Putting it to Work in Developing Countries - Nathan Associates

complicated sequence of approvals and permits
to establish foreign affiliates, develop land and
sites, connect to utilities, and obtain and renew
operating certificates (e.g., import-export permits,
health and safety inspection, labor inspections).
Costs and delays tend to be especially
excessive for FDI-related land and site development
permits, and for import-export operating
requirements.
To reduce the red tape that gives rise to these
costs, reforms have concentrated on administrative,
technological, and institutional solutions:
simplified paperwork, e-registrations and virtual
interagency networks, and one-stop shops.
Though useful, these solutions are not necessarily
automatic or complete. For example, the success
of one-stop shops is a function of clearly
defining mandates and lines of authority to
FDI and EPZs Spur Economic Development in Mauritius
critical to industrial diversification, employ-
ment, export development, and economic
growth. Indeed, Mauritius demonstrates
how inward FDI can stimulate domestic
investment and outward FDI—the country’s
main exporters are now national com­
panies.
In the 1990s, manufacturing FDI declined
as labor productivity stagnated, labor costs
rose, preferential trade access ended, and
cheaper regional alternatives emerged. The
changing dynamics of the garment/textile
sector prompted South-South investment
outflows (e.g., to Madagascar) and an
expansion of investment in the services sec­
tor. In the late 1990s, offshore services
began to provide high value-added jobs for
bankers, lawyers, accountants, and others.
As of December 2001, some 14,000 offshore
entities were registered with the
Mauritian government, many targeting
commerce in India and South Africa. The
government is now using investment incen­
tives to promote the services sector. Its
“Cyber City Project,” for example, is
designed to attract call centers (especially
serving Francophone Africa, France, and
Canada); companies investing in call centers
and back office services can opt for a uniform
corporate tax rate of 5 percent.
Its development prospects famously
declared grim by economist and Nobel Prize
winner James Meade in the early 1960s,
Mauritius has confounded expectations to
become a rare success in sub-Saharan Africa.
Mauritius’ transformation from a monocrop
sugar economy to a diversified one—
services now make up 70 percent of
GDP—reflects a development path cat-
alyzed by FDI.
In 1970, the country was the first in Africa
to adopt an Export Processing Zone (EPZ)
act. On the basis of its access to markets
under the Lome Convention, peaceful multicultural
social relations, very high rate of
multilingual literacy, and incentives such as
tax holidays, Mauritius convinced Chinese
and other Asian investors to locate textile
and garment production in its EPZs. The
country’s EPZ strategy took root and flour-
ished in the 1970s and again in the 1980s, a
boom time for multinationals moving into
the zones to take advantage of generous
incentives offered by the government (e.g.,
reduced corporate tax rates). Instrumental
in consolidating support for the EPZ and
shaping related policy was the Mauritius
Export Development and Investment
Authority (MEDIA), now known as the
Mauritius Industrial Development
Authority (MIDA). FDI in the EPZ proved
63