The World Trade Organization recently published a case study on Mauritius as part of their series on “Managing the Challenges of WTO Participation.” The problems and solutions highlighted in this case study, especially in regards to tourism, are lessons for island-nations around the world. In 2004, the Director-General of WTO asked “one can quite reasonably ask — why did a small island developing country, heavily dependent on a single commodity, vulnerable to terms of trade shocks, situated at a considerable distance from world markets and faced with a rapidly growing population, succeed — where other better endowed countries failed?”

The answers, according to the case study, can be found in tow key factors: 1) Institutional arrangements that facilitate and stimulate public-private sector cooperation and 2) the people of Mauritius are not afraid to keep experimenting and taking chances on new ideas.

For tourism to Mauritius, the solutions have been particularly fruitful: International arrivals increased from 935,000 to 965,000 and international tourism receipts from US$1 billion to US$1.4 billion from 2010 to 2011. A US$395 million stimulus package by the Ministry of Finance was also certainly a boost to the sector.

The following is the tourism section from the case study (highlighting added):

Overcoming the disadvantages of distance: the tourism sector

Supachai pinpointed a major element when he alluded to the problems faced by small developing countries thousands of kilometres away from major markets. It is obvious to anyone who has had the pleasure of visiting Mauritius that it has major potential as a tourist destination. The question is how to develop this potential in a way that yields the maximum benefit for the local economy. Through an interview with Patrick Y.-S. Yip Wang Wing, Director of Fiscal Policies in the Mauritian Ministry of Finance and Economic Development, it was possible for the author to gain an understanding of what has been a successful strategy to develop a high-margin tourism business.

Some considerations pertinent to this strategy are obvious. Mauritius is a relatively small island with a fragile ecology and environment, especially in areas likely to attract tourist investment. Additionally, apart from the South African market, Mauritius is a long way from sources of tourists who are likely to spend significant amounts of money on beach holidays. Yip Wang Wing explained that an analysis of this situation had led to the adoption of what seems to be a very sensible national policy in respect of tourism. The official policy calls for ‘low-impact’, ‘high-end’ tourism, meaning that the ecological/environmental impact of tourist sites will be low and the tourists visiting Mauritius are likely to spend generously while in the country.

Given the cost of travelling the long distance to Mauritius combined with the many other competing destinations between Mauritius and its main cash market (Europe) that are easier and cheaper to reach, Mauritian planners recognized from the outset that the attraction of the facilities provided would need to outweigh the cost of the air tickets. In order to realize its goal, the country needs to be able to attract the investment in the tourism sector that will produce high-quality resorts.

Yip Wang Wing explained the investment strategy along the following lines.

Where the government approves a significant investment in the tourism sector, accelerated investment and amortization allowances form an important part of the package from the start. Approved investors in the sector can amortize the cost of their investment in hotel facilities over just four years and in the case of new investments, 25% of the investment is allowed as a special credit.

In addition to making certain that the right investors put the desired levels of investment into tourism in Mauritius, governmental authorities also concern themselves with the standard of service in approved high-end hotels. Measures are in place to ensure that qualified hotel schools and hotel management certification requirements are met in the sector.

These efforts appear to be paying handsome dividends. Tourism is the third-largest source of foreign exchange earnings for the country and accounts for around 8% of total employment.(2) Mauritius’ international airport has registered a growth in passenger traffic of around 8% a year in recent years.(3)

Source: Mauritius — Managing the Challenges of WTO Participation