Freedom Watch: Mauritius is freest economy in Africa


There is a speck in the Indian Ocean where I have been teaching investment principles and guidelines for a week last month. That speck is Mauritius. It is so small that it is not even listed on some maps. On this map it is circled in red on the bottom right hand corner above. It is quite telling that they are most well known for being the place where the Dodo bird met its demise through the unsophisticated eating habits of Dutch sailors and their dogs.

It really is a strange country in that they are a country of 1.2 million people who are primarily Indian origin, who speak French Creole while their official language is English.
It was day two when I was relaxing in my hotel room when the show, Horton Hears a Who came over the hotel TV network. For those of you that don't remember the movie or the book, Horton saves a little speck of dust that has a whole city of little people on it. How ironic, I'm on a speck watching a movie about people on a speck.

Economic Development

Having said that, the country is more developed than you might think. Their GDP per capita of about 13,700 USD which puts them above even South Africa. For Africa, that is living large, considering that much of the continent struggles with open latrines and lack of safe drinking water.

Mauritius on the other hand has been busy trying to make investment profitable for foreigners on the island. It has a low income tax burdens with rates topping off at about 15%. But dividends and capital gains aren't taxed, and according to my other investment professional it takes only three days to open a business. That is a huge difference from the rest of Africa where creating an official business can take several months at least.

Port Louis hopes to be the next Hong Kong
Fast Facts
  • Population: 1,250,882 (July 2007 est.)
  • Median age: total: 31.2 years male: 30.3 years female: 32.1 years (2007 est.)
  • Population growth rate: 0.798% (2007 est.)
  • GDP - real growth rate: 5% (2006 est.)
  • GDP - per capita (PPP): $13,700 (2006 est.)
  • GDP - composition by sector: agriculture: 5.1% industry: 25.2% services: 69.7% (2006 est.)
  • Unemployment rate: 9.4% (2006 est.)
  • Inflation rate (consumer prices): 8.9% (2006 est.)
  • Investment (gross fixed): 23.6% of GDP (2006 est.)
  • Public debt: 57.9% of GDP (2006 est.)
  • Current account balance: -$651 million (2006 est.)
  • Debt - external: $2.834 billion (2006 est.)
  • Currency (code): Mauritian rupee (MUR)
Exchange rates: Mauritian rupees per US dollar - 33 (2010)As such, foreigners flock to the country to do investments and to setup corporations that do business in Africa. They are courting a huge Chinese investment class, which want to invest in Africa, but due to political instability and lack of transparency have difficulty leaving their cash in countries where it would tempt a corrupt political class. There is also large number of investors here from Nigeria and South Africa.

The economy is very diversified, especially compared to other African countries that have about half of their economy in the subsistence agriculture.Via Ezega:


That is why just behind sugar cane production, the second business in Mauritius is banking and financial services.

Economic Freedom

In fact, Heritage ranks it as the 12th freest economy in the world, just behind that of the UK, but above the Netherlands, United Arab Emirates and South Korea. It is expanding its Heritage freedom index score. It is the first in Africa and Middle East and well above the world average.

Despite the global economic turmoil, Mauritius's economy has shown a considerable degree of resilience, and an environment already conducive to dynamic entrepreneurial activity has moved further toward economic freedom. The island's institutional advantages are noticeable. A transparent and well-defined investment code and legal system have made the foreign investment climate in Mauritius one of the best in the region. Taxation is competitive and efficient. The economy is increasingly diversified, with significant private-sector activity in sugar, tourism, economic processing zones, and financial services, particularly in offshore enterprises.

Although state monopolies exist, Mauritius has improved its management of public spending. The judiciary, independent of politics and relatively free of corruption, provides strong protection of property rights.

The government has targeted the sugar and textile industries for export. They are now promoting a diversification strategy into IT and communications, financial and business services, seafood processing and exports. They are also attempting the Hong Kong/Singapore approach of becoming a free trade and shipping magnet. Tourism and other services account for over 72 percent of GDP.

Via Heritage:
Business Freedom
The overall freedom to start, operate, and close a business is relatively well protected under Mauritius's regulatory environment. Starting a business takes an average of six days, compared to the world average of 35 days. Obtaining a business license requires less than the world average of 218 days. Closing a business is easy.

Trade Freedom
Mauritius's weighted average tariff rate was 2.2 percent in 2008. The government has made considerable progress in liberalizing the trade regime, but some quotas, import restrictions, import and export permits, export-promotion programs, and weak enforcement of intellectual property rights add to the cost of trade. The government also controls imports of what it deems to be strategic products, including rice and wheat flour. Ten points were deducted from Mauritius's trade freedom score to account for non-tariff barriers.

Fiscal Freedom
Mauritius has a very competitive tax regime. The income tax rate and the corporate tax rate are a flat 15 percent. Other taxes include a value-added tax (VAT) and a property tax. In the most recent year, overall tax revenue as a percentage of GDP was 17.4 percent.

Government Spending
Total government expenditures, including consumption and transfer payments, are relatively low. In the most recent year, government spending equaled 23.5 percent of GDP. State-owned monopolies persist.
Not Bad for a spec

More

BBC Country Report
CIA Factbook

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