Mauritius WT/TPR/S/90
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I. ECONOMIC ENVIRONMENT
(1) MAJOR FEATURES OF THE ECONOMY
1. Mauritius is an island republic situated in the Indian Ocean, 2,200 kilometres off the south-
eastern coast of Africa.  With a landmass of 2,040 km2 and a population of about 1.2 billion,
Mauritius has a high population density of around 588 persons per km2;  its population growth rate is
around 1% per year.  Mauritians are generally polyglot;  English is the official language and French iswidely spoken.  The capital of Mauritius is Port Louis.
2. Mauritius has moved from a one-crop economy at the time of its independence in 1968 to a
relatively diversified, export-oriented economy.  This is attributable in part to the strengthening and
broadening of incentive schemes (mainly the Expo rt Processing Zone – EPZ – Scheme), which have
contributed to diversifying production away from sugar by boosting export-oriented manufacturing of
labour-intensive goods, textiles and clothing in particular (Chapters III(3)(iv), III(4)(i), and IV(3)).
The sugar industry has contributed to the diversification process by financing investment in the other
sectors.  Preferential market access granted by certain developed countries (mainly under the Lomé
Conventions), the geographical location of Mauritius, and the promotion of offshore business,
including banking and a freeport (to handle transshipment and re-export trade), have also played animportant role (Chapters III(3)(iv), and IV(4)(iii)(a)).  Mauritius now has a four-pillar, export-oriented
economy with sugar, textiles and clothing, tourism, and financial services as leading subsectors.
Production for the domestic market still remains fairly highly protected creating tensions, elements of
duality, in resource allocation between the export and domestic sectors.
3. Mauritius is a middle-income country.  Its GDP per capita is around US$3,600 (Table I.1).
Services is the most important sector in terms of contribution to real GDP (around 74%).  The sector
is dominated by tourism (third largest source of foreign exchange earnings after textiles and clothing,and sugar) and financial services.  Manufacturing contributes about one fifth to real GDP and some
75% to the total value of merchandise exports;  textiles and clothing account for more than 40% of
production.  The diversification strategy has contributed to a decline in the importance of agriculture
(Table I.1).  Nevertheless, sugar remains a leading industry.  The mining and quarrying sector is not
developed;  nor are fishing activities, although Mauritius has a large exclusive economic zone rich inmarine life.
Table I.1
Mauritius at a glance, 1995-2000
1995 1996 1997 1998a1999b2000c
GDP at market price (US$ million) 3,973 4,307 4,104 4,078 4,228 4,501
GDP per capita (US$) 3,645 3,812 3,569 3,515 3,614 3,751
Real GDP (per cent change) 5.6 6.2 5.6 5.8 2.6 8.3
Gross national savings (US$ million) 1,004 1,099 1,099 1,081 1,091 1,167
Gross domestic savings (US$ million) 926 1,033 1,004 1,013 966 1,093
Consumer prices (per cent change, calendar year) 6.0 6.6 6.6 6.8 6.9 4.5
Consumer prices (per cent change, fiscal year) 6.1 5.8 7.9 5.4 7.9 5.3
Unemployment rate (per cent) 5.1 5.5 5.9 5.9 6.4 8.0
Monetary sector  (end of June per cent change)
Narrow money (M1) 15.7 1.2 7.8 14.4 7.4 1.5
Aggregate monetary resources (M2) 11.7 15.9 8.8 17.4 13.2 10.9
Discount rates (end of period) 11.4 11.8 10.5 17.2 .. ..
