a stronger institutional framework as the reason underlying the upgrade, which allowed the economy to withstand a protracted negative impact from shocks emanating from the global and euro area crises. The agency also cited the significant progress that the government has made in reducing the country’s debt-servicing burden and improving the debt structure. Public debt to GDP is projected to decline from 54.2% of GDP in 2012 to 53.7% in 2013. Nonetheless, the authorities are paying particular attention to corporate indebtedness. Credit to private sector grew at an annual rate of 17% to reach MUR 355.08 billion in 2012. As a proportion of GDP, this represented 103.1%, up from 80.6% in 2009.
Figure 2: Stock of total external debt and debt service 2013
Economic & Political Governance
After some slippage in 2011, Mauritius posted a strong performance in 2012 in the Doing Business indicators reflecting good progress in business environment reforms; it did however slip five points downward in 2013; yet it maintains its premier position as the easiest place to do business in sub-Saharan Africa for the sixth year running. Improving the ease in which businesses are started and operated is important to the government. With this in mind, Mauritius adopted an electronic information management system at the Registrar General’s Department that reduced the number of days it takes to register property from 22 days in 2011 to 15 days in 2012 and improved access to credit information by distributing payment information from retailers. A joint public-private sector Business Facilitation Task Force is in place to identify and eliminate weaknesses encountered by businesses and create or enhance factors to improve the conditions for attracting investment and enhancing trade in Mauritius.
Despite the strong indicators that doing business in Mauritius is relatively “easy”, the weak and uncertain economic environment in 2012 depressed investors’ confidence. The Mauritius Chamber of Commerce and Industry (MCCI) business confidence indicator lost 2.1 points in the fourth quarter of 2012 to 85.4 points, the lowest level since recording started in 2010. The 2013 budget, therefore, included a number of initiatives to boost investor confidence. For example, manufacturing industries will be offered a 50% accelerated depreciation on acquisitions of plant, machinery and equipment. Companies manufacturing exclusively for the African market will be granted a Freeport license. Under the existing SME financing scheme where commercial banks are expected to release MUR 3 billion over a period of three years at the KRR of +3%, an additional MUR 0.25 billion annually has been programmed to cater to micro and small enterprises with turnover under MUR 10 million. The government will also exceptionally guarantee 50% of any losses incurred by banks. Moreover, the VAT registration threshold has been increased to a turnover of MUR 4 million per annum to reduce compliance costs.
The financial sector in 2012 represented about 10.2% share of the GDP and grew by 5.5%, a slight slowdown from 5.6% in 2011. The banking sector has stood the global downturn well and remains healthy, profitable and well capitalised even above Basel III requirements. Stress testing by the IMF (March 2012 Article IV report) shows that capitalisation is adequate with the Capital Adequacy Ratio being more than the regulatory minimum of 10%. Credit quality is good with a low number of non-performing loans (NPL); standing at 2.6% as of June 2011. Showing profitability, return on equity increased from 16.7% as at end-September 2010 to 21.5% as at end-June 2011 despite low leverage ratios. Stress tests conducted by the BoM indicate that the domestic banks would be resilient to significant increases in NPLs and losses on large exposures.
The market capitalisation of the Stock Exchange of Mauritius (SEM) stood at USD 5.67 billion as at end 2012 representing 51% of GDP with a price market earnings ratio of 11.30%. The domestic stock market recorded net investments by foreigners of MUR 192.3 million as at end-December 2012 compared to a disinvestment of MUR 80.8 million as at end-September 2012. Overall, the SEMDEX (i.e. the SEM index) lost ground over the twelve months to December 2012 falling by 8.28%.
Mauritius’ ranking on access to credit has improved from 78 out of 183 economies in 2011 to 54 out of 185 economies in 2012. This has particularly benefited SMEs. By end-December 2012, commercial banks had approved an estimated MUR 1.56 billion under the SME Financing Scheme since its launch in December 2011.
Public Sector Management, Institutions & Reform
Mauritius has strong governance institutions based on the rule of law. Over the past six years, the country has consistently ranked top among sub-Saharan African countries on the Mo Ibrahim Index of African Governance. Mauritius is ranked the highest performer on the continent on “safety and the rule of law”. Property rights are protected and reasonably transparent. The country is in the top half of the 2012-13 World Economic Forum Global Competitiveness Report. It does particularly well on the indicator “strength of investor protection”, where it ranks 12th among 139 economies.
