Mauritius - ECONOMY
The Mauritian economy has undergone remarkable transformations since independence. From a poor country with high unemployment exporting mainly sugar and buffeted by the vagaries of world demand, Mauritius has become relatively prosperous and diverse, although not without problems.
The 1970s were marked by a strong government commitment to diversify the economy and to provide more high-paying jobs to the population. The promotion of tourism and the creation of the EPZs did much to attain these goals. Between 1971 and 1977, about 64,000 jobs were created. However, in the rush to make work, the government allowed EPZ firms to deny their workers fair wages, the right to organize and strike, and the health and social benefits afforded other Mauritian workers. The boom in the mid1970s was also fueled by increased foreign aid and exceptional sugar crops, coupled with high world prices.
The economic situation deteriorated in the late 1970s. Petroleum prices rose, the sugar boom ended, and the balance of payments deficit steadily rose as imports outpaced exports; by 1979 the deficit amounted to a staggering US$111 million. Mauritius approached the IMF and the World Bank for assistance. In exchange for loans and credits to help pay for imports, the government agreed to institute certain measures, including cutting food subsidies, devaluing the currency, and limiting government wage increases.
By the 1980s, thanks to a widespread political consensus on broad policy measures, the economy experienced steady growth, declining inflation, high employment, and increased domestic savings. The EPZ came into its own, surpassing sugar as the principal export-earning sector and employing more workers than the sugar industry and the government combined, previously the two largest employers. In 1986 Mauritius had its first trade surplus in twelve years. Tourism also boomed, with a concomitant expansion in the number of hotel beds and air flights. An aura of optimism accompanied the country's economic success and prompted comparisons with other Asian countries that had dynamic economies, including Hong Kong, Singapore, Taiwan, and the Republic of Korea (South Korea).
The economy had slowed down by the late 1980s and early 1990s, but the government was optimistic that it could ensure the long-term prosperity of the country by drawing up and implementing prudent development plans. According to Larry W. Bowman, an expert on Mauritius, four development aims of the country into the 1990s will be "modernizing the sugar sector, expanding and diversifying manufacturing infrastructure, diversifying agriculture, and developing tourism." In addition, because of the threats to agriculture resulting from Europe's common agricultural policy and the potential effects on textiles of the General Agreement on Tariffs and Trade (GATT), Mauritius hopes to transform itself into a center for offshore banking and financial services. A stock exchange opened in Port Louis in 1989. Another sector needing attention is that of housing because increased family incomes have raised the demand for housing. Overall, Mauritius had a 1993 gross domestic product (GDP) estimated at US$8.6 billion, with a growth rate of 5.5 percent, and a 1993 inflation rate of 10.5 percent.
In 1990 the government initiated a five-year plan costing MauR7.3 billion to bolster the sugar industry. Sugarcane covers 45 percent of the total area of Mauritius and more than 90 percent of the cultivated land. Nineteen large estates account for about 55 percent of the 76,000 hectares planted in cane and range in size from about 730 hectares to 5,500 hectares. (Land in Mauritius is also measured in an archaic French unit, the arpent.) Mauritian firms own fifteen of these plantations; the British multinational Lonrho owns two and controls a Mauritian firm which owns another; and the Mauritian government owns one estate. Some 35,000 small growers (with plots ranging from less than one hectare to about 400 hectares) tend the remainder of the crop and send their harvest for processing to the large planters, each of whom owns a sugar factory.
Since 1951 the production of sugar has been encouraged by marketing arrangements with consuming countries (principally Britain), which have guaranteed prices and markets for the Mauritian crop. The government has acquired a portion of this reliable sugar income through a sugar export tax. By the mid1980s this tax had evolved into a steeply progressive one, with producers of under 1,000 tons of cane paying no tax, producers of 1,000 to 3,000 tons paying 15.75 percent, and producers of more than 3,000 tons paying 23.625 percent. This tax provided 13 percent of the government's revenues in 1986. However, complaints mainly by the large miller/planters and severe economic pressures on the sugar industry prompted the government in 1993 to reduce the tax in each category by 9.4 percent. This move met opposition by many who claimed the large growers were being given favorable treatment.
Since 1975 Mauritius has had an export quota of about 500,000 tons per year under the Sugar Protocol of the Lomé Convention, the largest share of all nineteen signatories. The guaranteed price in 1991 was nearly twice the world freemarket price. In 1992 the country exported 597,970 tons of sugar; of this amount, Britain received 498,919 tons.
Production has remained steady at between 600,000 and 700,000 tons since the mid-1960s. The exception occurs when severe cyclones or droughts cause a decline in the cane harvest.