Exchange rates (Mau Rs/US$)d17.4 17.9 21.1 24.0 25.2 26.3
Table I.1 (cont'd)WT/TPR/S/90 Trade Policy Review
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1995 1996 1997 1998a1999b2000c
Share of real GDP Per cent
Agriculture .. 7.5 7.3 6.8 4.7 5.6
Manufacturing (including mining and quarrying, and sugar
milling)e.. 20.5 20.6 20.7 20.7 20.7
Services (including electricity and construction) .. 72.0 72.1 72.5 74.6 73.7
Per cent of GDP
Government finance  (fiscal year ending June)
Fiscal balance (Central Government) -5.7 -5.4 -3.8 -4.2 -3.8 -6.8
National accounts
Final consumption expenditure 76.7 76.0 75.5 75.2 77.2 75.7
- Households 64.6 63.8 63.5 63.5 65.3 64.2
- General government 12.1 12.2 12.1 11.7 11.9 11.5
Gross domestic capital formation 25.8 24.8 29.3 25.7 26.4 25.0
- Private sector 16.3 16.7 20.6 17.5 20.9 17.9
- Public sector 8.0 9.3 6.5 6.1 6.9 7.3
- Increase in inventories 1.5 -1.2 2.2 2.1 -1.5 -0.1
Exports of goods and non-factor services 59.6 65.0 62.9 67.2 64.9 64.3
- Goods 40.1 42.7 41.0 44.7 40.5 39.0
- Non-factor services 19.6 22.3 21.9 22.5 24.4 25.3
Import of goods and non-factor services 62.1 65.9 67.7 68.0 68.4 65.1
- Goods 46.0 50.3 51.3 50.4 52.1 48.7
- Non-factor services 16.1 15.6 16.4 17.6 16.3 16.4
Foreign trade indices
Trade in goods 86.1 93.0 92.3 95.1 92.6 87.7
Terms of trade 100.0 104.0 104.9 118.1 .. ..
Unit value of exports 100.0 111.2 114.9 130.0 .. ..
Unit value of imports 100.0 106.9 109.5 110.1 .. ..
.. Not available.
a Revised estimates.b Preliminary estimates.
c Forecast.
d Period average.e Mining and quarrying account for 0.1% of real GDP.
Source: Information provided by the Mauritian authorities.
4. The exchange rate of the Mauritian rupee is market-determined;  Mauritius accepted the
obligations of Article VIII of the Agreement of the International Monetary Fund (IMF) on
29 September 1993.1  Surrender requirements apply to sugar exports (Chapter IV(2)(ii)(a)).
Mauritius' external debt is manageable;  its debt service ratio stands at around 7% compared to around9% a decade ago.
2
5. Mauritius has become a high-cost country as regards the competitiveness of its major exports
(sugar, textiles and clothing).  Indeed, an annual average wage increase of 7.5% between 1988 and
1997 had eroded the competitiveness of Mauritian products, as productivity had increased by only
3.5% a year.3  Additional challenges to the economy incl ude the changing international environment
and the related increase in competition in Mauritius' major traditional markets (the European Union
(EU) in particular), the scarcity of arable land area and skilled labour, and the transformation from
                                                     
1 See IMF (2000) for details of the foreign exchange regime.
2 Ratio of principal and interest payments to exports of goods and non-factor services.
3 Between 1988 and 1997, average earnings in the economy had increased by 228% for daily-paid
workers, 244% for workers in the agriculture sector, and by 192% for workers in export enterprises, whileinflation had risen by only 93.8% (Mauritius Chamber of Agriculture, 2000).Mauritius WT/TPR/S/90
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export- to outward-orientation.  In response, government policies are currently aimed at promoting
diversification of production of more capital-inten sive and higher- value-added goods, mainly in the
textiles and clothing branch, and of export markets.
(2) RECENT ECONOMIC DEVELOPMENTS
6. Mauritius has sustained strong economic performance for two decades.  Since the last Review
of Mauritius in 1995 the economy has grown by some 5.7% per year (on average);  the poorperformance in 1999 was due to the severe drought, which mainly affected the sugar industry.
7. Sound macroeconomic policies have contributed to containing inflation.  On a calendar-year
basis, inflation (measured by changes in consumer prices) has been maintained at under 7% since
1995.  On a fiscal year basis, inflation exceptionally (since 1995) reached 7.9% in 1998/99 as a result
of:  the introduction of the value-added tax (VAT) at a standard rate of 10% in September 1998;  thenegative effects of drought followed by a cyclone, in late 1998 and early 1999;  the depreciation of the
rupee vis-à-vis  the currencies of Mauritius' main trading partners;  large salary increases in the public
sector;  and rapid monetary expansion in 1998/99.
