Economic Development in Mauritius for the past 40 years

5/26/2019
 Table of Contents
1.0 Introduction ............................................................................................................................................. 2
1.1 Determinants of Economic Development ............................................................................................... 4
1.2 From Independence: 1968....................................................................................................................... 4
1.3 Textile/EPZ Sector: 1970 ........................................................................................................................ 5
1.4 The 1980’s: Adjustment Policy and Structural change ........................................................................... 6
1.5 Tourism Sector ........................................................................................................................................ 7
1.6 Financial Sector ...................................................................................................................................... 7
1.7 ICT/BPO Sector ...................................................................................................................................... 8
1.8 Business climate improvements in recent years...................................................................................... 9
1.9 Economic Performance of Mauritius in 2018 ....................................................................................... 10
1.10 Forecast of economic development indicators for 2019 ..................................................................... 11
1.11 Trade Agreements of Mauritius .......................................................................................................... 12
1.12 Non-economic Factors affecting economic development ................................................................... 12
1.13 Emerging sectors in the Mauritian Economy ...................................................................................... 13
1.14 Conclusion .......................................................................................................................................... 14

1|Page
Question

Describe and discuss the economic development of Mauritius over the last 40 years.

1.0 Introduction

Every developed country has gone through the five stages of economic growth as explained by
Rostow’s five stages of economic growth model.

1. Traditional society

It refers to an agricultural economy which consists of mainly subsistence farming. Little of the
produce is traded. Capital is scarce and this results in low quality product. Productivity also is
low. Thus, there is no adequate surplus left to trade overseas and even in the local market.

2. Pre-conditions for take-off

More output is produced due to the automation of the agricultural sector. The GDP is boosted to
a small extent as savings and investment grow. Overseas loans and remittances from locals
working abroad become important.

3. Take-off

2|Page
The manufacturing industry gains more importance. There is development in political and social
institutions. We can also note a growth in investment and savings. Agriculture becomes
increasingly less important. There is an increase in productivity in manufacturing industries.

4. Drive to maturity

There is industry diversification whereby growth is spread within the country. Technology
improves and there are innovations everywhere.

5. Age of mass consumption

Output levels grow, enabling increased consumer expenditure. There is a shift towards tertiary
sector activity and the growth is sustained by the expansion of a middle class of consumers.

The above stages of development perfectly fit Mauritius whereby the country has shifted from
primary sector to manufacturing and eventually to the service sector. In the primary stage, the
main commodity in question was sugar and in the 1970s, industrialization comprising of textiles
and apparel occurred. The commodities at the primary stage were agricultural, particularly sugar,
as we have previously seen. There is now a rise in the services sector especially tourism,
financial services, information and computer technology (ICT).

3|Page
1.1 Determinants of Economic Development

Economic
Factors Non Economic Factors

Capital Formation Human resources

Natural Resources Technical know-how

Marketable surplus
of agriculture Political Freedom

Conditions of foreign
trade Social Organisation

Economic System Corruption

Desire to develop

1.2 From Independence: 1968

The economy of the island was solely based on a monocrop, namely sugar. The unemployment
rate was high. After independence, with the Commonwealth Sugar Agreement, Mauritius started
exporting sugar to the United Kingdom. Following the Sugar protocol, countries had to specify
the quantity of raw sugar to be supplied by each of them. Mauritius increased its supply of raw
sugar by 100,000 tonnes while the other countries decided to reduce the quantity they supplied to
UK.

This decision proved to be fruitful in the economic development of Mauritius as it gave rise to
further development in the manufacturing and tourism sector.

Today, Mauritius is a success story in the economic development. The economy has encountered
a major transformation in 42 years. Mauritius has been transformed from a low-income
agriculturally based economy to a middle-income country diversifying in services, finance,
hospitality, and ICT together with the traditional manufacturing and agricultural sector. With the

4|Page
decrease in GDP contribution of the agricultural sector, the latter no longer dominates the
Mauritian economy such that the share of the sector to the real GDP is only 4% today compared
to 12% before. In the last decade, the most important pillar in the Mauritian economy comprises
of tourism and financial services which together accounts for around 74% of real GDP.

For over two decades, Mauritius has grown by nearly 6% per year. At independence in 1968,
Mauritius had a per capita income of about US $260. Today, it is about US $7,500 at market
prices. Improvements in human development indicators have been equally impressive. Life
expectancy at birth has increased from 61 years in 1965 to 71 in 2009. The infant mortality rate
has gone down dramatically from 64 per 1,000 in 1970 to 7 per 1,000 in 2009.

