Source: World Development Indicators2009 and Central Statistic Office (CSO)
Mauritius gained independence in 1968, after centuries of colonization by the Dutch (1598), the French (1710), and the British (1810). It has a highly diverse population. Descendants of indentured workers from India, who were brought to work in the sugarcane fields after the abolition of slavery in 1835, make up about 70 % of the population. The rest of the population includes Africans, Creoles, Chinese, and Europeans.
Mauritius is a development success story. It achieved remarkable economic and social success, based on good governance and an exceptional use of trade preferences for sugar and clothing exports. At independence in 1968, the country was poor, with per capita income of about US$260. Today it is an upper middle income country, with a 2008 per capita income of US$6700 or $11,410 in purchasing power parity (PPP) terms, the second highest in Africa after Seychelles. The country’s ability to profit from the trade opportunities testifies to its institutional strengths – a stable democracy and rule of law; ethnic tolerance; macroeconomic stability; equitable social progress; and reliance on private incentives.
Mauritius is a multiparty parliamentary democracy. A general election in July 2005 resulted in a victory of the Alliance Sociale. Sir Anerood Jugnauth is President of the Republic; Mr. Navinchandra Ramgoolam, leader of the Labor Party, is Prime Minister.
Economy
Economic performance
In the mid-1990s a new vision of a higher value added, diversified and knowledge intensive economy took shape in Mauritius. Planners recognized they would need to invest in human capital and infrastructure, make better use of advanced technologies and reform the regulatory environment to harness the private sector.
In 2006, faced with a “triple trade shock” of sugar and textile trade preference erosion and rising oil prices, the government of Mauritius embarked on a bold, multi-year program of structural reforms aimed at restoring macroeconomic balance and diversifying the economy into new growth sectors such as seafood, technology and specialty tourism. The objective is to engineer a far reaching transformation of the economy capable of sustaining the country’s strong performance for another generation.
Reforms have tackled critical growth constraints. In particular, the overall regulatory framework was revamped with key pieces of legislation pertaining to labor, insolvency, public debt management and procurement and lay the groundwork for economic transformation. Government policies are being designed with a clear competitiveness perspective. Attention to small and medium enterprise development and transitional support to workers have played an important role in mitigating social adjustment costs associated with the transformations.
Early signs of success are encouraging. Gross domestic product (GDP) growth averaged 5.3 % annually between 2006 and 2008, against an average of 3.3 % between 2002 and 2005. Foreign direct investment increased to unprecedented levels above 3 % of GDP. The unemployment rate dropped from 9.5 % in 2005 to 7.2 % in 2008, as women in particular benefited from new job opportunities in the service sector. Public debt declined from almost 70 % of GDP in 2006 to 53 % in 2008. Export of services grew 35 percent between 2006 and 2008, helping to sustain external balance in light of a rising import bill due to fuel and commodity prices.
The world economic crisis hit Mauritius when implementation of second-generation reforms was being intensified. The government was forced to balance the long-run nature of its policy measures with more immediate focus on economic and social consequences from the crisis. This required greater emphasis on proactive management of risks and real-time policy responses, while maintaining the overall reform agenda on track.
Challenges ahead and government priorities
Despite the steps which have been taken, many challenges remain. Education must be further expanded to bring human capital up to the best practice standards of Singapore or Korea. Stronger university-business ties are needed along with a more entrepreneurial, innovative culture. In light of limited research and development capacity, substantially more foreign direct investment must be attracted to gain access to cutting edge technology and marketing skills. And finally, greater public sector efficiency is needed if the ambitious public investment program is not to undermine current efforts to keep fiscal deficits and debt to sustainable levels. The mid 1990s long term perspective study, Vision 2020, set a goal of sustaining growth in the range of 5.5-7.5%. Provided such challenges can be overcome, this goal can become a reality.
