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Mauritius

 

Mauritius

MAURITIUS

  

INSTITUTIONAL FRAMEWORK AND POPULATION

Surface area:       1.860 sq.km.
Capital: Port Louis
Other Main Cities: Beau-Bassin-Rose Hill, Vacoas-Phoenix, Curepipe, Quatre Bornes Official
Name: REPUBLIC OF MAURITIUS
Form of Government: Republic
Head of State: President Anerood JUGNAUTH (as of 23 October 2003)
Head of Government: Prime Minister Paul Raymond BERENGER (as of 23 September 2003), as well as Minister of Defence and Home Affairs.
Minister for Foreign Affairs: Jaya Krishna CUTTAREE (as of 23 December 2003), as well as Minister of International Trade and Regional Cooperation.
Legislative System: unicameral, the National Assembly is made up of 70 seats; mandates are for 5 years.
Legislative Elections: The latest were held on 11 September 2000 (the next are planned for September 2005).
Legal System Based on Common Law and on Roman-Germanic Law. Has not accepted the compulsory ICJ jurisdiction.
Suffrage: Universal, beginning at 18 years of age.    

POPULATION AND SOCIAL INDICATORS

Population: 1,200,206 inhabitants (2002 estimate)   Growth Rate: 0.86 % (2002 estimate)  
Life expectancy at birth: 71.53 years  
Ethnic Groups: Indo-Mauritian 68%, Creole 27%, Sino-Mauritian 3%, Franco-Mauritian 2%. Religions:  Hindu 52%, Christian 28.3% (Catholic 26%, Protestant 2.3%), Muslim 16.6%, others 3.1%   Languages: English (official), Creole, French (official), Hindi, Urdu, Hakka, Bhojpuri.
Main Political Parties: Hizbullah [Cehl Mohamed FAKEEMEEAH]; Mauritian Labour Party or MLP [Navinchandra RAMGOOLAM]; Mouvement Militant Mauricien or MMM [Paul BERENGER] - in coalition with MSM; Renaissance Mauritienne Militante o MMR [Dr. Paramhansa NABABSING]; Mauritian Social Democratic Party or PMSD [Charles Xavier-Luc DUVAL]; Mouvement Socialiste Mauricien or MSM [Pravind JUGNAUTH] - party of the government; Rodrigues Movement or OPR [Joseph (Nicholas) Von MALLY].
 

HISTORICAL BACKGROUND

The Republic of Mauritius is a set of islands located 800 km east of Madagascar in the Indian Ocean, and consists of the main island, Mauritius, and a series of politically dependent outlying islands: Rodrigues, Agalega and Cargados Carajos are the principle ones. The Mauritius were visited throughout the 16th century by Malaysians, Arabs and Portuguese, but the first settlements date back to 1638 when the Dutch claimed the Mauritius as a colony. The French governed later on until 1810, when they were forced to hand it over to the British at the end of the war. With the abolition of slavery in 1833 many Indians immigrated to the Mauritius to work in the agricultural sector. As a consequence, the majority of the population today is Indian (70%), followed by Creole (predominantly of African origin), Chinese and European minorities. A series of independence movements began in the 1940s. Continuous negotiations for political autonomy with the United Kingdom, spearheaded in the 1960s by future Prime Minister Seewoosagur Ramgoolam, resulted on 12 March 1968 in the country's independence within the Commonwealth.   

DOMESTIC POLITICS


Even with such a complex ethnic composition - due both to its history and geographical location - since gaining independence the country has maintained a certain degree of political and social stability, along with a healthy economy that hinges essentially on tourism, farming and EPZ (Export Processing Zone) industry. The originally French white minority, while representing only 2% of the population, constitutes a major economic stronghold especially in the key sectors of banking, textiles and sugar. In the parliamentary elections of 1995 the party of the majority - MSM (Mouvement Socialiste Mauricien) - was defeated by a coalition formed by the two main opposition parties, the PLM (Mauritian Labour Party led by Ramgoolam) and the MMM (Mouvement Militant Mauricien led by Bérenger). When Bérenger was pushed out of the coalition government and his party went into the opposition due to a growing schism with Ramgoolam, this latter took the lead of a single-party government holding a majority of 35 out of 66 seats. The government was, nevertheless, forced to weather a period of discontent and unpopularity owing mainly to difficulties in the country's three main productive sectors - tourism, textiles and sugar - which impacted principally on the Creole minority. This situation led to episodes of anti-Hindu violence and put the government up against some serious challenges in terms of boosting production and subsidising the poorer segments of the population (Creole community). The legislative elections of September 2000 were won by a coalition made up of the MSM (Mouvement Socialiste Mauricien) and the MMM (Mouvement Militant Mauricien), which took 54 out of 60 seats. The coalition was based on an electoral pact by which Anerood Jugnauth (MSM) assumed the role of Prime Minister for three years, at the end of which time Berenger (MMM) succeeded him (September 2003) for the following two years (up until the 2005 elections). As a corollary to the pact, in September 2003 Jugnauth (MSM) became President of the Republic and his son Deputy Prime Minister. Berenger, a white Christian, is the country's first non-Hindu Head of State after having been ruled since its independence in 1968 by an Indian Hindu majority. Pravind Jugnauth, son of Arnaud, is Deputy Prime Minister with ministerial portfolios for Finance and Economic Development as well. Former Minister of Industry Java Krishna Cuttaree is now Minister of Foreign Affairs, of International Trade and of Regional Cooperation.  

