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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Mauritian Economy - A glimpse

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 worlds 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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Mauritian Economy - A glimpse

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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Mauritian Economy - A glimpse

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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Mauritian Economy - A glimpse

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:

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)

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Mauritian Economy - A glimpse

Sector contribution to GDP growth

Sector Primary Secondary Tertiary
CSO June 2010

Sector Contribution to GDP growth 0.5 % point 0.8 % point 1.8 % point 3.1 % point

GDP growth rate

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:

The evolution of the major trading partners can be shown in the following table:
Year/Marke ts EU Sugar Protocol Special Preferential Sugar 249 18194 0 0 134 17474 4 18007 USA World Market

2005-06

Qty ('000 tonnes) Price (Rs/tonnes)

101 79 202 73 483 209

9930 20331 483 20964

152 13812 267 15099

2006-07

Qty ('000 tonnes) Price (Rs/tonnes)

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64 2007-08 Qty ('000 tonnes) Price (Rs/tonnes) 2008-09 Qty ('000 tonnes) Price (Rs/tonnes) 435 215 14 452 198 83 435 21514 452 19883 0 0 0 0 0.1 18141 0 0 0.3 15310 0 0

New Development in the sector The sector is transforming into a cane cluster generating items like: valueadded 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.

Secondary Sector

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zdds

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