Along the highway heading north from Mauritius International Airport is a row of boxy apartment buildings hung with laundry. These are cramped quarters for thousands of foreign textile workers, most of them from Bangladesh.

The hotels also housed workers from Madagascar and Nepal, illustrating the dilemma facing Mauritius. As the economy became more successful, wages rose sharply, forcing manufacturers—at least in labor-intensive industries—to either relocate abroad or import cheap labor.

At its peak in 2000, manufacturing accounted for more than 21% of the island’s GDP. It has since halved to 10.7%. World Bank.

That’s partly because other industries — especially financial services — have expanded, producing the kind of economic diversification that economists see as beneficial. But it also reflects what some say is the inability of manufacturing to move up the value chain quickly enough.

“When you look at other countries like Singapore, Malaysia and Thailand, they also started with textiles, but they moved upmarket to higher value-added and more diverse products, including electronics,” said economic adviser and manufacturing Says expert Vinaye Ancharaz. He said that somehow Mauritius never fully made that leap.

Today, many textile manufacturers can only survive in Mauritius by hiring low-wage workers from abroad. Others have fled to Madagascar. Minimum wage legislation has pushed up local wages: Unemployment has jumped to more than 9% from 6.7% three years ago, in part due to a skills mismatch.

“Bangladesh people have helped us a lot,” Ancharaz said. “They’re doing jobs that Mauritians don’t want to do, not only in textiles, but also in seafood, and even in construction, which is abandoned by Mauritians.”

Mauritius’ economic take-off is built on manufacturing. Even in the last years of British rule, when the island’s economy was almost entirely dependent on sugar exports, the government tried to boost manufacturing.

Import substitution policies use tariff barriers to protect local producers, thereby encouraging domestic production of essentials from margarine to toilet paper.

The island’s sparse population—about 1.3 million—limits economies of scale. To increase competitiveness, the government has opened export processing zones, offering various taxes, credits and other incentives. This enables textile manufacturers to import cotton and fabric duty-free and export finished garments.

“The good thing about textiles is that it requires a low-skilled workforce, and we have an abundant workforce,” Ancharaz said of those early days. Gradually, manufacturers began sourcing fabrics locally and producing more sophisticated products, including high-priced knitwear.

“We are becoming more and more immersed in the textile industry, which inhibits diversification,” Ancharaz said. He argues that in recent years too much foreign direct investment has gone into luxury properties and not enough has gone into productive investment.

Ken Poonoosamy, chief executive of the Mauritius Economic Development Council, said there was more to manufacturing than its critics suggested. He points to other sectors, including fish processing (mainly canned tuna), jewellery and medical devices, as evidence that the industry is not standing still.

Located in the high-tech Ebene business park on the island, about 10 kilometers from the capital Port Louis, Natec Medical is a leading manufacturer of stents and balloon catheters. Poonoosamy said it was a niche area that benefited from Mauritius’ commitment to good infrastructure, a business-friendly environment and free higher education.

Ghanaian entrepreneur Fred Swaniker African Leadership University Campus On the island, Mauritius is a testament to the ease of doing business. “They really rolled out the red carpet,” he said. “This is a country that is serious about attracting foreign investors. . . I don’t see that anywhere else on the continent.”

Swaniker believes that the island’s development depends on its continued openness to a skilled workforce. “To really drive the next stage of economic development, they need to let in a wave of immigrants,” he said, recalling similar policies in Singapore. “The population is ageing, and it’s difficult to raise GDP without increasing the size of the workforce.”

Poonoosamy acknowledges the limitations of scale, but says one of the island’s biggest competitive advantages is its market access. “We are one of the countries that have benefited the most from it Agoa,” he said of the African Growth and Opportunity Act, which allows many Mauritian goods to enter the United States duty-free.

In 2019, Mauritius became the first to conclude trade agreement with China it is African Continental Free Trade Area.

Such agreements, Poonoosamy said, would allow local manufacturers to more aggressively enter new areas, including pharmaceuticals, nutraceuticals (food-based substances such as vitamin supplements, often derived from herbal remedies, used to treat and prevent disease) and automotive- part.

Ravin Dajee, managing director of Bank Absa Mauritius, said the island needed to reduce its current account deficit, which widened from 5.4% of GDP in 2019 to 15.6% last year.

With tourists returning and manufacturers fulfilling orders – boosted by a weaker rupee, which makes Mauritius’ exports more competitive – the deficit should narrow quickly. The International Monetary Fund expects this year’s figure to be 6.8%.

Manufacturing can achieve a long-term recovery, but this should not be premised on a weaker rupee, Dajee said. “I don’t want to build an industry on this,” he said. “We want to build our competitive advantage in product quality and reliability.”