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Tourism to lead economic revival: with the price of sugar tumbling and the market for textiles being squeezed, Mauritius is facing a precarious economic future. As Nasseem Ackbarally reports from Port-Louis, the island is now looking to tourism to revive its fortunes.

Mauritius is looking forward to tourism, 'the only bright spot in its economic landscape', for much more growth and development, as its two biggest pillars--sugar and textile--are threatened by outside forces and the economy is on red alert. The island has declared 2006 as the revival year for tourism.


Mauritius' new finance minister, Ramakrishna Sithanen, summed up the current economic situation neatly when he said: "Tourism is the only industry that has thrived without any preferences or safety-nets from outside. And it is an industry where there is tremendous potential." Sithanen was appointed to his post by new prime minister, Dr Navin Ramgoolam, in July following the Mauritius Labour Party's (MLP) victory in the general elections. Ramgoolam's Labour alliance won 44 seats against 24 to former prime minister Paul Berenger's MSM/MMM alliance.

The finance minister's comments came in the wake of a general feeling of pessimism over the state of the economy. "The task ahead is a daunting one because the economy has slowed down. We would lose 10 months if we wait for the presentation of the next budget due June 206 to tackle today's problems," the minister admitted.


The list of indicators that have crossed the red line is long: the growth rate of 6% between 1996 and 2000 has declined to 4% between 2001 and 2004 and will go further down to 3.8% this year, according to estimates by the Central Statistics Office.

Total investment has also declined significantly as a percentage of GDP, from an annual average of 25.3% between 1996 and 2000, to 22.1% during 2001/2004, with private investment falling from 17% to 14.5%.

"This is insufficient as unemployment has already reached 9.7%. The budget deficit of 5.9% and public debt of more than Rs100bn is dragging us to a vicious circle," Sithanen observed.

He further indicated that many public sector companies are facing financial difficulties; public finances are in a precarious state and the international environment continues to deteriorate, as evidenced by the high price of petroleum products. Moreover, all major macroeconomic indicators have significantly weakened. With 8,000 people laid off during the past few years and growth rate in the sugar sector forecast downward by 4% this year; plus 27,500 jobs lost and -8% for the textile industry, Sithanen has to look to other sectors for growth. This is in the face of a 39% reduction in sugar prices as from next year and stiff competition in the textile and clothing sectors.

ICT is yet to make a mark and will take time before contributing significantly to the island's economy while the 'duty-free island' concept (See African Business June 2005) is still on the drawing boards.

Tourism as engine of growth

In the meantime, the minister wants to focus on industries that can bring quick growth dividends. In the next few years, Mauritius will have to fully tap the potential of tourism and make it the leading sector of the economy. "In the short and medium terms, our hope for higher economic growth and for more employment creation and poverty reduction lies in this sector," he said.

This industry has thrived on its own for a long time although its role was to support the other economic pillars of the island that were sugar and textiles.

The strategy is to attract more tourists to the island. There were 702,000 visitors in 2003, 718,000 in 2004 and an expected 755,000 in 2005. Sithanen's vision is to develop a recognisable image of Mauritius as a unique destination that comprises leisure, business and shopping tourism.

To boost the industry, Mauritius needs urgently to revisit its air access policy. It has agreed to allow a third carrier after Air Mauritius and Air France to operate on the France/Mauritius route so as to better exploit the French and neighbouring country tourism markets. The name of the successful carrier--Air Austral, Corsair or Star Airlines--is yet to be announced. France is the leading tourist market for Mauritius with over 200,000 tourists coming to the island every year.

This policy, Sithanen says, will also be applied to other major sources of tourists. A new British carrier--Virgin or British Midlands--is likely to be added to the UK/Mauritius route in addition to British Airways and Air Mauritius. Mauritius will also adopt a more flexible approach to capacity increases from existing operators, allowing Austrian Airlines to operate a second weekly flight from Vienna and additional flights by existing carriers during peak seasons along with more special flights to Mauritius at any time during the year.