8. Labour market rigidities have resulted in the growth of real wages exceeding increases in
productivity.  As a result, the unemployment rate rose from around 5% in 1995 to some 8% of totalworkforce in 2000 (5.7% for men and 12.3% for women), the highest rate since 1986.
9. The overall public deficit was reduced from 5.7% of GDP in 1995/96 to 3.8% in 1997/98
thanks to institutional reforms, improvement in public revenue through, inter alia , simplification of
the tax structure (reduction of maximum rates and of the number of bands) and rationalization of the
customs tariff, and to control of expenditures  (including downsizing of the civil service).
Nevertheless, despite the introduction of the VAT in 1998, the public deficit rose to 4.2% of GDP in
1998/99 because of salary increases.  The public deficit was forecast to surge in 2000/01 (Table I.1) asa result of the Government's commitment to provide relief from the full burden of adjustment to the
cost of petroleum products, electricity, water, gas, and public transport, and of the implementation of
recommendations contained in the report of an ad hoc committee on wage increases.
10. Since the previous Review in 1995, the major changes in the conduct of monetary policy by
the Bank of Mauritius (BOM) have been the introduction, in December 1999, of repurchasetransactions in between weekly auctions of treas ury bills, and of standing borrowing facilities to
commercial banks, with a view to promoting efficient liquidity management.  Repurchase agreements
are currently concluded between the Bank of Mauritius and commercial banks.  The transactions are
conducted by the BOM depending on the prevailing liquidity conditions:  repurchase operations
(repos) are to supply liquidity while reverse repurchase operations (reverse repos) are to absorbliquidity from the money market.
11. Standing borrowing facilities, known as the Lombard facility, consist of overnight
collateralized advances to commercial banks.  Th e interest rate applicable on the facility is the
Lombard rate;  it is used by the BOM as a signalling mechanism on its monetary policy stance.  The
Lombard rate had been reduced from 14% in December 1999 to 11.5% in June 2000, and increased(in two steps) to 12.5% in November 2000.  Between March and July 2000, the BOM had also
provided short-term rediscount facilities (at below- market rates) to commercial banks with respect to
EPZ export bills denominated in Euro and Euro-zone currencies.  The 50% surrender requirement on
sugar exports was reintroduced in 2000.
4
                                                     
4 See Bank of Mauritius (2000) for details of Mauritius' monetary policy.WT/TPR/S/90 Trade Policy Review
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(3) TRADE PERFORMANCE AND INVESTMENT
12. Mauritius' merchandise trade is the equivalent of around 90% of its GDP (on average) since
1995;  this reflects the importance of trade for Mauritius' economy, given its small domestic market,
its population of just over one million and its limited natural resources, including land.  Mauritius has
traditionally run merchandise trade account deficits, which have occasionally been offset by its
traditional surpluses on the services account.  As a result, the current account of the balance ofpayments recorded an erratic evolution over 1994-2000 (Table I.2).  Net international reserves have
represented around 22 weeks of prospective merchandise imports in recent years despite the evolution
of the current account.