ECONOMIC PICTURE

1. Economic trends

The Republic of Mauritius has a history of economic success. When the country became independent in 1968 it was very poor, with an average per capita income of USD 260. Its per capita income is currently estimated at USD 3600 - the second highest in Africa after the Seychelles. This steady and sustained economic development has made Mauritius more akin to the countries of South East Asia than to its insular continental neighbours. The main force behind the country's economic strength has been the boom in exports made possible by a dense trade network and preferential access to the markets that Mauritius has been able to build over the years.

Mauritius is classified by the World Bank as an average-to-high income country with a low percentage of the population living below the poverty threshold. Infant mortality rates are also good. Underlying the success of Mauritius is political, institutional and macroeconomic stability along with balanced social progress. The country has adopted an economic policy that includes a flexible exchange rate and a moderate taxation system that, along with "offshore" financial services, have contributed to attracting foreign investments.

The four pillars of the economy of Mauritius are: sugar production, textiles, tourism and financial services. The authorities of Mauritius have, over the years, worked toward the gradual diversification of the economy, reducing the importance of the sugar industry to the benefit of the services sector.  The country's agricultural sector is dominated by sugarcane production and processing. Sugarcane fields cover approximately 90% of the cultivatable land.

Following its independence, the country's economy was essentially based on low-income agriculture concentrated mainly on the production and export of sugar (contributing 70% of GDP up until 1979 and producing approximately 70% of monetary revenues). This trend has been inverted over the last twenty years, and the sugar industry has gradually reduced its contribution to GDP, going from 9.5% in 1983 to 3.5% in the two-year period 2001-2003. Sugar production is also extremely subject to climatic fluctuations and has lately felt the negative impact of phenomena such as cyclones (very frequent there) and drought. Moreover, the country's competitiveness on the international sugar market is undermined by another factor: higher production costs than other producers in the region. For this reason the country's authorities have adopted a programme aimed at the greater diversification and rationalisation of the entire sector, improved pricing policy and better work organisation, which should lead the country back to previous levels of competitiveness. Underlying extremely rapid growth in the manufacturing sector is the Mauritian authorities' adoption of a structural reform policy back in the 1960s. With the creation of the first Export Processing Zones (EPZ) in 1971, particular importance was given to the promotion of exports, while at the same time attracting large amounts of capital from Hong Kong and Taiwan. The capital invested in EPZs comes mainly from China (50/60%), Hong Kong (22% of textiles), France, Germany, United Kingdom and Taiwan.

EPZ industry is mainly in textiles and apparel; investors export their entire production and, in exchange, are able to take advantage of some extremely favourable conditions (skilled labour, excellent infrastructure, tax exemptions for periods ranging from 10 to 20 years, exemptions from import duties on raw materials and industrial machinery and preferential access to loans). The European and U.S. markets are the major destinations for EPZ production, representing, respectively 65% and 27% of the country's exports. 

EPZ production rose steadily until 2001, but over the past two years it has dropped off sharply due to increased international competition (in particular, the low-cost production of Asian countries) and the closing down of some firms. The EPZ sector is extremely vulnerable to fluctuations in the exchange rate of the euro against the dollar, given that trade is based on these two currencies. Indeed, EPZ exports have suffered from the United States and European Union's weak economic performance over the past two years. Precisely as a result of changes in the world economy in recent years, the government of Mauritius is today seeking to encourage investments in the sectors of IT and communications technologies. The financial sectors and that of business services are particularly important for the economy of Mauritius: the island hosts a vast network of local and foreign banks (all the major Japanese, French, British and Indian banks are present) offering offshore banking services with a considerable volume of transactions.

Finally, thanks to its natural beauty and pleasant climate, Mauritius has been a major tourist draw for years. Over the course of the past decade tourism has increased by 45% and is now the country's third-ranked source of foreign revenue (the period 1999-2003 showed revenues of approximately USD 600m) and employs directly or indirectly nearly 60,000 persons.

