MAURITIUSDoing Business inFINANCIAL TIMES SPECIAL REPORT | Friday September 7 2012

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In its 44 years as an inde-pendent nation, Mauritiushas managed to build acredible, globally con-

nected middle-income economyon an unpromisingly craggy,poorly endowed, geographicallyremote bit of land.

When reflecting on the moreattractive aspects of theirnational character, Mauritianslike to use words like “resource-ful” and “resilient”. The countryhas indeed displayed an abilityto reinvent itself as required,performing some of its meanestfeats when faced with the tough-est odds.

The island initially made itsway as a provisioning stationfor passing ships. The Dutch,when first colonising Mauritiusin the 17th century, quicklystripped the island of ebony, oneof its few marketable resources.The human incursion killed offthe dodo, the flightless, defence-less bird that still figures on thecountry’s coat of arms.

When Dutch ships began call-ing at the Cape instead, Mauri-tius – now in French hands –tied its fortunes to sugar, har-vested first by African and Mal-agasy slaves then, after slaverywas banned, by indenturedlabourers shipped from India.

In the 1960s, as British-ruledMauritius was moving towardindependence, two separatereports commissioned on theeconomy delivered dismal prog-noses for the viability of adensely populated island regu-larly ravaged by cyclones anddistant from world markets.One of them concluded that theisland had “too many eggs inone basket” – sugar.

But Mauritius proved themwrong. The government andlandowning families, in a symbi-osis of Singaporean-style plan-ning and sugar-baron capital-ism, diversified into one indus-try after another, starting withtextiles from the 1970s, thenlong-haul tourism from the1980s.

Over the past decade, thecountry has branched out fur-ther. Mauritius has parlayeddouble taxation agreementswith about three dozen coun-tries – most notably Indiabut many African countries, too

– into an offshore companiessector that now generates about5 per cent of gross domesticproduct.

Multinationals, hedge fundsand other foreign investors areusing the island as a low-tax,financially sophisticated plat-form for doing business in stick-ier times. Cyber City, the high-rise office park developmentnear the capital Port Louiswhere some of these businessescluster, offers visible evidencethat Mauritius has made itself

attractive to foreign investors.More recently, some of the

island’s cane fields have beenploughed up to make way forshopping malls and high-endvilla developments for rich for-eigners.

When pitching to foreigninvestors, Mauritius touts itssecure place at or near the topof African league tables on crite-ria ranging from the ease ofdoing business to the quality ofits democracy and per capitaGDP.

Mauritians of Indian, Creole,Chinese and European descentlive in greater harmony thanmost of their African neigh-bours, mostly because no groupcan claim status as indigenousinhabitants of the island, whichwas unpopulated when settlerscame.

Taken together, the country’sbasket of industries has enabledit to weather the banking melt-down in 2008, and now the crisisin Europe, which accounts forabout two-thirds of the coun-

try’s foreign investment andtourist arrivals. GDP growthhas averaged about 4 per centduring the crisis, although it isexpected to slow by at least halfa point this year.

“We are extremely exposed toEurope; notwithstanding that,we are predicting growth ofabout 3.5 per cent this year,”says Xavier-Luc Duval, thefinance minister. “It must meanwe are doing something right.”

But the government’sContinued on Page 2

Display ofresilienceagainsttough oddsThe remote islandstate continues toreinvent itself,writes John Reed

Inside this issueEconomyPredictedgrowth of3.5 percent isrespectable,given thecountry’sreliance onEurope Page 2

Financial services Successhas been achievedthrough good fortune,good management andastute trade diplomacyPage 2

Tourism The industryhas been too reliant onEurope and is pursuingnew markets Page 3

Real estate Having madea series of buoyantone-way bets, the sectoris playing it safe Page 4

Politics For a stabledemocracy, the politicalscene is surprisinglyturbulent Page 4

Sugar By-productsare becoming moreimportant than thewhite stuff Page 5

Textiles The end of theMulti Fibre Agreementforced a consolidationthat has left the industry inmuch better shape Page 5

Social cohesionMany say it is time to stopdifferentiating between thecommunities Page 6

Chagos dispute Ahigh-profile case seekingdamages and the rightto resettle is awaitingjudgment Page 6

Port Louis: the capital of Mauritius, which has diversified into one industry after another, proving gloomy predictions wrong Dreamstime

2 ★ FINANCIAL TIMES FRIDAY SEPTEMBER 7 2012

Doing Business in Mauritius

confidence contrasts with agrowing sense of uneaseamong many Mauritianswho fear the country’sprized economic niche andsocial harmony may beunder threat. There is asense that, for once, thecountry may not be adapt-ing quickly enough tochanging circumstances.

“Mauritius is beginningto run out of luck” saysKee Chong Li, an MP and

Continued from Page 1 opposition spokesman forfinance.

Tourist arrivals are flat-tening out this year, just asa glut of new rooms built inmore optimistic timesbecomes available. Mauri-tius has been slower to filltourist beds vacated byEuropean tourists withfreer-spending Chineseones, as its regional neigh-bours Maldives and Sey-chelles have done. Manytop-end hotels are discount-ing rooms, threatening the

island’s status as an exclu-sive destination too.

The international busi-ness sector also faces achallenge. India, with itsown GDP growth slowing,wants to renegotiate thetwo countries’ three-decade-old tax treaty as part of abroader push to reclaim lostrevenues.

Navin Ramgoolam’s gov-ernment has had to inter-vene with three stimulusprogrammes since 2008,most recently by doubling

resources for a NationalResilience Fund, set up tohelp faltering industries.

Even the island’s rich,historically expansive Fran-co-Mauritians are express-ing unease. Constant diver-sification is probably thename of the game,” saysGilbert Espitalier-Noël,chief executive of ENLproperty, part of a familyconglomerate with invest-ments in hotels and realestate. “But it’s tough –tougher than I’ve seen inmy 25 years.”

Unemployment is about 8per cent, but the numberbelies double-digit jobless-ness among young people.Unless Mauritius can accel-erate growth, businesspeo-ple and policy makers fearthe number will rise andwith it social unrest.

Some Mauritians worrythat structural competitivefactors are holding the

country back and thinkthat the government shouldundertake deep reforms inareas such as social spend-ing and education.

“The social transferbudget in the country risksbecoming insupportable forthe future taxpayer,” says

Rundheersing Bheenick,governor of the Bank ofMauritius.

While social spendingcuts are for now politicallytaboo, there are signs thatthe private sector is chang-ing in response to toughertimes.

The sugar industry, stillan economic mainstay, isbranching out into ethanoland moving up the valuechain by exporting refinedrather than raw sugar. Tex-tile companies are export-ing their knowhow to low-er-wage locations in coun-tries such as Madagascar,India and Bangladesh.

In tourism, hoteliers arejoining forces with Air Mau-ritius, the lossmakingnational airline, to lure acritical mass of Chinesetour groups that might fillnew flights to the island.

The offshore companiessector, meanwhile, is mak-ing up for lost business inIndia with new investmentsfrom companies targetingAfrica. After a fashion, anew Mauritius is emerging.

“No crisis lasts forever,”says Mr Bheenick. “Afterthis crisis we have toemerge fighting fit.”

ContributorsJohn ReedFT Correspondent

Paul AdamsFT Contributor

Stephanie GrayCommissioning Editor

Steven BirdDesigner

Andy MearsPicture Editor

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Economy displays resilience against some tough odds

There is a sensethat, for once, thecountry maynot be adaptingquickly enough

Twenty years after liberalising itssmall and insular banking system,Mauritius has developed an interna-tional financial services industry witha low-tax offshore sector that linksinvestors worldwide to markets inAsia and is shifting its focus to sub-Saharan Africa.

