Mauritius is a small island with big ambitions, intent on positioning itself as a leader in the tech and financial services sectors. Ashleigh Lezard reports

One topic sure to fire up conversation on the tropical island of Mauritius is SAFE – the South Africa Far East fibre optic cable project. The joint venture between South Africa’s Telkom and Telekom Malaysia involves a broadband cable stretching under the Indian Ocean from Cape Town to Penang, with a spur to Mauritius and Kochi in India. SAFE is an extension of the South Atlantic Telephony/West African Submarine Cable, which runs from South Africa to Portugal, branching into West Africa. Forty-two companies from 35 countries have joined forces to set up this $600m project, which will revolutionise telecommunications in the least developed part of the world.

For most business leaders and politicians in Mauritius, SAFE is an important boost to the development of its diversified economy. In a country with a network monopoly held by Mauritius Telecom, leading to costly and slow internet access, the project opens up new possibilities. When the cable went live at the end of April, it provided a 133GB broadband connection. Mauritians talk about internet access being up to “18,000 times faster than it is now”. This may be an exaggeration but the connection does create a vast range of opportunities, particularly in information and telecommunication technology (ICT).

ICT causes a stir

ICT is also a buzzword in Mauritius, as the government tries to develop and promote the sector. In both the private and public sector, people are confident that Mauritius can be a successful centre for IT companies and professionals, even though it will be competing against many other emerging markets. It is also seen as immensely important for a new sector to be developed to complement the other four pillars of the economy – financial services, textiles, sugar and tourism.

Mauritius has always attracted high levels of FDI – mainly due to political stability and an enviable economic record with an average of 6% growth throughout the 1990s. Coupled with its uniquely mixed population and relative lack of racial tension, Mauritius has a more prominent international standing than its size suggests.

Raj Makoond, director of the Joint Economic Council (JEC), an advisory body to the government that consists of members from all sectors of Mauritian enterprise, says the island has been used as a World Bank model of economic development.

Cyber enticements

So Mauritians should not find it difficult attracting investment to the ICT sector. Dev Manraj, chairman of Business Parks Mauritius, is optimistic that the new cyber city he is promoting will put Mauritius on the ICT map. “We already have more than 15,000 international operators here and are strongly developing our knowledge-based economy,” he says. In an impressively high-tech presentation in his office, he reveals the future of Mauritius as a “cyber island”.

Set in lush sugar cane fields, the new business park will offer all mod cons and has apartments, hotels and leisure facilities. With $100m invested by the Indian government, the centre should be ready by the end of next year. Satyam, the Indian software company, has confirmed that it will be investing in the project. This is important as it could give Mauritius an advantage over its competitors.

The linguistic skills of Mauritians offer another major advantage to investors. They are bilingual in English and French and, because 60% of the population are of Indian origin, Hindi and Urdu are also widely spoken – a particular advantage for Indian companies seeking access to the French market.

The Mauritius government wants to move away from its basic export-based industries of sugar and textiles to the more “value-added” sectors of IT and financial services, using its access to African and Indian markets as its main selling point. Khushal Khushiram, minister for economic development, financial services and corporate affairs, says increased government expenditure on infrastructure and education is a strategic part of this development.

The JEC’s Raj Makoond cites the island’s big drive to improve computer literacy in secondary schools. He says: “There is a need to develop a culture of exchange of information and change the mind set of ordinary Mauritians.” This is important, as places at the University of Mauritius are limited.

Mr Khushiram, however, prefers to highlight the influence of outsiders on development. “Attracting IT and financial services professionals from overseas, with the offer of tax incentives and residency benefits, is vital to the diversification of the economy and will have a knock-on effect on the rest of the country,” he says. The trickle-down effect may work in Mauritius, as it does have a relatively small population. The challenge is to reduce economic disparity between the underprivileged African Creoles and the Hindu majority.

Brain drain feared

Another problem is that further economic development may lead to something of a brain drain as highly qualified Mauritians go to better paid jobs elsewhere especially as a large number already go to university in the UK and South Africa. Singapore University sponsors students from Mauritius but expects them to work in Singapore for three years after graduation. Chairman of the Financial Services Promotion Agency, Georges Chung Tick Kam, says this issue could be a problem as the tourism sector has already experienced some poaching of its people to establishments in the Middle East and India. “It can be beneficial in some ways though, as people usually return bringing new skills with them,” he adds.

