Report No. 92703-MU Public Disclosure Authorized MAURITIUS Systematic Country Diagnostic Public Disclosure Authorized June 25, 2015 Public Disclosure Authorized Public Disclosure Authorized MAURITIUS Government Fiscal Year January 1 – December 31 ABBREVIATIONS AND ACRONYMS ACP African, Caribbean and Pacific AfDB African Development Bank AGOA Africa Growth and Opportunity Act BoP Balance of Payment BPO Business Process Outsourcing CEB Central Electricity Board CHCL Cargo Handling Corporation Ltd. CHSC Cambridge Higher School Certificate COMESA Common Market for Eastern and Southern Africa CPE Certificate of Primary Education CPF Country Partnership Framework CPI Consumer Price Index CSC Cambridge School Certificate CSR Corporate Responsibility Program CWA Central Water Authority EEZ Exclusive Economic Zone EIA Environmental Impact Assessments EPZ Export Processing Zone EU European Union FAD Fishing Aggregating Devices FDI Foreign Direct Investment FTTH Fiber-to-the-home GDP Gross Domestic Product GER Gross Enrollment Rate HBS Household Based Survey HIC High Income Country HRMIS Human Resource Management Information System ICT Information and Communication Technology IFC International Finance Cooperation IMF International Monetary Fund IOC Indian Ocean Commission IPP Independent Power Producers kWh Kilowatt hour LPI Logistics Performance Index LPG Liquefied Petroleum Gas MIC Middle-Income Country MID Maurice Ile Durable M&E Monitoring and Evaluation MoFED Ministry of Finance and Economic Development i MUR Mauritian Rupee MW Megawatt NCD Non-Communicable Disease NEET Not in Education, Employment or Training NER Net Enrolment Rate NTA National Transport Authority NTB Non-Trade Barrier OECD Organization for Economic Cooperation and Development PBB Performance Based Budget PEFA Public Expenditure and Financial Accountability PDMA Public Debt Management Act PER Preliminary Environmental Reports PISA Program for International Student Assessment PPP Purchasing Power Parity RDA Road Development Authority ROA Return on Assets ROs Remuneration Orders Rs Rupees SACU Southern African Customs Union SADC Southern African Development Community SME Small and Medium Enterprise SOE State-Owned Entity SRM Social Register of Mauritius TEU Twenty-foot Equivalent Unit TFP Total Factor Productivity TTCI Travel and Tourism Competitiveness Index TVET Technical and Vocational Education and Training UAE United Arab Emirates UN United Nations UNCTAD United Nations Conference on Trade and Development USD United States Dollar WBI World Bank Institute WDI World Development Indicators WEO World Economic Outlook WGI World Governance Indicator Regional Vice President : Makhtar Diop Country Director : Mark R. Lundell Task Team Leader : Rafael Muñoz Moreno ii Contents Acknowledgements .................................................................................................................................... viii Executive Summary ..................................................................................................................................... ix Chapter 1. Understanding poverty and vulnerabilities in Mauritius: Sustaining the middle class ......... 1 1.1. Overview: Poverty, shared prosperity and the middle class in Mauritius ..................................... 1 1.2. Who are the poor and the less well off in Mauritius? ................................................................... 5 1.3. Looking ahead: how to tackle poverty while increasing the middle class .................................. 11 Chapter 2. Assessing the drivers of growth in Mauritius ..................................................................... 13 2.1. Mauritius growth model in perspective....................................................................................... 13 2.2. Recent growth trends .................................................................................................................. 17 2.3. Expanding trade and investment and deepening regional integration ......................................... 20 2.4. Building a more competitive private sector ................................................................................ 27 2.5. Sector opportunities to boost economic growth and employment creation ................................ 36 Chapter 3. Supporting Inclusion ........................................................................................................... 49 3.1. Health .......................................................................................................................................... 49 3.2. Basic resources and services ....................................................................................................... 52 3.3. Education and skills .................................................................................................................... 55 3.4. Financial assets ........................................................................................................................... 61 3.5. Social protection system ............................................................................................................. 61 3.6. Labor markets and employment creation .................................................................................... 64 Chapter 4. Sustaining Progress ............................................................................................................. 70 4.1. Natural Hazards and Climate Change ......................................................................................... 70 4.2. Unsustainable Infrastructure policies .......................................................................................... 75 4.3. Macroeconomic policies to achieve high income status ............................................................. 85 4.4. Public sector management: improving service delivery ............................................................. 98 Chapter 5. Summary of the challenges ............................................................................................... 108 5.1. Prioritization approach .............................................................................................................. 109 5.2. Prioritization: final results ......................................................................................................... 115 Annexes Annex 1: Statistics capacity ...................................................................................................................... 120 Annex 2: Recent analytical work .............................................................................................................. 122 Annex 3: Knowledge gaps ........................................................................................................................ 125 Annex 4: Map of the Republic of Mauritius ............................................................................................. 126 Boxes Box 1: Why the middle class is important for Mauritius .............................................................................. 5 Box 2: Analyzing alternative poverty and inequality outcomes ................................................................. 12 Box 3: Building consensus to accelerate reforms ....................................................................................... 16 Box 4: Is there a middle income trap? ........................................................................................................ 21 iii Box 5: The end of preferential access ......................................................................................................... 22 Box 6: The role of the public sector in spurring innovation ....................................................................... 29 Box 7: Brazil aquaculture - A success story ............................................................................................... 41 Box 8: The power of smart regulation and competition in fostering the ICT sector .................................. 48 Box 9: Examples of government interventions to boost skills .................................................................... 60 Box 10: Mauritius – Climate change and increasing natural hazards ......................................................... 72 Box 11: Mauritius: Embracing sustainable development on land and at sea .............................................. 74 Box 12: How vulnerable is the current account balance to external shocks? ............................................. 87 Box 13: Mauritius – Quickly aging population........................................................................................... 91 Box 14: Mauritius medium-term macroeconomic projections ................................................................... 98 Box 15: Understanding recent experiences of PPPs in Mauritius to improve future interventions .......... 102 Box 16: Examples of second generation public sector reforms in other countries ................................... 105 Tables Table 1: Main challenges identified for boosting competitiveness: moving from industrial policy to innovation policy ........................................................................................................................................ 48 Table 2: Main challenges identified for improving equity in public service delivery: ensuring employment opportunities for all ....................................................................................................................................