Mauritius: up against a wall of competition

Too frequently, countries find themselves with their metaphorical backs up against a wall. When this happens policy makers face a host of difficult choices. Think of Germany in the 1920s, the U.S. throughout the 1930s, or South Africa in the late 1980s and early 1990s.

Today in Mauritius people also talk about having their backs up against a wall: a wall of worldwide competition. The result is that officials here face some tough choices. The country, which enjoyed a prolonged economic boom from the mid-1980s to the mid- to late-1990s, now has relatively low real growth rates (2-3% versus 5-6% in the past), relatively high levels of unemployment (9.6%), a force work that lacks skills and training, a very large public debt (2005 est. 67.5% of GDP), and low levels of foreign direct investment (1% of GDP).

The country is export-oriented and the export sector has been in turmoil. Preferences for sugar producers are being phased out and textile manufacturers are dealing with fierce competition from China, India, and Bangladesh. In textiles, a number of foreign investors have left the country and thousands of people on this small island (pop. 1.2 million) have lost their jobs (despite the unemployment, the country imports 18,000-20,000 foreign labourers). Re-engineering is a favourite phrase.

Government officials could respond in any number of ways. The current government, led by Prime Minister Navichandra Ramgoolam, has a two-prong strategy: be more open to foreigners and make it easier for people to do business here.

The first prong first: the government would like to see more foreigners, especially those with skills and money, come to the pretty island nation, either as tourists or as investors, or both. The government is offering incentives for foreigners to purchase real estate (buy an expensive villa and receive legal residency), making it easier to come to Mauritius to work, opening air routes and trying to improve the regulatory environment, all with an eye towards opening the country and improving the economy.

The second prong of reforms is all about Doing Business. The government is quite sensitive to their ranking in the World Bank’s Doing Business report ( The 2006 report was recently released and Mauritius retained its ranking of 32nd in the world in terms of the business environment. While the country leads African nations in this regard, the government says this isn’t good enough and has publicly committed to a goal of reaching the top tier of countries within the next several years. Government officials want to keep company with the likes of Singapore, New Zealand and Ireland.

To do this, the government has proposed reforms that would lower the corporate tax rate from 25% to 15%. For personal income taxes, the government proposes to reduce the rates over the next three years from a top rate of 22.5% to a flat 15%. There are, however, generous exemptions for low-income workers: those with no dependents who earn less than 215,000 Mauritian rupees per year will pay nothing, those with one dependent will be tax-free up to 325,000 rupees per year, with two dependents up to 385,000 rupees per year, and those with four dependents will be tax-free up to 425,000 rupees per year. In his budget speech this year, Deputy Prime Minister and Minister of Finance and Economic Development, Mr. Rama Krishna Sithanen, states: “This new policy is taking more than 40,000 persons, at the bottom of the income groups, out of the tax net.” The government has also replaced a subsidy for staple goods such as rice and flour with a credit system that should provide some continued support.

The government wants to reduce the number of steps needed to register and open a business. The goal is to be able to open a business in Mauritius in three days. They aim to make the large public sector more efficient by eliminating redundant steps in the registration and other processes and by making better use of computer technologies. The government is also trying to encourage small and medium-size enterprise development.

These steps, if enacted, would help Mauritius compete more effectively in the global economy. The question is: will they be enacted? Talking with people here, you get a strong sense that the government has not done a good enough job explaining to Mauritians why the reforms are necessary. This government has given away some goodies (free bus fare for pensioners and students), but they have also created a new National Residential Property Tax that is extremely unpopular. People are not pleased and this may mean that reforms stall.

And yet, people recognise the need to be more competitive, to create more jobs, and to have a more business-friendly regulatory environment. With their collective backs up against a wall of competition, Mauritians face difficult choices. What will happen remains to be seen, but keep an eye on the country—it might just end up giving the Irish, another small island nation, a run for their money.

Author: Karol Boudreaux is a Senior Fellow of the Mercatus Center at George Mason University. This article was written during the visit to Mauritius of Ms Boudreaux, with Eustace Davie and Jasson Urbach of the FMF, the members of the Enterprise Africa! team investigating ‘what works in enterprise-based solutions to poverty’ in Africa. The article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author's and are not necessarily shared by the members of the Free Market Foundation.

Available downloads of published Enterprise Africa studies are:
1. Taxing Alternatives: Poverty Alleviation and the South African Taxi/Minibus Industry

2. The Effects of Property Titling in Langa Township, South Africa

3. Seeds of Hope: Agricultural Technologies and Poverty Alleviation in Rural South Africa

Enterprise Africa website:

FMF Feature Article/ 03 October 2006 - Policy Bulletin / 27 October 2009

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