Table I.2
Balance of payments, 1994-99
(US$ million)
1994 1995 1996 1997 1998 1999
Current account -232.1 -21.9 34.0 -88.9 3.3 -52.3
   Balance on goods -397.0 -240.5 -325.7 -436.0 -264.0 -547.2
      - exports f.o.b. 1,376.9 1,571.7 1,810.6 1,600.1 1,669.3 1,589.3
      - imports f.o.b. -1,773.9 -1,812.2 -2,136.3 -2,036.1 -1,933.3 -2,136.5
   Balance on services 86.3 136.4 287.9 237.4 198.9 409.6
      - credit 632.7 777.7 960.8 893.7 916.9 1,070.3
         - Transportation 170.7 199.7 217.6 210.1 200.2 246.7
         - Travel 357.2 429.8 504.2 478.1 495.6 542.7
         - Other services 104.9 148.2 239.0 205.4 221.1 280.9
      - debit -546.4 -641.3 -672.9 -656.3 -718.0 -660.7
         - Transportation -233.5 -251.7 -249.8 -245.4 -244.5 -226.8
         - Travel -142.9 -159.0 -178.8 -173.1 -184.6 -187.1
         - Other services -170.0 -230.6 -244.4 -237.7 -288.9 -246.8
   Balance on income -24.7 -19.1 -44.0 -17.6 -26.6 -18.5
      - credit 31.7 52.2 31.1 47.0 47.8 34.9
      - debit -56.4 -71.3 -75.1 -64.6 -74.4 -53.4
   Current transfers 103.3 101.4 115.8 127.4 95.0 103.9
      - credit 129.6 146.8 182.8 206.4 186.8 196.6
      - debit -26.3 -45.4 -67.0 -79.0 -91.8 -92.7
Capital account -1.3 -1.1 -0.8 -0.5 -0.8 -0.5
   Credit 0.0 0.0 0.0 0.0 0.0 0.0
   Debit -1.3 -1.1 -0.8 -0.5 -0.8 -0.5
Financial account 41.4 25.1 91.9 -18.6 -26.0 60.9
   Direct investment abroad -1.1 -3.6 -2.7 -3.2 -13.7 -6.4
   Direct investment in Mauritius 20.0 18.7 36.7 55.3 12.2 49.4
   Portfolio investment assets -0.3 0.0 -2.0 -96.8 43.6 38.4
      - Equity securities 0.0 0.0 0.0 0.0 -3.3 38.4
      - Debt securities -0.3 0.0 -2.0 -96.8 46.9 0.0
   Portfolio investment liability 2.1 176.0 36.8 30.6 -28.7 -15.3
     - Equity securities 2.1 22.0 36.8 30.6 5.0 -15.3
     - Debt securities 0.0 154.0 0.0 0.0 -33.7 0.0
   Other investment assets -64.6 -136.4 17.9 -115.7 -66.7 -9.9
     - General government 0.0 0.0 0.0 0.0 0.0 0.0
     - Bank -11.5 -85.2 -3.9 -121.2 -69.1 -32.9
     - Other sectors -53.1 -51.2 21.8 5.5 2.4 23.0
Table I.2 (cont'd)Mauritius WT/TPR/S/90
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1994 1995 1996 1997 1998 1999
   - Other investment liabilities 85.2 -29.6 5.2 111.2 27.3 4.8
     - General government -14.1 -18.8 -20.4 9.0 -14.2 -12.5
     - Bank 9.2 27.7 -6.9 -10.1 96.4 -20.4
     - Other sectors 90.1 -38.5 32.5 112.3 -54.9 37.7
Net errors and omissions 148.5 106.7 76.8 73.4 -41.9 181.6
Reserve assets 43.5 -108.8 -48.3 34.6 65.4 -189.7
Source: IMF (2000), Balance of Payments Statistics Yearbook  – 2000.
(i) Trade in goods and services
13. Mauritius has continued the diversification of its exports away from sugar;  the latter
contributes around 22% to the total value of merchandise exports, down from nearly 26% in 1993 and
over 90% three decades ago.  Manufactures account for the bulk of Mauritian merchandise exports
(around 75% of the total value).  Clothing is the main manufactured export;  its share in the total value
of merchandise exports increased from some 54% in 1994 to around 60% in recent years (Table AI.1).
14. With the exception of pullover/cardigans, both the volume and value of major clothing items
exported by Mauritius have increased over the period.  Quota- and duty-free access provided by the
EU under the Lomé Conventions and then the Cotonou  Agreement, together with incentives provided
under the Export Processing Zone Scheme, have contributed to Mauritius' performance in exports of
textiles and clothing items.  As a result of delocalization (combined with vertical integration) ofcertain manufacturing activities to neighbouring countries, exports of semi-finished products and
yarns to Madagascar have increased substantially in recent years (Chapter IV(3)).
