Dr. SAILESHSINGH GUNESSEE
Associate Professor in Economics
Nottingham University Business School China, University of Nottingham Ningbo China

The Mauritian economic miracle of the 1980s it is said was partly and initially fuelled by international firms’ Foreign Direct Investment (FDI) into Mauritius, which brought ideas and know-how, such as, skills and expertise to export to the world market. In essence they had an effect on the local economy and in particular, they ‘unlocked’ the Mauritian entrepreneurial potential, as indigenous firms emerged. The largest source of this FDI was from Hong Kong and France (with the former being due to the then uncertainty surrounding Hong Kong’s handover to China). Their contribution was evident with the advent of the Export Processing Zone (EPZ), though the Mauritian entrepreneurial spirit played a key role in the setup of the EPZ (prime examples being José Poncini’s and Prof. Edouard Lim Fat’s much earlier individual efforts and importantly through their own enterprises, Micro Jewels and Suzy Toys respectively).

Yet, unlike other emerging market economies the Mauritian economy is an interesting case as FDI mostly played a role in the early years and therefrom made the occasional contribution in later years (e.g. FDI in real estate in 2000s). Instead, Mauritian enterprises have been at the forefront in contributing to economic development on the island economy. Therefore, it begs the question of what next for Mauritian companies, especially as Mauritius embarks on a journey to graduate to high income status.

It is argued that for the next phase of their development Mauritian firms need to ‘Go Global’. Noting Mauritian firms are already participating in the global market through exporting, thus we are here referring to Mauritian companies directly venturing and investing abroad (that is, engaging in ‘outward FDI’). This could come in the form of greenfield (new) investment or acquisitions of foreign assets.

Some Mauritian firms have already embarked in this endeavour, with the examples of Floreal Knitwear Ltd and Compagnie Mauricienne de Textile in the clothing & textiles industry venturing into Madagascar in the 1990s. The top two commercial banks on the island, namely the Mauritius Commercial Bank (MCB) and the State Bank of Mauritius, have also established a strong presence in the Indian Ocean, with the former opening a branch office in Madagascar in the early 90s and acquiring stakes in the Banque Française Commerciale in the mid-1990s, while the latter established itself in Madagascar in the late 1990s through a wholly owned foreign subsidiary. Several well-known hotel brands and companies have likewise set up shop abroad. This includes hotel operations in the Maldives and Seychelles, the Moroccan venture by the New Mauritius Hotels Ltd (Beachcomber) through its Royal Palm brand and its recent venture in France through the Beachcomber French Riviera. There are a few more Mauritian firms that have gone multinational which a cursory look at the annual report of listed Mauritian companies can be informative about. Yet, this foreign foray by Mauritian enterprises can be best described to be in its infancy.

Two key reasons

Of course the natural question to ask is, why should they venture abroad? Two key reasons could be highlighted for Mauritian firms to Go Global. First, is the fact that local enterprises face limited market opportunities at home. Pursuing a global strategy by expanding operations abroad would enable them to attain a larger market (going beyond an export strategy, which though an option has its limit). This should allow the firms to generate benefits associated with scale economies (cheaper cost per unit) often enabled by a larger market, while at the same time making better use of their core competencies (what they are good at). To be more specific Mauritian companies could espouse an internationalisation strategy where they split their value chain into different stages possibly across different countries, beyond Mauritius, and thus choose that location which best suits a particular operation where they make best use of their competencies and capabilities (like synergising location to operations with competencies in mind). This could be furthered where Mauritian enterprises could outsource some operations and focus on the more creative and marketing parts of the stages of operations, where value is the highest (as opposed to say low-value manufacturing parts).

Second reason is for Mauritian companies and Mauritius to showcase ‘Brand Mauritius’ (beyond branding gimmicks such as ‘Mauritius c’est un plaisir’!!). This could be seen as furthering the Mauritian entrepreneurial spirit we heralded as having been at the core of the Mauritian economic success so far. It can moreover be connected to the above value chain argument. Indeed, value it is argued can be obtained through ‘R&D and Design’ in the initial steps of the value chain and at the later stages through ‘Marketing and Branding’. As such going abroad could be a means to ‘commercialise’ the Mauritian brand.     

