Presentation Report

Mauritian Economy - A glimpse

Introduction

The Mauritian economy has constantly shown remarkable resilience against

global challenges happening since its independence in 1968. Indeed, recently

crowned as one of the African lions which are driving the African economy, the island

is often referred as a role model to other African nations. As Ruth Kagia, Country

Director of World Bank for Mauritius pointed out: “Mauritius is among the nine African

countries with the highest GDP per capita, the island has without doubt a lot of

lessons to give to other countries... it can serve as example for which the World

Bank has always supported in its socio-economic development”. In addition, for two

consecutive years (2008 and 2009), the island earned the title of “best place to do

business in Africa”.

The seed of success of Mauritius was sown after the independence. The

island developed from a low income, agriculturally based economy to a middle

income diversified economy with manufacturing, tourist and financial service

industries. The trajectory is also moving towards neo sectors such as seafood hub,

health care, biomedical, knowledge among others:

Source: JEC presentation at Seafood Conference – 03rd March 2006

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Economic history

Mauritius was not so successful when considering the pre-independence

conditions. In fact, in the early sixties, the island was regarded as a “terrifying case

for Malthusian theory” by a Nobel Prize Laureates for Economics: J.E Meade; he

found little scope for economic progress and improvement in the standard of living of

the population.

At the time of its independence, the island was characterised by high

unemployment during the 1970s and an overdependence on sugar. This

overdependence started when being a sugarcane producer, the island joined the

Sugar Protocol of the Lome Convention in 1975. The Protocol suggested that the

sugar industry had a quota and a guaranteed price that enabled Mauritius to exploit

the European market. Very quickly, Mauritius became the world’s tenth largest sugar

exporter by fully utilising the Protocol advantage. In reality, the European Community

purchased around 70% of the sugar produced at much higher prices (sometimes five

times higher) than that of the world market.

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Mauritius was basically a mono-crop economy with a small domestic market

and a population of 700,000 inhabitants. It was clear that the import substitution

strategy adopted at that time by the policy makers should be replaced by a more

viable one. Consequently, an export-led strategy was identified and in 1970, the

country established the Export Processing Zone (EPZ) which was founded on the

experience of other small like-minded island with few natural resources (Singapore,

Hong Kong, Taiwan). The EPZ provided the following:

Duty free entry of capital goods and raw materials

Tax holidays on corporate profits and dividends

Free repatriation of capital and dividends

Infrastructure and credits

Relief from income taxes for the first ten years with further concessions

on profits when reinvested in the island

The export-led strategy resulted in a robust functioning of the manufacturing

sector which benefitted from huge foreign investment, the economy growing at 6%

annually and the unemployment rate fell from 20% to less than 2% between 1983

and 1993. In addition, in 1999, the EPZ exports accounted for 70% of the total

exports.

Moreover, the signature of the Multi Fibre agreement in 1982 marks another

milestone for the economy of Mauritius. The agreement being a set of formal quota

agreements governing the textiles and clothing trade provided yet another

opportunity for the manufacturing sector to flourish. It is in these periods that many

Hong Kong investors came to set up their firms in the island. Soon, local Mauritian

companies began producing and exporting high quality knitwear to the west.

Strikingly, Mauritius became a major exporter of textiles and garments and the third

largest exporter of knitwear in the world. The largest manufacturer was Floreal

group, a Mauritian company producing 4.3 million sweaters a year.

In 1992, taking advantage of its strategic location (important maritime

routes between Africa, Asia and Europe), Mauritius set up a free trade zone or

Freeport to develop as a regional trade centre. The Freeport was established as a

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duty free zone at port and airport for all goods meant for re-exports and machinery

imported in the zone.

