How Mauritius grew richer than South Africa

Mauritius’ gross domestic product (GDP) per capita is much higher than South Africa’s, which shows the value of business-friendly policies and low taxes, according to an article in Daily Investor.

Mauritius, it said was only a small island state off the southeast coast of Africa with a population of 1.3 million and few natural resources. But despite its location and size, the Mauritius economy had shown tremendous growth over the last few decades, transforming into an upper-middle-income economy.

Why had Mauritius excelled while South Africa has been moving in the opposite direction over the last decade?

The main reason, said Daily Investor, was its business-friendly policies, stable political environment and low tax rates, which made it attractive for businesses to establish on the island. Mauritius had implemented a prudent development plan that was backed by political stability, solid institutional frameworks and low levels of corruption.

The government had reduced taxes to a maximum of 15% for individuals and companies and, in some instances, effective tax rates as low as 3% were possible. There were also no capital gains taxes, no dividend taxes, no donation duties, and no exchange controls in Mauritius.

The development plans had worked exceptionally well with Mauritius’s economic growth rate far outpacing its peers in Southern Africa. In comparison, South Africa had created a hostile business environment with high taxes, onerous requirements and failing infrastructure.

As a result, many large South African businesses have headquartered in Mauritius. And capital has been flooding out of South Africa as businesses and individuals look to safeguard their wealth against the government.

The differences between the South African and Mauritian economies were most clearly illustrated by the GDP per capita over the last three decades, said Daily Investor.

Between 1996 and 2011, South Africa and Mauritius’ GDP per capita in US dollars had broadly tracked each other, but over the last decade South Africa’s GDP per capita had declined to USD6,694 in 2022 while Mauritius had climbed to USD10,104, creating a growing gap between the two countries.

This gap is also illustrated by the unemployment rate, with South Africa reaching 32.7% in December 2022, while the rate in Mauritius stood at 4.5%.

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