Mauritius gained its independence from the United Kingdom in 1968 and became a Republic in 1992. The Republic of Mauritius includes the islands of Mauritius, Cargados Carajos, Rodrigues and Agalega. Mauritius covers a surface area of 2,040 square kilometers with an estimated population of 1.3 million and a population density of 635 individuals per square kilometer. With a population growth rate estimated at 0.4%, official projections show that Mauritius will soon face the ageing population syndrome (the population 60 years of age and over is projected to increase from 9% in 2000 to 23% by 2040). Ethnically, the country is made up of a majority of Indian people and individuals of African, European and Chinese descent. The spoken languages are English, French and Mauritian Creole.
This parliamentary Republic is a member of several regional organizations, including the African Union, the Common Market for Eastern and Southern Africa (COMESA), the Commonwealth of Nations, the Indian Ocean Commission (IOC), the Organisation Internationale de la Francophonie, and the Southern African Development Community (SADC). It has an estimated GDP of US$11.5 billion in 2012 and is considered to be an upper middle income country with a gross national income (GNI) per capita at US$8,570. The poverty rate, whether measured as relative poverty, absolute poverty, or with respect to food poverty, is low. Using the relative poverty measure (Based on the half median monthly household income per adult equivalent estimates of the 2006/07 Household Budget Survey), the poverty rate is estimated to be 8.7% according to the latest data available, which is low compared to the average in Sub-Saharan Africa. Despite its small size, regional variations in poverty exist in Mauritius, with incidence of relative poverty higher in urban areas.
In Mauritius, the Prime Minister is the head of the government. The ruling party under the Leadership of Prime Minister Dr. Navinchandra Ramgoolam, leader of the Mauritius Labour Party, won the general election in May 2010 with the Parti Mauricien Social Democrate (PMSD) and a new partner, the Mouvement Socialiste Militant (MSM). In July 2011 one of the parties of the coalition, the MSM, quit the government in protest of the arrest of the former Health Minister following an enquiry into corruption allegations. A new cabinet was formed in August 2011 and a new government program was approved by Parliament in May 2012. The ruling alliance still under the leadership of Dr Navinchandra Ramgoolam as Prime Minister and with the leader of PMSD as Vice Prime Minister and Minister of Finance an Economic Development, has a slim majority of four seats.
Mauritius has solid economic fundamentals: open to foreign direct investment (FDI) (US$415 million in 2012, 3.6% of GDP), export oriented (US$6 billion in 2012, 53% of GDP), high standards of governance (43rdh in the 2012 Transparency International Corruption Perceptions Index) and business friendly (the top-ranked African country in business climate, ranked 19th globally in the 2012 World Bank Doing Business report).
The country is ranked high in terms of competitiveness, investment climate and governance. The World Economic Forum’s global competitiveness index ranked Mauritius at 45 out of 148 countries in 2013-2014, ahead of all African countries. It topped the 2012 Mo Ibrahim Index of African Governance, and is ranked 36 in the 2011 AT Kearney Global Services Location Index. The remarkable performance of the economy is attributed to sound economic governance, accelerated reforms to sustain long-term growth and effective State-business relations. These factors together with timely and targeted responses helped Mauritius to weather the negative effects of the global crisis.
Since 2010, the government embarked on a second generation reform program to continue improving Mauritius’ competitiveness as it transitions to more diversified export markets, while ensuring that growth remains socially inclusive. Key elements of this reform are the improvement of: (i) the delivery of public services, including the civil service and public enterprises; (ii) the development of infrastructure to overcome critical bottlenecks, particularly in transportation; (iii) the development of skills to enhance productivity and better integrate those parts of the population that lag behind; (iv) social protection to provide empowerment opportunities to the more vulnerable population; and (v) the further liberalization of non-tariff measures to improve trade competitiveness.
Real GDP decelerated to 3.4 percent in 2012. The main contributors to GDP growth were financial and insurance activities (+0.6 ppt), food manufacturing (+0.5 ppt), wholesale and retail trade; repair of motor vehicles and motorcycles (+0.5 ppt), and information and communication (+0.4 ppt), which were partially offset by construction (-0.2 ppt) and textile manufacturing (-0.1 ppt). This more subdued pace of economic growth has been extended to 2013, reflecting the impact of the global economic slowdown, particularly of the European market to which Mauritius remains very exposed to. Not surprisingly, the 2013 growth rate is likely going to come short of the 2013 Budget projections calling for a 4.1 growth in 2013. While the economic outlook for Mauritius is generally positive, there are potential headwinds such as the slow pace of structural reforms in the country and the economy’s vulnerability to external conditions which could undermine economic growth going forward. The government has adopted a prudent fiscal policy in order to achieve debt consolidation, but remains committed to supporting infrastructure development. The BoM began easing monetary policy in December 2011 as a result of the slowdown of the domestic economy and the lingering global uncertainties. The repo rate was further reduced to 4.9% in March 2012 and to 4.65% in June 2013. This more accommodative monetary policy stance was facilitated by the gradual decline in the annual rate of inflation from 6.5% in 2011 to 3.6% in June 2013, in part related to the slowdown in commodity prices. The current account deficit has widened from 7.4% of GDP in 2009 to 13.2% of GDP in 2011 mainly as a result of rising FDI-funded imports. This trend was reversed in 2012 as a result of the growth in exports and despite an increase in imports, and the current account deficit narrowed to 10.2% of GDP. The BoM is pursuing its medium-term program to increase foreign exchange reserves to six months of imports of goods and services, with parallel sterilization of the additional money supply.
Mauritius has a successful development record, but many challenges remain. The external shocks demonstrated the heavy reliance of the economy in restricted sectors and markets. However, Mauritius is not yet ready to fully take advantage of the global re-balancing of export markets. It is not yet well integrated in the production chain and final markets of those countries which are bound to increase domestic absorption (particularly in Asia).
The main challenges of the country are the:
- Infrastructure system - mainly in terms of road congestion and water delivery;
- Scarcity of skilled human resources due to limited capacity to reform the traditional education system, the country’s brain drain and the limited ability to make use of the large diaspora community; and
- Large and relatively inefficient public companies and parastatals.
Against a weak economic backdrop, Mauritius should accelerate the reforms to diversify the economy, both in terms of climbing the value chain and reorienting exports toward emerging markets (i.e., China, India, Russia and the African continent). Reforms with regards to trade barriers, education and infrastructure will be crucial to achieve this. Moreover, the process of fiscal consolidation will need to accelerate to achieve substantial efficiency gains in the budget and ensure effective expenditure in priority areas, most notably, by strengthening the social safety net system to cope with the poverty impact of a potential downturn which would fuel unemployment.
Last updated October 2013