Journalists like to don a guise of objectivity. I do too; I think it’s important. But may I tell you how difficult it is to write about a country while staying in one of its five-star hotels, eight-and-a-half steps from an almost perfect beach, and it’s all being paid for by someone else?
The country is Mauritius: the “someone else” is the Mauritian Tourism Authority, the hotel is the Sugar Beach, and the journalist in question would be, you know, moi.
Why, you may ask, would any self-respecting journalist (should such a being exist, and clearly does not in my case) take such an assignment? The answer is that I think Mauritius constitutes such an extraordinarily important economic lesson for Africa, and most of all South Africa, that it’s worth enduring the indignity of staying in not one but two five-star hotels to delve deeper into that lesson. Somebody has to do this stuff.
But, be warned: some slight rose tint might marginally distort the objectivity, though that could also be the consequence of a lot of fabulously high-quality rum.
Let’s recap why this is important – and I’m being deadly serious. When Mauritius became independent in 1969, the consensus view of those who gave it a passing thought – and there weren’t many – was that its economic prospects were hopeless. Mauritius didn’t so much become independent as have independence thrust upon it; 44% of the residents actually voted to stay a British colony!
The British government at the time had abruptly reversed its long colonial heritage for a complicated set of reasons; some moral, some historical and some financial. In Mauritius’s case, the very small population hadn’t really considered independence in any dominant way; there was certainly no civil rebellion as in many other African countries.
The reason, I suspect, has to do with a complicated, multicultural and multinational population: it was originally a Dutch colony, for almost a century a French colony, and then, for a long time, a British colony. Most of the population were, in fact, Indian indentured labourers, but there were some Africans (many imported as slaves), some French, some Chinese and some British.
Mauritius was a small, monocrop, agricultural island, pretty far from everywhere.
British economist James Meade was commissioned in 1961 to assess the place’s economic future, and his report was excoriating. Meade thought Mauritius was caught in a Malthusian trap and, if economic progress could be achieved, it would be limited.
Meade was not only wrong, but ridiculously wrong. Yet his advice was good; a new economic path was urgently needed.
Fast-forward 55 years. Mauritius has become Africa’s second-richest country by average gross national income and is on the verge of becoming a high-income country by World Bank standards, which would make it only the second African country to achieve that status (and that is if you count the Seychelles with its population of just under 100,000 people).
The economic growth rate in Mauritius hasn’t been spectacular; it just has been very consistent for a very long time, at around 4.5% for more than 40 years, with 1970 to 2010 being golden years. There has been just one recession, outside of Covid, in 1981.
‘An acute labour shortage’
The result is eye-popping: unemployment is not only functionally nonexistent, a local economist told me the country was facing an “acute labour shortage”. What wonderful words. Technically, unemployment was 7.5% after tourism was hit by Covid, but that has recovered – so much so that hoteliers are astounded at their occupancy well after the “revenge travel” phase.
Bangladeshi contract labour is now a feature of the construction industry, in an extraordinary throwback to the indentured labour system on which the island was partially founded. The current account deficit recently wobbled, but was in surplus for decades, and even during Covid was less than 2%. GDP per capita was $2,000 in 1980. It’s now just under $30,000 on a purchasing power parity basis; around $10,000 on a nominal basis: $13,000 would make Mauritius a high-income country. South Africa is at $6,500, according to International Monetary Fund (IMF) data.
How did this happen? Some of the reasons are obvious; some I wasn’t able to fathom. Obvious reasons are happening on an economic path partly forced by monocrop dependency on sugar cane and partly motivated by there being few other choices.
In desperation, one suspects, Mauritius converted the whole island into a special economic zone (SEZ) in the early 1970s.
At the time, both unemployment and inflation were high. Because there was no industry, any additional industrial development would be a net bonus and, by definition, would not hurt existing business.
Sugar cane is still about 25% of exports (then it was 100%), but agriculture is now only about 4% of the total economy.
More remarkably, the SEZ was introduced under a socialist government motivated by a Chinese professor, Edouard Lim Fat.
His SEZ was full-on: income tax holidays, dividend exemption for 10 years, imported inputs not taxed, more flexible labour laws, free capital movements, priority access for foreign exchange and credit, subsidies on water and electricity, guarantees against nationalisation and industrial buildings provided. Importantly, the timing was good, because Hong Kong businesses were worried about the takeover there by China.
More than 9,000 offshore entities have set up in Mauritius. The initial SEZ companies were textile producers but they are now much reduced, replaced with, well, just everything: banking, ITC, some light manufacturing, and lots of very visible construction.