1.3 Textile/EPZ Sector: 1970

The EPZ (Export Processing Zone) sector which was set up in the 1970s boosted the exports and
created jobs in Mauritius. In fact, the EPZ sector mobilized females and migrants to join the
working population in Mauritius. EPZs were widely acknowledged as an economic policy which
promotes FDIs. As a matter of fact, there is a strong relationship between EPZs and economic
growth in developing countries (Johansson and Nilsson, 1997; Romer, 1993). The sector
recorded a significant growth in 1988. Goods production under the EPZs tripled between 1980
and 1988 in terms of share of GDP. A greater percentage of Mauritians were working in EPZs
than in the agricultural sector by the end of the 1980s. Most of the goods produced in EPZs were
exported to the EU under a preferential regime. The sugar and textile sector provided the capital
required to reduce dependence on foreign capital thus paving the way towards becoming a
middle-income economy.

5|Page
However, by the end of the 1990s, the EPZ was declining and phasing out as the Multifibre
Agreement came to an end in 2004 as depicted in below graph.

1.4 The 1980’s: Adjustment Policy and Structural change

Despite having diversified the economy from its mono dependence on the sugar industry,
Mauritius still did not achieve the development it aimed at. Some of the persisting problems
within the country were budget deficits, low savings, unemployment and inflation. Therefore,
Mauritius turned to the IMF and World Bank to work a solution on a tough structural adjustment

6|Page
policy package for the economy. Some of the remedies brought were to cut back subsidies for
rice, flour and a sales tax was introduced. Also, credit was restricted to reduce inflation.

1.5 Tourism Sector

Since the start of the tourism sector in 1976, the industry has contributed much to the economy.
1.8 percent of the GDP in 1976 was thanks to the tourism sector. The tourism sector has
expanded rapidly with the government’s master plan. The tourism sector of Mauritius was
promoted by the Government by promotional activities of local hotels and by the local aviation
company, Air Mauritius. Indeed, the pristine beaches, multiethnic society and excellent service
quality of our hotels made our island attractive. Consequently, in 1991, approximately 300,000
tourists visited the island, thus attracting foreign exchange earnings of Rs 4 billion and also
creating employment.

1.6 Financial Sector

The Financial Services sector is a fast growing economic sector in Mauritius. This sector has
contributed to the economy’s GDP since the mid-1980s. As from 1987 till 2000, the financial
sector has been contributing more than 3 percent of the economy’s GDP.

7|Page
Today, Mauritius is seen as a premier International Financial Centre (IFC) together with a robust
financial services sector. It is contributing to 11.9 % to the Mauritian economy. The contribution
of the sector is expected to reach 12.4% for the year ending 2019.

Africa is among the top sources of investment of Mauritius to the tune of USD 59 billion with
50% of investment administered through Mauritius. With the Double Taxation Agreement, there
are more than 450 private equity funds that have domiciled in the Mauritius IFC and investing in
the African continent. Mauritius has the advantages of possessing a strategic geographical
location, an innovative business environment, a multilingual qualified professionals, modern
banking and technological infrastructure, legal and accounting institutions.

1.7 ICT/BPO Sector

By the year 2000s, one of the sectors which had become dominant in terms of contribution to
output was the service sector. Mauritius became increasingly skilled in new sectors such as the
service-related information and communication technology (ICT) which require high-skilled
labour and is capital-intensive. This structural transformation has helped the country deal with
decreasing returns to scale of capital accumulation at the sectoral level. The below diagram

8|Page
shows the contribution of the ICT sector to the GDP growth of the economy.

1.8 Business climate improvements in recent years

9|Page
From the above diagram, we can see the evolution of the GDP in Mauritius for the last 40 years
(from 1976 to 2011). We can clearly note the decline of the agricultural and textile/EPZ industry.
There is a rise in the finance and tourism sector. The tourism sector is pretty stagnant.

1.9 Economic Performance of Mauritius in 2018

Source: Statistics Mauritius

The Mauritian economy has seen signs of recovery and dynamism after the global financial crisis
between 2009 and 2015. Since 2016, the economic growth of the country has been growing
steadily at the rate of 3.8 percent. In 2018, the country has registered a GDP growth of 3.8 % as
estimated by Statistics Mauritius. The economic activity of the country which is driven by
internal demand can be explained by the consumption expenditure growth of 3.4% and an
increase of 3.4 % in household expenditure. Investment has grown by 6.6 % thus maintaining a
persistent growth since 2016. With regards to public sector investment, we note a major growth
of 17.8 percent mainly due big projects in infrastructure such as Metro Express and Road
Decongestion Programme. It is worth highlighting that investment is largely driven by the
private sector accounting 73.7 % of total investment in Mauritius.

10 | P a g e
In terms of exports, Mauritius has experienced a reduction of 0.7 % in the exports of goods and
services while on the other extreme, imports have been increasingly for major products such as
petroleum prices. On the external front, faced with uncertainties, low exchange rates

Source: MCCI Economic Review 2018

1.10 Forecast of economic development indicators for 2019

The GDP for the economy is forecasted to grow by around 4.0% in 2019.

