How Mauritians became richer than South Africans

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.

Mauritius is a small island state off the southeast coast of Africa with a population of 1.3 million and few natural resources.

Despite its location and size, the country’s economy has shown tremendous growth over the last few decades, making it an upper-middle-income economy.

It raises the question of why Mauritius excelled while South Africa has been moving in the opposite direction over the last decade.

The main reason is that Mauritius’ business-friendly policies, stable political environment, and low tax rates make it attractive for businesses to set up shop on the island.

The business-friendly environment results from the Mauritian government’s drive to grow the services sector of the economy.

Mauritius implemented a prudent development plan backed by political stability, solid institutional frameworks, and low levels of corruption.

The government slashed taxes to a maximum of 15% for individuals and companies. In some instances, taxes as low as 3% are possible.

There are also no capital gains taxes, no dividend taxes, no donation duties and no exchange controls in Mauritius.

The development plans worked exceptionally well. Mauritius’ economic growth rate far outpaced its peers in Southern Africa.

South Africa, in comparison, created a hostile business environment with high taxes, onerous requirements like BEE and affirmative action, and failing infrastructure.

Many large South African businesses have headquarters in Mauritius because of the more business-friendly environment.

Money has been flooding out of South Africa as businesses and individuals look to safeguard their wealth against the government.

International investors are also dumping the country. The JSE’s latest data showed a R103 billion net sale of shares from foreign traders in 2023.

The differences between the South African and Mauritian economies are clearly illustrated by the GDP per capita over the last three decades.

Between 1996 and 2011, South Africa and Mauritius’ GDP per capita in US dollars essentially tracked each other.

However, over the last decade, South Africa’s GDP per capita declined while Mauritius performed much better.

It created a growing gap between the two countries, illustrated in the chart below.