GDP growth has slacked off since the second half of the 1990s (having risen to 6% in the two-year period 1995-96) due to adverse climatic conditions that damaged sugarcane crops, and an increased budget deficit. GDP again reached 6.7% in 2001, only to slip to 4.4% in 2002, and 4.6% in 2003; the first official, but not final, forecasts indicate an economic growth of 4.7% for 2004, and expectations for 2005 are very optimistic, estimating a 5% increase in GDP. The budget deficit reached 6.5% of GDP in 2001, mainly due to expenditures involving the financing of infrastructure projects in the public sector. In 2002 the government announced a five-year tax increase plan aimed at containing the deficit, and by the end of that year the deficit had been reduced to 6%, in keeping with the targets set by the government's agenda.

The country's inflation is closely associated with trends in food product prices, which make up 30% of the calculation of the inflation rate, which fluctuated between 4.2% in 2000 and 6.4% in 2002, settling back again in 2003 to 4.25%. According to official assessments, inflation in 2004 should be approximately 4.5% (due to increased salary costs, drought and depreciation of the Mauritian rupee).

Unemployment is on the rise mainly in the agriculture sector, especially in sugar, and in textile production, reaching 10.2% in 2004. While during the 1990s the Mauritian government managed to keep the deficit under the threshold of 3% of GDP, in the two-year period of 2000/2001 the budget deficit went up to 6.5% - mainly due to infrastructure financing expenditures in the public sector - which later went down by half a percentage point by the end of 2002. The government's aim is to reduce the budget deficit to 3% of GDP during the two-year period of 2005-2006.  

2. Economic and trade relations with principal partner countries

EPZ textile production, as previously mentioned, is aimed mostly at the EU and U.S. markets. Mauritius is facing a fierce battle with the European Union to maintain its privileges regarding sugar exports to EU markets deriving from a protocol on import duties between the EU and ACP countries (of which Mauritius is a member). The European Commission recently formulated a proposal to revise the protocol, suggesting a reduction in the price of this raw material (-37% as of July 2005). The Mauritian authorities deem this reduction excessive, and have requested a more moderate proposal over a suitable span of time, although they are well aware of the need to respond to the EU's request to reduce the price of sugar (the EU gives Mauritius a price from 100% to 200% higher than market price). Mauritius benefits from preferential treatment of exports to the USA from African countries (AGOA), which has been extended to 2015. The first to benefit from this will be the textile industry, which suffered from the expiration of the Multifibre Agreement at the beginning of 2005.
Nevertheless, as Mauritius is included on the list of relatively prosperous economies, as a result of its high per capita income, it is subject to strict rules of origin for the raw materials used in its products. In addition to commercial trade with India, financial transactions are particularly important since 50% of direct investments in India pass through Mauritius (6500 of Mauritius' approximately 20,000 offshore companies invest in India).


3. Relations with International financial institutions


Although Mauritius enjoys good access to international capital markets, in May of 2002 the World Bank announced the approval of a USD 40bn loan to the island of Mauritius (Public Expenditure Reform Loan - PERL). There are two reasons behind this decision: firstly, the funds distributed can be used in a sufficiently flexible way within the context of the government's economic programming, and, secondly, the government intends to take advantage of the Bank's offer of expert technical assistance. The loan was renewed in 2003.

 4. Debt status

Mauritius' foreign debt as of the end of 2000 stood at USD 1.72bn and at the end of 2001 at USD 1.724bn, as compared with USD 2.37bn in 1999. This was made possible by a USD 600bn reduction of private non-guaranteed long-term debts in 1996. The debt began to decrease when the government decided to draw upon domestic resources and avoid international loans as much as possible. The debt levelled off at USD 1.70bn, while in 2004 it was estimated at approximately USD 1.75bn. There is no debt recorded with Italy. 


Bilateral relations


Mauritius maintains excellent relations with Italy, where there is a considerable Mauritian community (7665 according to official police data on foreigners). Italian tourists visit the island in considerable numbers and Italy makes significant investments in the textile and tourism sectors (among the firms present there are Valtour, Max Mara, La Perla and Fimtex).

Italy ranks fifth in terms of numbers of tourists to the country and accounts for 6.7% of the total (France is in first place with 30%, followed by Réunion's 15%, the UK's 9.8% and Germany's 8.3%). The island registers the presence of 291 Italian nationals, while there are approximately 15 Italian-Mauritian firms operating predominantly in tourism, textiles and food production.

Italian exports to Mauritius consist of textile machinery, wool and cotton yarns and textiles, non-electrical machinery, and metal-working equipment. Imports include natural and synthetic knitwear and hosiery and sugar and sugar products.

A cooperation agreement and an agreement on cooperation in the sector of tourism were signed with Madagascar in April 2003, and an investment promotion and protection agreement is in the negotiation stage.

The Board of Directors of SACE (special export credits insurance department) deliberated a series of improved insurance conditions concerning trade operations with Mauritius in November 2004: although it remains ranked in third category - class B - the country enjoys a more relaxed treatment based on credit merit analysis, with particular attention to the number of individual businesses in relation to the country's size.    

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