Mau­ri­tius at 50 pro­vides text­book ex­am­ple of move up value chain

Emer­gence of African oa­sis of po­lit­i­cal and eco­nomic sta­bil­ity con­founds scep­tics

The Star (St. Lucia) - Business Week - - FRONT PAGE - BY DAVID PILLING, FT AFRICA ED­I­TOR

A few years af­ter Mau­ri­tius be­came in­de­pen­dent half a cen­tury ago, the Trinidad-born writer VS Naipaul vis­ited the In­dian Ocean is­land 1,200 miles off the south-east coast of Africa. He was not im­pressed

Afew years af­ter Mau­ri­tius be­came in­de­pen­dent half a cen­tury ago, the Trinidad-born writer VS Naipaul vis­ited the In­dian Ocean is­land 1,200 miles off the south-east coast of Africa. He was not im­pressed.

In his 1972 es­say The Over­crowded Bar­ra­coon — a bar­ra­coon is an en­clo­sure for slaves — Naipaul saw a des­per­ately poor peo­ple and a po­ten­tially ex­plo­sive eth­nic mix of In­di­ans, Africans, Chi­nese and French. He en­vis­aged lit­tle way out of poverty for a monocrop econ­omy in which there was only “sugar cane and sugar cane end­ing in the sea”.

Mau­ri­tius has proved him spec­tac­u­larly wrong. In the 50 years since in­de­pen­dence, the is­land has been trans­formed. Sugar now makes up only a tiny frac­tion of eco­nomic ac­tiv­ity. It has been a near-text­book ex­am­ple of how to move an econ­omy up the value chain by con­tin­u­ally rein­vent­ing it­self — first as tex­tile man­u­fac­turer and lux­ury tourist desti­na­tion and lat­terly as a fi­nan­cial ser­vices and back-of­fice pro­cess­ing hub.

Now it wants to move fur­ther up again by of­fer­ing so­phis­ti­cated le­gal and con­sul­tancy ser­vices to the more than 20,000 com­pa­nies regis­tered on the is­land: they will have to demon­strate sub­stan­tial ac­tiv­ity as part of Mau­ri­tius’s drive to en­sure it is not cat­e­gorised as a tax haven. It wants to cap­i­talise on its role as a “gate­way to Africa”, fu­elling in­vest­ment to the con­ti­nent.

The gov­ern­ment has also in­duced sev­eral uni­ver­si­ties, in­clud­ing Mid­dle­sex of the UK and the African Lead­er­ship Uni­ver­sity, to set up cam­puses in or­der to es­tab­lish the is­land as a cen­tre of learn­ing and raise the skills of its pop­u­la­tion.

Mau­ri­tius presents it­self as an oa­sis of sta­bil­ity with con­ti­nu­ity of pol­icy, tech­ni­cal ca­pac­ity, and a de­pend­able le­gal sys­tem whose fi­nal court of ap­peal is the Privy Coun­cil in Lon­don.

That image has oc­ca­sion­ally come un­der strain when coun­tries — no­tably In­dia — have com­plained that Mau­ri­tius is de­priv­ing them of taxes. In­dia’s dou­ble tax avoid­ance treaty with the is­land is be­ing phased out for that rea­son.

“Be­cause the eco­nomic ac­tiv­i­ties don’t oc­cur in Mau­ri­tius, it is a con­duit to take away tax­able rev­enue from other coun­tries,” says Alexan­der Ezenagu, an ex­pert in in­ter­na­tional tax law at McGill Uni­ver­sity in Canada.

Although Mau­ri­tius shuns the se­crecy of­fered by other ju­ris­dic­tions, it has oc­ca­sion­ally been ex­posed for lax over­sight. In 2016, its Fi­nan­cial Ser­vices Com­mis­sion awarded an in­vest­ment bank­ing li­cence to Al­varo So­brinho, an An­golan banker whose li­cence had ini­tially been re­fused by the stricter Bank of Mau­ri­tius. Mr So­brinho also hap­pened to be the head of the Planet Earth In­sti­tute, whose pro­vi­sion of a plat­inum credit card to then pres­i­dent Ameenah Gurib-Fakim — and her sub­se­quent use of it to go on a $24,000 shop­ping ex­pe­di­tion — led to her res­ig­na­tion in March.

Of­fi­cials ar­gue Mau­ri­tius has a strong rule of law and ques­tion whether a leader would re­sign over so pal­try a sum in any other African coun­try. “If Mau­ri­tius is a haven for some­thing, it is a haven for sta­bil­ity,” says Joseph Cartier, chair­man of the is­land’s Eco­nomic De­vel­op­ment Board. It is these qual­i­ties and not low taxes, he says, that at­tract most off­shore busi­nesses — es­pe­cially com­pa­nies wish­ing to pro­tect their in­vest­ments in po­ten­tially un­sta­ble African ju­ris­dic­tions.

Of the $26bn Mr Cartier es­ti­mates was in­vested via the is­land into Africa in 2016, $10bn was with coun­tries with which Mau­ri­tius has no dou­ble-tax­a­tion treaty, im­ply­ing, he says, that re­duced tax­a­tion was not a prime mo­ti­va­tion.