Another major step towards bringing more tourists to the island has been the government's decision to allow a second airline to operate from Rodrigues and the nearby French island of La Reunion from next December. In another development, the Mauritian Tourism Promotion Authority (MTPA) promotional budget has increased by 75%, from $5.6m to $10m.

Mauritius duty free

In addition to attracting more visitors, Mauritius wants them to spend more money shopping in the islands. The concept of turning Mauritius into a duty-free island along the lines of Dubai was first proposed by the former finance minister, Pravind Jugnauth last year. Immediately, the government removed the 80% customs duty on imported clothing, all leather articles, jewellery, sportswear and sports and training shoes, digital cameras, electronics, perfumes and cosmetics while a shopping mall scheme to promote, encourage and facilitate the development of modern integrated business, shopping and leisure centres was also announced

Prime minister Navin Ramgoolam also places lots of hope on the tourism sector. "2006 will be Tourism Year in Mauritius," he said, before appealing for concerted actions to achieve this objective. "There is no miraculous recipe, only a simple logic and planning. We need dialogue between the hotels and Air Mauritius. We have had a situation whereby the hotels had reduced their prices to attract tourists while Air Mauritius had raised the costs of air tickets. This is not good for the industry," he remarked.

Tourism minister Xavier Luc Duval pointed to a 2004 survey by the World Tourism Council that found Mauritius to be zero-rated in terms of competitiveness compared to 200 other tourist destinations. He said hotels should contribute to the prosperity of the industry--just as the airlines and the population are doing--by being very friendly and hospitable to tourists.

The industry itself welcomed the government's decisions to boost tourism. Jean-Michel Pitot, deputy-chairman at AHRIM (Association of hotels and restaurants) said: "We are happy that things have been clarified. We only hope that these measures are implemented fast to have an impact on the market."

However, Sen Ramsamy, a tourism consultant, warned that competition was high in this sector, as other destinations were offering the same types of products and at better prices than Mauritius. "We should also aim at new markets like India--that has got a big potential for tourism as Indians travel a lot. If we can bring them here, they can help us fill the small hotels and the bungalows," he said.


Keeping an eye on other sectors

Finance minister Sithanen has not placed all his eggs in the tourism basket. He places high hopes on the ICT sector, which is showing, according to him, positive signs of expansion. To boost the sector, he has asked private operators to reduce costs at least to the levels of global competitiveness. He also asked Mauritius Telecom to reduce the cost of International Private Leased Circuits on the Southern Africa Far East Cable (SAFE) by a minimum of 15% very rapidly.

Mauritius is also looking at the textile and clothing sector that is going through a very turbulent time these days. Two cures have been proposed for the sector: a special 60% tax credit on equity-investment in spinning, weaving and dyeing companies to be extended to equity investment in companies engaged in the knitting of fabrics.

Enterprise Mauritius has been set up to develop chain models and collect market and competitive analysis for relevant sub-sectors such as trousers, shirts and knitwear. Danielle Wong, director of the Mauritius Export Processing Zone Association (MEPZA) said it was a feelgood factor though concrete results would only appear over a span of time.

At least seven measures have been announced to revive the SME sector. The major one is a reduction in the interest rates on micro credit from the Development Bank of Mauritius, down from 8% to 5%, and loans for the modernisation of production equipment will decline by one or two points.

*During the election campaign, premier Ramgoolam promised to improve the living conditions of the population in a hundred days. He said he would reintroduce the 'pension for all' scheme for Mauritians aged 60 and above; provide free transport for the elderly and also for all students from primary to tertiary levels; introduce price controls on certain foodstuffs; and provide income tax exemption for people earning less than Rs25,000 monthly ($850).


He has kept all his promises except for income tax exemptions, which are due soon. "I'll also be looking at the prices of medicines--which are too high," he said.
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Title Annotation:MAURITIUS
Author:Ackbarally, Nasseem
Publication:African Business
Geographic Code:6MAUI
Date:Oct 1, 2005
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