By 2011, the financial services sectormade up 15 per cent of gross domesticproduct, with global business account-ing for 5 per cent. It employs 15,000people.

Although there are 20 licensedbanks, the sector is dominated by twolocal institutions: Mauritius Commer-cial Bank (MCB) with 45 per cent ofthe market and State Bank of Mauri-tius with 25 per cent.

“Two-thirds of our balance sheet isfrom local activity. The big interna-tional banks are primarily here forthe offshore sector,” says Pierre GuyNoël, chief executive of MCB.

“Balance sheets here are strong. Wenever got into the rat race of chasingbusiness. We stuck to basic bankingprinciples and margins are good.”

The finance sector, along with ICT,pays in corporate tax nearly a quarterof the government’s direct receipts,says Nikhil Treeboohun, chief execu-tive of Global Finance Mauritius,which represents the banks, institu-tional investors, stockbrokers, lawfirms, accountants and the 160 man-agement companies that service the25,000 international companies regis-tered in the country.

Mauritius’ success has beenachieved through good fortune, goodmanagement and astute trade diplo-macy.

Added to the island’s convenientlocation between the European andIndian time zones, multilingual popu-lation, political stability and a reliablelegal framework with access to acourt of appeal in the UK, the govern-ment has provided sound financialregulation.

On the “white list” of OECD andFinancial Action Task Force coun-tries, it has also negotiated double taxavoidance agreements with 36 coun-tries and 19 investment protection andpromotion agreements.

Its membership of the AfricanUnion and the Southern AfricanDevelopment Community providepreferential access to markets inAfrica, Europe and the US.

Mauritius has become the mainchannel for investment in India. From2000 to 2011, it accounted for 42 percent ($54bn) of India’s foreign directinvestment. This had its origins in a1983 treaty designed to attract Indianinvestment to Mauritius.

As both economies opened up, thetax planners got to work and themoney started to flow in the oppositedirection, bringing a reaction from an

Indian government under pressure athome to deal with alleged tax evasionand money laundering and accusa-tions in the local press of secrecy andnon-cooperation by Mauritius.

The Indian government’s new codeto boost tax collection includes gen-eral anti-avoidance rules (GAAR) tocurb “round-tripping”, in whichIndian companies take money out ofthe country and reinvest it there viaMauritius to reduce their tax bill, and“treaty abuse”.

Mauritius has protested that theGAAR threatens to override India’sbilateral agreement and that theIndian reaction has created uncer-tainty and singled out the countryunfairly.

Sridhar Nagarajan, chief executiveof Standard Chartered Bank (Mauri-tius), says: “There is not a single caseof round-tripping that has beenproved. You have to track it at thepoint of exit, not the point of entry.Mauritius is very stringent.”

“There is already a MOU [memoran-dum of understanding] between Sebi,India’s regulator, and the FinancialServices Commission in Mauritius. Ifthere is treaty abuse, we have todefine it and prevent it,” says MrTreehoohun, who cites a recent studyby the Commonwealth Secretariatwhich found that Mauritius was one

of the most highly regulated interna-tional financial centres in the develop-ing world, scoring well ahead of itsmain rivals Singapore and Cyprus.

“It’s not in our interests to haveshady business here. India is thesource of 70 per cent of our globalfinancial business.”

Others see this dispute as the signalfor Mauritius to reduce its dependenceon India in finance, a process alreadybegun by some of the local conglomer-ates.

CIEL Investment partnered withI&M Bank from Kenya to form BankOne in Mauritius, and has shares inthe Kibo private equity funds, target-ing investment in east Africa. AfrasiaBank, owned by the island’s largestgroup GML, has investments in SouthAfrica and Zimbabwe.

The government, also wary of over-reliance on trade with the eurozone,has recently appointed Azad Dhomun,as its roving ambassador to sub-Saharan Africa to speed bilateraltrade deals on the continent and inparticular bring African banks toMauritius. Only South Africa’s Stand-ard Bank and Investec are present,both primarily in the offshore sector.

“My role is to help Mauritiusdevelop as a financial hub, there’shuge potential,” says Mr Dhomun,who has run banks in several Africancountries as well as Mauritius.

Banking on a goodlocation and the lawFinancial servicesPaul Adams considers thesuccess of a sector thatlinks investors worldwide

Membership of the AfricanUnion and SADC providespreferential access tomarkets in Africa,Europe and the US

Looking at the proverbial glassof water that is the Mauritianeconomy, some in the country– notably those in or near gov-

ernment – say it is comfortably half-full. Despite its reliance on trade andinvestment with Europe, the islandhas managed to tough out the finan-cial crisis, reporting an average growthin gross domestic product of about 4per cent – a figure that would makemost European countries envious.

The corporate sector, dominated bya few family-controlled conglomerateson which many more small and mid-size companies rely – is, as in timespast, reacting to adversity by rein-venting itself. In the sugar sector, pro-ducers have raised their game byexporting refined rather than rawproduct. Textile companies have cutcosts and outsourced more work tolow-cost countries.

Hotel groups are pursuing new mar-kets such as China, India and Russiato make up for the Europeans forgo-ing trips. Sugar estates are turningsome of their agricultural land intoshopping malls or residential develop-ments for foreigners willing to spend$500,000 or more on a Mauritian pièd-a-terre.

The government forecasts GDPgrowth of 3.5 per cent this year – adrop from 3.9 per cent in 2011. Itdescribes this as a respectable show-ing, considering that Mauritius sendsabout half its exports to Europe andgets two-thirds of its tourists and for-eign direct investment from there.

“You could have expected muchworse with such exposure,” says Xavi-er-Luc Duval, the finance minister.According to government estimates,the real estate sector will be the big-gest driver of growth this year, fol-lowed by financial intermediation,manufacturing and trade.

But many Mauritians express dis-quiet about slowing growth, whichthey worry will soon increase unem-ployment, which is already at 8 percent. The weakening of the rupee hashelped support exports, but hurt ordi-nary Mauritians’ household budgetsin an island country that importsmost food and other basic goods.

The “glass-half-empty” schoolpoints out that the government hasintervened three times to prop upstruggling companies, but many arestill losing money and could fail if thecrisis in Europe proves long and hard.

Some say the government’sresponse to a slowing world economyand the growing competition fromelsewhere has been haphazard andinadequate in the face a serious globalcrisis and deep-rooted homegrownproblems.

“There is no master plan, there isno development plan,” says KeeChong Li, a spokesman for finance inthe opposition. “This is a country offix it as you go.”

When Lehman Brothers collapsed in

2008, precipitating the global bankingcrisis, the government announced afirst set of stimulus measures byyear’s end.

Dubbed the “Mauritius Approach”,the programme saw the governmentguarantee low-interest bank loans forstruggling companies. They in turnwere asked to put up 20 per cent freshcapital of their own and to forgodeclaring dividends or cutting jobs.

About 19 companies – primarily tex-tile producers – benefited from theaid, and about 8,000 jobs were saved,according to Raj Makoond, director ofthe Joint Economic Council, whichoversees the programme.

“We were able to carry forward thelessons of the Lehman crisis in public-private mode,” he says. “Had some ofthe large companies gone under, theripple effect would have been bad.”

The government intervened again tosupport struggling companies withthe Economic Restructuring and Com-petitiveness Programme, anotherstimulus plan.

Last year, it doubled the size of theNational Resilience Fund, whichassists companies in financial distressbecause of the crisis, to $200m.