The following factors in the different industries are estimated below:

a) Agriculture, forestry and fishing: growth of 2.3% in sugar production and an increase of 2.7%
in non-sugarcane agricultural activities.
b) Manufacturing: A growth of 0.8% in 2018.
c) Construction: A growth of 8.5% through the implementation of major public investment
projects such as Metro Express, smart city etc.
d) Accommodation and food service activities: A growth of 3.5 % based on tourist arrivals

11 | P a g e
e) Financial and insurance activities: Growth of 5.4%

1.11 Trade Agreements of Mauritius

Mauritius successfully entered into agreement with different countries so as to be eligible for
preferential access for exports. These agreements facilitate trade with different countries as listed
below:

i) the South African Development Community (SADC),

ii) the Common Market for Eastern and Southern Africa (COMESA)
iii) the Indian Ocean
iv) Europe (under the EU-East Africa Interim Economic Partnership Agreement),
v) the United States (under AGOA),
vi) Japan, Norway, Switzerland, the United States, and the Customs Union among
Belarus, Kazakhstan and Russia under the Generalized System of Preferences (GSP),
vii) Turkey under the Mauritius-Turkey Free Trade Agreement, and
viii) Pakistan under the Mauritius-Pakistan Preferential Trade Agreement. Mauritius is
currently negotiating a Comprehensive Economic Cooperation and Partnership
Agreement with India and a Free Trade Agreement with China.

1.12 Non-economic Factors affecting economic development

 Political Freedom

Mauritius is a stable, multiparty, parliamentary democracy. There is a sound political

freedom reigning in the country. Elections are carried out every five years.

 Corruption

Mauritius maintained its first position in the Mo Ibrahim Africa Governance Index 2018 with
a score of 79.5 out of 100 points.

 Education

Despite the increase in the number of females pursuing their tertiary education, the female
participation rate in the labor market is still low.

12 | P a g e
  Desire to develop

1.13 Emerging sectors in the Mauritian Economy

 Agro-Industry

The agro industry is diversifying from the sugar cane cultivation to diversified range of products.
For example: bio-agriculture, sheltered farming, food processing, tea production, livestock
production.

 Film Industry

With the introduction of the Film Rebate Scheme, Mauritius helps large number of operators in
the global creative media and film production arena, given we have amazing shooting locations.

13 | P a g e
Mauritius has successfully registered Rs 3 billion from spending of 86 film projects from 2013 to
2018.
 Healthcare

The Mauritian healthcare is equipped with modern medical facilities together with hi-tech
medicine. Furthermore, medical tourism, medical education and wellness are gaining in
popularity. Given that there is the presence of global healthcare players, Mauritius is positioned
as a competitive high tech medical hub.

 Fintech

Mauritius is being positioned as Africa’s Fintech Hub such that the country is working on its
very first block chain project under the license of SALT Technology Ltd.

 Logistics

The Freeport of Mauritius has been awarded Africa’s wined for the Global Free Zones of the
year 2018. In 2017, the logistics sector contributed 6.4% to GDP.

 Ocean Economy

Seafood exports are expected to increase by 30%. With the exploration contract for the Joint
Management Area between Mauritius and the Seychelles, ocean activities will be boosted.

 Real Estate and Hospitality

To act as a catalyst to the economy, the country has opened up acquisition of freehold property to
foreigners.

1.14 Conclusion

Mauritius has progressed considerably over the past 40 years since independence such that the
GDP has grown from Rs 841 million to Rs 485 billion in 2018 (as shown in below graph). There

14 | P a g e
has been a constant transformation in the economic structure of Mauritius since 1968 from its
reliance on sugarcane to a well-diversified economy today focused on innovation.

Reference

 Ali Zafar, (2011), Mauritius: An Economic Success Story, World Bank

 http://statsmauritius.govmu.org/English/Publications/Pages/all_esi.aspx
 http://www.doingbusiness.org/content/dam/doingBusiness/country/m/mauritius/MUS.pdf
~Doing Business Report 2019[Accessed on 24 May 2019]
 http://www.edbmauritius.org/media/2092/generic_brochure_english_website_jan-
2019.pdf[Accessed on 24 May 2019]
 http://www1.govmu.org/portal/sites/mfamission/pretoria/documents/economic_miracle.p
df [Accessed on 24 May 2019]
 https://www.afdb.org/en/countries/southern-africa/mauritius/mauritius-economic-
outlook/[Accessed on 24 May 2019]
 https://www.mcci.org/en/media-news-events/business-updates/mauritius-in-the-top-20-
economies-as-per-world-bank-doing-business-report-2019/ [Accessed on 24 May 2019]
 https://www.mcci.org/media/188939/mcci-economic-review-2018.pdf [Accessed on 24
May 2019]
 https://www.researchgate.net/publication/259216962 ~A tale of five sectors in
Mauritius: Agriculture, Textile/EPZ, Tourism, Financial Services and ICT/BPO…an
employment perspective, International HRD Conference [Accessed on 24 May 2019]
 MCB Focus Economic Update February 2018 [Accessed on 24 May 2019]

15 | P a g e