China Elevates Trade in Africa, Starting With Mauritius

As 2021 kicked off, the China-Mauritius free trade agreement came into force. The deal, finalized in October 2019, is China’s first with an African country. China and Mauritius have pledged to reach zero tariffs on 96.3 percent and 94.2 percent, respectively, of traded items between the two within seven years. The deal will also see Mauritius open up more than 130 sub-sectors in services to China, including communications, education, finance, tourism, culture, transportation, and traditional Chinese medicine.

The entry into force of this bilateral FTA coincided with the launch of the African Continental Free Trade Area (AfCFTA), which established a free trade area among 54 of the 55 African Union nations (of which Mauritius is a member). The AfCFTA is designed to boost intra-Africa goods and capital flows. However, given the continental deal’s strict rules of origin provisions, linkage between the bilateral pact and the AfCTFA may curb the impact of the China-Mauritius deal. Nevertheless, Beijing is likely to build off of this first African trade agreement and use it as a model for future arrangements with other African nations.

Mauritius is an island nation in the Indian Ocean with a population of around 1.26 million and an economy that ranks 131st according to GDP calculations based on purchasing power parity. It has signed three other bilateral trade agreements with Pakistan, Turkey, and the United States. So what made the country desirable to be China’s first free trade partner in Africa?

For one, the World Bank classified Mauritius as a high-income country in 2020 for the first time, and marked it as the second high-income economy in Africa alongside Seychelles. The economy in Mauritius has undergone a significant transformation from one based on agriculture to a more diversified economy dependent on financial services, textiles and apparel, tourism, and sugar. It also continues to restructure with growing fish processing and information and communications technology sectors. Still, the country’s primary challenges in transitioning to a knowledge-based economy are a lack of connectivity, skills shortages, and limited access to new sources of growth and capital. As an island nation that lies within the cyclone area of the Indian Ocean, its development is also vulnerable to risks tied to climate change.

Given Mauritius’ current economic trajectory and its needs to sustain economic transformation, deepening trade ties with China seems to be in alignment with the country’s economic goals. “Using the FTA strategically to encourage the development of Mauritius’s agro-processing industry could not only reduce outgoing expenditures on food but also could increase the volume of its processed, value-added agricultural exports to, for instance, China’s huge consumer market of 1.4 billion people and ultimately, drive economic growth and job creation,” writes Rosie Wigmore, a policy analyst at Development Reimagined.

The China-Mauritius FTA, however, is just one dimension in the economic relationship between the two countries. Bilateral trade has been on the climb in the last decade. Chinese imports from Mauritius grew from $6 million in 2009 to $38.8 million in 2019 while Chinese exports to the island expanded from $292 million to $804.5 million over the same period. Chinese investments in Mauritius are also on the rise, with foreign direct investment stock jumping from $26.81 million in 2005 to $1.29 billion in 2019. Meanwhile, China also extended 21 loans to the island between 2000 and 2018, amounting to $489 million, according to data from the China-Africa Research Initiative at Johns Hopkins School of Advanced International Studies. The financing was primarily allocated to the transport, water, communication, health, and trade sectors. As trade, investments, and loans diversify, the number of Chinese workers in Mauritius (a point of contention in Chinese development projects abroad) has contracted, with fewer than 1,000 by the end of 2019.

Mauritius is also home to a Chinese special economic zone (SEZ), which has ultimately been viewed as a success, supporting finance, tourism, and trade and producing textiles, garments, machinery, and high-tech products. The Jinfei Economic Trade and Cooperation Zone in Mauritius was one of seven such projects announced by then-Chinese President Hu Jintao at the 2006 Forum on China-Africa Cooperation (FOCAC), alongside SEZs in Egypt, Ethiopia, Nigeria, and Zambia.

Moreover, Mauritius has signed a double taxation agreement with China and is a signatory to Xi Jinping’s flagship Belt and Road Initiative as part of the Maritime Silk Road. Chinese firms are involved in several dozen projects on the island, including funding for construction of a new terminal at the international airport and the Jinfei Smart City project in the SEZ, just a few kilometers from the island’s capital of Port Louis.

Economic incentives may not have been the only factor in China’s choice to expand engagement with Mauritius and to negotiate this FTA. During President Xi Jinping’s visit in 2018, he described the relationship between Mauritius and China as that of a “good friend and good partner” and said that the two share similar development processes. Analysts have also framed Mauritius as a “gateway” or “middleman” for investment and trade between China and continental Africa. Others still have suggested that this overlooks the strategic value that the island has. As such, a trade pact “may facilitate a strong security relationship as the PLAN [China’s navy] expands into the Indian Ocean and is seeking locations where it can resupply,” says former U.S. Ambassador David H. Shinn, an adjunct professor at the George Washington University.

The China-Mauritius FTA is likely only the first such deal between China and African countries. Shinn notes that other countries with Chinese special economic zones (Egypt, Ethiopia, Nigeria, and Zambia) and that have signed double taxation agreements with China (Algeria, Botswana, Egypt, Ethiopia, Nigeria, Uganda, Seychelles, South Africa, Sudan, Tunisia, Zambia, and Zimbabwe) may be likely candidates for future trade negotiations. Egypt and Seychelles, because of their role in the Maritime Silk Road and potential security implications, may particularly present themselves as contenders for FTAs with China.

African countries, including Mauritius, are likely to face tough economic challenges rebounding from the ramifications of the global COVID-19 pandemic. In the short term, China will likely seek to rectify any negative sentiment that resulted from China’s treatment of the African diaspora amid the outbreak of COVID-19. In 2021, China is poised to further integrate African partners into the BRI, notably trying to capitalize on linking two regional trade networks: AfCTA and Asia’s recently concluded Regional Comprehensive Economic Partnership (RCEP), writes Eric Olander of the China Africa Project. Additional FTAs are likely to remain one of several Chinese tools used to deepen the ties between Beijing and its African partners.

These FTAs not only engender practical cooperation, says Shinn, but are also “part of China’s program to become a global economic power.”