Located 1,100 miles off the coast of East Africa, Mauritius (pop. 1.2m) gained independence forty years ago when roughly 150,000 Mauritians gathered in Port Louis’ Champ de Mars to witness the lowering of the British flag for the last time. “But the euphoria was tempered with some trepidation,” writes Alec Russell of The Financial Times. “Just two months before the ceremony, rioting had erupted on the streets of the capital. Linked to high levels of unemployment, it rapidly degenerated into communal clashes between the island’s different ethnic and religious groups.” Unemployment stood anywhere between 20 and 40 percent, and a growing population that depended almost entirely on sugar and textiles enjoyed a GDP per person of only $200.

Flash foward to 2008. GDP/head stands at around $7000. Government officials point out economic growth of more than 6 percent last year and predict 7 percent this year. The 2008 Heritage Foundation Index on Economic Freedom touted the island as having the “second most improved economy over the past year,” and also ranked it the “18th freest in the world and first in the 40 countries in sub-Saharan Africa.” Most recently, it ranked 1st in the latest annual Mo Ibrahim index (measuring overall quality of governance in Africa); 24th in the World Bank’s ‘ease of doing business’ report–the only African country in the top 30 and, as The Economist made sure to note, ahead of Germany and France. Mon dieu.

One primary reason for the country’s fiscal turnaround has been its pragmatic economic policies, which were enacted earlier this decade through a “Business Facilitation Act.” While Russell notes that “the government has faced fierce criticism from the opposition over the social cost of the tough Thatcherite reforms it has forced through,” the results speak for themselves: “simplified and cut taxes, slashed red tape and lowered or dropped tariffs,” writes The Economist. Russell notes, however, that critics argue that “such projects might jeopardise through overcrowding and overdevelopment what has for centuries made Mauritius such a special destination–-its fabulous landscape and environment.” , as well as a conscious reigning in of spending and the passage of liberalized labor laws. Officials argue that the policies were necessary. “When we came to power in 2005, the situation was awful,” says Rama Sithanen, the nation’s finance minister. “The economy had been hit by a triple whammy – abolition of tariff preferences for clothing and textile exports to western markets; the phasing out of the European Union’s Sugar Protocol; and the explosion of energy prices, followed by a similar surge in food prices. We had to accept that globalisation offered opportunities as well as threats.” And while tourism is currently booming, the island’s main selling point to foreigners has continued to be its reputation as a “low-tax gateway” (a single rate of 15 percent, down from 30 percent previously, for individuals and companies alike) for investment into other countries, especially India (see chart) and China. To this extent, the island boasts 19 banks, including Islamic ones (presumably hawking Sharia compliant products) that attract petro-dollars from the Gulf. That said, Russell warns that “both [Asian giants] are refocusing on offshore investment structures and India has indicated it might even seek to renegotiate its [tax] treaty [with Mauritius].” Nevertheless, the island has already been named one of China’s “five special economic zones for Africa” by Beijing, prompting Mauritus officials in turn to begin construction of one of myriad “urban building projects”–the Chinese economic zone–in order to “relieve pressure on the capital [Port Louis].” The Chinese zone will be a $700m trade zone, financed by Chinese investors, that will allegedly create 40,000 jobs over five years and a variety of export industries that will eventually earn $300m a year. Another project includes a new city in the highlands–a $3bn project to relieve congestion and pollution in Port Louis.

However, all the above-related rah-rah about growth may be overlooking the fact that 2008-2009 projections will likely be tempered by rising world prices for food and energy, as Mauritius’ status as a net importer leaves it especially vulnerable to inflation. And even Mr. Sithanen is not loath to tick off areas where the island must improve, bemoaning the state of the infrastructure, the skills mismatch, and the problem of poverty (the government estimates that 8 percent of the population live in poverty). Furthermore, all of the positive press is bringing undesired but inevitable consequences: “the currency has appreciated sharply in the past year on the back of capital inflows for resort schemes, industrial and tourist investment, real estate and portfolio investment in the stock exchange, drawing dire warnings that manufacturing is at risk,” writes The Financial Times. Still, things could be worse, as history shows.


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