The public sector is the largest employer in Mauritius accounting for 20% of capital formation and 25% of GDP. Public Finance Management (PFM) systems are strong and well functioning and reforms are progressing. To strengthen transparency and objectivity in horizontal allocations to sub-national governments, in 2012, the government embarked on a review of local and regional authority legislation on the budgeting process. This resulted in the establishment of a rules-based formula for grants allocation. They have also adopted two schemes to improve tax administration, namely the Tax Arrears Settlement Scheme (TASS) and the Expeditious Dispute Resolution of Tax (EDRT). On the Mo Ibrahim Index for African Governance, while the country ranks first on the business environment indicator, it ranks fourth on public management with a score of 68.5 out of 100 in 2011, which is a gradual decline from 68.9 in 2010. The country’s performance on accountability has marginally fallen from a score of 80.5 in 2010 from 79.3 in 2011. The decline may be a result of a decline in the public’s confidence in the government’s anti-corruption efforts over the past year as prosecution of some public figures, charged in 2011 with corruption, drag on through the system. In addition, Mauritius’ ranking on the Transparency International Corruption Perception Index declined from 39 in 2011 to 43 in 2012 out of 183 countries.
Natural Resource Management & Environment
Available data shows that not all environment-related Millennium Development Goals (MDGs) may be achieved. While more than 99% of the population has access to clean water and improved sanitation, the availability of clean water 100% of the time (i.e. 24 hours/7 days per week) is not guaranteed for some parts of the country, particularly on the Island of Rodrigues. Drought, poor water infrastructure and slow progress in water sector institutional reforms present some challenges in this regard. The authorities have thus announced a USD 10 billion infrastructure programme, which among other things, also aims to address water infrastructure. In regards to forest area, Mauritius has 35 000 hectares of forest area representing 17.2% of total land area.
The government initiated a climate change branch in 2010. It is implementing the Africa Adaptation Programme (launched by the UNDP). The government’s strategy for sustainable development in relation to natural resource management, environment and climate change is contained in the Maurice Ile Durable (MID) programme, approved in 2008. Although a Green Paper, entitled “Towards a National Policy for Sustainable Mauritius” was prepared under the auspices of the MID in 2011, there has been minimal movement in actual policy and programme creation. In line with the sustainable growth objective of the MID programme, the government also introduced a form of carbon tax and “green” taxes on some plastic products; implementation began in 2011. Energy is a key focus area of the programme; to this end, it concentrates on improving energy use efficiency and scaling up renewable energy to reduce dependency on fossil fuel from 80% to 65% by 2025.
Prime Minister Navin Ramgoolam’s government has been left vulnerable, commanding a small majority in parliament, following the withdrawal of Mr. Pravind Jugnauth and his Mouvement socialiste militant (MSM) from the governing coalition. Mr. Jugnauth, a Vice Prime Minister and Minister of Finance in the coalition government, left in July 2011 amidst corruption allegations. The independent Commission against Corruption has since charged Mr. Jugnauth with corruption; however, he maintains that the move is politically motivated.
In a move that put more pressure on Prime Minister Ramgoolam’s government and the labour party, the President of the Republic, Sir Aneerood Jugnauth, who is Mr. Pravind Jugnauth’s father, resigned in 2012 sighting concerns with the state of the economy and law and order. The senior Jugnauth has since re-joined politics, taken over the leadership of the MSM and formed a coalition with the Mouvement Militant Mauricien (MMM), the largest opposition party. In what was viewed as a litmus test for the government’s popularity prior to the 2015 general elections, the government won 35 seats against 54 for the opposition coalition in the December 2012 municipal elections.
Notwithstanding the disappointing municipal election results, Prime Minister Ramgoolam appears steadfast in resisting the opposition’s pressure for him to call for early elections. To address some of the concerns raised by the opposition, the 2013 budget provides for increased spending for social sectors and micro and small businesses. However, the slim parliamentary majority and the rejuvenated opposition could slow down the pace of reforms. Political manoeuvring is common in Mauritius. Despite the allegations of corruption, in 2012, for the sixth year running, the Ibrahim Index of African Governance ranked Mauritius as the best performer on the continent.
Thematic analysis: Structural transformation and natural resources
Over the past three decades, Mauritius has undergone noticeable structural transformation, which has helped the island nation move from a low-income country (LIC) status to an upper middle-income country (MIC). The transformation has been characterised by a development path from a single-crop economy completely dependent on sugar to diversification into the secondary (manufacturing) and tertiary (services) sectors. Tertiary sector expansion is attributed to booming tourism services coupled with the strong growth in transport and communication; financial services and the real estate sector. Consequently, the GDP share of the primary sector has declined from 12% in 1990 to 4% since 2010.
