Informed observers suggest that the island nation of Mauritius has reached a plateau in development terms. By achieving upper middle-income status, it has already defied the gloomiest predictions of development economists. But it faces an immediate challenge in maintaining momentum. The answers it finds will have major implications for its relationship with SA.

The ‘Mauritius miracle’ has a foundation of savvy policies. For more than half a century, it has built on successive business-friendly initiatives. Combined with a growing reputation as a stable, well-run democracy, Mauritius has successively moved through agriculture (sugar), tourism, textile manufacturing, property development and, most recently, high-end services including finance and banking.

‘Mauritius has capitalised on its reputation as a well-run technocratic democracy,’ says Ronak Gopaldas, a director at Signal Risk. ‘It has long punched above its weight… a small island that has turned its geographic isolation into an opportunity rather than a constraint,’ he notes.

As the country has developed, so its economy has become more sophisticated. ‘For the past two decades, Mauritius’ economic growth has depended heavily on its offshore sector, the provision of financial services by banks to foreign firms,’ says Pritish Behuria, a senior lecturer in politics and development studies at Manchester University. ‘It has linked itself to global financial sectors by easing the flow of capital into and out of its economy,’ he adds.

A large portion of the capital flows via Mauritius has been into India. ‘Mauritian entities have been the leading investors in India since 2000, investing around $170 billion this century,’ says Behuria. But Mauritius’ role has been challenged by nimble competitors – ranging from Singapore to the Cayman Islands and the United Arab Emirates – and, as a result, a new direction has had to be found. This has brought Africa into focus.

‘We strongly believe in Africa’s potential,’ says Thierry Hebraud, the CEO of Mauritius Commercial Bank (MCB), referencing findings from the MCB Africa Trade Report. ‘Boosting intra-African trade is not just an economic imperative, it’s a powerful lever for inclusive and sustainable growth across the continent.’ He highlights that while intra-African trade currently stands at around 16% of total trade, this presents a vast untapped opportunity for regional integration and investment. With the SA financial sector pursuing similar ambitions, Hebraud sees meaningful scope for collaboration to unlock trade-led development.

‘We’re already co-operating with South African players in Mauritius and looking at opportunities in East Africa,’ he says. Standard Bank, FirstRand and Absa already have a presence in Mauritius. Hebraud believes that existing relationships can be developed further. ‘Africa has a trade finance gap of between $80 billion and $120 billion,’ he points out. This is a barrier to the continent’s development as it restricts the ability of African countries to trade.

‘Companies doing business with Africa demand a considerable portion of payment up front. Where a company based in, say, France, would be offered credit, African traders have to borrow, usually at high interest rates,’ he points out. It is in this space that he believes Mauritian players can leverage the island’s financial advantages.

‘Mauritius benefits from an investment-grade rating, no exchange control and a modern financial ecosystem,’ says Hebraud. ‘These attributes strengthen the country’s positioning as a regional financing hub capable of being an entry point for businesses interested in investing and expanding into the continent and providing a framework for the safety of funds and investments in Africa.’

SA business has long been a part of the Mauritian journey. The country is Mauritius’ third-biggest trade partner after India and China, accounting for 41% of its exports to Africa and 12% of its total exports. Trade between the two countries is conducted duty-free under the Southern African Development Community trade protocol. However, while SA is a critical export market for Mauritius, the island economy ranks only 35th among SA’s export destinations with one of the biggest single imports. Mauritius’ biggest goods export to SA is textiles, especially men’s and boys’ suits.

Most South Africans know Mauritius as a tourism destination with budget holidays to the island having been a staple product in the SA market since the 1970s. SA is the second-biggest source of tourists (after France), with arrivals in Mauritius accounting for around 100 000 arrivals per year, about one tenth of the total.

More recently, SA retirees and digital nomads have taken advantage of Mauritius’ generous tax and immigration regime to relocate to the island. The top individual tax rate is 20%, and the island has no capital gains tax and levies no taxes on dividends. The South African High Commission estimates that about 10 000 South Africans now live on Mauritius.

The move by South Africans to Mauritius has been accompanied by considerable property development. ‘South Africa is Mauritius’ second-largest source of foreign direct investment, much of which goes into the real estate sector,’ says Hebraud. The island is bilingual in English and French and offers a tropical, beach-oriented lifestyle.

However, the influx of foreigners has driven up property prices, and Mauritius now competes with the Western Cape for new residents. The average listing price for apartments along the coast was $457 197 in 2024, according to the Global Property Guide, up 23% on the previous year.

Last December, the island’s central bank, the Bank of Mauritius, commented that ‘robust demand for residential properties was bolstered by conducive macro-financial conditions for real estate investment’. The bank further noted that the market remained favourable and ‘the risk of a sharp correction in residential property prices remains low, supported by favourable financial conditions and a positive economic outlook’.

Mauritius is still recovering from the Covid-19 pandemic, which dealt the economy a hard blow. The critical tourism sector took a big hit during the crisis, only reaching the 2019 figure of 1 million plus arrivals in 2024. Although the island is serviced by several airlines, the only locally based one, state-owned Air Mauritius, has struggled financially and is undergoing efforts to restore long-term viability.

There are several challenges facing the island economy if it is to reach the next level of development in a sustainable way. Perhaps the most pressing is its looming skills deficit. Gopaldas argues that, ‘Mauritius has sold itself as a hub for business process outsourcing and financial services, but, in a world increasingly driven by AI, automation and tech, the local talent pool is lagging’.

He suggests a policy and mindset shift is required. ‘Mauritius faces an uncomfortable truth. Its workforce is not currently suited to a digital economy, so it must either import the requisite skills or upskill domestically,’ he says.

There is scope to reposition the island on ‘a greener, more knowledge-centric path’, Gopaldas argues, but this requires deliberate policies. The island could do much more to attract skills and high-net-worth individuals, he believes.

Mauritius has risen to these sorts of challenges in the past. SA business has every reason to watch developments closely.

By David Christianson