Self-complaint must give way to economic reforms and strategic reinventions that once made Mauritius a beloved person of development economists.
Mauritius has been punching for a long time beyond its weight financially. From sugarcane to textiles, tourism and financial services, the country has reinvented it many times. This is a small island that transformed geographical isolation into opportunities rather than constraints.
But today, as global headwinds intensify and domestic vulnerabilities become more difficult to ignore, I believe that Mauritius has taken banks to the glory of the past, rather than investing in the future.
Recent developments have been drawing dark pictures. The country has experienced major budget slips, increased public debt, substandard economic growth and growing questions about governance standards.
Moody’s recent sovereignty rating changes highlight what many investors and observers have been thinking about for a while, maintaining the investment grade BAA3 rating.
Mauritius’ success stories are supported by a reputation for sound macroeconomic management and technical capabilities. Over the past few decades, its leaders have navigated the choppy ocean with strategic reinventions. From trade liberalization to sector diversification, the country’s response was aggressive and agile.
However, this time the state’s response felt unstable. Despite the high expectations, local sources say that policy inertia under the new government failed to fill the nation’s important economic position – has further eroded business sentiment.
Mauritius now has to compete with four major risks.
First, the tourism department will set the flags. The nation’s economic crown jewel once puts the arrival of tourists under pressure. External factors such as European inflation and the cost of living crisis play a role, but product offerings may have lost their glow. Destinations like the Maldives and Zanzibar are more competitive, but the risks in Mauritius appear to be expensive and stable.
While the decline in Air Mauritius’ economic performance and the role of fewer flights from Europe and China since Covid-19 may play, questions have also been raised about the quality of service. Perhaps tourism models have not evolved fast enough to meet the needs of more discerning global tourists.
Secondly, there is a lack of skill levels. Mauritius has acquired a position as a hub for business process outsourcing and financial services, but in a world that is increasingly driven by AI, automation and technology, local talent pools are lagging behind. Productivity levels are low, and employers suffer from discrepancies between labor demand.
The country faces an unpleasant truth. That workforce is currently not suitable for the digital economy, so you will need to import the necessary skills or upskills.
Mauritius also shows the classic mid-income trap signs – too rich to rely on a low-cost workforce, and an undeveloped sign to promote innovation-driven growth. A pivot towards a valuable service economy requires a change in policy and mindset.
Third, its gateway status faces competition. Mauritius has historically been sold as a hub for financial services and as a native to Africa, leveraging tax treaties, a stable political environment and relatively strong institutions. However, this edge is eroded.
Global competition is escalating in jurisdictions where the United Arab Emirates (UAE) and the Cayman Islands are fighting for the same slice of pie. Furthermore, Mauritius’ credibility has been struck by the recent greylist of the Financial Action Task Force. It is currently off the list, but it still damages the reputation.
Fourth, reputational risk is rising. For countries that have built their brands based on good governance and institutional reliability, recent trends are volatile. The growing corruption scandals, including political interference in the economic situation, the Missy Mustas controversy, and questionable financial practices have dented the image of Mauritius as a well-run technocratic democracy. Investors are aware.
What’s even more troublesome is the feeling that Mauritius is heavily dependent on its legacy and has not kept up to modern reality. A post-pandemic geopolitical, fragmented, high-tech-centric global economy has not had a good reputation. Mauritius must acquire its place at the table by developing a clear and consistent value proposition for its international partners.
Meanwhile, the external environment is becoming more severe. The prolonged effects of Covid-19 and geopolitical fallout from the Ukrainian conflict have thwarted the flow of global currency and trade and investment – all important lifelines for a small and open economy like Mauritius. And now, along with President Donald Trump’s trade war, the risks to major trading partners will almost certainly have contagious effects on Mauritius.
But while external shocks do not exceed control of any country, internal responses are not – and policymakers must stand up to the challenge.
First, global geopolitical dynamics must be created to work in its favor. As a geometry of international trade change, Mauritius should prioritize strategic connections between the West and East powers through economic diplomacy. This includes the potential growth benefits of Africa’s continental free trade zones and the acceptance of further reconciliation with other parts of Africa.
It could lead to growth along with an upgrade of the port, which provides access to the Indian Ocean as a deassimilation maritime gateway, along with a more nuanced approach to its blue economy.
Turning Port Louis into a multi-purpose regional transship and fueling hub for future fuels and providing services such as repair docks, bond warehouses and digital customs clearance will benefit global shipping companies, particularly with the current destruction of the Red Sea. By adapting Singapore’s economic model, Mauritius could become a legal and commercial service centre for transportation.
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Second, we should learn from the successes of the UAE and Estonia in using the Smart Digital and Investor Visa scheme to attract skilled workers. Mauritius could turn into a magnet of wealth and innovation by becoming more attractive to high net worth that values the benefits of digital nomads and lifestyles. This requires investment in the human capital and the auxiliary services industry to ensure a globally competitive value proposition.
Third, economic reform is essential from a financial and structural perspective. It is essential to move the economy towards a more environmentally friendly, more knowledge-centric pathway and improve spending efficiency.
Policymakers need to position Mauritius as an AI hub in Africa and integrate such efficiency into the public sector to free resources into more GDP-generating activities such as e-government, data centers, green energy and infrastructure. New strategies should prioritize investing in the environment, infrastructure and skills.
Mauritius must confront some difficult truths, rethink its economic model and rediscover the enthusiasm of the reformists who once made it a beloved development economist. Otherwise, the island will soon face economic cyclones.
Ronak Gopaldas, ISS Consultant and Director of Signal Risk
