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Posted on Friday, 27 November 2015 11:00

Mauritius Country Profile 2015: High income, here we come

By The Africa Report

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Rolls suggest that the new coalition of Prime Minister Navin Ramgoolam's Labour Party and Paul Bérenger's Mouvement Militant Mauricien (MMM) is guaranteed to dominate the next elections, which are expected to take place early in 2015.

While it is likely to push through electoral reforms ahead of the elections, including granting the president more power and making it more difficult for small parties to win parliamentary seats, no significant change in economic policy is expected.

All of the three main parties encourage business and investment through low taxes in order to finance social spending. Ramgoolam plans to take over from Kailash Purryag as president following the elections, while Bérenger would become prime minister, a role he also filled from 2003 to 2005.

Bérenger, who said at a press conference in September that the coalition will focus on accelerating the transition of Mauritius to a high-income country, is also expected to appoint a number of his senior MMM members as ministers.

The coalition should be able to push through economic programmes and eliminate the voice of smaller and more left-wing parties. One area where Ramgoolam and Bérenger would seek more activity is in the formation of public-private partnerships for power, transportation and water projects.

New left coalition

Some of the more left-wing parties formed their own new coalition in 2014. It includes the Mauritian Social Democratic Party (MSDP) led by Xavier-Luc Duval. He stepped down as finance minister in June 2014 after falling out with Ramgoolam over electoral reform, ending the coalition between his party and the Labour Party.

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The MSDP joined forces with the Mouvement Socialiste Militant, led by Pravind Jugnauth, and the Mouvement Libérateur, a new party that was launched by Ivan Collendavelloo. For the Labour Party/MMM coalition, winning the election should be the easy part.

Diversifying the economy and accelerating growth will prove much harder, a 2014 working paper from the International Monetary Fund indicated. To reach its target of becoming a high-income country by 2020, it will need to achieve an average growth rate of nearly 6% over the next five years.

One of Mauritius's key challenges is its strong economic ties to Europe. Lacklustre growth in Europe has affected investment flows, export demand and the number of tourists from France in particular, a major source of visitors. Tourism is a key source of foreign currency and employment, contributing about 8% to gross domestic product. Another key challenge is the renegotiation of a double taxation avoidance agreement with India.

The agreement, which has been a key driver of the country's financial services sector over the past three decades, is likely to be amended as the Indian government is currently losing a lot of tax revenue because of it.

The treaty encourages investors to route money through Mauritius to benefit from its low tax environment, where foreigners pay an effective 3% on profits and 0% on dividends and capital gains.

Investment flows to Africa

Mauritius has already made significant progress in diversifying its reliance on investment flows to India, with 54.4% of all investment flows channelled through the country targeting Africa in 2013, according to statistics from the Mauritian Financial Services Commission. This is up from 40% in 2010.

In addition to positioning Mauritius as an investment hub into Africa, the government is also encouraging direct investment by local firms into the continent. It established the Mauritius-Africa Fund in early 2014 to provide equity funding for investment in African projects, freight subsidies on exports to countries excluding South Africa and Madagascar, and subsidies on credit guarantee insurance for exports.

A number of Mauritian firms are already active abroad and looking to further expand their footprints, whether through partnerships or physically setting up shop or acquiring assets in new countries.

AfrAsia Bank, for example, expanded to Zimbabwe in 2012. CIEL Textile, one of the island's biggest groups, said in 2013 it will invest Rs600m ($18.8m) in four new plants in Asia in the next five years, building two in India, one in Bangladesh and one in China.



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