The SEZ initiative is technically over, partly as a consequence of the end of sugar subsidies. But, in some ways, it has been incorporated into the economic thinking of the island, Sachin Mohabeer, the deputy chief of the Economic Development Board, told me. Corporate tax is low and flat, at 15% (VAT is also 15%), there are still no capital controls and there are still generous investment incentives. But the stunning thing is a foreign investment visa dispensation, which was already generous at three years, renewable. That has been extended to 10 years for owners of businesses with a turnover of about R2-million.
There are also professional and self-employed dispensations that involve an investment of less than the cost of a suburban South African house. It makes wonky Home Affairs in South Africa look even more disgraceful.
But there are some things about Mauritius’s development trajectory that are harder to fathom. For one, it could never be described as an “open economy” – import tariff walls are high and always have been. But the export side is very relaxed, and having this heterodox system is probably necessary for a country that depends so much on imports.
But is that it? Just put up an export processing zone and Bob’s your uncle?
The Sol Kerzner factor
Obviously not, but what other factors played a role? An important one wasn’t in fact industrial outsourcing, or even the textile industry, but tourism. The father of Mauritian tourism was Sol Kerzner. Older South Africans will remember the relentless advertising of Le Touessrok and La Pirogue. The group has been frantically building hotels for decades, including Sugar Beach.
The group is now Mauritian-owned and listed on the Mauritian exchange with a small residual Sun International (not Sun International SA) ownership. With the classic Kerzner-Sun business plan (water, sun and sex) aimed at an upper-middle market, hotels in Mauritius found an international niche. There are now 150 on the island, fed by daily flights from Europe, Dubai, South Africa and increasingly the East.
Mauritian hotels are popular because Mauritius is idyllic and many international hotel groups have noticed. I also stayed at the fabulous Trou aux Biches Hotel, owned by Beachcomber Hotels, a privately held Mauritian conglomerate headed by Mauritian businessman Marie Maxime Hector Espitalier-Noël.
Espitalier-Noël, clearly of French origin, raises a sensitive and tricky question about ethnicity. For the life of me, I couldn’t get anyone to explain why there wasn’t a noticeable anti-French vibe among the majority Indian-origin population. Quite the opposite; the island is Frenchifying, with English and French taught at school from early on, though Creole is dominant in homes.
In fact, ethnicity is a bit of a non-issue in Mauritius. It’s difficult to know the ethnic split, because Mauritians are not required to reveal ethnicity in the census. Anti-colonial sentiment, so apparent and bombastic in South Africa, is absent in Mauritius.
But why? One Mauritian told me of some anti-elite/anti-French feeling, but added an accommodation of a kind was reached early on and the French elite are, begrudgingly perhaps, admired for their continued engagement in the economy, their entrepreneurialism and international acumen. Economic growth might not have been equally shared but everybody did participate. Mauritius’s Gini coefficient has declined over the years, as often happens in the early stages of national economic development.
In an article marking 55 years of independence, former Finance Ministry financial secretary Ali Mansoor discussed approvingly a paper written by two IMF employees, Arvind Subramanian and Devesh Roy, Who Can Explain the Mauritian Miracle: Meade, Romer, Sachs or Rodrik? The authors sought to mitigate the theory that export processing zones set Mauritius on its way: Mansoor points out that there were export processing zones all over Africa, and still are. But they only really worked in Mauritius and China, partly because they became a vehicle for broader economic reform.
There is also the issue of the administration of SEZs, which, like other economic interventionism, require careful, thoughtful and corruption-free management. If you don’t have that, it’s a nonstarter and could make things worse, as South African SEZs are discovering.
A fortunate balance
But back to the colonial legacy. Subramanian and Roy speculate that a fortunate balance emerged between the French elite, focused on the sugar cane industry, and other population groups who focused on growing the industrial and services sectors – with plenty of overlap. The result was a kind of shared development, but clearly the majority of the credit must go to the far-sighted Indian-origin and African-origin people, who might have taken a different course.
They also cite another surprising reason: the British. “As honest brokers of the initial election process after World War 2, they guaranteed movement towards ‘one person, one vote’ while making this a gradual process culminating in the 1963 elections.
“The British also imposed coalitions so that there would not be a ‘winner take all’ outcome,” the duo write. “This set the stage for institutionalised dialogue between the private sector and government.” Mauritius has been a multiparty democracy ever since.
The complexity and uniqueness of the Mauritian miracle does make it a difficult, if not impossible, model to recommend. Nor is it a fairytale: foreign direct investment is low by comparison to competitors.
Economic growth is proving more difficult and has been lower over the past decade, partly a consequence of climbing up the economic ladder – it gets more difficult as you get richer. Corruption is not unknown, though an anti-corruption commission has been established.
But the basic elements are clear – and diametrically opposed to SA’s economic model: the rejection of a winner-takes-all economic model, low taxes, efficient bureaucracy, real openness and delight about new business and innovation backed by multiparty support. And, of course, lots of rum. DM