15. Imports are dominated by manufactured products (more than 70% of the total value of
merchandise imports).  Leading imports are mach inery and transport equipment (more than 20% of
the total value of merchandise imports), textiles (around 20%), and food (Table AI.2).  Tariff reformsin recent years have not significantly affected either the structure or the level of imports.  The upward
trend of the share of imports of fuels in total imports reflects, to a certain extent, recent increases in
world prices of oils.
16. The EU is the major destination for Mauritian exports (Table AI.3);  it imports the bulk of
Mauritius' sugar and a large share of its textiles and clothing items.  The United Kingdom is the major
single destination for Mauritian exports, followed by France and the United States.  As the bulk of
exports is denominated in Euro or Euro-zone currencies, the depreciation of the Euro has negativelyaffected Mauritian exports:  the total value of exports declined in 1999 and 2000.
17. The sources of Mauritius' imports are more diversified than its export destinations.  The EU
supplies around one third of Mauritius' imports.  France is the only country supplying more than 9%
of the total value of imports to Mauritius (Table AI.4).  Other major import sources include India;
China;  United Kingdom;  Japan;  Germany;  Australia;  Hong Kong, China;  Malaysia;  and theUnited States.
18. Mauritius is a net exporter of services (Table I.2).  Earnings from services exports have
represented more than 50% of the total value of merchandise exports in recent years.  Net services
exports have recorded an upward trend since 1994.  This performance is attributable to tourism, which
contributes the largest and an increasing part of earnings from services exports.  Net earnings fromWT/TPR/S/90 Trade Policy Review
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tourism have generally exceeded net services exports, indicating an offset of the deficit on trade in the
other services (including transportation services) by tourism.
(ii) Investment
19. Political and social stability, a polyglot population, various incentive schemes, strong
economic performance over two decades, and a relatively diversified economy are key elements for
investment into Mauritius.  Gross domestic cap ital formation (GFCF) represents around 25% of GDP,
with the private sector accounting for more than 70%.
20. Foreign direct investment (FDI) represented about 2.5% of GFCF in Mauritius over the
period 1993-98;  this places Mauritius low among the developing countries, including in Africa, in
terms of FDI flows.5  Annual FDI inflows into Mauritius averaged US$29 million over the period
1993-97, up from US$27 million over 1988-92 and US$8 million over 1983-87.6
21. Since 1994, with the exception of occasional deals, such as the investment of US$45.9 million
by Nedcor (a South African bank) in the State Bank of Mauritius and the purchase of 40% of
Mauritius Telecom Ltd. by France Telecom in November 2000 (for a total amount of
US$261 million), manufacturing (mainly EPZ textiles and clothing industries) has attracted a large
part of FDI, on a relatively continuous basis, follow ed by tourism (Table I.3).  India, France, and the
United Kingdom are the major sources of FDI into  Mauritius.  Occasional FDI has been recorded
from Singapore, for example, in a racecourse pr oject (in 1996), and from South Africa (as mentioned
above).
Table I.3
Foreign direct investment in Mauritius, 1994-2000
(Mau Rs million)
1994 1995 1996 1997 1998 1999 2000
TOTAL 360 325 658 1,164 292 1,243 7,265
By sector
Export processing zone 41 245 51 0 27 300 8
Tourism 129 70 35 20 75 27 10
Banking 0 0 55 1,122 117 215 0
Telecommunications 0 0 0 0 0 0 7,204
Other 190 10 517 22 73 701 43
By country of origin
Chinese Taipei .. .. .. .. .. .. ..
Dubai .. .. .. 19 39 155 11
Francea88 17 17 34 48 33 7,244
Germany 10 80 6 1 .. 9 ..
Hong Kong, China 4 19 .. 25 .. .. ..
India 35 157 43 69 55 1 ..
Luxembourg .. .. .. .. 66 .. ..