What policies could help the ‘Going Global’ strategy of Mauritian firms? First, information is vital. The reason being venturing abroad is fraught with risk and uncertainty, with Mauritian firms having a liability of being foreign and the countries they would like to invest somewhat alien. Therefore, ‘information sharing’ from government or the private sector should be encouraged as they can help to reduce such liability of foreignness and uncertainty (this includes information costs to gather such information on their own). Exemplifying this is the Mauritian private sector’s initiative to create the Mauritius Africa Business Club (MABC) in October 2012 with the goal to promote and advise about the African destination for Mauritian direct investment. The MABC has produced a strategy paper to outline some thoughts on the ‘Mauritius Africa Strategy’. Several major companies in Mauritius are members and thus can engage in information sharing. At the governmental level the then Board of Investment (BOI) of Mauritius under the aegis of its unit the African Centre of Excellence (ACE) (now subsumed under the Economic Development Board (EDB) Mauritius), has shepherded the government’s Africa Strategy. At the cross-country level, it is worth noting that the EDB has established ties with its counterparts in Africa (that is, Investment Promotion Agencies, IPAs) through Memoranda of Understanding (MoUs) with several IPAs in Africa. This should encourage inter-agencies information sharing which is essential to facilitate investment.

‘Priority countries’

Second, there is merit in a targeted approach towards outward FDI. As an example the EDB could identify specific industries for overseas expansion just like it has established a list of ‘priority countries’ as part of the Africa Strategy (so-called top African destinations). The worth of this targeted approach is to foster the development of the Mauritian industrial base. Still from a broader perspective the Mauritian government could build a close cooperative relationship with Mauritian multinationals both formally and informally to push the Africa Strategy. In fact, this is epitomised by the 2015-2016 Budget where Africa occupied a key part of the government budget and where the government’s Africa Strategy was sketched out and the ‘Africa Fund’ set up expressly to support Mauritian enterprises to invest in Africa. The promise of the creation of Special Economic Zones in some African economies, namely, Ghana, Madagascar, and Senegal, should also provide a helping hand. However, care should be taken that the early unsuccessful attempt to venture abroad in Mozambique is not repeated (where concessionary land was provided to Mauritius but eventually didn’t lead to expected outcomes).

Thirdly, Mauritius should work with other African economies to promote for a deepening of regional economic cooperation, as access to an enlarged market would promote Mauritian firms’ outward FDI. For example, a strengthening of economic ties and integration with SADC countries should help in this undertaking. In addition, Mauritius could pursue Double Tax Treaties or Agreements (DTT/DTAs) with African economies. This can be reinforced through Bilateral Investment Treaties (BITs) that offers investment protection. This fits with the Mauritian government view of Mauritius as a gateway for foreign investors willing to conduct business into Africa. Though this strategy should only be earmarked for the short- to medium-term. This is because lessons should be learnt from relying solely on the DTT with India, where foreign investors used Mauritius as an international financial centre or conduit to channel their investments into India. Though this helped with the emergence of the Global Business Sector adding more value to our financial sector, this ‘success’ was over-reliant on the one treaty to promote global business activities, whose advantages were somewhat eroded with an update to the treaty.

In a nutshell, with the aim to drive development, it is the appropriate time for the Mauritian entrepreneurial spirit to embrace an internationalisation strategy of investing abroad, which balances the benefits against the risks of doing so, while at the same time supported by going global investment policies of both the private sector and government working in tandem.

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References

Gunessee, S. (2017). Going out: Explaining Mauritian Outward Foreign Direct Investment in Africa. Mauritius after 50 years of independence: Charting the way forward Conference Proceedings, June.

Gunessee, S. and Sooreea-Bheemul, B. (2019). “Harnessing FDI for Growth in Mauritius”, Book Chapter in Seetanah, B., Sannassee, R.V. and Nunkoo, R. (Eds.). Mauritius: A Successful Small Island Developing State. London: Routledge, forthcoming.

MABC (2013). Strengthening Economic Growth of Mauritius through a Coherent, Deepened and Effective Mauritius Africa Strategy. An Advocacy Paper, March 2013.