Mauritius at 50 provides textbook example of move up value chain
Emergence of African oasis of political and economic stability confounds sceptics
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