While the stimulus is keeping manycompanies afloat, the economy is stillunder pressure from weak overseasdemand. Many think that the govern-ment’s 3.5 per cent growth target willhave to be cut.

“On the economic front, it will betough,” says Rama Sithanen, a formerfinance minister who runs Interna-tional Financial Services, a consul-

tancy that helps offshore companies.“Most experts suggest we are in forthe long haul in terms of contractionof the economy in Europe.”

While the word “austerity” is notone used often in a local context,some analysts think the countryneeds to cut costs and improve per-formance in public-sector institutionssuch as education and pensions.

“We must improve productivity andcompetitiveness,” says RundheersingBheenick, governor of the Bank ofMauritius.

The country’s demographic profile,which used to be pyramid – with moreyoung people at the bottom than oldones at the top – now “looks like atower block”, he says. Its underfundedstate pension system could in futurebreak the budget if left unreformed,he says.

Mr Li says Mauritius needs to over-haul its education system, which heclaims focuses too much on rote learn-ing and is not producing graduateswith the right skills.

Mauritian political parties are fornow shunning spending cuts, whichthey see as toxic.

The country’s media, too, are morefocused on political horse-trading and scandals than deeper pub-lic policy challenges.

But some Mauritians say this mustchange.

“When there is sustained recovery,there will be heightened competitionfor markets that will have shrunk,”says Mr Bheenick. “To face up to thatcompetition, you must be strong.”

Mission to find new marketsThe economyBusinesses have beenover-reliant on Europe,writes John Reed

Market prices: the depreciating rupee has helped exports but hurt ordinary Mauritians’ household budgets Alamy

Many Mauritians expressdisquiet about slowinggrowth, which they worrywill soon feed through tohigher unemployment

FINANCIAL TIMES FRIDAY SEPTEMBER 7 2012 ★ 3

Doing Business in Mauritius

The executive suite at AirMauritius’ Port Louis head-quarters features a glamor-ous and evocative but woe-fully outdated route mapthat takes up an entirewall.

Bold red lines emanatelike spider legs from theisland nation, marking thepath to far-flung destina-tions in Africa, Asia,Europe and Australia.

However, the nationalcarrier no longer flies tomany of them. The airline,which reported a net loss of€29m last year, has cut sev-eral routes including Syd-ney, Melbourne, Manches-ter, Brussels and Rome. It isalso due to stop flying toFrankfurt and Geneva.

Donald Payen, the air-line’s executive vice-presi-dent, is philosophical aboutthe retrenchment. “In thosedays, the success of an air-line was determined by theplaces it flew to,” he com-ments.

Air Mauritius is cuttingsome unprofitable routesand adding flights else-where in an effort to cut itslosses and hold its ownagainst tough competition.But in a such a remotecountry, the airline is seenas a strategic asset, and itsdecisions on routes a mat-ter of national importance.

Some business peoplethink the government hasbungled air policy by cod-dling Air Mauritius and notallowing enough competingairlines to offer flights.They say the country’shope of building a service-oriented economy open tothe world is in peril becauseof the ill health of thenational airline.

“Air access is as impor-tant as electricity and water

and telecoms, because it’scrucial to the new economicmodel we want,” says RajMakoond, director of theJoint Economic Council,which represents the pri-vate sector. “This is a majorpolicy that has not beenaddressed.”

Hotel companies havebeen the most vocal inbashing the airline. Theysay that a shortage ofaffordable flights has cre-ated a mismatch betweenavailability of rooms andtourists options to reach thecountry.

“We are all hostages tothe health of Air Mauri-tius,” says Robert deSpéville, commercial direc-tor of Beachcomber, the big-gest hotel group.

“Nobody wants to openair access, because it couldlead to the carrier’s com-plete downfall.”

The airline itself seesthings differently. “We haveto look at the facts,” saysMr Payen. “The govern-ment has been very liberalin its air access policy since2006.”

Six years ago, the govern-ment set a goal of doublingthe number of tourists to2m by 2015. The countrythen signed bilateral airaccess agreements with anumber of countries.

But the financial crisis inEurope saw tourist arrivalsslow, creating a vicious cir-cle of slowing demand andfewer flights. Some airlines,including Virgin Atlantic,Singapore Airlines and Qan-tas, cut flights to the coun-try – suggesting, says MrPayen, that “they don’t seean interest in flying here”.

The number of seats onairlines flying into theisland has remained at 3.6min both 2011 and this year,

he says, with Air Mauritiusoffering half of the seats.Third-party observers offerarguments on both sides.

The Maldives, which hasno national airline but atourism industry withgrowth fast outpacing thatof Mauritius, has pursuedan open air policy, which“appears to have played itspart in ferrying tourists tothe atoll”, Axys Stockbrok-ing concluded in a recentanalysis of the Mauritiantourist industry.

However, it added: “Thereis some truth in the unprof-itability of the Mauritianroute.” Airlines haveclaimed that the Maldivesare more profitable becausethey are closer to northernhemisphere countries, andso cheaper to fly to.

Air Mauritius has enlistedSeabury APG, industry con-sultants, in an effort to turnitself round. The airline hascome up with a seven-stepplan, including a review ofits route network.

In Europe, the airlinenow only flies to Londonand Paris, but wants to usethe cities as hubs that fun-nel passengers to and fromother cities. Air France is acode-share partner; in EastAsia, Malaysia Airlines is apartner, with KualaLumpur as a hub.

“Today’s challengingindustry climate is causingairlines to redefine the waythey conduct business,”Andre Viljoen, the airline’schief executive, wrote in arather gloomy letter to pas-sengers in the most recentedition of Islander, the in-flight magazine.

The turnround plan alsoincludes cost-cutting. So theairline may have to sell itsheadquarters building, MrPayen says, along with ahelicopter service and asmall hotel it owns on Rod-rigues, Mauritius’ smallersister island.

Cutting a flag carrierdown to size can be a hum-bling business – and inMauritius it is proving acontroversial one.

Ill health of nationalcarrier causes concernAviation policyViable air links arecrucial for an islandeconomy, writesJohn Reed

DonaldPayen at AirMauritius ispragmaticaboutretrenchment

A skipper on thewater taxi thatferries tourists toLe Suffren, a

quayside hotel in PortLouis, the capital, likes togreet Chinese with a cheeryNi hao! in Mandarin.

To cater to Chinesetastes, another hotel group,Veranda Leisure & Hospi-tality, recently began offer-ing dim sum and congee(rice porridge) on its break-fast menu, green teainstead of fruit cocktail as awelcoming drink.

For years, Mauritius haspositioned itself as anupmarket destination cater-ing primarily to Europeans,who still account for abouttwo-thirds of tourists. Butwith many west Europeancountries in recession,arrivals are tailing off, evenas numerous hotel roomsbecome available.

The tourist industry, onceseen as a reliable cash cow,looks as vulnerable assugar or textiles in yearspast – too reliant on onemarket niche and slow offthe mark in exploiting newones.

“Our tourist industry isextremely eurocentric and,given what’s happening inEurope, we are sufferingbig-time,” says Gilbert Espi-talier-Noël, director of ENL,a family conglomerate withinterests in Veranda and in

Beachcomber, the largesthotel group.

So after seeing regionalneighbours such as the Mal-dives attract visitors fromChina, Mauritius is belat-edly trying to do the same.

In 2006, before the finan-cial crisis, the country setitself a target of doublingannual tourist numbers to2m by 2015.

That target now looksunrealistic, and some ana-lysts say the country’s hotelconstruction spree was ill-advised. Last year, it hostedjust under 965,000 tourists,a 3 per cent growth rate on2010, but much less thanthe 18 per cent growth seenin Maldives or 11 per centin Seychelles.