In the early stages of the transformation, much of Mauritius’ growth was labour intensive. The transformation has been accompanied by shifts in labour across sectors. In 1990, almost half of the country’s workers were employed in the agricultural or manufacturing sectors – mostly sugar and textiles. The textile firms, in particular, were fast growing due in part to support by policy reforms that aimed at reducing the cost of labour and supporting absorption of new workers. This facilitated growth while creating employment. However, the ratio of employment growth over GDP growth fell from 1.0 in 1985 to 0.2 in 2002 reflecting emerging limits of an incentivised labour-intensive export-oriented textile industry. The sugar and textile sectors were affected by the phase out of trade preferences by the euro area. For example, both industries shed labour between 2000 and 2008, while emerging sectors, such as tourism, ICT and retail, absorbed workers. Between March 2010 and March 2012, the economy created a net of 4 693 jobs with the largest contribution from wholesale, retail trade, real estate and financial intermediation businesses; whereas, overall employment reduced in both agriculture and manufacturing.
Against a background of consistent and strong reform performance, Mauritius continues to pursue innovative solutions for greater structural transformation. A 36% fall in the price of sugar between 2006 and 2010 led the authorities to support reforms to promote diversification in the sector. Energy potential of sugarcane was viewed as one of the solutions to the country’s energy challenges through production of ethanol from molasses and electricity from bagasse leading to the establishment of independent power producers (IPP). The IPPs have been producing and exporting electricity to the national grid since 2008 and now contribute up to 60% of the requirement. They produce power from bagasse during the cropping season and from coal during the off-season. With about 70% of its turnover stemming from electricity sales, O millionicane Ltd (O MILLIONI), an integrated sugar-cum-energy producer, is the largest IPP in the country with over 50% of the IPP market share. Two major IPPs, O MILLIONI and Harel Frères (HFL), have invested in new generation technology that makes more efficient use of coal and bagasse to provide reliable and, to a large extent, clean sources of energy. The green energy produced from bagasse contributes about 17% of national electricity production and has the potential to increase to 25%. The utilisation of bagasse allows Mauritius to save on the import of an equivalent of 375 000 tonnes of coal, thus preventing the emission of 1 200 000 tonnes of carbon dioxide (CO2).
In addition, the sugar industry has also diversified from being a sole producer of raw sugar into production of value-added products such as refined sugar and specialty sugars as a means to increase revenue. Mauritius is now the largest exporter of special sugars to the European market. Some 19 different types of special sugars are produced mainly by Belle-Vue, Beau Champ and FUEL milling companies. Terra Milling Ltd, a subsidiary of HFL, produces up to 75 000 tonnes of specialty sugars for the international market.
In terms of natural resources, Mauritius is totally devoid of what may be termed as “hard commodities” as well as “energy commodities”. At an estimated 600 inhabitants per square kilometre, land is a major constraint, although the country boasts of a very impressive ocean exclusive economic zone estimated at 1 000 times the country’s land size. Onshore, the main natural resource is its relatively fertile soil used mainly for agriculture. Land is under tremendous pressure due to increasing demand for development. With no known oil, natural gas or coal reserves, Mauritius depends on imported petroleum products to meet most of its energy requirements. As a net importer, the energy dependency index is high, estimated at 83% in 2011. A few “soft commodities” such as cane sugar and seafood comprise the main agro-based natural resources from which the government derives export revenues. Currently, sugar and seafood export revenues account for 13.2% and 16.4% of total export revenues respectively. In the 2013 budget, the authorities have announced plans to develop the ocean economy and establish strategic partnerships to embark on mineral resource exploratory activities on the Mascarene Plateau believed to have meaningful deposits.
Despite the island’s obvious natural resource constraints, successive governments have been able, through targeted policy measures; to maximise the benefits from the available natural resources. Two different approaches have been used. On the one hand, there has been a substantial transformation from within as regards the sugar industry, and on the other, there has been the unearthing of a completely new avenue with the upsurge of real estate via the Integrated Resort Scheme (IRS)1 and the Real Estate Scheme (RES)2. The real estate sector in Mauritius is particularly attractive due to the absence of any capital gains, estate or inheritance taxes. As a result, FDI in the real estate sector, as a proportion of total FDI, has increased from 23.5% in 2006 to 60.8% in 2012. In 2012, it contributed about 13.5% to the GDP compared to 10.2% in 2006.
1. The IRS allows foreigners to purchase freehold property at a minimum of USD 500 000 with added benefits of automatic residency for participants and their immediate families, no capital gains tax, 15% income and corporation and tax and minimal inheritance tax.
2. Under the RES, foreigners can purchase residential units at no minimum price.