The Mauritius economy, diverse and conservatively managed, is based on export-oriented manufacturing (mainly clothing), sugar, and tourism. Most of production is done by private enterprise, with the government largely limiting its role to providing institutional facilities and incentives for production. Nearly 275 garment factories were operating in the Export Processing Zones (EPZ's) of Mauritius in 1999. The economy grew at an impressive average rate of 6% in the early 1980s. However, economic growth started to decline in 1988 as the economy experienced some of the problems associated with success, including labor shortages, rising inflation, and capacity constraints. In the early 1990s, the economy showed signs of a modest recovery, with solid real growth and low unemployment. Between 1988 and 1998, the economy was estimated to have grown at an annual rate of approximately 5.3%, which is approximately where it stood in 2001.
Important to Mauritius' industrial development is the Export Processing Zone (EPZ) in which imported goods and raw materials are processed for export. EPZ products include textiles and clothing (80%), electrical components, and diamonds. Manufacturing in the EPZ provided nearly 45% of export earnings in 2002. Legislation gives investors in EPZ enterprises tax relief, duty exemption on most imports, unlimited repatriation of capital and profits, and cut-rate electricity. However, some of the country's larger manufacturing industries were moving their labor-intensive production to Madagascar. Preferential access to markets in Europe and the United States is threatened by WTO regulations that do away with textile, clothes, and sugar quotas.
Sugar cane covers approximately 45% of the island's land area, and 85% of cultivated land. Adverse weather conditions reduced the importance of sugar cane to the Mauritian economy in the late 1990s, but exports of cane brought in almost 8% of the GDP. To further enhance its competitive advantage, in 1992 the government passed legislation for the creation of a commercial free port in Port Louis. The free port provides warehousing as well as facilities for processing foods and materials for reexport to destinations around the world. The financial services sector of the economy is expanding, as is the tourism sector. Mauritius is increasing its trade with India and South Africa, largely through more than 9,000 offshore entities.