The financial sector started developing around 1980s as Mauritius attracted

banks – Mauritius Commercial Bank became the first bank to set up in the island

while Barclays Bank established itself as the second oldest bank. The late eighties

saw Mauritius advancing as an offshore centre and since that time, the sector

witnessed an inflow of $ 4 billion in offshore funds. In 1989, the Stock Exchange of

Mauritius started its operations with 45 companies on its official list and 80 of its

over-the-counter exchange for unlisted companies. The financial services sector

contributed about 11% of GDP with a 7.5% growth in 1997.

For the first time during the late 1990s, the Mauritian economy passed the $ 4

billion mark and in 1998, the World Economic Forum named Mauritius as the most

competitive economy in Africa.

Nevertheless, as the saying goes: good times never last. With the arrival of

the new millennium, Mauritius started facing daunting situations. The renegotiation of

the Lome Convention with increased globalisation and worldwide tendency to

dismantle protectionism – significant fall in sugar prices act as a sledgehammer blow

on the sugar sector.

Furthermore, in May 2000 - the US came with the African Growth and

Opportunity Act (AGOA) which was suppose to be a great opportunity for Mauritius

to advance its success in its apparel industry. On the contrary, the latter industry

went into an economic morass. Though AGOA provided eligible countries from Sub

Saharan Africa (SSA) to export to the US to benefit from an average 17.5% customs

duty advantage, the act had strict rules of origins which beneficiary countries had to

adhere to. Being a non-least developing country, Mauritius did not fully qualify for the

benefits. Instead, more than 30 apparel factories shut down between 2004 and 2007,

costing more than 30,000 jobs. That represents fully one-third of the apparel sector

jobs Mauritius had before AGOA was enacted. While exports of lesser-developed

countries of the SSA region boosted up, the exports of Mauritius withered down

registering a fall of 45% between 2000 and 2006:

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Added to this worrying situation, the phased out of the Multi Fibre Agreement

in 2005 put more pressure on the clothing and textile segment with proliferation of

low cost competitors. Mauritius in fact recorded a fall by 22% in its textile and

clothing sector exports:

Leso

tho

Cam

bodi

a

Mau

ritius

Bang

lade

sh

Nep

al

Tuni

sia

Mal

dive

s

Alba

nia

Mor

occo

Mad

agas

car

-30.00%

-25.00%

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

-22.20%Total export decrease

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Mauritius today

Since 2000, Mauritius is facing new challenges and its performance has been

affected by many economic adversities. It is important to take look at where the

Mauritian economy stands today.

Sectors’ contribution (2009)

CSO – June 2010

Primary sector

The Primary Sector consists of sugar and non-sugar industries. The major

players are the sugar factories such as Belle Vue, Fuel, Savannah among others not

to forget the new innovative Omnicane.

Sugar Production totalled more than 450 000 tonnes in 2008 with 99%

production of raw sugar:

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4.10%

27.20%

68.70%

Share of sectors in the economy

PrimarySecondaryTertiary

Sector contribution to GDP growth

Sector Sector Contribution to GDP growth

Primary 0.5 % pointSecondary 0.8 % pointTertiary 1.8 % pointGDP growth rate 3.1 % point


2005 2006 2007 2008380000

400000

420000

440000

460000

480000

500000

520000

540000

Raw Sugar Total

Year

Tonnes

The evolution of the major trading partners can be shown in the following table:

Year/Markets

EU Sugar Protocol

Special Preferential Sugar

USA World Market

2005-06 Qty ('000 tonnes) 10179 9930 249 134 152Price (Rs/tonnes) 20273 20331 18194 17474 13812


2007-08 Qty ('000 tonnes) 435 435 0 0.1 0.3Price (Rs/tonnes) 21514 21514 0 18141 15310


New Development in the sector

The sector is transforming into a cane cluster generating items like: value-

added sugar, ethanol and electricity because of increased production costs and

volatile raw sugar production patterns.

The first flexi factory was set up in 2009 geared towards the production of

raw, white, industrial and special sugars, electricity from bagasse and ethanol from

molasses. Omnicane is the sole enterprise to possess a state of art diffuser

technology in this context.

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Secondary Sector

zdds

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Presentation Report

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