Master of redirection - can Mauritius do it again?

13 October 2009, TradeInvest Africa
URL: http://allafrica.com/stories/200910120880.html

Cape Town:  Mauritius is perhaps the country most likely to be touted as an African success story. It has been recognised as the top regional business reformer, the best place in Africa in which to do business and as one of Africa's most competitive tourist destinations.  Such is the strength of its marketing and reputation that it is more often referred to a country at the crossroads of Africa and Asia rather than a small, fairly remote island in the vast Indian Ocean.

Given the success it has achieved to date it is worth considering how Mauritius will fare after the world emerges from the latest global financial crisis. Will the government once again be able to change tack and attract investment in alternative sectors following the sharp awakening to the danger of relying on exports and tourism as the main sources of revenue?

Path to success:

There are many contributors to the economic success of this small island nation but arguably the real strength of Mauritius has been its ability to face challenges head-on and redirect the economy when the traditional economic activities no longer delivered desired results. In the mid 1960s, it was still a single-product economy, heavily reliant on income from the sugar industry.

After a significant decline in the income from sugar, the government opted to diversify by setting up an export processing zone and successfully attracted investment into the textile sector. Following that the government focused on developing 'high-end' tourism and later started punting the financial services industry as a potential future economic stalwart. According to Anita Last, an economist at Standard Bank, "this economic spread has ensured fairly even growth, exceeding 5% over the last 10 years."

In the last few years the government has implemented a number of business reforms in addition to this sector diversification thereby improving the country's attractiveness as a destination for foreign direct investment.

Trouble in paradise:

Despite years of economic growth, Mauritius has had to face up to the loss of trade preferences in the sugar and textile sector, the tightening of regulations surrounding the offshore financial services industry in a post 9/11 world and more recently, a worrying decline in tourism figures. Estimates are that tourist numbers for 2009 will decline by more than 10% in comparison with the figures for 2008. The decrease in tourist arrivals can more than likely be attributed to general effects of the global economic crisis and possibly to lingering fears about swine flu.

Furthermore Mauritius is a small island that has enjoyed relatively fast growth and some residents complain that the infrastructure is battling to cope. There is also some resentment about the lack of democratisation in the economy and the fact that the erstwhile sugar barons own or manage a sizeable share of the "post-sugar era" successful companies.

Can Mauritius redirect again?

There are a number of factors that point to the likelihood of continued economic growth and significant foreign direct investment in Mauritius in future. Some of these include the:

• Likely recovery of the tourism sector (and the potential for an increase in visitors from 'new' markets)

• Introduction of innovative programmes to attract investment

• Strong ties with emerging superpowers

• Focus on new sectors for development and investment

A few of these points are discussed in more detail below.

Integrated Resort Scheme:

A good example of innovative thinking on the part of policy makers in Mauritius was the introduction of the Integrated Resort Scheme (IRS) a few years ago.  Under this scheme, non-Mauritian individuals or companies are entitled to purchase luxury villas and other residential properties on the island. The property owners then receive a residence permit (and consequently the tax benefits associated with living in Mauritius). Properties under this scheme are sold at a minimum price of USD 500 000. Aside from the injection of foreign capital and the immigration of skilled business people to Mauritius, the programme has provided a very welcome boost to the construction industry (and consequently employment) in the country.

According to Sewraj Nundlall, assistant director, Manufacturing Agri-Business Energy and Environment at the Board of Investment of Mauritius (BOI), "20 projects with an investment potential of around Rs 100 billion have already been approved. International property developers from UK, South Africa, and France have been investing in the projects and over 300 villas have already been sold out. The majority of the buyers come from France, UK, India and South Africa".

One company which has very successfully marketed properties under this scheme is Pam Golding Properties. Jonathan Tagg, managing director of Pam Golding Properties in Mauritius says, "the first IRS [the Tamarina Golf Estate and Beach Club development] is sold out. We are currently involved with an IRS development called Matala and with villas starting at USD 850 000 we have seen good sales and we expect that should take around one year to be sold out."

When questioned about the effects of the global economic crisis on sales he said "the market has slowed down from the highs of 2007 and early 2008 but we continue to see clients investing in Mauritius where there is little supply and property prices continue to climb. We feel the market will take another 18 months to two years to reach the highs of 2004 - 2007 where sales moved very quickly but we are optimistic that sales will continue to be steady."

The IRS has been so successful that the government has innovated further and subsequently introduced the Real Estate Scheme, which unlike other government schemes designed to encourage inward investment, sets no minimum purchase price for foreign buyers.

Links with India and China:

Almost 50% of all investment in India is channelled through Mauritius. Indian investors are keen to take advantage of an Indo-Mauritian tax treaty and as outbound investment in India grows, channelling via Mauritius has some financial benefits for the island. The tax treaty is however somewhat controversial, but the eventual conclusion of the Comprehensive Economic Cooperation and Partnership Agreement should cement the already strong ties between the two countries.

Increasingly the country is looking at further exploring already close ties with China. Earlier this year China invested in a special Chinese economic and trade co-operation zone and Anita Last believes that "Mauritius's well-developed financial and communications infrastructure, as well as its sizeable minority of ethnic Chinese, will make it a good offshore base for China's commercial activities in the region."

Redirecting the sector focus:

The BOI points to the Seafood Hub, the land based oceanic industry, aquaculture development and the seaweed industry as key sectors in the next phase of development. According to Nundlall, "two of the most promising emerging sectors are the Seafood Hub and the Eco-Park as there is a significant scope for increasing demand for fish products, bottled water, luxury items and high value added products."

The seafood sector is also highlighted by Last who says that "growth prospects for the sector, namely activities such as storage, warehousing, processing, canning and distribution of seafood are good.... This is linked to insatiable world demand - estimated at USD 100 billion - coupled with the fact that Mauritius commands a vast maritime zone. With the Indian Ocean holding one of the world's largest stocks of tuna, with over 20% of the global annual tuna catch coming from the region, Mauritius is on the ideal platform to become the major transhipment and processing hub for tuna."

Other new and emerging sectors that the government is targeting include renewable energy, green data centres, water conservation and management as well as creative arts and telecommunications. Recently, the BOI organized a series of conferences to position Mauritius as a 'Global Services Delivery Platform'.

Last believes that "the government will continue its policy of steering Mauritius's 'four-pillar' economy away from its dependence on sugar, textiles, tourism and financial services and towards greater diversification, hoping to make it more resilient to shocks, while increasing its competitiveness in world markets. Investment in education and infrastructure is vital if the shift towards a more services-orientated economy is to succeed."

When asked about the BOI's strategy for ensuring further investment, one of the plans mentioned by Nundlall is "embedding efficient and effective processes within an adaptive culture." The success of the country to date indicates that the ability to adapt may already be well embedded in the Mauritian psyche - and this can only to contribute to the confidence of potential investors.