Rama Sitha­nen, a for­mer fi­nance min­is­ter who is cred­ited with help­ing the ini­tial push into fi­nan­cial ser­vices, says Mau­ri­tius will move up the value chain in this in­dus­try just as it has in oth­ers. In tex­tiles, for ex­am­ple, many busi­nesses have kept go­ing even as wages have risen, largely through in­creased au­to­ma­tion. “We will deepen and broaden the ser­vices we of­fer to in­clude fi­nan­cial tech­nolo­gies, de­riv­a­tive prod­ucts and at­tract fund man­agers to come and set up,” says Mr Sitha­nen.

What­ever the con­tro­ver­sies over its low-tax regime, no other African coun­try has come closer to em­u­lat­ing the Asianstyle model of de­vel­op­ment. GDP per capita has risen from about $200 at in­de­pen­dence to $10,000, cat­a­pult­ing Mau­ri­tius close to high-in­come sta­tus, ac­cord­ing to the World Bank def­i­ni­tion.

Un­til re­cently, the spoils of eco­nomic growth were rea­son­ably eq­ui­tably dis­trib­uted, although in­come dis­par­i­ties have wi­dened in re­cent years. To ad­dress this, Mau­ri­tius has in­tro­duced a 5 per cent “sol­i­dar­ity levy” on in­come for high earners on top of ex­ist­ing tax rates, and an in­no­va­tive “neg­a­tive tax” for low ones. The min­i­mum wage has re­cently been nearly dou­bled to MR8,140 (about $230) a month.

Be­cause of a Bri­tish de­ci­sion not to dis­pos­sess the French of their land when it took over the colony in 1810, the small French pop­u­la­tion con­tin­ues to have an out­sized eco­nomic grip.

Indo-Mau­ri­tians, who also boast

a num­ber of suc­cess­ful busi­ness fam­i­lies and who make up about two-thirds of the pop­u­la­tion, are said to con­trol pol­i­tics, with every prime min­is­ter but one since in­de­pen­dence of In­dian de­scent.

To a large ex­tent, the black pop­u­la­tion, the de­scen­dants of slaves grabbed mainly from Mozam­bique and Mada­gas­car, con­tinue to miss out on both eco­nomic and po­lit­i­cal op­por­tu­nity.

Still, says Azim Cur­rim­jee, manag­ing di­rec­tor of the bev­er­age unit of the Cur­rim­jee con­glom­er­ate, Mau­ri­tius has never had the overt so­cial fric­tion pre­dicted by Naipaul. Eco­nomic suc­cess has helped lift most boats, he says. “We’ve never had a re­ces­sion in 37 years,” he adds.

Since Naipaul was writ­ing, the fer­til­ity rate has plum­meted from six chil­dren per woman to just 1.4, lower than Japan’s and below the re­place­ment value of 2.1. With 1.3m peo­ple, Mau­ri­tius is not over­crowded.

That said, com­plaints of traf­fic con­ges­tion are com­mon on an is­land with more than 600,000 regis­tered ve­hi­cles. Mau­ri­tius has other traits as­so­ci­ated with ad­vanced economies, too. It is one of few African coun­tries to have a McDon­ald’s fast food out­let. Di­a­betes, a dis­ease of af­flu­ence, af­flicts one in four is­landers.

Po­lit­i­cally, the is­land’s rep­u­ta­tion for sta­bil­ity — it reg­u­larly comes top of the Ibrahim In­dex of African Gov­er­nance — ob­scures the fact that power has os­cil­lated al­most un­in­ter­rupt­edly be­tween two fam­i­lies, the Jug­nauths and the Ram­goolams.

Navin Ram­goolam, the for­mer prime min­is­ter, was ar­rested on sus­pi­cion of con­spir­acy and money laun­der­ing in 2015 af­ter MR220m ($6.4m) was found in his pri­vate res­i­dence. The cur­rent prime min­is­ter, Pravind Jug­nauth — known to the is­land’s taxi driv­ers as “son of dad” be­cause his fa­ther be­queathed the premier­ship to him last year — also faces al­le­ga­tions of con­flict of in­ter­est. Af­ter be­ing con­victed, Mr Jug­nauth won his ap­peal, but the case will now be heard for a last time by the UK’s Privy Coun­cil.

Mr Cur­rim­jee says de­spite these ruc­tions, the ba­sic story of the coun­try’s progress has been un­in­ter­rupted. He notes that in 1961, No­bel Prize-win­ning econ­o­mist James Meade, wrote pes­simisti­cally that, given Mau­ri­tian de­mo­graph­ics, the coun­try would strug­gle to main­tain even the lowly liv­ing stan­dards of the early 1960s. The In­dian writer, Ami­tav Ghosh, wrote more pos­i­tively in his 2008 novel, The Sea of Pop­pies, about its mul­ti­cul­tural his­tory. “So many peo­ple have writ­ten about Mau­ri­tius,” says Mr Cur­rim­jee. “In the end, we’ve kind of writ­ten our own story.”

Fire­works in March marked 50 years of in­de­pen­dence © AFP

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