In the first half of thisyear, arrivals were flat atjust over 467,000. Visitorsfrom Europe dropped by 6per cent in the same period.

“With diversification pro-gressing at a snail’s pace,Mauritius remains highlyvulnerable with Europesliding back into recession,”a recent report on the tour-ism industry published byPort Louis-based AxysStockbroking concludes.

The murder last year ofan Irish woman on her hon-eymoonk, for which twohotel workers were triedand later acquitted, cannothave contributed to thecountry’s image as a holi-day spot.

Mauritius’ share of theIndian Ocean tourism mar-ket plunged from a domi-nant 41 per cent to 33 percent in 2009-11, roughly thesame share as Maldives, thebrokerage says.

Occupancy at some three-

to five-star hotels has beendropping this year, hotelcompanies say. This hasprompted a round of dis-counting that hotelierswarn could endanger thecountry’s reputation as anexclusive place to visit.

“The Mauritian destina-

tion is caught in a danger-ous descending spiral,” Her-bert Couacaud, Beach-comber’s chief executive,recently warned colleaguesin an internal newsletter.“It is paying the price for afire sale that has trans-formed the country into adiscount destination with a

loss of identity, leadingeven tour operators to lookfor other destinations toguarantee their growth.”

Tourist companies areworking to reverse this,redirecting their promotionbudgets to new marketssuch as China, or expand-ing industry segments suchas golf tourism.

While China is the big-gest prize, the industry isalso setting its sights onother markets, includingRussia and India.

Wedding parties held bywealthy Indians, who havebeen known to book entirehotels or flights for a week-end, are seen as the biggestwindfall.

Many hoteliers complainthat a shortage of flights,including those offered bythe lossmaking nationalcarrier Air Mauritius, ishampering the industry.

They are pressing formore connections to China

in particular, saying thatAir Mauritius needs to addmore flights, or the govern-ment needs to open airaccess further

“There’s not enough seatavailability compared to thehotel capacity,” says Fran-cois Eynaud, chief execu-tive of Veranda and presi-dent of the Association ofHoteliers and Restaura-teurs.

However, Air Mauritiusand some government offi-cials dispute this, sayingthat adding more flights forwhich there is not enoughdemand will not help.

The airline has vowed towork with the industry toattract more tourists fromChina.

That is beginning to hap-pen. This month, the airlinejoined Mauritian hotelierson a trip to China aimed atensuring enough commit-ments from tour operatorsto fill more flights.

Cash cowbeginsto lookvulnerableTourismJohn Reed reportson a sector thatneeds to diversify

Beached: arrivals are tailing off, even as numerous hotel rooms become available Dreamstime

Mauritius’ share ofthe Indian Oceanmarket plungedfrom 41% to 33%in 2009-11

4 ★ FINANCIAL TIMES FRIDAY SEPTEMBER 7 2012

Doing Business in Mauritius

Justin Pearson-Taylor, aBriton who spent his careerclimbing the corporate lad-der in South Africa, firstcame to Mauritius with hiswife Kim on their honey-moon in 1996.

Three years ago, the cou-ple upped sticks with theirtwo children and emigratedfrom Johannesburg to theisland, where they paidabout $1.7m for a luxuryresort home on a formersugar estate in the south ofthe country.

Mr Pearson-Taylor hadjust taken redundancy from

the platinum mining com-pany he worked for, whichwas restructuring; his wifeliked the frangipani floweron the logo of the develop-ment, called Villas Val-riche.

“We got a bit fed up withSouth Africa and the way itwas going with crime,” hesays. “You feel safe here –there’s a high moral com-fort, and they are genuinelynice people.”

Mauritius is trying toattract more rich foreignerssuch as these to high-enddevelopments costing$500,000 or more under itsIntegrated Resort Scheme,or IRS.

Government planners andthe country’s plantationowners devised the schemebefore the financial crisis,another leg in their effort todiversify away from sugar

and other traditional indus-tries.

In making its case towealthy would-be immi-grants, Mauritius is promot-ing itself primarily as a taxhaven. Foreigners who buyan IRS property and live onthe island at least half theyear are eligible for resi-dence permits and a flat 15per cent rate on income andcorporate taxes.

“Our sales pitch is notabout living in a secondhome,” says Murray Adair,chief executive of theIndian Ocean Real EastateCompany, that is buildingAzuri, an IRS project in thenorth-east of the island.“Our pitch is about findingpeople who want a newplace to live.”

The largest number ofbuyers for the development,he says, come from France.

The day after Socialist Pres-ident François Hollandewas elected in May, thecompany got “a ton ofcalls” from potential buyersworried about higher tax.

The second-largest groupare South Africans. “Onecountry’s adversity is ouropportunity,” he says, inthe company’s Port Louisoffice, where he shows avisitor images of a greenpeninsula – for now empty –fronting a blue lagoonwhere the development willstand.

In Mauritius, the realestate sector, like tourismand some other industries,made a series of buoyantlyoptimistic one-way betsbefore the financial crisis. Itis having to tighten its beltand draw up new businessplans.

Villas Valriche sold sev-

eral of its villas, which cost$1m to $3m, the year theproject launched in 2007,but saw orders dry up from2008.

“We had to redesign andrephase the project,” saysGilbert Espitalier-Noël,

chief executive of ENLProperty, the family con-trolled group behind it.

The company says it hassold 120 units so far – morethan the 90 needed to breakeven, but well below the 300it had hoped to sell by 2013.To draw in buyers, it also

lopped about 15 per cent offthe units’ price.

The development sits on awindy hillside, which ten-ants traverse on golf cartsto get to an adjoining hotel/spa, golf course, and beachclub. Houses come equippedwith sweeping views of roll-ing hills and crashing surf,and amenities such as out-door kitchens and infinitypools.

On a recent morning, theplace as very quiet: mostearly investors put their vil-las in a rental pool, whichstands at about 30 per centoccupancy, a company offi-cial explained.

The Azuri development ispositioned cheaper thancompetitors such as VillasValriche. “You will get twoof ours for one of theirs,”says Mr Adair.

Rather than a gated golf

estate, he says, Azuri willbe a “working community”of town houses and pent-houses akin to Celebration,Florida, the planned townnear Walt Disney World inFlorida. The group’s apart-ments start at $500,000 andgo up to about $830,000 andthe company says it hasreceived deposits for 170 ofthe 279 units it aims tobuild.

A few developmentsplanned before the crisishave not yet left the draw-ing board, including Ban-yan Tree Corniche Bay, adevelopment of luxury “eco-residences” designed by SirNorman Foster’s Foster +Partners.

While the influx of richforeigners has been smallerthan developers had hoped,Mauritians are watching itwith mixed emotions. Some

worry that the influx ofwhite South Africans inparticular – with their tur-bulent recent history ofracial conflict – could upsetcommunity relations on theisland, one of the mostdensely populated countriesin the world.

“If we go too far andthere is a feeling thatbeaches will be reserved forforeigners, it will be a bigproblem,” says Jean-Claudede l’Estrac, secretary-general of the Indian OceanCommission and former for-eign minister.

“There are tensions,”acknowledges Mr Pearson-Taylor. However, he says hehas not experienced anyproblems personally.

“It’s a nice place for anoutdoor lifestyle,” he says.“It’s a nice place to bringup kids.”

