Mauritius is a state located in East Africa and is one of the smallest countries in the world. However, according to the Index of Economic Freedom, Mauritius' economy is the 13th freest and the first in sub-Saharan Africa.
Since the 1970s, Port Louis has recorded very high growth rates and sustained increases in human development indicators. Notably, according to the Human Development Index in 2020, Port Louis ranked 66 out of 189; the best in Africa.
The recent history of this small state dates back to the 17th century. In 1722, the French gained control of the island, naming it the 'Isle of France'. The country soon became the subject of fighting between the British and the French during the Napoleonic Wars.
Both Mauritius and the neighboring island of Réunion were captured by the British in 1810. However, the island of Réunion was returned to French control by the 1814 Treaty of Peace of Paris. Nevertheless, Mauritius would become a British colony.
Nevertheless, the British did not rush to settle en masse in Mauritius and administered the country along Whitehall's bureaucratic lines. London also retained French culture and some French laws such as the "Code Napoléon" because of the strong French influence in Port Louis.
Before independence, Mauritius still relied on sugar for more than 95% of its total export earnings. The sugar sector reached its physical limits of development. Consequently, during the 1950s, the economy went through a period of declining real per capita income and an increasing population, with growth rates of about 3% per annum.
Due to these factors, during the pre-independence years, the process towards political independence of the island and a programme of economic diversification was set in motion. The Mauritian government adopted the strategy of import substitution industrialisation (ISI). In 1964, legislation was passed offering a series of tax incentives to encourage the creation of new industries. At the same time, these new industries were protected from external competition through tariff and non-tariff barriers to trade.
However, this first plan was a failure. In 1967, a year before independence, sugar accounted for one third of the gross national product and the unemployment rate was still around 20%.
Following Harold Macmillan's "Windy Speech", London eased its way towards full intendancy of its colonies. In 1965, following the Lancaster Conference, the Chagos archipelago would become part of the British Indian Ocean Territory, due to its strategic position.
In March 1968, Mauritius adopted a new constitution and proclaimed its independence. Sir Seewoosagur Ramgoolam was the Prime Minister of Mauritius, and Queen Elizabeth II remained head of state as Queen of Mauritius.
The Mauritian economy was in a bad economic situation, with high unemployment, external imbalance, slow growth and fiscal imbalances. The Port Louis government therefore changed its economic strategy, implementing the 1971-75 Four-Year Plan.
One of the key points was the Export Processing Zones Act in 1970, creating a Free Trade Zone. These zones enjoyed a special status allowing the free import of equipment and favourable taxation regulations.
Another external factor behind this economic boost was the commodity boom during 1972-75, coinciding with the 1973 oil crisis. During these years, world sugar prices soared. Thanks to the Sugar Agreement with London in 1974, London agreed to give Mauritius a higher price per tonne of sugar.
This pragmatism allowed the local sugar industry sufficient funds to upgrade its plantations and equipment. This allowed diversification into other sectors of the economy, e.g. manufacturing. Also, unlike other countries in the region, Mauritius did not experience coups d'état or iron-fisted dictatorships; instead, democracy and legal certainty were consolidated.
This economic bonanza was called into question during the second half of the 1970s. On the one hand, the world recession following the oil crisis of 1973 and 1979; the import restrictions on exports in 1976 by France; the loss of competitiveness of Mauritius due to rising labour costs, strikes and Cyclone Gervaise in 1975.
Consequently, the Port Louis government would change its economic paradigm. Through the assistance of the World Bank and the IMF, Port Louis adopted an economic adjustment programme during the period 1979 to mid-1986.
In a first phase between 1979-83, a policy of stabilization and adjustment was implemented. To this end, subsidies for rice and flour consumption were cut. At the same time, monetary policy was tightened by restricting credit to reduce inflationary pressures in the economy.
This was accompanied by the emphasis on free market forces in the economy, especially foreign trade by reducing import restrictions. It is worth mentioning that the budget deficit fell from 14% in 1980-81 to 5.6% in 1983. Unemployment remained high, however, at around 17% in 1983.
