Paradise Gained: How Tiny Mauritius Became Africa's Most Competitive Economy

The island nation of Mauritius has claimed Africa's top spot in the annual Global Competitiveness Report for 2013-14, which was released Wednesday by the World Economic Forum, or WEF.

In a ranking system where market size carries weight, it may come as some surprise that such a tiny island could outperform every other economy on the continent. But Mauritius boasts one of Africa's most stable political systems and one of its most transparent business environments. It also stands out for its comparatively good infrastructure, low trade barriers and high levels of public education.

Many know Mauritius as a vacation spot; it boasts white sands, clear waters, palm trees and hundreds of hotels. This nation of 788 square miles, or 2,040 square kilometers, was uninhabited until the Dutch took it over in 1598. The slow influx of people eventually wiped out the famous dodo bird, which was native to the island, though plenty of rare plants and animals still exist there today. Mauritius -- which is located in the Indian Ocean some 1,200 miles from the southeastern coast of Africa -- is now home to 1.3 million people and a variety of ethnic groups, which coexist peacefully, although discrimination -- particularly against descendants of African slaves, many of whom live in poverty -- remains a problem.

Climate change is another concern. Some areas of the country are at risk of literally going under water as sea levels rise and extreme weather events like cyclones and floods become more frequent.

The WEF survey uses a scoring system in which countries are given up to seven points, based on quantitative and qualitative data and in accordance with 12 “pillars of competitiveness,” which include such items as infrastructure, education, financial market development, technological readiness and market size. Mauritius got a score of 4.45, putting it in first place in Africa and in 45th globally.

That bodes well for the future of this island nation. The report defines competitiveness as "the set of institutions, policies, and factors that determine the level of productivity of a country," adding that "a more competitive economy is one that is likely to grow faster over time." No wonder, then, that Mauritius has finally surpassed South Africa, which has traditionally placed first on the continent on this scale but is now relegated to second place, and 53rd worldwide, with a score of 4.37. (Last year, Mauritius achieved a rank of 54, with a score of 4.35, edging close to South Africa in 52nd place with 4.37.)

South Africa is still the continent's largest economy, and it's Africa's most prolific foreign investor. But its growth rate is now among the lowest on the continent -- in July, the International Monetary Fund downgraded the country's 2013 GDP growth projection from 2.8 percent to 2 percent. The economy is hamstrung by shrinking foreign currency reserves, recurring power outages, stubborn inflation, a persistent wealth gap and ongoing strikes in the mining, manufacturing and construction industries.

In contrast, Mauritius is unburdened by such complications. Its economy depended almost entirely on sugar cultivation until 40 years ago, but it has since diversified to include more agricultural products, textiles, tourism and financial services. The island has also lately emerged as a tax haven -- especially for Indian investors -- though this is a label its central bank governor has roundly rejected. Tax haven or not, the country is clearly taking advantage of its location in the middle of Indian Ocean, positioning itself to be a banking hub and connection point as trade between Africa and Asia ramps up. Today, GDP per capita in terms of purchasing power parity is at $15,649.

That's much better than most African countries' economies are doing. The continent generally performs poorly on WEF's annual list and took four of the five worst rankings this year. Globally, the bottom five performers for 2013-14 are Sierra Leone, Yemen, Burundi, Guinea and Chad, which came in last place with a score of 2.85. At the top of the list is Switzerland, followed by Singapore, Finland, Germany and the United States.