Stream of rich immigrants may lead to social tensionsReal estateJohn Reed on ascheme to buildluxury dwellings

Developmentsplanned before thecrisis have not leftthe drawing board

For a small country that presentsitself to the world as a stable democ-racy and safe haven from the volatileAfrican mainland, Mauritius has asurprisingly turbulent and intrigue-ridden political scene.

All three of the main partiesdescribe themselves as leftwing – twoof them as “militantly” so. In practice,all three skew toward the centre, andhave at various times governed incoalition with each another.

Their differences tend to have lessto do with policy than with personali-ties, electoral calculus and jockeyingfor power.

The latest chapter of this openedsoon after Prime Minister Navin Ram-goolam’s Labour party won the 2010election and formed a coalition withthe Militant Socialist Movement (orMSM), headed by Pravind Jugnauth,who became finance minister anddeputy prime minister.

The pairing was short lived. Mr Jug-nauth’s party left the coalition barelya year later after a scandal aroundMedPoint, a hospital the governmentwas acquiring, which ensnared sev-eral politicians and civil servants.

In March of this year, Sir AneroodJugnauth – his father and the holderof the country’s mostly ceremonialpresidency – quit too.

Sir Anerood is credited with theMauritian “economic miracle” whenhe was prime minister in the 1980sand 1990s and again in 2000-2003.

The ex-president has now set hissights on re-creating the alliancehis party had with the Mauritian Mili-tant Movement (MMM) party, headedby ex-prime minister Paul Bérenger,and wresting power from Mr Ram-goolam.

In a country where ethnic Indiansform a majority and mixed-race Cre-oles are the second-largest group, MrBérenger, as a white Franco-Mauri-tian, could not govern the countrywithout a coalition partner.

That is why he needs Mr Jugnauth’sMSM, which started life by breakingoff from the MMM.

While the two parties were initiallyconfident they could oust the primeminister, Labour has held on to itssmall majority, and succeeded inattracting three opposition MPs tojoin its ranks.

“It’s mostly sound and light,” onelong-time foreign observer of Mauri-

tian politics says. “Bottom line, Mau-ritius is pretty stable.”

Political plotting is not confined toopposition ranks. Mr Ramgoolam hassought to divide his opponents andtempt Mr Bérenger’s MMM with theprospect of constitutional and elec-toral reform.

The proposals include moving froma Westminster-style system to a morepresidential one, and amendment ofthe “best loser system”, whichstrengthens the representation ofminority groups in parliament.

Both reforms could, if agreed,favour Mr Bérenger’s party and hisposition personally. The MMM tendsto win nearly half the votes but fallshort of an outright majority.

A stronger presidency would giveMr Bérenger and Mr Jugnauth seniortwo powerful posts to divide betweenthem if they were to win power.

However, thus far, the politicianshave failed to reach consensus on thedetail of any such reform. Amid allthis, the opposition has continued tocriticise the government for what itclaims is pervasive corruption andcronyism in the ruling camp.

“Since 2005, much has been cor-rupted, and everything stacked withpetits copains – the boys and girls,”says Mr Bérenger. “If it carries on foranother one, two or three years, eve-rything will have been corrupted.”

Another opposition spokesman criti-cises what he claims are politicallymotivated appointments both inimportant ministries and at institu-tions of national economic impor-tance, such as Air Mauritius and Mau-ritius Telecom, which he says arehampering the economy.

Outside parliament, Mauritianshave watched their politicians’ powerplays with mixed emotions.

Some worry that the squabblingparties are failing to groom a newcadre of leaders who can guide thecountry through what are likely to bedifficult times for the economy.

“It’s all about Ramgoolam, Jug-nauth and Bérenger, says DeepaBhookhun, a journalist withL’Express, a Mauritian newspaper.“Bérenger is 67, Ramgoolam is 65 andJugnauth is 82.

“After them, we don’t know whatwill happen.”

Democracy thrivesamid the intriguesPoliticsJohn Reed looks at thecliques and plottingthat characterise the top

C onservation in Mauritius gotoff to a bad start when thefirst influx of humans rap-idly wiped out the unsuspect-

ing dodo.The island’s habitat has done better

since, thanks to an economy built onsugar cane. This tall grass, covering athird of the land area, has kept muchof the volcanic island’s green skinintact and, with the right technology,could help to make the next genera-tion more self-sufficient with greenenergy.

Yet pressure for development frommore than 1m inhabitants, unlesscarefully planned, threatens the natu-ral beauty that draws a mass ofwealthy visitors to the island insearch of a little bit of ocean paradise.

A sustainable island project, knownas Maurice Ile Durable (MID), is tak-ing shape, but requires decisiveaction, says Khalil Elahee, an associ-ate professor of engineering at theUniversity of Mauritius who is on theproject’s strategy committee at theprime minister’s office.

The project has already fundedsmall solar-heated water and fluores-cent lamp schemes, but Mr Elaheesees the role of sugar cane as essen-tial to the success of this holistic plan,that ranges from power generation toharvesting algae from the sea, refor-estation and wind power.

“We can re-engineer the cane indus-try to produce energy from biomass,produce bioplastics, export biofueland bio-fertilisers. In turn, we can gosome way towards food security byintercropping in the cane fields. It willreduce imports and it’s in harmonywith tourism, the idea of a greenisland,” says Mr Elahee.

The island’s transport and most ofits power stations rely on fuelimported from India or South Africabut the cane industry already supplies20 per cent of the nation’s electricityfrom the sugar mills’ waste that isburnt to produce steam-generatedpower.

“With gasification of the biomass,cane could provide all of the island’senergy. It would take 10 years ofresearch to reach a commercial appli-cation, similar to what they’re doingin the US. But we have to stop talkingand start doing it, with the rightindustrial partner,” says Mr Elahee.

Local energy consultants agree thatcane energy is beneficial. It is low-cost, frees the country from importdependency and can avert the realthreat of blackouts from the existingfossil-fuelled infrastructure.

Mott McDonald, the British consul-tancy, is working on a feasibilitystudy but Mr Elahee warns that thedecline of sugar cultivation threatensthe plan. “The area of land cultivatedfor sugar cane has been reducing atan alarming rate for the past decade.If cane production falls below a cer-tain level, it will no longer be eco-nomic for it to produce energy.”

The big sugar estates that mill thecane from the smallholders also warnthat the economy is at risk fromdeclining sugar production, as plant-ers are ageing and young people flowto the towns and better-paid jobs.

“We need well planned agriculture.When the people move out of sugarcane, they cease organised agriculture.Where there’s sugar cane, there’s irri-gation, there’s a system,” says Jacquesd’Unienville, who runs Omnicane, aleading sugar, power and ethanol pro-ducer. “To persuade the small plantersto keep producing, we have a newmovement. The industry providesmanagement services, helps plantersto form co-operatives and join theFairtrade scheme.

“Sugar cane is one of the most effi-cient carbon converters. It takes sun-light and converts it into green by-products. Mauritius is the pioneer. In

1957, it was the first country to pro-duce electricity from bagasse [sugarbiomass],” says Mr d’Unienville.

Mauritius was also the first countryto replace petrol and diesel with etha-nol, during the second world warwhen there was an oil embargo. Thewar was an interesting lesson. No oilmeant no food could be imported. “Inthe sugar cane fields, we were grow-ing our own food.”

Mauritius belongs to the Interna-tional Sugar Cane Bio-mass Utilisa-tion Consortium, but the local indus-try sees Mr Elahee’s plans for greenenergy as ambitious. “It works in atest tube but it would take 20 years ofresearch to develop gasification tothat level,” says Mr d’Unienville.

