Mauritius - Overview of economy

From the 17th century, the Mauritian economy depended almost exclusively on sugar. Slaves were imported from Africa to work on the sugar plantations. After the abolition of slavery in the 19th century, plantations came to rely more on indentured Indian labor, whose ancestors today form the largest portion of the islands' population.

By the 1960s, Mauritius was still a monocultural economy (dependent on a single crop), and had to import many goods for local consumption. Unemployment was high, which created social tensions. In the mid-1960s, the Mauritian government began to follow a 2-pronged strategy of import substitution and export-oriented development.

Import substitution was promoted through the use of high tariff barriers to protect local industry from overseas competition. To encourage the production of goods for export, Export Processing Zones (EPZs) were established in 1971, following the successful Taiwanese model. The principle behind EPZs was to import semi-finished goods duty -free, to complete the manufacturing process in the EPZs, and then to re-export these goods. Clothing and textiles were the main manufactures produced by the EPZ sector.

The EPZ sector grew rapidly since its inception and attracted large amounts of foreign investment. This allowed for the rapid industrialization of the country. Nowadays, only 25 percent of export earnings come from sugar, while 40 percent are derived from manufacturing. Over the past twenty years, the economy has consistently achieved high rates of growth, resulting in a quadrupling of GDP per capita between 1970 and 1997. According to the World Bank, the economy of Mauritius has sustained a growth rate of about 5.5 percent since independence in 1968, and the country is currently classified among middle-income earners.

Besides manufacturing and sugar, the nation's other important economic sectors are tourism and financial services. With its white sands, coral reefs, and subtropical climate, Mauritius is an island paradise for tourists. Visitors come mainly from Europe and from South Africa.The hospitable nature of the Mauritian people also contributes to the island's attraction.

The island of Rodrigues has not seen the same level of development as Mauritius has—which is perhaps not so surprising when one considers that the 2 islands are 600 kilometers (373 miles) apart. Subsistence agriculture is the main economic activity on Rodrigues, with the principal crop being maize instead of sugarcane.

By the late 1990s in Mauritius, only about 5 percent of the population was living below the poverty line. However, challenges such as tariff reductions, rising wages, and limited growth prospects for the almost-saturated tourism industry have contributed to an increase in unemployment on the island, which in mid-2000 stood at 8 percent. This is rather disturbing for a country that had had full employment only a few years before.

A major factor which should not be overlooked in Mauritius's success is the political climate, which is characterized by stability and ethnic tolerance. Ordinary Mauritians have also demonstrated a strong work ethic, which has resulted in a highly productive labor force .

The debt levels both in terms of GDP and exports are manageable, hence Mauritius is not considered a highly indebted country. In June 1999, external debt was around 30 percent of GDP. There is a healthy balance between local and foreign debt positions, with local debt comprising over 80 percent of total public debt and the residual being foreign.

With respect to donor assistance, the World Bank notes that, due to the country's access to capital markets, official development assistance has declined considerably since 1990 and has become increasingly selective. Although donor assistance is important to supplement private capital flows, Mauritius is not dependent on foreign aid.