- African Growth and Opportunity Act
TRALAC - Trade Law Centre
You are here: Home/News/Article/Mauritius drives to diversify as manufacturing stalls

Mauritius drives to diversify as manufacturing stalls

Mauritius drives to diversify as manufacturing stalls
Published date:
Friday, 01 April 2022

Much of island’s economic success was built on textiles but rising labour costs underline need for high-tech products.

Next to the motorway, heading north from Mauritius’ international airport, is a row of boxy apartment blocks festooned with washing hung out to dry.

These are the cramped dormitories of thousands of foreign textile workers, the majority from Bangladesh. The hostels, which also house workers from Madagascar and Nepal, illustrate a dilemma for Mauritius. As the economy has grown more successful, wages have risen sharply, forcing manufacturers — at least those in labour-intensive industries — to either relocate abroad or import cheap labour.

At its peak in 2000, manufacturing made up more than 21 per cent of the island’s GDP. That proportion has since halved to 10.7 per cent, according to the World Bank. That is partly because other industries — notably financial services — have expanded, producing what economists consider a beneficial diversification of the economy.

But it also reflects what some say is the manufacturing sector’s inability to move sufficiently quickly up the value chain. “When you look at other countries like Singapore, Malaysia and Thailand, they also started with textiles but they moved upmarket into higher-value addition and a more diversified range of products including electronics,” says Vinaye Ancharaz, an economic consultant and expert in manufacturing.

Somehow, he says, Mauritius never quite made that leap. These days many textile manufacturers can only survive in Mauritius by employing lower-wage workers from abroad.

Others have decamped to Madagascar. Minimum wage legislation has pushed up local pay: unemployment, partly a result of a mismatch of skills, has jumped from 6.7 per cent three years ago to above 9 per cent. “Bangladeshis are doing us a big service,” says Ancharaz.

“They are doing jobs that Mauritians don’t want to do, not only in textiles but also in the seafood industry and even in construction, sectors that have been abandoned by Mauritians.” Mauritius’ economic take-off was built on manufacturing.

Even in the final years of British rule, when the island’s economy was almost totally dependent on sugar exports, the government sought to catalyse a manufacturing sector. Import-substitution policy used tariff barriers to protect local producers, thus encouraging the manufacture within the country of essential goods, from margarine to toilet paper. The island’s small population — about 1.3mn — limits economies of scale.

To be more competitive, the government opened export processing zones, offering various tax, credit and other incentives. This enabled textile manufacturers to import cotton and fabric duty free and to export finished garments. “The good thing about textiles is it requires low-skilled labour, which we had in abundance,” says Ancharaz of those early days. Gradually, manufacturers began to source fabric locally and to make more sophisticated products, including highly priced knitwear.

“We got more and more immersed into the textile industry and that inhibited diversification,” says Ancharaz. In recent years, he argues, too much foreign direct investment has gone into luxury property and not enough into productive investment. Ken Poonoosamy, chief executive of the Economic Development Board of Mauritius, says there is more to the manufacturing sector than its detractors suggest.

He points to other areas, including fish processing (mainly tuna canning), jewellery and medical devices, as evidence that industry has not stood still. Natec Medical, based in the island’s high-tech Ebene business park, about 10km from the capital, Port Louis, is a leading producer of stents and balloon catheters.

This is a niche area that, Poonoosamy says, benefits from Mauritius’ commitment to good infrastructure, a business-friendly environment and free tertiary education. Fred Swaniker, a Ghanaian entrepreneur who opened the campus of the African Leadership University on the island, testifies to Mauritius’ ease of doing business.

“They really rolled out the red carpet,” he says. “This was a country that was serious about attracting foreign investors . . . I didn’t see that anywhere else on the continent.” Swaniker argues that the development of the island rests on its continued openness to skilled labour. “

To really drive the next phase of economic development they need to let in a wave of immigrants,” he says, recalling similar policies in Singapore. “The population is ageing and, without increasing the size of the workforce, it will be harder to raise GDP.” Poonoosamy acknowledges the limitations of size but says one of the island’s biggest competitive advantages is its market access.

“We are one of the countries that have made the most benefit out of Agoa,” he says of the African Growth and Opportunity Act, that enables tariff-free access for many Mauritian goods to the US. In 2019, Mauritius became the first African country to conclude a trade agreement with China and it is a member of the African Continental Free Trade Area.

Such agreements, says Poonoosamy, will allow local manufacturers to move more aggressively into new areas, including pharmaceuticals, nutraceuticals (food-based substances — for example, such as vitamin supplements and often of herbal origin — used for treating and preventing diseases) and auto-parts.