Far from the white beaches andgreen ocean views that draw in thetourists, Solid Waste Recycling isbringing more green technology to the

island. From his bare office near StMartin, Patrick Maurel, the com-pany’s chief executive, watches trucksunload on a stinking pile of municipalrubbish. “Mauritius produces 400,000tonnes of rubbish a year. We hope tobe allocated half of that, which wewill turn into 40,000 tonnes ofenriched compost. We see this as acomponent of the sustainable islandproject,” he says.

“This compost improves farmers’yield, helps water retention and rebal-ances the PH ratio of the soil. Afteryears of chemical fertiliser being usedon the sugar fields, our soil hasbecome so acidic that it needs alka-line additives. These are also runningout. They are even putting cement inthe soil on some farms. It’s a cleansystem and our aim is to movetowards a zero-waste system. Thatwould be a first,” says Mr Maurel.

Sugar cane iscentral tosustainableenergy plans

Cane crop: this staple has kept much of the island’s green skin intact Reuters

EnvironmentPaul Adams looks at aholistic plan that rangesfrom power generationto harvesting algae

Party differences tend tohave less to do with policythan with personalities,electoral calculus andjockeying for power

FINANCIAL TIMES FRIDAY SEPTEMBER 7 2012 ★ 5

Doing Business in Mauritius

ICT In search ofbetter connections

A small group of global outsourcingoperators in the cluster of gleamingtower blocks known as Ebene CyberCity is the driving force for theisland’s newest area of growth –information and communicationstechnology.Earmarked by the government as

“the fifth pillar of the economy”, ICTis the third biggest contributor togross domestic product, making up6.7 per cent in 2011.“Mauritius has long been seen as a

safe place for tourists, now we areworking towards making it a secureIT destination,” says Tassarajen PillayChedumbrum, the minister in chargeof the sector.“Our main competitors are in north

Africa, which already serves theFrench-speaking market, but webelieve that our stable environmentwill work to our advantage,” he says.The recent addition of two subsea

fibre optic cables (Lower IndianOcean Networks 1 and 2) to theSouth African Far East (SAFE) cablehas provided the capacity to turnMauritius into a digital informationhub, says Mr Pillay Chedumbrum.“To improve staff skills, we have

set up an ICT Academy through apublic-private partnership that willinvolve leading companies such asHewlett-Packard, Microsoft andOracle. It will be industry-driven.Anyone who graduates from theacademy will get a job.”The government says Mauritius is

the lowest-cost ICT base in theFrench-speaking world, citing a recentsurvey. However, operators and localcorporate users are critical of thecountry’s infrastructure, especially thecost and slowness of internetconnection. They also regard thedominant role of Mauritius Telecom,the state-owned operator that has apartnership with France’s Orange, asan obstacle to development.“There is a big debate on

infrastructure, especially telecomsconnectivity,” says Vidia Mooneegan,the local managing director of US-based Ceridian Global Workforce. “Ithas got better, but it still isn’t

sufficient. Mauritius needs morecompetition, especially on internetproviders. The national rate ofinternet penetration is poor – roughly25 to 30 per cent. That needs to betrebled in the next three years. In aremote country, internet connection isvital,” he says.Ceridian Global began developing

software in Mauritius for the group’sUK office, but moved into payroll, tax,medical claims and human resourcesoutsourcing when the SAFE cablelanded. Other global business processoperators on the island includeAccenture, Orange, Business Solutionsand TNT.“Mauritius produces IT graduates

of a quality comparable anywherein the developed world,” says MrMooneegan. Ceridian has a strategicpartnership in training with India’sNIIT, but he also believes thatMauritius’ ICT Academy is raisinglocal skill levels.Mr Mooneegan sees strong growth

potential in sub-Saharan Africa.“Africa has talent in this sector, and

at a lower cost than here. And someof them speak European languagessuch as German and Portuguese, aswell as French or English. “Mauritiuscould be a secondary location forsome of these countries’ operators,using the multicultural model thatmade Silicon Valley so creative.“We can bring qualified people here,

there is no problem obtaining workpermits and a lot of bright peoplewant to move to Mauritius, not onlyfrom Africa but also from Europe.”

Paul Adams

As the sugar industry changes, sodoes Mauritius.

The sugar barons whose forerun-ners based the island’s economy onthe commodity now refer to the caneindustry, because refined sugar is justone byproduct.

Cane’s other products supply elec-tricity to the national grid, fertilisethe soil, add bubbles to drinks and putfuel in vehicles’ tanks.

The tall, sturdy plant still carpetsone-third of the island, most of whosepopulation are descended from peoplewho came because of sugar, but farm-ers are ageing and young Mauritiansare looking beyond the cane fields fora better life.

Jacques d’Unienville, chief execu-tive of Omnicane, the island’s biggestsugar company, says: “The old indus-

try exported raw sugar and molassesto Europe. But when the EU cut thefixed price by 36 per cent, we had tocut costs and go for value-added pro-duction. Now we refine all the sugarhere and are diversifying.”

Omnicane operates a combinedsugar mill, refinery, ethanol distilleryand independent power plant.

“We’re now a high-technologyenergy producer. Bagasse, the fibreproduced when cane is crushed in themill, is burnt in the bagasse- and coal-fired power plant,” says Mr d’Unien-ville.

Apart from the refined product,sugar goes to a distillery to producebioethanol and food-grade carbon, forthe soft drinks industry. Other by-products are vinasse, a fluid that pro-duces bio-fertiliser and an additive tocement made by re-burning ash fromthe thermal process.

Until the 1970s, sugar dominated theeconomy in terms of exports, employ-ment, land use and share of grossdomestic product. It now accounts forabout 5 per cent of employment butprovides 16 per cent of net exports.

The old system was based on the

EU’s Sugar Protocol, a fixed price andvolume deal with Mauritius adoptedafter Britain joined the CommonMarket in 1975. In 2009, the protocolwas dismantled and replaced by anagreement that still allows Mauritiusto export sugar duty-free to the EU,but does not guarantee price andquantity.

Before the EU changed the deal,sugar was already in decline. Reformshelped the economy to diversify,bringing competition for land usefrom other industries, while the aver-age age of the smallholder farmersincreased. There are five factories onthe island, down from 19 at the indus-try’s peak.

Mauritius is now a relatively small

producer, with 450,000 tonnes a year,in a world market of 150m tonnesa year, but it is still the biggestexporter of sugar to Europe andderives at least 17 per cent of its elec-tricity from bagasse, according toindustry figures.

“By-products are more and moreimportant for this industry. We areregrouping and modernising,” saysPatrick Arifat, the chief executive ofAlteo, recently formed from a mergerof the locally owned Deep River BeauChamp and FUEL sugar estates.

Mr Arifat says: “We have five facto-ries, two already have refineries, onewill close next year. We’ve had toadapt, but we believe sugar in Mauri-tius still has advantages and canthrive. There’s a good climate, smalldistances to an efficient port, good searoutes to Europe and good logistics.”

Ominicane is taking its diversifica-tion offshore and believes its expan-sion is contributing to the island’sfinance industry, which is also doingmore business abroad.

“We’ve finished our programme inMauritius, but we are ready to exportthis model to the rest of Africa,” says

Mr d’Unienville. The company hasbegun a sugar-energy project at Kwalein Kenya and is part of an interna-tional consortium conductingresearch into biomass utilisation.

The industry is organised into theMauritius Sugar Syndicate, which hasnegotiated a deal with Germany’sSüdzucker, the EU’s biggest sugargroup, to distribute 70 per cent of itsoutput (refined white) internationally.Its special sugars, the remainder, aremarketed to various buyers.

