The China-Mauritius Free Trade Agreement (FTA) came into force as from the 1st of January, 2021. It is the first ever FTA that China has ratified with an African country.
Right off the bat, almost all goods between the two countries will be exempt from custom duties. To be precise, 96.3% of goods categories made in Mauritius will enter China duty-free while 94.2% of goods categories made in China will enter Mauritius duty-free. For most of the remaining items, both sides have also agreed to progressively reduce the tariffs during the next 5 to 7 years.
On the services side, both countries have opened up more than 100 sectors such as tourism, finance, law, etc, to economic operators from the other country.
Now, why would China sign and ratify an FTA with such a small country with a limited market consisting of 1.2 million souls? Wouldn’t it make more economic sense to sign such a pact with Nigeria or Ethiopia which both boast much larger populations?
Well, if history is any guide, China likes to start small and build up incrementally. Just like for the first pilot Special Economic Zone in China, one of the first places selected, Shenzhen, was only a tiny fishing village but its location was important because it was right on the border with Hong Kong which was then under British colonial rule. Similarly, Mauritius may be small but its geostrategic location in the Indian Ocean and its positioning as the preferred financial gateway to Africa are certainly not lost on the Chinese.
Also, Mauritius is a land of immigrants without indigenous people and part of the population actually originated from China. Therefore, there exists some centuries-old linkages and exchanges between China and Mauritius. In fact, Mauritius has one of the oldest Chinatowns in Africa and is the only African country where Chinese New Year is officially a public holiday. Furthermore, the Constitution of Mauritius guarantees that the Sino-Mauritian community has at least one representative in the National Assembly.
As far as Mauritius is concerned, China is its 2nd largest trading partner right behind India but the Indian imports are heavily skewed towards petroleum. In 2019, Chinese exports to Mauritius fell just shy of USD 1 billion dollars, which represents less than 0.5% for the whole African continent. On the other hand, Mauritian exports to China are so small as to be negligible and amounted to a mere USD 30 million and consisted mainly of seafood, sugars and textile.
However, the International Trade Division of the Ministry of Foreign Affairs of Mauritius believes that there is a huge untapped potential to boost economic exchanges. Mr Narainduth Boodhoo, Director of the External Trade Policy Division and lead negotiator for the FTA, believes that if Mauritius plays its cards right, it can ramp up its exports into the lucrative Chinese market up to USD 300 million eventually. His estimates are based on similar accords with the EU and USA.
Commenting on this milestone agreement, CGTN correspondent Liu Feifei, concurred that if leveraged to its full potential, the China-Mauritius FTA could contribute greatly to the economic recovery of Mauritius. Indeed, foreign currencies earned from exports are much needed due to the shortfall in revenues from tourism due to the COVID-19 pandemic.
Other than the traditional cane industry which produces sugars and rums, she believes that the FTA will give a boost to emerging sectors such as the Ocean Economy which Mauritius is eager to develop. As a matter of fact, Mauritius possesses one of the largest Exclusive Economic Zones (EEZ) in the world with more than 2 million square kilometers of oceanic real estate but the marine resources therein remain largely under-exploited so far.
Mauritius has also a thriving jewelry sector which is also well-positioned to benefit. Currently, Mauritius imports raw diamonds and precious stones before transforming them into designer jewelries. Prior to the COVID-19 pandemic, jewelry purchases by Chinese tourists were a big hit.
The FTA also makes allowance for 50,000 tonnes of special sugars which China commits to import from Mauritius. Initially, 15,000 tonnes will be exported during the first year but the tonnage will gradually increase over the years after the successful market introduction.
The China-Mauritius FTA is expected to serve as a model to boost trade and investment between China and other African countries. At the same time, the Africa Continental Free Trade Area (AfCFTA) also came into effect on the 1st of January, 2021. Therefore, in the not so distant future, it is quite possible that China will go for a China-AU Trade and Investment Agreement similar to what it just did with the EU.
Some multi-national Chinese companies might choose to set up their regional HQ in Mauritius. Currently, Huawei has its Sub-Saharan African HQ and Global Financial Services Shared Centre in Mauritius and other Chinese multinationals might follow suit. It is worth noting that Singapore promoted itself as the location of choice for Asia-Pacific regional HQ for Fortune 500 companies and Mauritius has always fancied itself to become the ‘Singapore of Africa.’
To that effect, the Economic Development Board (EDB) of Mauritius actually has set up schemes to attract multi-nationals and foreign talent to settle down in the paradise island. As Chinese companies extend their footprint in Africa, some of them might set up their regional headquarters in Mauritius to take advantage of the conducive business climate, political stability, relatively good infrastructure and public safety records.
On the investment side, Mauritius is a natural gateway between Asia and Africa. Attracting Foreign Direct Investment (FDI) into the African continent is actually one of the key functions of the Mauritius International Financial Centre (IFC). As the same time, China is ramping up its investments into the African continent and the extensive network of Double Taxation Avoidance Treaties (DTAT) and Investment Promotion and Protection Agreements (IPPA) may just provide the extra incentive for investors to structure and route the cross-border flows through Mauritius.
As far as manufacturing is concerned, be it for export to China or Africa, a feasibility study is necessary to identify which products might be viable. Mauritius has a limited production capacity and its level of development makes it so that it is no longer suited for labor-intensive mass production. Perhaps, certain niche products with high value-add can be produced in Mauritius for export to the African or Chinese markets.
The true benefits of the FTA can only be evaluated after a few years as transactions occur and evolve under the new preferential regime. It is worth noting that India and Mauritius are in the process of negotiating a Comprehensive Economic Cooperation and Partnership Agreement (CECPA) and it will be interesting to note how Delhi will respond to the latest move by Beijing. As from now, we can expect more trade, more investment and less red tape.