Ravin Dajee, managing director of Absa Bank, Mauritius, says the island needs to reduce its current account deficit, which widened to 15.6 per cent of GDP last year from 5.4 per cent in 2019. As tourists return and as manufacturers fill order books — boosted by the weak rupee, which makes Mauritian exports more competitive — the deficit should rapidly narrow.

The IMF expects a figure of 6.8 per cent this year. Dajee says manufacturing can stage a longer-term recovery, but that this should not be predicated on a weak rupee. “I wouldn’t want to build an industry on that basis,” he says. “We want to build our competitive advantage on product quality and reliability.”

Read related news articles

US Congressional delegation visits Mauritius to assess implementation of AGOA

A delegation the United States Congress visited Mauritius March 26-27 to assess the implementation of the African Growth and Opportunity Act (AGOA).   The visit underscored the United States’ commitment to deepening the economic cooperation between our two countries and to support Mauritius’ continued utilization of AGOA benefits. The delegation of eight members from the Congressional Ways and Means and the House Foreign Affairs...

04 April 2024

Mauritius: Business minister urges SMEs to maximise AGOA benefits

The African Growth and Opportunity Act (AGOA) offers a duty-free access to the largest market in the world. Although it has the potential to be a major driving force in African development, the AGOA has been under utilised. With the renewal of AGOA up to 2025, it is high time to maximise its potential for Small and Medium Enterprises (SME). This statement was made yesterday by the Minister of Business, Enterprise and Cooperatives, Mr S....

06 April 2017

Mauritius: CCA board chair expresses confidence towards renewal of AGOA before Sept. 2015

The Corporate Council on Africa (CCA), Board Chair, Mr. Paul Hinks, expressed confidence that the Africa Growth and Opportunity Act (AGOA) will soon be cleared and renewed by the US Congress given that the existing legislation expires on 30 September 2015. The renewal of AGOA was at the fore of discussions during a courtesy call yesterday by a delegation of the CCA led by Mr Paul Hinks, on the Prime Minister, Sir Anerood Jugnauth, at the...

19 May 2015

Mauritius Ambassador seeks extension of AGOA provision

The US capital is set next week to host the 11 th annual US-sub-Saharan Africa trade forum commonly known as the AGOA Forum. AGOA, an abbreviation for the African Growth and Opportunity Act, is an Act is designed to strengthen trade between the United States and sub-Saharan Africa by creating a preferential trade and investment relationship. Since its inception in 2000, about 38 African countries are currently benefiting from AGOA. The...

05 June 2012

Mauritius, Zambia plea for AGOA fabric rule extension

The ambassadors of Mauritius and Zambia to the US have made a joint appeal to the US Congress to extend the third-country fabric provision under the Africa Growth Opportunity Act (AGOA) for the benefit of workers and businesses in the African countries as well as in the US. They said the passage of legislations S. 2007 and H.R. 2493 would enable the US to continue to receive high-quality textiles and apparels from Africa at competitive...

10 May 2012

US, Mauritius hold TIFA consultations

Deputy United States Trade Representative Demetrios Marantis has led a US delegation to Mauritius for talks with the local government under the US-Mauritius Trade and Investment Framework Agreement (TIFA), to discuss a broad range of issues relating to their bilateral trade and investment relationship. This was the fifth TIFA Council meeting with Mauritius, and the discussions included the African Growth and Opportunity Act (AGOA), the...

23 January 2012

USTR Ambassador Marantis visits Mauritius

Following yesterday's consultations under the US - Mauritius Trade and Investment Framework Agreement (TIFA), Deputy U.S. Trade Representative Demetrios Marantis met with Mauritius Prime Minister Navin Ramgoolam. During their lengthy meeting, they discussed a number of issues regarding the U.S. economic relationship with Mauritius and the broader sub-Saharan region, including the extension of the African Growth and Opportunity Act’s (AGOA)...

19 January 2012

US, Mauritius officials meet to further TIFA trade initiative

Trade between Mauritius and the United States was valued at $237 million in 2007, with U.S. imports of $188 million and U.S. exports of $50 million. The leading U.S. exports to Mauritius were wheat, diamonds, aircraft, and jewelry. U.S. imports from Mauritius are primarily apparel, diamonds, seafood, perfumes, and sugar. In 2007, U.S. imports from Mauritius under AGOA, including its GSP provisions, were valued at $120 million. To further...

29 April 2008

You are here: Home/News/Article/Mauritius drives to diversify as manufacturing stalls