Since 1984 the Mauritius Sugar Authority, operating under the Ministry of Agriculture, has advised the government regarding sugar policy. In addition, the authority acts as a nexus between the government and the numerous organizations involved in sugar production. These organizations include parastatal, producers', and workers' organizations, as well as extension and research bodies. The private Mauritius Sugar Syndicate, which has offices in London and Brussels, handles all aspects of domestic and foreign sugar marketing, including transportation, finance, insurance, and customs duties. The Mauritius Sugar Industry Research Institute (MSIRI) conducts research in such areas as plant breeding, entomology, and food-crop agronomy.
As part of its agricultural diversification efforts, the government supported the large-scale production of tea in the late 1960s. Second to sugar in exports, tea covered 2,870 hectares in 1991. The Tea Development Authority (TDA) owned and managed three-fourths of this land, which it leased to tenant growers. Although tea thrives on the island's higher elevations, production has been hindered by high costs, including labor, and fluctuations in world prices. Since 1986 the government has subsidized tea production to compensate for low prices. In the same year, it established the Mauritius Tea Factories Company to manage four factories that had been run by the TDA.
Tea production reached 8,115 tons in 1985, its highest level, only to decline steadily to 5,918 tons in 1991. Export earnings have declined from MauR104 million in 1986 to MauR83 million in 1991. The government is considering other uses for its teaplanted land in the face of continuing economic pressures.
Mauritius produces enough potatoes and fresh vegetables to meet domestic demand. The government subsidizes the production of some crops. The area under cultivation for food crops was 5,494 hectares in 1991; total production was 64,090 tons. Between 1987 and 1989, food crops suffered from poor weather, including cyclones, disease, and lack of land for tenant farmers. Tobacco covered 623 hectares in 1991, and production amounted to 876 tons. British American Tobacco processed the entire crop for domestic consumption. Cut flowers have proved to be a very successful crop, beginning in the late 1980s, and efforts are also being made to produce tropical fruits for export.
Although self-sufficient in poultry and pork, Mauritius had to import 80 percent of its dairy products and 90 percent of its beef in 1991. The following are figures for livestock production in 1991: beef, 544 tons; goat and mutton, 178 tons; pork, 906; poultry, 13,250; and milk, 10,800,000 liters.
Declines in local fishing catches in the early 1980s prompted the government to institute programs aimed at ensuring selfsufficiency in fish. The programs included the construction of fishing wharves and the purchase of new vessels. In 1990 the total catch amounted to 13,985 tons, which included fish caught by foreign vessels for the tuna canning industry.
Industrial development in Mauritius expanded rapidly after 1971, when the government established EPZs. In return for tax benefits, duty-free imports of raw materials and machinery, and other inducements, the owners of EPZ enterprises agree to export all their products. In the first year of operation, nine EPZ firms employing 644 persons accounted for 1 percent of export earnings. In 1992 a total of 568 EPZ enterprises employing 89,949 persons produced such items as flowers, furniture, jewelry, and leather goods. The EPZ rate of growth of employment and foreign exchange earnings slowed in the 1980s and early 1990s. However, the value of EPZ exports in 1993 set a record of MauR15.8 billion.
Textiles are the main EPZ product, accounting for 89 percent of jobs and 83 percent of exports. With regard to wearing apparel, Mauritius benefits from preferential treatment in the European Community (EC) marked under the Lomé Convention. Hong Kong, the source of 22 percent of all foreign investment, is the largest foreign investor in the textile sector. Other countries participating include France, Britain, and Germany. Two foreign firms dominate the textile industry: Socota and Woventex. In a 1991 policy paper, the government urged diversification of EPZ industries and pledged to give priority to nonclothing industries such as electronics.
The construction industry's contribution to GDP grew from 5.3 percent in 1987 to about 7.6 percent in 1992, thanks to investment in housing, roads, hotels, factories, and a new airport terminal. Average annual real growth in the construction sector between 1989 and 1992 has been around 10 percent. In 1992 an estimated 10,600 persons were employed in the industry, accounting for about 3.7 percent of total employment.
The attractive climate and numerous beaches of Mauritius have been among the features that have attracted record numbers of tourists each year since 1984. Some 300,000 tourists visited in 1991, earning the country MauR3.9 million in foreign exchange; in 1993 the number rose to 375,000 tourists, bringing in MauR5.3 million in foreign exchange. In 1993 Mauritius had eighty-five hotels with 10,980 beds and an occupancy rate for the larger hotels of 68.5 percent; tourism employs more than 11,000 people.
The three principal sources of tourists in 1993 were Reunion (26 percent), France (21 percent), and South Africa (11 percent). Tourism increased by 10 percent in 1993 over 1992--Mauritius has concentrated on developing a quality tourist industry rather than on appealing to the mass market. Most investors in tourism are Mauritian; South Africans, French, British, and Germans also invest in tourism.