Is Mauritius' economic miracle fading? Four key risks threaten the island's prosperity

2 May 2025

Complacency must make way for economic reform and the strategic reinvention that once made Mauritius the darling of development economists.

Mauritius has long punched above its weight economically. From sugarcane to textiles, tourism to financial services, the country has reinvented itself multiple times — a small island that turned its geographic isolation into an opportunity rather than a constraint.

But today, as global headwinds intensify and domestic vulnerabilities become harder to ignore, many wonder whether Mauritius has become complacent, banking on past glory rather than investing in the future.

Recent developments paint a bleak picture. The country has experienced a significant budgetary slippage, increased public debt, sub-par economic growth, and growing questions about governance standards.

Moody’s recent sovereign rating change from stable to negative (while maintaining the investment grade Baa3 rating) underscores what many investors and observers have been contemplating for some time: Is the Mauritian miracle running on fumes?

Mauritius’ success story has been underpinned by its reputation for sound macroeconomic management and technocratic competence. In previous decades, its leaders navigated choppy waters with strategic reinvention. From trade liberalisation to sector diversification, the country’s response was proactive and agile.

But this time, the state’s response has felt unsteady. Despite lofty expectations, policy inertia under the new government — which has failed to fill key economic positions in parastatals, local sources say — has taken root, further eroding business sentiment.

Four major risks

Mauritius must now contend with four major risks.

First, the flagging tourism sector. Once a jewel in the country’s economic crown, tourist arrivals are under pressure. While external factors like inflation and cost-of-living crises in Europe play a role, the product offering may be losing its sparkle. Destinations like the Maldives and Zanzibar are becoming more competitive, while Mauritius risks appearing expensive and staid.

The poor economic performance of Air Mauritius and fewer flights from Europe and China since Covid-19 may have played a role, but questions are also being raised about service quality. Perhaps the tourism model isn’t evolving fast enough to meet the needs of a more discerning global traveller.

Second, skill levels are lacking. Mauritius has sold itself as a hub for business process outsourcing and financial services, but in a world increasingly driven by AI, automation and tech, the local talent pool is lagging. Productivity levels are low, and employers struggle with a mismatch between labour supply and demand.

The country faces an uncomfortable truth: its workforce is not currently suited to a digital economy, so it must either import the requisite skills or upskill.

Mauritius also shows signs of the classic middle-income trap — too rich to rely on low-cost labour and too underdeveloped to drive innovation-led growth. The pivot to a high-value services economy will require policy and mindset shifts.

Third, its gateway status faces competition. Mauritius has historically marketed itself as a financial services hub and a springboard into Africa, capitalising on its tax treaties, stable political environment and relatively strong institutions. But this edge is eroding.

Global competition is heating up with jurisdictions like the United Arab Emirates (UAE) and Cayman Islands vying for the same slice of the pie – often with fewer political risks and stronger connectivity. Moreover, Mauritius’s credibility took a hit with its recent Financial Action Task Force greylisting. It’s now off the list, but reputational damage lingers.

Fourth, reputational risks are rising. For a country that built its brand on good governance and institutional reliability, the recent trends are unsettling. Political interference in economic affairs, rising corruption scandals, including the Missie Moustass controversy, and questionable fiscal practices have dented Mauritius’s image as a well-run, technocratic democracy. And investors are noticing.

More troubling is the sense that Mauritius is relying too heavily on its legacy and hasn’t kept up with modern realities. In a post-pandemic, geopolitically fragmented, tech-centric global economy, reputation isn’t enough. Mauritius must earn its place at the table by developing a clear and coherent value proposition for international partners.

Meanwhile, the external environment is getting tougher. Covid-19’s lingering effects and the geopolitical fallout from the Ukraine conflict have battered global currencies and dampened trade investment flows — all crucial lifelines for a small, open economy like Mauritius. And now with United States President Donald Trump’s trade war, the risk to key trading partners will almost certainly have contagion effects for Mauritius.

But while external shocks are beyond any country’s control, the internal response is not — and policymakers must rise to the challenge.

First, global geopolitical dynamics must be made to work in its favour. As the geometry of international trade shifts, Mauritius should prioritise its strategic relevance to major powers in the West and East through economic diplomacy. This includes embracing the African Continental Free Trade Area’s potential growth benefits and further rapprochement with the rest of Africa.

Generating growth

A more nuanced approach to its blue economy, along with the upgrade of its port, which offers access to the Indian Ocean as a non-aligned maritime gateway, could also generate growth.

Turning Port Louis into a multi-use regional transhipment and refuelling hub for future fuels and offering services like repair docks, bonded warehousing and digital customs clearance would benefit global shipping firms — especially with current Red Sea disruptions. By adapting the Singapore economic model, Mauritius could become a legal and commercial services centre for shipping.

Second, it should learn from the UAE and Estonia’s success in using smart digital and investor visa schemes to attract skilled labour. Mauritius could turn into a magnet for wealth and innovation by becoming more attractive to digital nomads and high net wealth individuals who value the lifestyle benefits. This will require investment in human capital and ancillary service industries to ensure a globally competitive value proposition.

Third, economic reform is essential from a fiscal and structural perspective. Reorienting the economy towards a greener, more knowledge-centric path while improving spending efficiency is essential.

Policymakers should position Mauritius as an African AI hub and integrate such efficiencies into the public sector to release resources into more GDP-generating activities such as e-government, data centres, green energy and infrastructure. New strategies should prioritise investment in the environment, infrastructure and skills.

Mauritius must confront some hard truths, rethink its economic model, and rediscover the reformist zeal that once made it the darling of development economists. Otherwise, the island will soon face an economic cyclone. DM

Ronak Gopaldas is an Institute for Security Studies (ISS) Consultant and Signal Risk Director.

First published by ISS Today.

Categories:

Tags:

DM is much better if you are signed in...

Africa

Four major risks