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The Mauritius example on economic development

19 Jun 2021 at 08:48hrs | Views
Port Louis Riverfront, Mauritius
Mauritius is ranked by the World Economic Forum as the most competitive economy in Sub-Saharan Africa and high income country with a Gross National Income (GNI) per capita of US$12,740 (Sub-Saharan Africa's GNI per capita is US$1,555). Despite its limitations on natural resources, population size (1.3 million people) and land size (Only 2,040km2), the country ranks high in Africa on all social, economic and governance indicators.

Mauritius is an island nation in the Indian Ocean, off the African continent and east of Madagascar. It's a former colony of Portugal, Netherlands, France and lastly Britain where it gained Independence from in March 1968. Since gaining independence, the Island nation has achieved sustained economic stability and progress in a feat only matched by a few other Sub-African countries. It has successfully translated economic growth into concrete poverty reduction policies and improvements in human capital development. Its poverty rates remains low by international standards, with less than 1% of the population estimated as living on less than US$1 a day (According to the World Bank 2020 report, Zimbabwe has 7.9 million people or 49% of the population living on less than US$1 per day). Mauritius is the only country in Africa where inequality has been reduced significantly (as measured by the Gini Coefficient) from 46 to 37 between 1980 and 2020. Inequality in Zimbabwe has risen sharply from 45 in 2017 to 50 in 2019 with the richest 10% of Zimbabweans consuming 20 times more than the poorest 10%. Mauritius has the lowest under-5 child mortality rate in Sub Saharan Africa of 17 deaths out of 1,000 live births (Compared to Zimbabwe's 55 deaths as of 2019).

Mauritius has undergone a remarkable economic transformation from a low-income, sugar cane based economy to a diversified, high-income country that attracts considerable foreign investment (FDI Stock of over US$5.8 billion in 2019) and averaged 4% in real GDP growth from 2015 to 2020. The country has lifted almost all of its citizens out of poverty with about 92% of adult population having access to a bank account. Zimbabwe can learn from Mauritius success story in the following aspects:

Economic Diversification
Mauritius has a mixed developing economy based on manufactured exports, agriculture, tourism, and financial services. Government efforts to diversify the economy since 1980 have been overwhelmingly successful and the island is no longer as dependent on sugar production as it was throughout its history. Low cost of doing business for tourism players has made tourism a major earner of foreign currency, utilizing the country's natural scenery. In 2001 the government created the Information and Communication Technologies Authority (ICTA) to promote and fund technology growth in the country with hi-tech hubs and block chain technology being the key focus areas. More than 40% of the labour force is employed in the areas of finance and services. Construction and manufacturing employ about 33% of the labour force, and about 10% is employed in the agricultural sector (In Zimbabwe, agriculture employs more than 66% of the workforce). Mauritius has few viable mineral resources. Basalt and lime are mined but the mining sector is very small compared to largely mineral dependent Sub Saharan countries. The country imports bulk of its mineral commodities such as Chrome and Steel from India. Electricity is largely generated from imported petroleum, with a small percentage derived from hydropower. Sugar plantations often use bagasse (A fibre from sugarcane) as fuel to produce electricity. Zimbabwe needs to craft policies that crowd in private sector finance in agriculture so as to develop value addition linkages in the local supply chain, while providing substantial incentives for miners to value add their minerals locally. This will provide the much needed impetus to diversify the economy from overdependence on agriculture, and mineral and raw tobacco exports.

Ease of doing business
Mauritius' quest to continuously improve its business climate and attract investment is unparalleled. The country has moved seven places to 13th out of 190 countries globally (1st in Africa) according to the latest World Bank Ease of Doing Business Report 2020. Key reforms included the automation of public services, reviewing of licensing procedures and regulatory amendments through the enhanced Business Facilitation Act of 2017 and 2019 in line with international best practices. Registering a business online takes less than two hours (7-9 days in Zimbabwe), getting electricity connectivity takes less than 21 days while registering property is completed within 24 hours (At least 30 days in Zimbabwe).
The country has no exchange controls in terms of capital movement and it has signed non-double taxation agreements with 35 countries in the world. The country has built up a solid financial sector, specializing in offshore banking and financial services. The country has a relatively low barrier to gaining permanent residency (Automatic permanent residency if one buys a US$500,000+ home in the country). The country has a sophisticated, transparent and well-regulated International Financial Centre (IFC) with a conducive ecosystem. The government of Zimbabwe is modelling Victoria Falls to be the country's IFC with transparency and consistent regulations or policies remaining the country's Achilles heel. Zimbabwe would need free market exchange control policies that allow for free movement of capital, a harmonized tax regime and automation of its manual public service delivery system to cut on red tape and improve transparency.

Export growth and Taxation
The driving force of Mauritius' development has been its exports sectors, namely the sugar sector, tourism and the Export Processing Zones which were established in 1970.  Firms operating with an EPZ certificate benefited from tax advantages, elimination of tariffs on imported inputs used by manufacturers, and flexible labour standards for EPZ workers and a lower minimum wage. Personal and corporate tax are harmonized at a low 15% and dividends are tax-free. The Zimbabwean economy tax burden is very high and businesses would benefit from harmonization of existing taxes and cuts on duplication of roles by government agencies (over 10 departments) which do not add value to the export and import process.

Rule of law
Mauritius ranks highest on rule of law, an area where the fellow African countries persistently falter on. The country scores high on guarantees to investor property rights and constitutionalism. This has sustained investor confidence in the country especially in its financial and property sectors. Over the past 10 years (2010 to 2020) total wealth held in Mauritius has risen by more than 195%, making it the fastest growing wealth market in Africa and one of the top 3 fastest growing worldwide over that period. Total wealth held in Mauritius now amounts to over US$44 billion. Property rights are backed by high levels of government integrity (especially on policy) and judicial independence. The prevalence of corruption is low by regional standards, but graft and nepotism remain concerns and are increasingly a source of public frustration.

Good Governance
This is a thorn to investors in most parts of Africa (foreign or local) and Mauritius provides this amply. The country has a stable democracy and is one of Africa's most democratic countries. The island nation is also Africa's most peaceful with a peace index of 1.51 and the 21st most peaceful country in the world. That is music to the ears of investors looking for markets to do business with limited civil and political unrest. Leadership stability has provided for economic policy consistency and integrity, key aspects valued by investors.

At independence, Mauritius was a monocrop economy prone to trade shocks and ethnic tensions. The country has delivered high growth rates along with macroeconomic stability and low inflation environment largely because of genuine free market economic policies, respect for rule of law and property rights, best practices in doing business and accountable governance. The diversification strategy was also a success story for the country. Unregulated export earnings from sugar generated immense wealth which was then used by the private sector to diversify investments into textile, tourism and financial services. The Mauritian government has set its eyes on modernizing the sugar and textile industries while promoting diversification into such other areas as information and block chain technology. Mauritius' accomplishments suggest at least three possible lessons for the rest of Africa. First, value added exports are crucial to economic growth. Second, ethnic differences can be managed by an inclusive parliamentary system. Lastly, that democracies can still reform economic systems in ways that foster sustainable economic growth.

Victor Bhoroma is an economic analyst. He holds an MBA from the University of Zimbabwe (UZ). Feedback: Email vbhoroma@gmail.com or Twitter @VictorBhoroma1.



Source - Victor Bhoroma
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