Mauritius

Since gaining independence in 1968, Mauritius has successfully transitioned from a low-income agriculture-based economy to a diversified one. Annual economic growth ranged between +5% and +6% before the global financial crisis and paced at between +3.5% and +4.5% afterwards. Economic diversification and openness to trade have helped maintain sustained levels of growth, notably through active infrastructure development. The island's economic activity mostly relies on textiles and manufacturing (13%), financial services (12%), tourism (7%) and real estate and construction (10%).  While around 75% of GDP is generated by services, the industrial sector also remains crucial to maintaining good levels of employment and exports. Mauritius’ ambition to become a services hub is seriously materializing, given its relatively sophisticated financial sector. On the negative side, Mauritius is highly dependent on energy and food imports due to a lack of natural resources on its territory. This makes the economy vulnerable to external shocks and commodity price fluctuations.

Mauritius's economy was hit hard by the Covid-19 pandemic although the sanitary crisis remained mild on the island. The collapse of tourism activity due to sanitary restrictions and border closures caused GDP to plunge by -14.9% in 2020. The recovery in 2021 was mild with +4% growth as Mauritius reopened its borders only in October of that year. We expect the recovery to gain some momentum in 2022-2023, thanks to a revival of tourism (also supported by the country's high vaccination rate) as well as an increase in its sugar output as demand from India (following the signing of the CECPA trade agreement) and from China should pick up after a subdued 2021. However, the economy will also be impacted by the war in Ukraine owing to its high dependence on energy and food imports, which make it vulnerable to the recent global price surges for these goods. Overall, we forecast average annual growth of about +5.5% in 2022-2023. This means that the economy will not reach its pre-Covid-19 level before 2024.

Consumer price inflation picked up in 2021 to an average 4.0% (from 2.5% in 2020) and reached 6.7% y/y in December as a result of the accommodative monetary policy stance adopted in the wake of the Covid-19 crisis, supply-chain bottlenecks and rising food import prices. Inflation increased further in 2022 to double digits for most of the year, driven by rising global energy and food prices. In March 2022, the Bank of Mauritius (BoM, the central bank) began a gradual monetary tightening cycle, raising its key policy interest rate in small steps from 1.85% previously. We expect further rate hikes in 2022-2023 until inflation has retreated to an adequate level of around 5%.

Mauritius is one of Africa's most stable democracies, with high levels of respect for political institutions. With a comfortable parliamentary majority, the ruling Alliance Morisien coalition, led by the prime minister Pravind Jugnauth, has a big chance to be re-elected in 2024.

Mauritius’ business environment is generally strong. The rule of law is well established, the judiciary is independent and perceived corruption levels are modest by regional standards, according to the World Bank’s annual ‘Worldwide Governance Indicators’ surveys. The Heritage Foundation’s ‘Index of Economic Freedom’ survey ranks Mauritius 13th out of 184 countries. However, the country scores less favorably in our proprietary ‘Environmental Sustainability Index’ which assigns it rank 116 out of 210 economies. While Mauritius does well with regard to energy intensity, CO2 emissions and water stress, it has a very low recycling rate (9%) and is overall very vulnerable to climate change. Indeed, the island is highly exposed to adverse climate events: A large share of the population and production facilities are located in the natural catastrophe risk area and tropical cyclones and floods have amplified over the past decades amid climate change. The World Bank assesses that Mauritius experiences direct losses of USD110bn on average per year from tropical cyclones and floods.