Malaysia 60 11 27 .. .. 25 ..
Pakistan .. .. 25 18 17 15 ..
Panama 16 .. .. .. .. .. ..
Singapore 6 .. 519 .. .. .. ..
Table I.3 (cont'd)
                                                     
5 UNCTAD (2001).
6 UNCTAD (1999).Mauritius WT/TPR/S/90
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1994 1995 1996 1997 1998 1999 2000
South Africa 2 .. .. 964 .. 574 1
Switzerland 1 12 .. .. 3 5 5
United Kingdom 24 29 19 13 50 405 ..
United States 1 .. .. .. .. .. 3
Other 113 .. 2 21 14 21 1
.. Not available.
a Including the Reunion Island.
Source: Information provided by the Mauritian authorities.
22. Outward FDI from Mauritius has shown an upwa rd trend since 1994.  Manufacturing is the
main sector in which Mauritians have invested abroad.  The evolution of outward FDI is partly
attributable to regional integration of the Mauritian manufacturing sector and delocalization of certain
manufacturing activities (production of low-value textiles and clothing items in particular) to
neighbouring countries due to increasing production costs, wages in particular.  Mauritians have alsoinvested abroad in the banking and tourism subsectors (Table I.4).  France, Madagascar, South Africa
and Comoros are, on a relatively continuous basis,  the major destinations for outward FDI from
Mauritius.  Mauritians have invested in Madagascar (in the banking, textiles, and clothing subsectors),
Seychelles (in the banking and tourism subsectors), Mozambique (in the banking and sugar
subsectors) and Comoros (in tourism).
Table I.4
Direct investment abroad, 1994-2000(Mau Rs million)
1994 1995 1996 1997 1998 1999 2000
TOTAL 19 63 48 67 329 162 333
By sector
Tourism .. .. 3 .. 30 8 68
Banking .. .. .. .. 114 68 180
Manufacturing 9 14 24 13 25 10 13
Other 10 49 21 54 160 76 72
By host country
Comoros .. 49 18 26 .. .. ..
Francea343. . 2 2 1 0 1 8 0
India 1 3 3 .. 148 .. ..
Kenya 2 .. .. .. .. .. ..
Madagascar 4 5 .. 13 19 57 2
Mozambique .. .. .. .. 5 81 ..
Seychelles .. .. .. .. 30 9 68
South Africa 1 2 3 20 5 .. ..
Switzerland .. .. .. .. 16 .. ..
United States 5 .. .. .. 6 5 ..
Other 3 .. 21 8 78 .. 83
.. Not available.
a Including Reunion Island.
Source: Information provided by the Mauritian authorities.WT/TPR/S/90 Trade Policy Review
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(4) OUTLOOK
23. Prospects of economic growth in Mauritius will largely depend on adjustment measures that
the Government will implement to take up challenges faced by the economy.  These challenges range
from the scarcity of land resources and skilled labour, and ageing of the population to changes in the
international environment.
24. Given the constraints on production factors (land and labour in particular), prospects of future
GDP growth will depend on increases in productivity.  In the absence of structural adjustment, the
constraints will be to confine real GDP growth to between 4% and 5% in the medium term (under
normal weather conditions).  The fiscal deficit is projected to rise to between 6% and 9% of GDP
because of planned increases in social expenditures, including on education and information
technology7, on pensions, due to ageing of the population, and to support the unemployed.8  However,
continued restrictive monetary policy may help to contain inflation at around 6%.
25. The U.S. African Growth and Opportunity Act (AGOA) is expected to partially offset the
negative effects of changes in the international environment on external trade, through its impact on
investments, exports, and savings.  As a result of a continued deficit on the current account, net
international reserves are forecast to decline to  between 13 and 14 weeks of prospective imports.
Investments are to remain at around 25% of GDP.
                                                     
7 Ministry of Economic Development, Productivity and Regional Development (2000), Highlights.
8 Further reduction of public deficit is hampered by the proliferation of exemptions and concessions,
and delayed implementation of the Government privatization programme.