Jean Noel Humbert, the syndicate’schief executive, sees two main chal-lenges.

The first is land abandonment, theresult of an ageing farming popula-tion, high land prices and economicdiversification.

Second, the European Commissionhas proposed reforms to the CommonAgricultural Policy (CAP) that wouldcut sugar quotas in Europe by 2015.This could lead to severe competitionand price volatility.

“Mauritius has proposed that thequotas be extended to 2020 to give ustime to adjust to these changes,” saysMr Humbert.

End of EU agreement forces a change of directionSugarPaul Adams considers thefortunes of what was oncea mainstay of the economy

Afactory sprawls across theedge of the industrial zone,where Mauritius’ textileindustry has been having to

adapt to hard times. Inside, a fewdozen operators on roller skates coverthe 40,000 square feet of high-techplant owned by CMT Spinning Mills,the largest local manufacturer on theisland.

Maurice Vigier de Latour, whosecompany, MVL Marketing, worksclosely with CMT Spinning Mills says:“Back in the 1990s, the ministry ofindustry predicted the end of the tex-tiles industry once the Multi FibreAgreement (MFA) had expired.

“Now CMT makes 4m T-shirts amonth. It’s a world leader.”

Local production did plunge in 2005,when the MFA ended, but it forced aconsolidation from which the sectorhas emerged smaller but morediverse. Textiles remain the biggestemployer, with more than 46,000workers, and make up the second big-gest component of gross domesticproduct, with 7 per cent, and accountfor half the country’s exports.

Most producers are locally owned.Ten big companies account forroughly 90 per cent of production and,crucially, most of these are verticallyintegrated, producing fabric and yarnas well as garments.

“If it had not been for that, we prob-ably would not be here today,” saysHarold Mayer of CIEL Textiles, whichexports clothes to such retailers asMarks and Spencer, Celio, and Zara inEurope, Levi Strauss in the US andWoolworths in South Africa. CIEL hasbecome an international group,employing 17,000 staff worldwide,with production spread between Mau-ritius, Madagascar and Asia.

“Facilities in Mauritius are modernand close to world class. We supplythe middle to upper end of the mar-ket,” says Mr Mayer. “CIEL primarilymakes three categories of garments:men’s shirts, woven tops [mainly forwomen], and knitted clothes.

“We are able to compete in all thesebecause we have mixed sources ofproduction. CIEL was one of the firstMauritian companies to set up a plantin Madagascar, where labour costs areconsiderably lower but which stillenjoys duty-free access to Europe, theUS and South Africa – unlike eastAsian competitors,” he adds.

Mr Mayer cites competitive freightcosts to Europe as a big advantage.“Speed is vital if you’re doing ‘fastfashion’, which most big retailers nowdemand.”

The company has three local spin-ning mills but Mr Mayer believes theindustry could not have succeededwithout low-cost operations in Mada-gascar. “We can produce a T-shirtcompetitively in Mauritius, becausethere is not much labour, but to makea pullover or sweater, we need to do itin Madagascar,” he says.

There has been a levelling out ofcosts. China is not as cheap as it was.It still supplies 40 per cent of the USand EU markets, but currency andlabour factors mean Chinese priceshave risen. “Because of our verticalintegration, we compete with varioussuppliers. For some products, thecompetition could be in Turkey orTunisia, for others in China.”

CIEL has also invested in Asia and65 per cent of the group’s productionis outside Mauritius – Madagascar,India and Bangladesh.

The company’s factories in Indiasupply upmarket brands to the localmarket, but the industry still consid-ers Europe as its most important mar-ket. “Sixty-five per cent of CIEL’ssales are to Europe, primarily to theUK and France,” says Mr Mayer. “TheUS is also important, especially forshirts.”

The US African Growth and Oppor-tunity Act, a trade agreement, hasbeen vital for access to the US marketas is membership of the SouthernAfrican Development Community forduty-free access to South Africa, anew and valuable market.

Mr de Latour says high costs are arisk for the sector and that it will

have to move upmarket if it is tosurvive. How did a small island in themiddle of the Indian Ocean with nocotton and no sheep create such asuccessful industry?

Top is its skill at innovating. It alsohas an excellent reputation for qualityand reliability.

“Social compliance is also impor-tant,” notes Mr de Latour. “Foreigninspectors come and check rigorouslythe conditions of our workforce.Finally, the ability to react fast hasbecome vital. A ‘fast fashion’ supplierhas only two to four weeks to com-plete a repeat order.”

However, the island’s distance fromits export markets, its relatively highlabour and electricity costs, thestrength of the rupee and changinglogistics all pose a threat.

“There have been no direct shippinglines to main markets in the westsince the financial crisis in 2008.We’re relying on air transport toreach them in time. This is morecostly, so Mauritian garments willhave to aim for higher value,” saysMr de Latour.

Consolidation leaves sector strongerTextilesPredictions of the death ofthe industry were wrong,says Paul Adams

Farmers are ageingand young Mauritiansare looking beyondthe cane fieldsfor a better life

Loom expert: production ofwoven goods has been outsourced

to plants in Madagascar Reuters

‘We are workingtowards makingisland a secureIT destination,’says TassarajenPillayChedumbrum

6 ★ FINANCIAL TIMES FRIDAY SEPTEMBER 7 2012

Doing Business in Mauritius

There is little sign in thebusy streets, offices andbars of Port Louis that theracial barriers of Mauritius’colonial past persist.

The Asians, Africans andEuropeans who populatethis small island appear toblend harmoniously both atwork and socially.

Last month’s Eid festivalmarking the end of Muslimfasting was celebrated witha national holiday for Hin-dus, Christians and Mus-lims alike.

The predominantly Hindugovernment, perhaps fear-ful of the communal vio-lence that erupted at thetime of independence andflared up again in 1999when a popular reggaesinger died in police cus-tody, seeks to promotenational unity by emphasis-ing communal diversity.

The problems facing Mau-ritius appear moderate,even compared with manyparts of the developedworld.

Yet society is evolvingfaster than the political sys-tem and many Mauritiansbelieve it is time to stop dif-ferentiating between thefour main communities andembrace a non-racialnational identity.

“We don’t yet have realcitizenship in this country,”says a retired newspapereditor and social commenta-tor.

“We are still defined notso much by race as by ourreligion. Everyone isexpected to behave in a cer-tain way, according towhere their forefatherscame from.”

Jean-Maire Richard, apublic relations executivewho acts as a representa-tive for the Creole commu-nity, who are partlydescended from Africansbrought as slaves fromMadagascar or Mozam-bique, says: “We’re heirs ofthe plantation culture. Thishas led to ‘pigmentocracy’

or determination by the col-our of skin”.

The Creoles make uproughly 30 per cent of thepopulation and are regardedas the poorest community;Hindus and Muslims fromthe Indian subcontinentmake up two-thirds anddominate the governmentand the rest are mainly theFranco-Mauritian commu-nity that owned the oldsugar plantations and stillcontrols much of the pri-vate sector, and ChineseMauritians.

Mr Richard says: “Thefounders of independencewanted a multi-ethnicdemocracy. Since then, allbut one prime minister hasbeen Hindu and all but oneof those has been from asingle caste – the Vaishya.”

When Mauritius gainedindependence, he says, theCreoles opposed it andthere was an exodus to vari-ous parts of the Common-wealth. Many had been inthe civil service and theHindus stepped into theirplace. Now 98 per cent ofgovernment posts are filledby Mauritians of Asiandescent.

“The Creole community isforged from the multiple

identities of this countryand we want that acknowl-edged. We think diversitymakes unity. Creoles andsome of the smaller minori-ties feel a bit oppressed bythe stereotyping, re-engi-neered by Hindus sinceindependence.”

