The Investment Policy Review of Mauritius is one of five reviews carried out in member states of the Southern African Development Community (SADC) on the basis of the OECD Policy Framework for Investment (PFI). Undertaken by the NEPAD-OECD Africa Investment Initiative in the context of the Unlocking Investment Potential in Southern Africa programme with the support of Finland, it reflects the growing co-operation between the OECD and its African partners.

Mauritius, the star and key of the Indian Ocean provides countless opportunities in the African Continent. Our island has, since its independence, made consistent impressive economic and social achievement in the face of economic constraints. This is, in large part, due to our policies of investing in human development, and of tackling poverty through comprehensive social protection schemes.

Mauritius is one of the most competitive and successful economies in Africa, with levels of income and of Foreign Direct Investment (FDI) per capita which are among the highest in the continent. The Mauritian economy is also one of the most open to foreign ownership worldwide, and relies on political stability, strong rule of law and regulatory efficiency. It has successfully rebounded following shocks exerted by the global financial crisis as well as the economic slowdown of the Eurozone, the main destination market for Mauritian exports. In 2012, performance has been particularly promising in the financial services, ICT and seafood sectors, which are expected to attract further investment (both domestic and foreign) in coming years.

Government policy in Mauritius is firmly centred on promoting foreign and domestic investment. Once a mono-crop economy reliant on sugar, Mauritius is today an upper-middle income country with a diversified production base. In recent years, the government has been especially intent on attracting FDI from emerging economies. Mauritius has built a sound network of Investment Promotion and Protection Agreements, notably with other African countries. Its network of Double Taxation Treaties, political stability, robust banking system, pro-business environment, and good infrastructure, further add to the comparative advantage of Mauritius as an investment hub for FDI into Africa.

Consider putting together an Investor’s Guide or a Compendium of rules, grouping all relevant legal instruments for investment in Mauritius. This should also group and streamline all sector restrictions on FDI within a regularly updated negative list.

Mauritius has experienced strong growth and development over many years, but more recently exports have lost in competitiveness, terms of trade have declined, and productivity and private investment (especially domestic) have barely increased for over a decade. Such problems have structural causes, and dedicated efforts aimed at enhancing the position of Mauritian industries in international supply chains are required. In this regard, this chapter investigates the existent framework for investment promotion and for protection of investor rights, and explores investment and growth trends over the last two decades. Despite a positive picture overall, Mauritius must contend with a slight decline in private investment, stagnation of gross fixed capital formation, and insufficient prioritisation of investment inflows into strategic economic sectors. Key policy challenges faced by Mauritius in attracting investment across all economic sectors are identified, followed by associated policy options in the areas of investment policy, investment promotion, infrastructure development and competition policy, trade policy, and human resource development.

Mauritian laws and regulations dealing with investments and investors provide for a predictable and transparent regime. Mauritius’ investment climate is generally open, although several restrictions apply in various sectors to both domestic and foreign investors. Investors’ rights are soundly protected both by domestic law and through international commitments. Over the last decade, the government has also updated its Intellectual Property Rights framework to enable the country to become a leading knowledge-based economy. Access to dispute settlement by investors has been facilitated with the establishment of a Commercial Division of the Supreme Court. There have thus been a wide range of laudable efforts to modernise and streamline the regulatory framework for investment. Nevertheless this framework is still dispersed over various legal and regulatory instruments, and sectoral regulations are administered by distinct public agencies. A number of recommendations can therefore be made to further improve and clarify the investment policy framework.

The Government of Mauritius places strong emphasis on attracting FDI, especially from emerging economies. Significant improvements in the business environment have been made, starting with the 2006 Business Facilitation Act and followed by the rationalisation of investment incentives and continuing simplification of business licencing procedures. Strategic bodies (such as the Inter-Ministerial Committee on Business Facilitation or the Joint Economic Council) together with a very dynamic Investment Promotion Agency (the Mauritius Board of Investment) have been established and manage regular communication with investors. However the dominant emphasis in national development strategies (such as the ten-year Economic and Social Transformation Plan, ESTP) is mostly on wide-ranging social objectives, and Mauritius could benefit from a long-term strategy dedicated specifically to investment. The framework for SME promotion and business linkage creation could also be enhanced and better co-ordinated, notably to ensure that SMEs can fully utilise the available support schemes and investment opportunities.

The strategic importance of infrastructure development for the country’s economic competitiveness is well-understood in Mauritius. The crucial role that private investment (and especially FDI) can play in expanding and upgrading infrastructure networks is also emphasised. Nonetheless, it remains necessary to create a more level playing field between public and private providers of infrastructure services. The Mauritian framework for corporate governance of State-Owned Enterprises is well advanced, which can help in this regard by improving service quality and network coverage, and making more space for private investment alongside public operators. The public procurement framework is transparent and effective, but the legislation for Public Private Partnerships in infrastructure could be further clarified. Meanwhile, the role of the competition authority in monitoring infrastructure markets is well-established; on the downside however, the absence of an independent regulator in the energy and water sectors risks reducing the predictability of pricing and cost-recovery structures for investors.

Systemic constraints to investment and export competitiveness in Mauritius include small market size, geographical isolation, and high labour costs. More fundamentally, the skill base is not tailored to the requirements of sectors promoted by government: a mismatch in labour market skills constrains competitiveness and prevents the population from making the most of business linkage opportunities. Mauritius has yet to take the step towards a coherent global economic strategy, which would put foreign trade in perspective with enabling human resources, infrastructure and investment strategies. Ensuring greater policy coherence between trade and investment strategies – including at industry and sector-specific level – would be essential. In addition to diversifying export partners, trade policy will need to balance exports with growth of the domestic market, reduce the gap between trade policy formulation and implementation, and upgrade the links of Mauritian industry with international value chains – notably through targeted human resource mobilisation.