World Bank assistance
Program to date
The World Bank's role in Mauritius is evolving, reflecting the country's past success in gaining access to capital markets. Because of its relatively high income, Mauritius is one of only a few African countries eligible for for International Bank for Reconstruction and Development (IBRD) loans (most African countries borrow from the International Development Association (IDA), the World Bank's soft-lending arm for the poorest countries). The World Bank Group is working closely with the restructured Ministry of Finance and Economic Empowerment (MoFEE), various sector Ministries, and other development partners active in Mauritius.
The Country Partnership Strategy (CPS), establishes a framework for World Bank engagement in Mauritius until 2013. The CPS, which was prepared in close coordination with the European Union, is based on three guiding principles: (i) alignment with the government’s program; (ii) flexibility; and (iii) harmonization with other development partners. The CPS envisions preparation of annual business plans for the Bank’s work that would be developed in parallel with the government’s planning and budget processes.
Reflecting Mauritius’ past success and improved access to capital markets, official donor assistance had been declining in volume and becoming more selective. However, in response to the government’s requests for increased support, not least sugar sector adjustment assistance from the European Union and budget support from the Bank, there has been a significant increase in donor support. At the government’s request, the main external partnerspartners (World Bank, International Monetary Fund ,European Union, African Development Bank, United Nations Development Program) have coordinated their support. The main platform for coordination has been a Development Policy Loan which has been jointly prepared and cofinanced by the Bank, the European Commission, African Development Bank, and Agence Française de Développement. The World Bank Group opened on February 12, 2008 an office in Mauritius to underscore its commitment to its partnership with the country and to enhance efficient and effective engagement.
The Third Development Policy Loan for $100 million and the Economic Transition project for $18 million were approved in 2009. An infrastructure development project for $50 million, a Manufacturing and Services Development and Competitiveness Project for $ 20 million and a Fourth Development Policy Loan for $ 50 million are expected to be approved in 2010. The DPL operation supports Mauritius’ transition from dependence on trade preferences to open competition in the global economy.
The World Bank also supports the government of Mauritius through analytical and advisory assistance including knowledge transfer services. It recently carried out an Investment Climate Assessment, an update of the Financial Sector Assessment Program, a Country Economic Memorandum, Country Procurement Assessment Review, a Public Expenditure Review, and a Transport Action Plan. Earlier, the World Bank prepared a report on modernization of the pension system and a labor market study and provided advice to the government on a Medium Term Economic Framework. Currently the World Bank is supporting the work of five sector Ministries in preparing their action plans for the program based approach to budgeting.
The International Finance Corporation (IFC) has made no new investments since 1996, and the portfolio has steadily decreased as investments have been repaid and/or exited. IFC has an equity investment in a collective Investment Vehicle of $9 million. In March 2006, the IFC organized a multi-sector promotion mission, and is positioning itself to play a more active role in supporting South–South investment opportunities as well as private sector involvement in the following sectors: tourism, textile, agri-business, and information and communications technology. IFC is advising the government on the privatization of the Ports Authority and is also considering a request from the government to assist in a new power generation project. The IFC are also working with the Bank on the preparation of a new project to support the growth of small and medium enterprises in Mauritius
Multilateral Investment Guarantee Agency (MIGA) has been actively supporting Mauritian investors venturing abroad, particularly into sub-Saharan Africa. The agency is working to further strengthen relations with the local business community, creating synergies that will continue to support development into the Southern African Development Community region and other regions of Africa. For the second year running, the Board of Investment (BOI) office has supported and facilitated MIGA’s missions to Mauritius. These missions have raised the profile of MIGA as a value adding institution to cross-border investors. The BOI office has helped to identify more than 30 investors with the potential of using MIGA services. MIGA does not have any exposure in Mauritius, but does support Mauritian investors venturing abroad. At present, the agency’s gross outstanding exposure resulting from Mauritian sponsored investments is US$54.3 million, in support of investments in the agribusiness, infrastructure, and tourism sectors in Burundi, Madagascar, and Mozambique.
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