This stereotyping is occa-sionally reflected in theprint media, with predicta-ble consequences.

There was uproar when a

journalist of Indian originrecently published an arti-cle denouncing Creoles aslazy, uneducated and poorlyled and he was suspendedby his newspaper.

The country’s type-castpolitical system has alsobeen challenged in thecourts by a youth and tradeunion movement, calledRezistans ek Alternativ(RA). After going to theSupreme Court, RA

appealed to the UK’s PrivyCouncil to force the govern-ment to abolish the BestLoser System, which allowseight MPs to be nominatedto parliament.

“The best loser systemwas set up at independenceto protect minorities. Thepoliticians know this has tochange, but they aretrapped in the old system.We are challenging the clas-sification of candidates asbelonging to a particularcommunity,” says AshokSubron, RA’s leader.

The government’s elec-toral reform bill is likely tobring about this abolitionsooner than the courts.

Mr Subron also sees theeconomy as an importantdriver of social change.

“Inequality in Mauritiusis growing and that is a riskto cohesion. We are theproduct of our history,” hesays.

“We have a multiple, indi-visible identity. Weshouldn’t be forced tochoose one identity. Butwhen people talk of theseracial groups, it sounds asthough Mauritius is segre-gated. It’s not. I think peo-ple have overcome theseinvisible barriers.”

The modern economy isalso weakening the stereo-types, Mr Subron believes.“When you look at the newindustries, and the peoplewho work in hotels and callcentres, there’s no discrimi-nation, it’s a mix. Theseworkplaces are breakingdown the barriers thatexisted in the plantationsand the ‘Facebook genera-tion’ doesn’t care about allthat.”

Jean-Claude de l’Estrac,who runs the Indian OceanCommission representingthe region’s island states,says that society in Mauri-tius is more robust than themain political parties real-ise.

He says: “Each groupknows how far to go in get-ting the best deal possible,but none crosses the invisi-ble but forbidden line.

“It’s a small place.Although everyone isattached to the culture fromwhich they descend, we livetogether and talk over thewalls.”

Society is evolving fasterthan the political systemThe communityMauritians want anon-racial identity,says Paul Adams

Harmonious blend: little sign of racial barriers Reuters

The type-castpolitical system hasbeen challenged bya youth and tradeunion movement

L ouis Olivier Bancoult hasonly hazy memories of PerosBanhos, a sleepy coral atollin the Chagos islands, where

he was born 48 years ago. He left as afour-year-old, when his mother tookhim and his sister, who had beeninjured in an accident, on a four-day,800-mile journey by boat south-west toMauritius to seek medical help.

When his sister passed away, thefamily tried to go home. However,they were told they could not returnbecause part of the land had beengiven to the US to build a militarybase.

Today Diego Garcia – the largest ofthe islands – is the US’s biggest strate-

gic asset in the Indian Ocean, a stag-ing post in a restive region runningfrom east Africa to the Middle East.

The Americans carved a runway outof the island’s coral and dredged thelagoon to a depth of more than 12metres to serve as a turning basin foraircraft carriers and submarines.

The UK excised the islands fromMauritius and Seychelles in the wan-ing days of colonial rule, giving theUS the right to use Diego Garcia formilitary purposes for 50 years.

According to Next Year in DiegoGarcia… an account of the dispute byJean Claude de l’Estrac, secretary-general of the Indian Ocean Commis-sion and a former foreign minister,Britain received a £5m rebate onsurcharges owed to the US for thepurchase of Polaris missiles as part ofthe deal.

Britain cleared the archipelago ofits inhabitants by 1973, and stillclaims the rest of the islands – nowcalled the British Indian Ocean Terri-tory (BIOT) – as its own. But for Mau-ritius, which claims sovereignty over

the islands, the affair is an openwound. For some, it is as hurtful andemotive a piece of unsettled colonialbusiness as Gibraltar is for Spain orthe Falkland Islands are for Argen-tina.

“It’s one of the worst colonialcrimes,” Paul Bérenger, leader of theopposition MMM party and a formerprime minister, says of the eviction ofthe archipelago’s original residents.

Navin Ramgoolam, the currentprime minister, raised the issue withDavid Cameron, his British counter-part, during a visit in June. He toldMauritian media that he discussed thematter again with UK lawyers onanother visit to Britain last month.

The issue has not made big waveslately in British public opinion. Thatcould change. A high-profile casebrought for the Chagossians seekingdamages and the right to resettle isawaiting judgment by the EuropeanCourt of Human Rights.

Few close to the issue, even theChagossians themselves, expect theAmericans to leave Diego Garcia

soon. Britain’s agreement with the US– activists call it a lease; Britain an“exchange of notes” – will roll overfor another 20 years unless either sideobjects, which seems unlikely.

Nick Leake, British high commis-sioner in Port Louis, the capital, notesthat “the issue of sovereignty is aseparate issue to the resettlement ofChagossians, and the two shouldn’t beconfused. We are keen to have con-structive dialogue with Mauritius onissues of continuing interest.”

British officials have expressedregret over the Chagossians’ plight inrecent years, but have never formallyapologised.

Mauritius’ claim of sovereignty hasbeen weakened by the fact that itaccepted £3m as payment from Britainwhen the BIOT was created to resettleinhabitants and compensate landown-ers. The Chagossians themselves weregiven some financial compensationtwice in the 1970s and 1980s from theUK, dispensed by the Mauritian gov-ernment.

However, the islanders’ push for

broader justice – up to and includinga right to return – has been strength-ened by the persistence of the activ-ists, changing attitudes toward decolo-nisation and human rights, and thedeclassification of official documentsthat cast Britain in an unflatteringlight.

At the time of the deportations, oneWhitehall official said the islands had“no indigenous population exceptseagulls”. One of his colleagues addedthat “unfortunately, along with thebirds go some few Tarzans or MenFridays whose origins are obscure”.

Britain continues to hold that theislands’ inhabitants were workersunder contract to plantation ownersin Mauritius, who returned everythree or four years. Activists such asMr Bancoult and historians, includingMr de l’Estrac, dispute this, assertingthat many islanders can trace backtheir ancestry several generations.

“The UK and the US were very wor-ried about these people beingdescribed as belongers in any sense,”says Pooja Bissoonauthsing, a legal

analyst involved in the Chagossians’cause. “In order to prevent the UNfrom looking into this, they say ‘thesepeople were contract labourers’.”

The late Robin Cook, when foreignsecretary under Tony Blair, commis-sioned a study on whether the islandsmight be made viable for resettle-ment, and considered options such asMaldives-type tourist developments.

It reached pessimistic conclusions.Britain continues to question howmany of the Chagossians and theirdescendants, perhaps 4,000 in numberand now scattered among Mauritius,Seychelles and the UK, would actuallywant to return.

Mr Bancoult, who has visited hishomeland only briefly three times ontrips organised by the British, is ada-mant that he does. He accepts thatDiego Garcia will continue as a mili-tary base, but asks why the Chagos-sians cannot go back to live or workthere alongside the Filipino and othercivilians who serve the US military.“It’s my birthright,” he says. “All dis-placed people want to go back.”

An emotive piece of unsettled colonial businessChagos disputeA claim concerning thedisplaced islanders’ rightto resettle is awaitingjudgment, says John Reed

Protest to Parliament: islanders have been unable to return since the UK gave the US the right to use Diego Garcia for military purposes 48 years ago. For Mauritians who claim sovereignty over the islands, the affair is an open wound AP