The promotion of Mauritius as a financial services centre for India and Africa and an ICT outsourcing centre for Europe and India is at the forefront of government policy. However, Germain Commarmond, managing director of the Board of Investment, stresses the importance of developing traditional sectors. “In the textile sector, we are trying to promote the spinning, weaving and design side of the business.”

Traditional industries

The JEC says the textile sector, which employs 90,000 people in Mauritius, is not sustainable unless it is modernised. This is especially important, as Mauritius is losing out in the price war to cheaper manufacturers in Africa. Some factories have already been moved from Mauritius to cheaper Madagascar, with core operations staying in Mauritius. The free port of the capital, St Louis, and an export processing zone make this easier; and many Mauritians would like to see the island serving Africa in the same way that Singapore serves south-east Asia.

This is also true of the other sunset industry in Mauritius – sugar. The whole island is covered in rolling fields of sugar cane, with extensive and intricate irrigation systems dividing them up. Despite having an above-average rainfall, the cane is still watered everyday by huge sprinklers. The island was previously much more dependent on sugar exports; sugar output accounted for three-quarters of GDP. This is now reduced to about a quarter. Like textiles, the sugar industry has lost out to cheaper competition from Africa and the end of preferential treatment from developed markets. “Mauritius is losing preferential trade access with, for example the European Union, and so will lose its privileged position,” says Richard Austen, deputy high commissioner at the British High Commission in Port Louis.

To add value and stay competitive, the board of investment has concentrated on research and development in the sugar cluster and with textiles by basing production in cheaper parts of Africa, with processing based in Mauritius. Consultants from the island have helped to develop farming practices in Côte d’Ivoire, Tanzania and Mozambique.

Khushal Khushiram says links with Africa are vital for the future of Mauritian economic development. The island is a member of the South African Development Council (SADC) and the Common Market for Eastern and Southern Africa (Comesa), providing excellent access to African markets. Mr Khushiram participated in the negotiations for the African Growth and Opportunity Act (Agoa), which has opened up American markets to 35 African countries. “This shows Mauritian commitment to free market economics,” he says. Mr Makoond also had a role in the World Trade Organization round in Doha, representing the African, Caribbean and Pacific countries, particularly on the negotiations for investment rules.

Financial services

The financial services sector also offers substantial access to African markets. “Mauritius already provides project finance in Madagascar, Mozambique and Tanzania,” says Roger Winfield of Deutsche Bank Offshore. Mauritius has a double tax treaty with South Africa, which is due to be renegotiated later this year. There has also been talk of developing a Southern African stock exchange.

Financial services are probably considered the most critical for economic development. A World Bank loan secured before Christmas has helped to set up a new regulatory body, the financial services commission that will oversee regulatory standards, policies and procedures. New legislation should help enable Mauritius to become an international hub of offshore finance.

There is tough competition, however, and although the island has many advantages, such as double tax treaties with South Africa and India, no exchange controls and strict accounting rules, there are still flaws in the legislation, which is “clumsy” and “top heavy”, according to Dev Joory, managing director of International Financial Services, a local firm.

Mauritius is best known around the world as a holiday destination. The white beaches, tropical seas and palm trees attract up to 600,000 visitors a year. Le St Geran remains one of the most luxurious resorts in the world; and other developments are of a high standard. “We aim for the high end of the tourist market,” says Mr Khushiram.

Kailish Hurree, sales manager of the new Hilton resort in Mauritius says: “We are catering for the French and British market because they spend the most money. We also cater for company incentives; at the moment we have 80 employees from Hewlett-Packard on an incentive holiday.” The sector is so busy that Sunil Banymandhub, managing director of investment management firm International Management, believes the sector has reached saturation point. Despite this, the JEC estimates that there is room for one million tourists a year on the island.

The noticeable thing in Mauritius is its self-awareness. Government and business leaders understand the workings of the new global economy and how to secure their position in it. The ICT and financial services sectors look set to develop, and the tiny island state, which occupies a unique position between Africa and India, will continue to have greater influence in world affairs than its size suggests.