Mauritius Is Not Beyond Saving

Opinion

It is time to stop the “Moody’s crap” and start the real work of economic recovery

By Sameer Kumar Sharma

Mauritius is currently navigating a period of profound “economic neurosis.” We find ourselves trapped in a cycle of alarmist headlines regarding Moody’s downgrades and a debt-to-GDP ratio hovering near 89.5%. While politicians and armchair commentators obsess over these metrics, they often fail to distinguish between superficial market noise and the underlying structural rot that actually drives capital markets. The reality is that our twin 7% deficits — fiscal and current account — are symptoms of a deeper malaise: a lack of productivity and a refusal to move beyond the policy paradigms of the 1980s.

For decades, we have treated the national budget as a simple accounting exercise. But a budget is not a spreadsheet; it is a steering wheel. It is a tool of fiscal policy intended to influence market behaviour, yet we continue to rely on a cadre of policymakers who believe that “fixing the economy” simply means moving numbers from one column to another. We need a paradigm shift — a move toward structural reforms that embrace the markets, dismantle oligopolies, and use “carrots and sticks” to guide the private sector toward national productivity.

The Failure of the State as Manager: Time to Face the Music

If there is one lesson Mauritians should have learned by now, it is that politicians are historically poor managers of enterprise. Most state-run companies, often staffed by political nominees rather than meritocratic experts, have become productivity drags. Every five years, a new guard arrives, installs a fresh set of nominees, and the cycle of mismanagement resets.

A prime example is the Cargo Handling Corporation (CHC). While India is providing technology to enhance productivity, the underlying issue is state control. While our neighbours in Madagascar are aggressively modernising the Port of Toamasina — aiming for a 16-meter depth berth by March 2026 — our port remains a bottleneck. If we do not reform the CHC through strategic privatisation or listing, we will lose our transshipment status to regional competitors who understand that a port is a gateway, not a political playground.

The solution lies in a dual-track strategy of strategic privatisation: the Public-Private Partnership (PPP) model and, crucially, listings on the Stock Exchange of Mauritius (SEM).

Breaking the “Oligopoly” Myth in Privatisation

There is a facile theory in Mauritian discourse that divestment inevitably leads to “conglomerate takeovers.” This is an excuse for stagnation. We must implement strict concentration limits for new listings, similar to the “Open Shareholding” models used in Scandinavia. By retaining a minority shareholding of 25% to 33%, the State maintains blocking rights and influence without the burden of management.

Data consistently shows that companies with open shareholding structures tend to have higher Returns on Capital Employed (ROCE) relative to their cost of capital compared to those held tightly by either the State or a single-family office.

The “Backstop” Model: De-Risking the Future

For critical infrastructure, the government should act as a silent backstop using First-Loss Guarantee (FLG) structures. Under this model, the State covers a “first-loss” tranche — perhaps 15% to 20% of initial losses — to alter the risk-return trade-off for private investors. This makes projects “investment grade” for global institutional capital without bloating public debt. The government sits on a supervisory board to ensure governance, acting as a backstop, not a bottleneck.

Tax Reform: The “Israel-Singapore” Paradigm

We must use taxation to alter market behaviour. We propose increasing the corporate tax rate to 22%. However, following the Israeli and Singaporean models, this must be a two-tiered system:

The Carrot: Corporations that reinvest profits locally in high-value sectors (tech, food security, green energy) receive Qualified Refundable Tax Credits (QRTCs). This ensures that under OECD Pillar Two rules, the benefit stays in Mauritius rather than being “topped up” by foreign treasuries. This drops the effective rate to the 15% Global Minimum Tax floor.

The Stick: Companies that choose to keep capital idle or invest in luxury, foreigner-related real estate will pay the full 22%.

SMEs would be protected via a “Start-Up Tax Exemption” (SUTE), modelled after Singapore, ensuring the 15% floor is a baseline for entrepreneurship, not a burden.

Furthermore, we must impose a levy on idle FX deposits held over 12 months that are not required for operational needs. If you are a Mauritian entity, your capital must work for Mauritius.

Protecting the Jewel: The Offshore and Back-Office “Substance” Clause

We must address the elephant in the room: our International Financial Centre (IFC). Critics will argue that a 22% headline rate will drive our offshore business to Dubai or Singapore. But the era of the “zero-tax haven” is dead. To survive, our IFC must pivot from “Tax Optimization” to “Operational Excellence.”

I propose a “Substance-First” tier. Entities providing high-value back-office services — fund accounting, global legal processing (LPO), and AI-driven analytics — will remain at the 15% floor, provided they meet strict Economic Substance Requirements (ESR). This aligns with the OECD Pillar Two “Substance-Based Income Exclusion” (SBIE) rules.

We are not interested in letterbox companies; we want the back offices of the world’s top firms anchored in Ebène. By automating our licensing via AI and removing the “EDB bottleneck,” we can offer something far more valuable than a low tax rate: speed, transparency, and a talent-rich ecosystem.

Land Value Taxation: Unlocking the Soil

We must eliminate “sticky” transaction taxes like registration duties and replace them with a recurring Land Value Tax (LVT). Unlike property taxes that penalize building, an LVT targets the unimproved value of the land, forcing it into productive use.

1. The Threshold: Small plots (below 120 toises) are exempt.

2. Food Security: Complete exemptions for active agricultural land

3. The Target: Non-agricultural, idle land held for speculation.

In Denmark, land tax rates (Grundskyld) provide stable revenue without discouraging property improvements. By taxing “idleness,” we force owners to either farm, build, or sell to those who will.

Dismantling the Bureaucratic Bottleneck

Structural reform is not just about taxes; it is about the “ease of doing business.” We must embrace Digitalization and AI with a “human-in-the-loop” approach to automate licensing. It shouldn’t take months to get a license when AI can process rules-based approvals in minutes.

Government procurement must be fully digitalized to eliminate political middlemen and ensure transparency.

The “Should” vs. the “Can”: A Question of Political Will

Critics often ask economists to pivot from what a government should do to what it can do, citing political feasibility. With a supermajority and a self-proclaimed state of economic emergency, there is no better time for reform. If we accept the logic that the State “can’t” act because it is beholden to lobby groups and conglomerates that fund elections, then we may as well close shop.

The “politically impossible” argument — which is often an excuse for politicians to maintain a system of political patronage — was proven wrong when pension reforms were enacted. When they want to, our politicians can. The reforms suggested here are global best practices implemented in other small, concentrated economies.

The question is not one of feasibility, but of will: Is the government a servant of the national interest, or a captive of private sector and socio-cultural lobby groups?

A New Paradigm

Mauritius is not beyond saving. We have the capital and the land. What we lack is a leadership willing to act as a backstop rather than a bottleneck. The era of the “1980s accountant” must end. We need a new social contract where the 15% tax rate is a privilege reserved for those who create local jobs, where the stock exchange is a tool for public ownership, and where land is a productive resource.

It is time to stop the “Moody’s crap” and start the real work of economic recovery.

Mauritius Times ePaper Friday 8 May 2026