During the 1980s, Port Louis witnessed the emergence and consolidation of the tourism sector as a key pillar of its economy. Between 1984 and 1988, the amount spent per tourist (in Mauritian rupees) rose from 2,200 to 4,000. This increase was due to good promotional campaigns by the government in Europe and new direct flights from Asian countries.
Since the 1990s, the Port Louis government has implemented policies to strengthen the outward-oriented services sector. It is worth mentioning that in 1992, the Mauritius Free Port was created. This move was aimed at transforming Mauritius into a regional distribution, transhipment and marketing centre. To this end, companies operating in this free port were granted an exemption from corporate tax for commercial activities and free repatriation of profits without exchange controls.
The Mauritius Offshore Business Activities and Offshore Trusts Acts was also proclaimed in 1992. This legislation was intended to boost the development of the financial services sector, transforming Mauritius into an offshore centre. To attract foreign investors, a number of financial and legal incentives were offered, for example, in 1997, some 5,060 offshore corporate entities were registered, compared to only 455 at the end of 1993. Another key aspect was the signing of the double taxation agreement that Mauritius signed in 1982 with India.
Between 1993 and the 2000s, Port Louis experienced an average economic growth of 5.3%, one of the rare examples of economic growth in Africa. In turn, Mauritius' economy at the beginning of the 21st century has been centred on four pillars: sugar, the free trade zone sector, tourism and finance.
The abolition of the Multi-Fibre Arrangement since 2004, the reduction of sugar price guarantees by the European Union since 2006 and the drastic increases in world commodity prices would slow down Mauritius' economic growth.
However, in 2007, the Mauritian government introduced a flat 15% tax on corporate and personal income and streamlined tax administration. During the 2008-09 crisis, Port Louis pursued prudent macroeconomic management and a fiscal stimulus and monetary easing package was adopted.
This plan focused on infrastructure spending, financial relief for companies hardest hit by the global crisis, and social and employment protection measures. In turn, Port Louis implemented measures limiting public debt to over 60 per cent of GDP, with the aim of reducing it to 50 per cent by 2013.
Over the last few years, the Mauritius government has implemented new policies. Notably, a financial services plan was implemented in 2017. This plan provides for the introduction of new and improved financial products, such as digital currency, insurance wrapping, open-ended companies and green bonds. This included the creation of a venture capital market for start-ups and SMEs.
Alongside this, in 2018, certain tax changes were introduced in the Mauritius Budget, the tax regime for domestic and international companies was harmonised. At the same time, in the same year, Port Louis was removed from the list of tax havens at national and international level.
Due to the SARS-CoV-2 crisis, the tourism industry has been the most affected. This time, growth is expected to fall to 2.6%-2.8% from the 4% forecast for 2020, but the worst-case scenario foresees negative growth pushing the Mauritian economy into recession.
To address the economic crisis following the SARS-CoV.2 pandemic, the Minister of Finance, Economic Planning and Development presented the "Economic Recovery and Investment Plan", "Major Structural Reforms" and "Ensuring Sustainable and Inclusive Development".
To this end, the Mauritian government will focus on projects such as the blue economy, strengthening the financial sectors, stimulating the data economy, creating a pharmaceutical industry and promoting regional partnerships.
Although Port Louis did not hold all the cards for economic progress due to extreme cultural diversity, unemployment and high population growth during the 1970s, Mauritius has experienced stellar economic progress.
Mauritius has been pragmatic and taken advantage of access to international markets to progress domestically, for example, it is estimated that less than 1% of the population lives in extreme poverty, malaria has been eradicated and inequality (according to the Gini coefficient) fell from 45.7 to 38.9 between 1980 and 2006.
Alongside the implementation of an effective economic and fiscal strategy, Port Louis has been able to build strong institutions not only to address inequalities between political elites and disadvantaged ethnic groups. The Mauritian government did not persist if a strategy did not work, and there has been consistency and stability in the approach to economic management, regardless of which political party was in government.
Opmerkingen